0% interest rate - possible?

eeja

Blah99 wrote: »

No, no, no. You're perpetuating disinformation. The negative interest rates were only applied to non-Swiss residents who were holding large amounts of francs. They were speculating on the currency and the Swiss government levied the negative interest as a charge. People were happy to pay it because they expected to make significant returns as their currency appreciated.

The idea of a negative interest is an economic trick mainly used by banks to reduce their exposure to "home" currency (see the Japan example).

Correct in one respect only ! Indeed it applied to non Swiss residents only . The 'speculation' excuse is always used by governments when they want to justify breaking normal rules..cf the Thai government's putting a ten percent tax on money (more than £10k) entering the country ( March 07-March '08)
I did make it clear that it was to prevent money coming into the country.
Japan has never imposed a tax on funds entering nor have they ever imposed a negative interest rate !

eeja

cos69 wrote: »

Surely ZERO or 1 to 2% interest rates mean we can borrow money very cheaply to spend and stoke up inflation; is counter productive. Also attracts "carry trade" to borrow UK money and gamble with in countries where interest rates are higher.

On the other hand if it helps the governments election prospects, then we will get zero interest rates

Ah ..thats the catch ! You wont be able to access the cheap money as the banks will not lend it to you !!!
Interest rates in the USA are currently a few percent but try and borrow at less than 10 % and you will probably have to put up your home or shares as security .

fusionblue

If i recall the interest rates in Japan was 0% for a while and it didn't seem to be stimulating the economy.

eeja

fusionblue wrote: »

If i recall the interest rates in Japan was 0% for a while and it didn't seem to be stimulating the economy.

Correct and they have had deflation and stagnation ever since !

earlgrey_3

eeja wrote: »

Correct and they have had deflation and stagnation ever since !

More interesting perhaps is what would have happened in Japan without that policy.

Japan lifted itself from the ashes of WW2 by taking the industries of Europe and the US using a cheap and willing labourforce. Unfortunately for them, once their living standards rose there were other countries in the region with far cheaper labour including Taiwan and China.

iltisman

I wonder how 0% would work with premium bonds, the rate is poor at the best of times,perhaps they will pinch £50 off you if your number does not come up.

purch

In the 70's the Swiss had a negative interest rate !

There have been negative interest rates on Swiss Franc deposits many many times, not only for the period referred to in the 1970's

purch

they have had deflation and stagnation ever since !

They had deflation and stagflation before then as well, not just since then !!!

eeja

purch wrote: »

There have been negative interest rates on Swiss Franc deposits many many times, not only for the period referred to in the 1970's

Was talking from personal experience in those postings . Anyway not too many people would have wanted to place deposits in Swiss banks in those days as it was illegal for a UK resident to own a single Swiss franc unless authorised under the Exchange Control Act 1939 which is still in force by the way as it was only suspended in 1978 not repealed . (it was Nigel Lawson who announced this, remember ?)
Now Henry Allingham, Harry Patch and Bill Stone..they lived during the period of the gold standard and if they were not from poor families might even have handled gold sovereigns and half sovs !!

purch

the Exchange Control Act 1939 which is still in force by the way as it was only suspended in 1978 not repealed . (it was Nigel Lawson who announced this, remember ?)

The Exchange Control Act was removed from the Statute Book (ie.repealed not suspended) on 24th October 1979.

In 1978 the UK still had a Labour Government and "Fatty" Lawson was just an opposition MP, rather than Financial Secretary to the Treasury as he was in Thatchers first Government.

My point about negative Swiss interest rates was not disagreeing with you, rather pointing out that this is not a unique nor undesirable situation.