Show of HandsShow of Hands

Show Of Hands June 6th, 2014 1:47pm

To try to discourage saving/"hoarding" of money and stimulate the economy, the European Central Bank has lowered its interest rates below zero, meaning other banks will have to pay to deposit money in ECB. Should the U.S. Fed do the same?

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Comments: Add Comment

demandside New Keynesian
06/11/14 6:10 am

Apparently all the Republicans on this app have PhDs in economics.
wait ..... they don't.
then they shouldn't be so fast to blindly refute ACTUAL economists

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Captainbstring Biden is a Clown
06/10/14 7:24 am

So.....Stuffing the mattress has become fashionable again?!?!?! You can not force people to spend their money. Europe is so stupid.

Kirk3605 Shreveport
06/10/14 5:15 pm

Europe is not stupid. The ECB is trying to force spending by people so that governments will abandon austerity budgets which always force € hoarding. Give the EU a chance to see if this grand experiment a chance.

Captainbstring Biden is a Clown
06/10/14 9:54 pm

Europe is stupid. We had to save them 2x

dogsaver new Jersey
06/08/14 7:48 pm

In the 80's savings account had interest as high as 9% and credits cards maxed out at 14%. People spent more money because they had more! Now savings is 1/4% if your lucky. Credit cards are 31%! No wonder people are poor! Things have to change!

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manny2000
06/08/14 5:16 pm

No!!! We are not Europe, no matter how much this Admin is trying to make it so. Our monetary, trade, and energy systems are not integrated and subject to the issues of Europe (directly). We need to get back to the basics of capitalism.

Kirk3605 Shreveport
06/10/14 5:18 pm

We should merge with Canada and Mexico under a parliamentarian system of government, however. North America would be able to properly compete globally.

jestana My Minds Eye
06/07/14 8:40 pm

Makes ZERO difference. At 1-2% on current long term deposits banks are only used as secure places for deposits. Banks put the deposits to work through loans. The cash is not kept in a sock!

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Happy Hong Kong
06/07/14 8:45 am

I think that the amount of excess funds that we're talking about is under 100 million for the entire continent of Europe. Peanuts. If the ECB were to directly purchase government debt (which is trickier in Europe) reducing yields on those...

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Happy Hong Kong
06/07/14 8:49 am

... Securities then you might be able to stimulate the banks to lend to consumers. This is called QE when the Fed does it.

TomM
06/07/14 5:31 pm

Agree with you. What do you think the effect of this will be?

Happy Hong Kong
06/07/14 5:56 pm

Hey Tom,

I expect that the banks will buy up more of their respective countries national debt, but the amount of change is miniscule.

TomM
06/07/14 6:02 pm

I agree. This effort is very odd to me. The governments are trying to get banks to not give out risky loans and boost capital etc. but on the other hand they are now trying to force them into risky business. It doesn't make sense to me.

evoecon nearest binary system
06/07/14 6:58 am

Desperate economic theory requires desperate actions. The cause and effect will be to reduce loan capacity and have people "convert" to an underground type of "currency" for their labor or products.

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Fungamer2817 Intriguing...
06/07/14 4:59 am

The only thing the FED should do is get rid of itself.

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corino Utah
06/07/14 9:31 am

Done that a few times, never worked out so good.

GrandmaALiCE Rocky Mtns aerial view
06/07/14 7:29 am

Bob, did you notice the words, "other banks," in the question. This isn't about your deposit accounts.

TomM
06/07/14 5:33 pm

It's not true you wouldn't feel it, if it happened here. Banks will always push the cost over to customers.

sanstarr
06/06/14 9:53 pm

You're holding MY money. And earning interest on it. Why should it cost me??? I'll pull it out and put it in a coffee can buried underground so I won't lose it to the democrats...

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GrandmaALiCE Rocky Mtns aerial view
06/07/14 5:58 am

This doesn't affect deposit accounts. It's about banks depositing excess funds in the central bank. Reread the question and read the article.

corino Utah
06/07/14 9:33 am

Banks will respond in 2 ways.
1) make riskier loans
2) pass costs to consumers
Coffee can looks like a safe investment to me.

theNobamist Silicon Valley
06/06/14 9:45 pm

Who's saving money? The reason people aren't putting money into banks isn't because of the interest rate. It's because they don't have any money.

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corino Utah
06/07/14 9:36 am

If they did have money, banks aren't a good long term (more than a month or two) investment strategy.

MrTony Colorado
06/06/14 9:08 pm

The targeted banks are sitting on large amounts of cash, customer deposits. Banks usually loan out a percentage of these deposits and these loans allow people to buy stuff.

MrTony Colorado
06/06/14 9:11 pm

The government wants the banks to loan out the money to stimulate the European economy. If they don't they may have to pay a fine based on how much money they are sitting on. It has nothing to do with the US or Obama!

MrTony Colorado
06/06/14 9:13 pm

The fine is based on a percentage of holdings so it is not called a tax, just an interest rate.

corino Utah
06/07/14 9:39 am

Didn't we get into this because banks made too many risky loans?

corino Utah
06/07/14 9:41 am

Wonder if a european bank would refinance my US homeloan? After all I'm safer than sovereign debt.

Ivyra Earth
06/06/14 8:20 pm

Why is the government discouraging things? People should be free to choose what they want to do with their money. And they should be given the space to do so.

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GrandmaALiCE Rocky Mtns aerial view
06/07/14 6:00 am

This isn't about people doing things with their money. It has to do with movement of money among banks. Reread the question and read the article.

TomM
06/07/14 5:35 pm

Not correct. It's all about the central bank trying to force banks to not park money at the central bank. They want banks to make more loans. It's all about government intervention.

daricksta georgia
06/06/14 7:49 pm

un definitely a no on this one

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RJ1969 SoCal
06/06/14 6:25 pm

Savings accounts? Pffffft! What a joke! Have you actually seen the return on equities these past few years?

RJ1969 SoCal
06/06/14 6:24 pm

No. Totally unnecessary. People don't credit how (relatively) healthy our economy actually is.

mothernature
06/06/14 6:56 pm

lolol..We all need to use SOH for our medical needs...comparative shopping ...Will surely work more efficiently than ACA!;)

MKK San Diego
06/06/14 8:39 pm

Curious by what measurement it's healthy?

mothernature
06/06/14 4:51 pm

I can't stimulate the economy. I'm too busy trying to pay for new health care out of pocket expenses!

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RJ1969 SoCal
06/06/14 6:24 pm

You weren't paying for healthcare before?

mothernature
06/06/14 6:31 pm

yes...state employee...example: mammogram for past 12 years totally covered..totally ..no matter what, including stereotactic biopsy $0 paid out of pocket. This year: mammo with extra views and 2 ultrasounds. . $605 out of pocket

RJ1969 SoCal
06/06/14 6:34 pm

I would have done that for you for 1/2 price.

mothernature
06/06/14 6:40 pm

lol...then for the price u could have done it and I would have had a nice trip in the process!

RJ1969 SoCal
06/06/14 6:51 pm

Round trip airfare to SanDiego is included in my exam price.

theNobamist Silicon Valley
06/06/14 9:48 pm

RJ that's cool! Thanks for supporting people needing mammograms. I have 2 people in my family who are BC survivors.

lisalashe
06/06/14 4:14 pm

Did anyone actually read the article? Reading is fundamental!

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TomM
06/06/14 4:15 pm

I cannot get to it, I keep getting an error. Did you have any luck?

TomM
06/06/14 4:17 pm

And now it of course worked, sorry.

themahcrow Louisiana
06/06/14 4:01 pm

.01% interest (my interest rate with Chase) is close enough to 0.

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ImNotTony asks...
06/06/14 2:27 pm

I'm not thinking the US fed should do same as Europe; sovereignty ya kno

TrojanMan Los Angeles
06/06/14 2:07 pm

I feel banks will be even more likely to not spend money since it will cost them extra due tk the negative rates. They will really keep their money in the vaults

XposeBarak Out There
06/06/14 1:52 pm

No...to stimulate the economy the fed should retire

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mcroles Austin, Texas
06/06/14 1:02 pm

That is an absurdly stupid policy, almost as idiotic as "quantitative easing." Only economic "experts" could concoct such counterproductive policies

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CoffeeNow Powderpuff Leftist
06/06/14 12:30 pm

People think becoming a politician means you magically get gifted knowledge of micro and macro economics

THIS IS A POOR ASSUMPTION

These people are clueless!

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closed Lol hi
06/06/14 12:26 pm

My god, what a stupid rule. What in the hell were they thinking? This one is right up there on my stupid shit list

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bnnt Los Angeles
06/06/14 11:56 am

That's the most idiotic idea ever. Anybody that voted yes should seriously take a world economics course.

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Jack14 Massachusetts
06/06/14 11:32 am

No, we need to raise interest rates, not lower them.

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CTYankee!!! Connecticut
06/06/14 9:35 am

I'm not sure this makes any sense

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EarlyBird Portland
06/06/14 9:34 am

Let's sit back and see what happens.

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TomM
06/06/14 10:58 am

You may have to wait a long time. Japan has been waiting 20 years or so for improvements to the economy.

shemmes dc
06/06/14 9:14 am

We need a reason for the big boys (figure of speech) to put money in US banks anyway

Zod Above Pugetropolis
06/06/14 9:14 am

Maybe, but I don't think it will be necessary here. Our Fed has attempted to encourage lending a different way, and the rates are already so low they are probably not the reason banks aren't lending as much as we'd like to see.

Zod Above Pugetropolis
06/06/14 9:15 am

Best line in the entire piece: "Kahn says the ECB needs to take much more aggressive actions, similar to those taken by the U.S. Federal Reserve." I agree.

rons WOKE is sick
06/06/14 8:53 am

Whatever the EU does do the opposite!

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Diogenes FreeMeBe
06/06/14 8:46 am

That would completely devastate the middle class...I guess we'll see it soon if it accomplishes that goal. European policy is always the Beta for the US.

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jvc1133 61535
06/06/14 8:26 am

That whole exercise was confusing.

CoffeeNow Powderpuff Leftist
06/06/14 8:25 am

Disincentivize saving?


I wasn't sure if this was a serious question or not...

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itsOkay no longer answering here
06/06/14 8:01 am

No. We need to develop a culture of saving, self-reliance, and independence. People should try their very best to provide for themselves during retirement instead of relying on the government.

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GrandmaALiCE Rocky Mtns aerial view
06/06/14 8:11 am

Okie, this doesn't affect people's deposit accounts. It is about banks that deposit excess funds into the central bank.

Maj Worth Economist
06/06/14 8:13 am

Money that moves helps the economy. If I pay you $5 for something, you're gonna give that to someone else, who'll use it to pay someone else, and hopefully on to someone else... Essentially that $5 became $20 of value in the economy.

Maj Worth Economist
06/06/14 8:14 am

The entire point (ninja-ed by Grandma Alice!) is to keep banks from having the money and get it back out to people who will keep moving it around.

TomM
06/06/14 8:25 am

Get money out to people means lower lending standards. Do you really want lose credit like before the financial crisis again.

itsOkay no longer answering here
06/06/14 8:39 am

My bad. I misread it. Still don't like it though.

Maj Worth Economist
06/06/14 12:56 pm

No. It doesn't mean lower lending standards. With all the creativity and inventiveness that humans and their corporations have, they can find a way to lend money.

Maj Worth Economist
06/06/14 12:56 pm

Case in point: PayPal. PayPal has a lending program called Working Capital for business accounts. It has no credit check, but looks at transaction history. Payments are automatically deducted.

Maj Worth Economist
06/06/14 12:57 pm

Low lending standards were not the biggest reason why the economy crashed. Bad lending practices, and the trade in synthetic CDOs were even greater contributors to the problem.

TomM
06/06/14 5:03 pm

Low lending standards = bad lending practices. CDOs are just bundled mortgages. Who holds the mortgages doesn't affect whether those who borrowed can pay.

TomM
06/06/14 5:07 pm

Paypals program is very limited. You can get 8% of your PayPal revenue and it's automatically paid through PayPal revenue. The loans are not made by PayPal, they only act as a middleman. The loans are made by a bank, check if you don't believe me.

Arananthi Literal Ninja
06/06/14 9:15 pm

@TomM: CDOs are just bundled mortgages -- but that's not what Maj said. Maj said *synthetic* CDOs, which are entirely different unregulated circle-jerk financial instruments that are basically single-handedly responsible for the crash. Look it up.

TomM
06/06/14 9:19 pm

I know what a synthetic CDO is (sorry didn't see that at first). It does even less to affect the mortgage. As long as you pay your mortgage you're good. Synthetic CDOs only affected investors. Famously John Paulson made a lot of money, investors

TomM
06/06/14 9:20 pm

...taking the other side of the bet, lost money. It has nothing to do with the mortgage market. The market crashed when the house of cards collapsed because there were no more investors willing to invest in the pyramid scheme.

TomM
06/06/14 9:23 pm

I read several books about the financial markets and the crisis etc. "The greatest trade ever" about John Paulsons trades in CDOs is one of my favorites.

Arananthi Literal Ninja
06/06/14 9:34 pm

Then you understand that the problem is that synthetic CDOs allowed banks to massively over-leverage themselves to the tune of thousands of dollars owed per dollar in reserve AND were so massively opaque that when the CDO market collapsed, the banks

Arananthi Literal Ninja
06/06/14 9:35 pm

were literally unable to determine who they might actually owe all that money to, right? And that they stopped lending because they were collectively paranoid that the mysterious entities that they owed those debts to might come to collect?

Arananthi Literal Ninja
06/06/14 9:36 pm

And that when banks stop lending to each other, they're basically forced to stop lending to everyone else, too, because they can't get overnight funds to cover the loans they're supposed to be making? So literally the sCDO caused the entire debacle?

Arananthi Literal Ninja
06/06/14 9:38 pm

Literally billions of dollars simply vanished out of the economy because of one obscure financial instrument that the government was told it didn't need to oversee, and stupidly we trusted the financial sector to not screw us. Has that EVER worked?

TomM
06/07/14 6:45 am

That's like saying a horse is losing a race due to the betting that goes on in the club house. The mortgages collapsed when the subprime customers couldn't leverage any more. CDOs have existed many years but the market really expanded in 2006.

TomM
06/07/14 6:55 am

The problems in the housing markets started with the subprime mortgages, federally mandated affordable housing policies and low standards promoted by Fannie Mae and Freddie Mac.

Arananthi Literal Ninja
06/07/14 8:25 am

You're right: the problem *started* where you think it did. But it didn't end there; if the banks weren't massively overleveraged due to the synthetic CDO trade, the housing bubble pop would have been annoying, but nowhere near the disaster it was.

Arananthi Literal Ninja
06/07/14 8:28 am

sCDOs say: "bet on whether this bundle of mortgages will default or not," but there's nothing about them that's actually directly derived from any mortgages themselves. There's nothing, for example, that says you can only have one sCDO per mortgage.

Arananthi Literal Ninja
06/07/14 8:30 am

So the banks took out *tens of thousands* of bets on the same mortgage -- so they literally had one real financial transaction (the mortgage) that had several hundred thousand dollars riding on it. Those $1000s were counted as assets, but when almost

Arananthi Literal Ninja
06/07/14 8:32 am

every single sCDO gamble was suddenly lost all at once (when the housing bubble popped), all those banks suddenly had literally trillions of dollars of (bullshit) 'assets' disappear from their ledger sheets to be replaced by debt to unknown parties.

Arananthi Literal Ninja
06/07/14 8:33 am

That's what turned a relatively mundane housing bubble into the Great Recession: we literally had trillions of apparent dollars vanish from the economy into literally nowhere. They just disappeared, because unbeknownst to anyone but the Wall Street

Arananthi Literal Ninja
06/07/14 8:35 am

jagoffs who created the synthetic CDO in the first place, those dollars *never actually existed*. They were sold as legitimate financial instruments to everyone, and they weren't. So yes, the housing bubble popped, but sCDOs caused the Recession.

TomM
06/07/14 5:28 pm

I cannot agree with you. CDOs made subprime loans possible to sell to investors. The fact that someone wanted to bet additional money didn't lead to the crisis, that was just stupid betting, wall streets version of Las Vegas.

TomM
06/06/14 7:59 am

When banks have cash left on longer terms, they buy bonds etc. On a day to day basis they park it at the central bank and get less interest but still some. It used to be that when they had money on a midterm basis, they would lend to other banks.

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TomM
06/06/14 8:00 am

.. Since the financial crisis, they have been concerned about health of other institutions and the interest rate is so low it doesn't make money, so they have increasingly been parking money at the central banks. Some believe if you set these short

TomM
06/06/14 8:00 am

.. short term interest rates to negative, the banks will lend to each other and to businesses/people. They are in effect forcing banks to lower credit standards. Personally I doubt banks are willing to do that. They're going to let the customers pay

TomM
06/06/14 8:00 am

.. pay through lower interest on deposits (probably zero) and fees. They still remember how much money they lost during the financial crisis and won't let it happen again.

Diknak Ohio
06/06/14 7:42 am

Let's see if it works before blindly following.

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GrandmaALiCE Rocky Mtns aerial view
06/06/14 7:22 am

The poll is misleading. "... if a bank wants to deposit surplus cash with the central bank, it won't earn any interest. ... the bank will ... have to pay the ECB for the privilege of parking its cash." This has NOTHING to do with personal deposits.

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TomM
06/06/14 7:47 am

I don't see what's misleading?

GrandmaALiCE Rocky Mtns aerial view
06/06/14 8:08 am

Tony must have edited the question. Originally, it said, "Depositors will have to pay to put money into banks." (I copied that into one of my earlier comments.) Now, the question correctly reflects the facts in the article. Other banks ...

GrandmaALiCE Rocky Mtns aerial view
06/06/14 8:09 am

.... (not depositors) have to pay to deposit money into the central bank. I'm glad the question is fixed now.

TomM
06/06/14 8:23 am

Oh I never saw that.

suppressedID IMEACH BIDEN
06/06/14 7:11 am

We're essentially @ zero already.

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Jack14 Massachusetts
06/06/14 11:33 am

You are correct. Short term is around 0.1%

Arananthi Literal Ninja
06/06/14 7:11 am

This is an absolutely ingenious idea. We should be following suit.

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TomM
06/06/14 7:48 am

It's essentially forcing banks to lower lending standards. We end up going back to the standards from before the financial crisis. Do you really want that again.

bethanyq Ess Eff
06/06/14 8:18 am

Why does it force banks to lower lending standards? The central bank isn't trying to push them in any particular direction in terms of HOW they lend/spend money - just trying to discourage leaving money hanging around.

TomM
06/06/14 9:43 am

What else can they do. They of course will make loans when they believe they can make money on a deal. They will make as many deals they can until the return doesn't make sense and they will park the rest of the money in the central bank. When they

TomM
06/06/14 9:44 am

..have to pay to park money they will find another place for it. Getting more out in the economy can only mean taking the next best deals available i.e. Lower lending standards.

bethanyq Ess Eff
06/06/14 12:28 pm

Or it could mean simply better management/less laziness. There is absolutely no reason to simply assume that financial institutions always make the smartest/best investment decisions they can. None.

Diogenes FreeMeBe
06/06/14 2:03 pm

I see it as a consolidation of central banking. Set the small guys up to fail due to circular laws that penalize the small banks either way. No loans=penalty to govt. Borrow money=pay the central banks.

bMyComrade Stumptown
06/06/14 7:08 am

People need to take lessons in reading comprehension. This is the banks of banks! This doesn't mean Joe Schmoe will have to withdraw his money, it means banks won't be making money by just hoarding their cash. They'll have to use it and that will...

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bMyComrade Stumptown
06/06/14 7:10 am

... help to get the European economy moving again. Banks will be encourages to make business loans, and part of the plan is for the central bank to loan banks more money to make business loans. Money circulation helps the economy, nor hoarding.

GrandmaALiCE Rocky Mtns aerial view
06/06/14 7:23 am

I agree with you, except that the actual question, as Tony wrote it, is misleading. I only figured out the actual facts by reading the article in the link.

TomM
06/06/14 7:50 am

It also means banks most likely will lower interest rates to zero if they are not already zero. They will add fees etc. Then they can either park the money somewhere else such as the bond market or the can lower lending standards. That's like going

TomM
06/06/14 7:51 am

..back to the standards from before the financial crisis. Do you really want that again.

bethanyq Ess Eff
06/06/14 8:20 am

Commercial banks already do this for the poorest individuals and to some extent for the middle class too, through fees and requirements to maintain a certain balance to avoid a charge for maintaining a deposit account, etc. And interest rates have

bethanyq Ess Eff
06/06/14 8:20 am

been functionally zero for half a decade now. Frankly it's about damn time they started getting a taste of their own medicine.

TomM
06/06/14 9:46 am

This will only make it worse. More people will get fees. Fees will be higher. Interest will not only functionally be zero, they will be zero.

bMyComrade Stumptown
06/06/14 9:53 am

So the federal reserve than has to, in essence, pay banks not to be shitty to people. They can be fiscally solvent without doing all that, but they choose to. Saying this will make it worse is just saying that they have no qualms shorting others.

TomM
06/06/14 9:56 am

Banks are in business to make money. If they cannot make money parking the money at the central bank they will find another way. Only customers you and I can pay.

bethanyq Ess Eff
06/06/14 12:30 pm

Tom, I MIGHT buy that as a reason not to do it if there were any indication at all that a more generous policy from the Fed translated into better treatment of consumers by the banks. It doesn't. Banks charge fees based on what they can charge, not

bethanyq Ess Eff
06/06/14 12:31 pm

based on what the fed does. If the fed bumped interest rates sky high, the banks wouldn't increase interest purely out of goodwill. They would do it if and only if enough consumers moved their money out of the banks and into bonds in response to the

bethanyq Ess Eff
06/06/14 12:32 pm

higher rates. Same thing basically applies in reverse here, which means the effect will be negligible since most people who hold funds in government bonds do so as part of a diverse portfolio. Because of the low interest rates, they aren't much of an

bethanyq Ess Eff
06/06/14 12:33 pm

alternative to standard deposit accounts as it is - so consumers don't have much to move back into banks such that an increase in demand could pay for an increase in costs.

crewsmissle Florida
06/06/14 7:06 am

What an absolute disgusting idea.

cato Santa Barbara, California
06/06/14 7:03 am

Socialism always fails.

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RossDMands Miami Township, OH
06/06/14 7:00 am

Wow. That's a great way to get everyone to withdrawal all their cash. Then, they'll all get robbed. Sounds like a great economic boom for thieves.

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bethanyq Ess Eff
06/06/14 7:02 am

The CENTRAL bank. Not commercial banks. It's the equivalent of a reason not to invest in t-bills (a safe, low-interest investment). It's nothing to do with consumer deposit accounts.

GrandmaALiCE Rocky Mtns aerial view
06/06/14 7:40 am

You are correct, but the question is poorly written, IMO. I only figured out the facts, by reading the article. The question refers to depositors. "Depositors will have to pay to put money into banks."

TomM
06/06/14 7:52 am

It will also lower rates for us if they are not already zero and add new fees. So it will likely have that effect. Banks have to make the money up somewhere.

GrandmaALiCE Rocky Mtns aerial view
06/06/14 8:14 am

Tony has fixed the question now. People should now be reading it correctly.

Rosebud Ohio
06/06/14 6:59 am

So much for borrowing. What a terrible idea.

Rosebud Ohio
06/06/14 7:03 am

And by that I mean (figured I'd clarify) how can they lend if they don't have the money? I know I wouldn't deposit money if I had to pay on it. No sane company would either. And who gets the fine?
Does it only apply to banks though?

bMyComrade Stumptown
06/06/14 7:11 am

Borrowing is fine, in fact the central bank is offering loans to banks to loan to businesses. This is to get the banks to stop hoarding money and instead use their money in the economy.

TomM
06/06/14 7:54 am

Use money in the economy means lowering lending standards and give loans to those with lower credit. Do you really want that.