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Japan introduces negative interest rate

imabench
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1/30/2016 12:41:28 AM
Posted: 10 months ago
http://www.marketwatch.com...

Nerds, explain
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Peepette
Posts: 1,242
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1/30/2016 12:53:38 AM
Posted: 10 months ago
At 1/30/2016 12:41:28 AM, imabench wrote:
http://www.marketwatch.com...

Nerds, explain

I'd like to hear ResponsiblyIrresponsible weigh in on this one. I just shook my head when I read about this.
RainbowDash52
Posts: 294
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1/30/2016 2:22:03 AM
Posted: 10 months ago
At 1/30/2016 12:41:28 AM, imabench wrote:
http://www.marketwatch.com...

Nerds, explain

Banks are providing their users with a service by storing their users' money for them and are therefor able to charge a fee for that service, and in this case they are choosing to charge for that service by applying a negative interest rate to the money deposited.
Peepette
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1/30/2016 3:01:31 AM
Posted: 10 months ago
At 1/30/2016 2:22:03 AM, RainbowDash52 wrote:
At 1/30/2016 12:41:28 AM, imabench wrote:
http://www.marketwatch.com...

Nerds, explain

Banks are providing their users with a service by storing their users' money for them and are therefor able to charge a fee for that service, and in this case they are choosing to charge for that service by applying a negative interest rate to the money deposited.

That portion of it I understand. How this will boost the Japanese economy is the part that is unclear. Whenever money is taken out of consumers' hands it typically slows the economy.
RainbowDash52
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1/30/2016 3:30:08 AM
Posted: 10 months ago
At 1/30/2016 3:01:31 AM, Peepette wrote:
At 1/30/2016 2:22:03 AM, RainbowDash52 wrote:
At 1/30/2016 12:41:28 AM, imabench wrote:
http://www.marketwatch.com...

Nerds, explain

Banks are providing their users with a service by storing their users' money for them and are therefor able to charge a fee for that service, and in this case they are choosing to charge for that service by applying a negative interest rate to the money deposited.

That portion of it I understand. How this will boost the Japanese economy is the part that is unclear. Whenever money is taken out of consumers' hands it typically slows the economy.

Government policies don't necessarily result in boosting the economy.
Rosalie
Posts: 4,628
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1/31/2016 8:31:54 PM
Posted: 10 months ago
This is from R.I. The Econ Messiah.

Notwithstanding the recent, albeit questionable, claims that I contribute "very little" to this website (which originated from non other than an utterly irrelevant, intellectually challenged member who hasn"t the slightest leg to stand on and should really shut his fcking mouth), I have a few thoughts:

To Bench:

So, what the Bank of Japan is doing is charging banks a penalty rate on new holdings of excess reserves"or what banks hold in addition to required reserves from, say, demand deposits. It"s a bit of a hedge, much like the SNB, in that not all excess reserves are actually subject to that penalty rate, which suggests that, much like the case of the ECB/Denmark/Switzerland/the ECB, this won't actually be passed on to deposit rates. In other words, the effect will be largely muted.

The idea of a negative nominal interest rate is an interesting one that we didn"t really know until recently could actually be done. The reason is that the short-term nominal interest rate is the opportunity cost of holding cash. So if I have a dollar in my pocket, I'm forgoing the, say, 30 basis points of interest I could earn by investing it in a savings. If I expect interest rates to go up in the future, I"m not going to sit on or save that money: I"m going to spend it, and then smooth my consumption such that I'm saving more in the future because in the future I won't have the ability to borrow at a negative interest rate.

But, the point that I glanced over a bit is how exactly this is possible: if I"m holding a dollar in my pocket, I should be earning 0 interest. (Inflation is obviously irrelevant, because I would take that same hit from a savings account, which is why higher inflation expectations tend to bid up nominal rates.) So, in that sense, if deposit rates are negative, aren't I better off just holding cash? Money demand would rise, cash holdings would rise, the money multiplier would fall, velocity would fall, NGDP would fall, etc etc etc. Sounds like a crappy deal.
" We need more videos of cat's playing the piano on the internet" - My art professor.

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Rosalie
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1/31/2016 9:26:57 PM
Posted: 10 months ago
At 1/31/2016 8:31:54 PM, Rosalie wrote:
This is from R.I. The Econ Messiah.

Notwithstanding the recent, albeit questionable, claims that I contribute "very little" to this website (which originated from non other than an utterly irrelevant, intellectually challenged member who hasn"t the slightest leg to stand on and should really shut his fcking mouth), I have a few thoughts:


To Bench:

So, what the Bank of Japan is doing is charging banks a penalty rate on new holdings of excess reserves"or what banks hold in addition to required reserves from, say, demand deposits. It"s a bit of a hedge, much like the SNB, in that not all excess reserves are actually subject to that penalty rate, which suggests that, much like the case of the ECB/Denmark/Switzerland/the ECB, this won't actually be passed on to deposit rates. In other words, the effect will be largely muted.

The idea of a negative nominal interest rate is an interesting one that we didn"t really know until recently could actually be done. The reason is that the short-term nominal interest rate is the opportunity cost of holding cash. So if I have a dollar in my pocket, I'm forgoing the, say, 30 basis points of interest I could earn by investing it in a savings. If I expect interest rates to go up in the future, I"m not going to sit on or save that money: I"m going to spend it, and then smooth my consumption such that I'm saving more in the future because in the future I won't have the ability to borrow at a negative interest rate.

But, the point that I glanced over a bit is how exactly this is possible: if I"m holding a dollar in my pocket, I should be earning 0 interest. (Inflation is obviously irrelevant, because I would take that same hit from a savings account, which is why higher inflation expectations tend to bid up nominal rates.) So, in that sense, if deposit rates are negative, aren't I better off just holding cash? Money demand would rise, cash holdings would rise, the money multiplier would fall, velocity would fall, NGDP would fall, etc etc etc. Sounds like a crappy deal.

Continued to bench:

But, no, and here"s why: there"s a cost to holding cash. You could see that as the cost of storing the cash, buying a safe, guarding that safe, etc. That cost sounds rather trivial unto itself, but in reality it probably subtracts about a percentage point or two from the so-called "effective lower bound," or the point at which people would be indifferent between holding their money as cash versus in a savings account.

So there is some negative nominal rate of interest that"s actually tenable and which people, at least theoretically, would be willing to accept. There"s a lower bound in nominal terms, but contrary to the experience of the last seven years, it"s not zero. The international experience even suggests that the associated costs are far less severe than we might have thought, though it might be different in the U.S. due to the vast influence of money-market funds, which rely on interest income and could pose a considerable threat to the soundness of the financial system.
" We need more videos of cat's playing the piano on the internet" - My art professor.

"Criticism is easier to take when you realize that the only people who aren't criticized are those who don't take risks." - Donald Trump
Rosalie
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1/31/2016 9:28:00 PM
Posted: 10 months ago
At 1/30/2016 2:22:03 AM, RainbowDash52 wrote:
At 1/30/2016 12:41:28 AM, imabench wrote:
http://www.marketwatch.com...

Nerds, explain

Banks are providing their users with a service by storing their users' money for them and are therefor able to charge a fee for that service, and in this case they are choosing to charge for that service by applying a negative interest rate to the money deposited.

No, this is not a service fee. Service fees are entirely separate from the nominal interest rate received on a savings account. Banks can charge whatever fees they"d like, and that"s hardly an "endogenous" variable in the same vein as the nominal policy rate. That"s a price like anything else"say, buying corn"and it"s sticky. Nominal interest rates are not. -joey
" We need more videos of cat's playing the piano on the internet" - My art professor.

"Criticism is easier to take when you realize that the only people who aren't criticized are those who don't take risks." - Donald Trump
Rosalie
Posts: 4,628
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1/31/2016 9:29:21 PM
Posted: 10 months ago
At 1/30/2016 12:53:38 AM, Peepette wrote:
At 1/30/2016 12:41:28 AM, imabench wrote:
http://www.marketwatch.com...

Nerds, explain

I'd like to hear ResponsiblyIrresponsible weigh in on this one. I just shook my head when I read about this.

First, there is no guarantee this is "taking money out of consumer"s hands." Experience suggests that this won"t actually be applied to savings accounts, in which case the average person isn"t actually paying a negative rate of interest"though, in reality, there"s hardly much of a difference when they"re earning only 20 bps, anyway, especially if the negative policy rate were able to boost nominal incomes and employment prospects.

Second, recall that lower-income consumers save far less and consume far more. This applies to saving, and effectively subsidizes consumption. On balance, net debtors benefit immensely (especially if this is able to reinvigorate inflation or drive up home values or something of that sort, which would overwhelmingly benefit lower-income people).

Third, the logic is that this is not only a signaling device"i.e., a credible commitment by the Bank of Japan to boosting employment, inflation and nominal incomes"but an instrument unto itself at actually stimulating investment and consumption activity. There are a lot of possible channels through which that can happen: lower short-term rates will feed through to lower long-term rates through the expectations channel, which encourages consumption and investment; people intertemporarily substitute, as I explained earlier, and choose consumption today over savings; inflation expectations might rise, which pushes down real interest rates and, again, encourages people to spend and investment; the exchange-rate might plummet (and the yen did fall, considerably, after this announcement), which encourages exports, etc.

I tend to underemphasize the so-called "interest rate channel," but given a scenario where the neutral real interest rate " the inflation-adjusted rate of return at which unemployment would be at its natural level and inflation stable " is probably considerably negative on a global basis, a negative policy rate is a reasonable, albeit somewhat untested, way to attempt to hit it.- R.I
" We need more videos of cat's playing the piano on the internet" - My art professor.

"Criticism is easier to take when you realize that the only people who aren't criticized are those who don't take risks." - Donald Trump
RainbowDash52
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1/31/2016 9:42:12 PM
Posted: 10 months ago
At 1/31/2016 9:28:00 PM, Rosalie wrote:
At 1/30/2016 2:22:03 AM, RainbowDash52 wrote:
At 1/30/2016 12:41:28 AM, imabench wrote:
http://www.marketwatch.com...

Nerds, explain

Banks are providing their users with a service by storing their users' money for them and are therefor able to charge a fee for that service, and in this case they are choosing to charge for that service by applying a negative interest rate to the money deposited.


No, this is not a service fee. Service fees are entirely separate from the nominal interest rate received on a savings account. Banks can charge whatever fees they"d like, and that"s hardly an "endogenous" variable in the same vein as the nominal policy rate. That"s a price like anything else"say, buying corn"and it"s sticky. Nominal interest rates are not. -joey

What do you mean by the price of buying corn is "sticky" but the nominal interest rates are not "sticky"?
slo1
Posts: 4,361
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1/31/2016 10:55:33 PM
Posted: 10 months ago
At 1/30/2016 12:41:28 AM, imabench wrote:
http://www.marketwatch.com...

Nerds, explain

1. Banks have deposits with Bank of Japan, generally their reserve cash they need to have on hand.
2. If they put more in their bank of Japan account than they are required to have in reserve they will have to pay Bank of Japan interest.
3. This email encourages the member banks to do something else with that money, such as loan it to businesses or consumers, thus helps generate economic activity.
Rosalie
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2/1/2016 6:54:47 AM
Posted: 10 months ago
At 1/31/2016 9:42:12 PM, RainbowDash52 wrote:
At 1/31/2016 9:28:00 PM, Rosalie wrote:
At 1/30/2016 2:22:03 AM, RainbowDash52 wrote:
At 1/30/2016 12:41:28 AM, imabench wrote:
http://www.marketwatch.com...

Nerds, explain

Banks are providing their users with a service by storing their users' money for them and are therefor able to charge a fee for that service, and in this case they are choosing to charge for that service by applying a negative interest rate to the money deposited.


No, this is not a service fee. Service fees are entirely separate from the nominal interest rate received on a savings account. Banks can charge whatever fees they"d like, and that"s hardly an "endogenous" variable in the same vein as the nominal policy rate. That"s a price like anything else"say, buying corn"and it"s sticky. Nominal interest rates are not. -joey

What do you mean by the price of buying corn is "sticky" but the nominal interest rates are not "sticky"?

"The Fed has control over nominal interest rates: that's a price "of capital, surely, and it's procyclical in much the same way as the price of corn, but it's separable in the sense that prices and wages in the economy are sticky in log terms: you might negotiate a nominal wage contract whereby your wage grows by X percent per year. An employment, in the same vein, may purchase from a supplier with built-in inflation compensation, in which case he hasn't much leverage to move prices up and down -- and there's menu costs, and etc., associated with actually changing prices. That prices are sticky is the reason that moving interest rates up and down impacts real variables, like employment. So while the nominal interest rate, for all practical purposes (and I've often argued it's a bit more technical than this, but we can make do with this textbook explanation for now), is "set" by the Fed, the price of corn is set strictly by fundamentals. So there's more leverage in moving nominal interest rates up and down, or in adjusting the rate of interest on a savings account than there is in adjusting service fees up and down. The two aren't the same, even though it's true that a negative deposit rate would similarly constitute a cash outflow for consumers (though, as I explained earlier, negative policy rates have *not* translated into negative deposit rates in the countries in which they've been implemented, so they are separable)I".--R.I
" We need more videos of cat's playing the piano on the internet" - My art professor.

"Criticism is easier to take when you realize that the only people who aren't criticized are those who don't take risks." - Donald Trump
ColeTrain
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2/3/2016 3:27:26 PM
Posted: 10 months ago
At 2/1/2016 6:54:47 AM, Rosalie wrote:
"The Fed has control over nominal interest rates: that's a price "of capital, surely, and it's procyclical in much the same way as the price of corn, but it's separable in the sense that prices and wages in the economy are sticky in log terms: you might negotiate a nominal wage contract whereby your wage grows by X percent per year. An employment, in the same vein, may purchase from a supplier with built-in inflation compensation, in which case he hasn't much leverage to move prices up and down -- and there's menu costs, and etc., associated with actually changing prices. That prices are sticky is the reason that moving interest rates up and down impacts real variables, like employment. So while the nominal interest rate, for all practical purposes (and I've often argued it's a bit more technical than this, but we can make do with this textbook explanation for now), is "set" by the Fed, the price of corn is set strictly by fundamentals. So there's more leverage in moving nominal interest rates up and down, or in adjusting the rate of interest on a savings account than there is in adjusting service fees up and down. The two aren't the same, even though it's true that a negative deposit rate would similarly constitute a cash outflow for consumers (though, as I explained earlier, negative policy rates have *not* translated into negative deposit rates in the countries in which they've been implemented, so they are separable)I".--R.I

Can't wait til he's back. :P
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PointBlunt
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2/3/2016 4:30:56 PM
Posted: 10 months ago
At 1/31/2016 10:55:33 PM, slo1 wrote:
At 1/30/2016 12:41:28 AM, imabench wrote:
http://www.marketwatch.com...

Nerds, explain

1. Banks have deposits with Bank of Japan, generally their reserve cash they need to have on hand.
2. If they put more in their bank of Japan account than they are required to have in reserve they will have to pay Bank of Japan interest.
3. This email encourages the member banks to do something else with that money, such as loan it to businesses or consumers, thus helps generate economic activity.

Succinctly explained, with the third point being the salient one. It's designed to discourage idle money, and the negative interest rates impacts upon the returns the banks can offer to their investors and/or the banks profit margin, with 0.75% interest being a substantial cut into either or both. Banks don't like losing investors or profits. So, use it or lose it.
ResponsiblyIrresponsible
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2/4/2016 1:01:50 AM
Posted: 10 months ago
It feels SO GOOD to be back.

I have a few fairly lengthy posts planned, though Hannah very kindly posted my thoughts on this move by the BOJ. Slo1 is pretty much on the money as well.
~ResponsiblyIrresponsible

DDO's Economics Messiah
ResponsiblyIrresponsible
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2/4/2016 1:09:46 AM
Posted: 10 months ago
At 2/3/2016 4:30:56 PM, PointBlunt wrote:

Succinctly explained, with the third point being the salient one. It's designed to discourage idle money, and the negative interest rates impacts upon the returns the banks can offer to their investors and/or the banks profit margin, with 0.75% interest being a substantial cut into either or both. Banks don't like losing investors or profits. So, use it or lose it.

So the story on bank profit margins is actually a bit more complex than that.

Let's start with the base case of a negative policy rate, wherein the negative rate on reserves is *not* passed onto deposits. Banks borrow short (think demand deposits) and lend long (think long-term mortgages or what have you).

The short end, or asset side, of their balance sheet doesn't move, but there's probably a sizable downward movement in the long end, because long-term interest rates are largely a function of the expected path of future short-term rates. The one caveat, of course, is that easier money today means a higher equilibrium rate, on balance, which shifts the future path of the policy rate upward--if it succeeds, we could see long rates rise, in which case banks would obviously benefit (and this is generally the case amid improving fundamentals). But, all else equal, a flattening yield curve (generally associated with a policy easing--notwithstanding the fact that it usually flattens amid a tightening cycle as well) chips into bank profits, while a steepening yield curve is bullish.

If it's passed onto deposit rates, that's a whole different story: people will literally be paying banks to hold onto their money. That would obviously incentivize people to, on balance, hold more cash, though it might also get them to pour their money into longer-term, potentially more risky assets--which is obviously on net positive. Of course, if long rates fall, banks take a hit, but the transmission from the fall in term premia to a rise in the neutral rate would, again, shift the path of rates upward, which is bullish all around.
~ResponsiblyIrresponsible

DDO's Economics Messiah
ResponsiblyIrresponsible
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2/4/2016 1:12:30 AM
Posted: 10 months ago
At 1/31/2016 9:42:12 PM, RainbowDash52 wrote:
What do you mean by the price of buying corn is "sticky" but the nominal interest rates are not "sticky"?

It was probably a pretty bad example on my part, but the main argument I was trying to make was relative price rigidity: obviously there are different types of prices in the economy, some more rigid than others. A servicing fee to banks is going to be there no matter what, and is a cost of doing business with a bank--but that's distinct from a negative interest rate: you'd pay the servicing fee *on top* of the penalty rate to the bank (though, again, in most cases this steps are not passed onto consumers in the form of negative deposit rates--at least not yet).
~ResponsiblyIrresponsible

DDO's Economics Messiah
PointBlunt
Posts: 11
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2/4/2016 2:07:44 PM
Posted: 10 months ago
At 2/4/2016 1:09:46 AM, ResponsiblyIrresponsible wrote:
At 2/3/2016 4:30:56 PM, PointBlunt wrote:

Succinctly explained, with the third point being the salient one. It's designed to discourage idle money, and the negative interest rates impacts upon the returns the banks can offer to their investors and/or the banks profit margin, with 0.75% interest being a substantial cut into either or both. Banks don't like losing investors or profits. So, use it or lose it.

So the story on bank profit margins is actually a bit more complex than that.

Let's start with the base case of a negative policy rate, wherein the negative rate on reserves is *not* passed onto deposits. Banks borrow short (think demand deposits) and lend long (think long-term mortgages or what have you).

The short end, or asset side, of their balance sheet doesn't move, but there's probably a sizable downward movement in the long end, because long-term interest rates are largely a function of the expected path of future short-term rates. The one caveat, of course, is that easier money today means a higher equilibrium rate, on balance, which shifts the future path of the policy rate upward--if it succeeds, we could see long rates rise, in which case banks would obviously benefit (and this is generally the case amid improving fundamentals). But, all else equal, a flattening yield curve (generally associated with a policy easing--notwithstanding the fact that it usually flattens amid a tightening cycle as well) chips into bank profits, while a steepening yield curve is bullish.

If it's passed onto deposit rates, that's a whole different story: people will literally be paying banks to hold onto their money. That would obviously incentivize people to, on balance, hold more cash, though it might also get them to pour their money into longer-term, potentially more risky assets--which is obviously on net positive. Of course, if long rates fall, banks take a hit, but the transmission from the fall in term premia to a rise in the neutral rate would, again, shift the path of rates upward, which is bullish all around.

Strangely, I have the impression that when someone asks something to be explained to them, they usually don't want the complicated version, they want the "in a nutshell" version without the economic jargon.
ResponsiblyIrresponsible
Posts: 12,398
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2/4/2016 2:14:38 PM
Posted: 10 months ago
At 2/4/2016 2:07:44 PM, PointBlunt wrote:
At 2/4/2016 1:09:46 AM, ResponsiblyIrresponsible wrote:
At 2/3/2016 4:30:56 PM, PointBlunt wrote:

Succinctly explained, with the third point being the salient one. It's designed to discourage idle money, and the negative interest rates impacts upon the returns the banks can offer to their investors and/or the banks profit margin, with 0.75% interest being a substantial cut into either or both. Banks don't like losing investors or profits. So, use it or lose it.

So the story on bank profit margins is actually a bit more complex than that.

Let's start with the base case of a negative policy rate, wherein the negative rate on reserves is *not* passed onto deposits. Banks borrow short (think demand deposits) and lend long (think long-term mortgages or what have you).

The short end, or asset side, of their balance sheet doesn't move, but there's probably a sizable downward movement in the long end, because long-term interest rates are largely a function of the expected path of future short-term rates. The one caveat, of course, is that easier money today means a higher equilibrium rate, on balance, which shifts the future path of the policy rate upward--if it succeeds, we could see long rates rise, in which case banks would obviously benefit (and this is generally the case amid improving fundamentals). But, all else equal, a flattening yield curve (generally associated with a policy easing--notwithstanding the fact that it usually flattens amid a tightening cycle as well) chips into bank profits, while a steepening yield curve is bullish.

If it's passed onto deposit rates, that's a whole different story: people will literally be paying banks to hold onto their money. That would obviously incentivize people to, on balance, hold more cash, though it might also get them to pour their money into longer-term, potentially more risky assets--which is obviously on net positive. Of course, if long rates fall, banks take a hit, but the transmission from the fall in term premia to a rise in the neutral rate would, again, shift the path of rates upward, which is bullish all around.

Strangely, I have the impression that when someone asks something to be explained to them, they usually don't want the complicated version, they want the "in a nutshell" version without the economic jargon.

That notwithstanding, the "in a nutshell" version often leaves out important context and in most cases (with your post being one) makes generalizations that are simply not true--not to mention that bank profits are virtually irrelevant to the transmission of a negative interest rate to the Japanese economy.
~ResponsiblyIrresponsible

DDO's Economics Messiah
PointBlunt
Posts: 11
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2/4/2016 2:58:14 PM
Posted: 10 months ago
At 2/4/2016 2:14:38 PM, ResponsiblyIrresponsible wrote:
At 2/4/2016 2:07:44 PM, PointBlunt wrote:
At 2/4/2016 1:09:46 AM, ResponsiblyIrresponsible wrote:
At 2/3/2016 4:30:56 PM, PointBlunt wrote:

Succinctly explained, with the third point being the salient one. It's designed to discourage idle money, and the negative interest rates impacts upon the returns the banks can offer to their investors and/or the banks profit margin, with 0.75% interest being a substantial cut into either or both. Banks don't like losing investors or profits. So, use it or lose it.

So the story on bank profit margins is actually a bit more complex than that.

Let's start with the base case of a negative policy rate, wherein the negative rate on reserves is *not* passed onto deposits. Banks borrow short (think demand deposits) and lend long (think long-term mortgages or what have you).

The short end, or asset side, of their balance sheet doesn't move, but there's probably a sizable downward movement in the long end, because long-term interest rates are largely a function of the expected path of future short-term rates. The one caveat, of course, is that easier money today means a higher equilibrium rate, on balance, which shifts the future path of the policy rate upward--if it succeeds, we could see long rates rise, in which case banks would obviously benefit (and this is generally the case amid improving fundamentals). But, all else equal, a flattening yield curve (generally associated with a policy easing--notwithstanding the fact that it usually flattens amid a tightening cycle as well) chips into bank profits, while a steepening yield curve is bullish.

If it's passed onto deposit rates, that's a whole different story: people will literally be paying banks to hold onto their money. That would obviously incentivize people to, on balance, hold more cash, though it might also get them to pour their money into longer-term, potentially more risky assets--which is obviously on net positive. Of course, if long rates fall, banks take a hit, but the transmission from the fall in term premia to a rise in the neutral rate would, again, shift the path of rates upward, which is bullish all around.

Strangely, I have the impression that when someone asks something to be explained to them, they usually don't want the complicated version, they want the "in a nutshell" version without the economic jargon.

That notwithstanding, the "in a nutshell" version often leaves out important context and in most cases (with your post being one) makes generalizations that are simply not true--not to mention that bank profits are virtually irrelevant to the transmission of a negative interest rate to the Japanese economy.

Oh FFS! Every forum has one, and it took no time at all to find you.

Look, you didn't say there was anything wrong with what was said initially, you just said it's more complicated. I agree, it is, but you obviously detected a note of sarcasm so now want to imply that what I said is wrong. It wasn't wrong the first time, so it's not wrong the second time, you're just being churlish and want to show-off what you have studied. Very good! Pity the world doesn't operate upon what you study, but by people making informed and uniformed choices, mainly uninformed and emotional.

Now that you have studied economics, study people, as people are money, not economic theory.

Answer me this one question...do you subscribe to "trickle down economics"?
ResponsiblyIrresponsible
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2/4/2016 3:11:17 PM
Posted: 10 months ago
At 2/4/2016 2:58:14 PM, PointBlunt wrote:
Oh FFS! Every forum has one, and it took no time at all to find you.

Lol.

I've contributed more to this forum than you ever will--that's why it took no time to find me; I live here, and people here value my opinion because I keep this forum alive--so I'd watch your fcking tone with me. You made a demonstrably incorrect statement, and I corrected you: that is going to fcking happen on a debating website, especially on something like monetary policy, which is pretty darn unequivocal. If you don't like it, get the hell out.

Look, you didn't say there was anything wrong with what was said initially, you just said it's more complicated.

I said it was more complicated than that and I corrected you. You said banks would necessarily take a hit to their profits, and I corrected you: that's not true. There are a lot of potentially countervailing forces and mechanisms through which long-term interest rates could rise. You'll note that, whereas I am attempting to engage you on substance, all you're doing is blowing hot air.

I agree, it is, but you obviously detected a note of sarcasm so now want to imply that what I said is wrong.

I'm not implying it, and this also isn't a change of position. My original post delineated why and to what extent you were wrong.

This was in my original post, for instance:

"The one caveat, of course, is that easier money today means a higher equilibrium rate, on balance, which shifts the future path of the policy rate upward--if it succeeds, we could see long rates rise, in which case banks would obviously benefit (and this is generally the case amid improving fundamentals)."

You wrote:

"and the negative interest rates impacts upon the returns the banks can offer to their investors and/or the banks profit margin, with 0.75% interest being a substantial cut into either or both."

What I wrote directly contradicts what you wrote. Therefore, I said IN MY OPENING POST that you were wrong.

This isn't complicated.

It wasn't wrong the first time, so it's not wrong the second time, you're just being churlish and want to show-off what you have studied.

LMFAO.

I'm churlish for pointing out that you're wrong.

No, it was wrong the first time and it was wrong the second time. It's demonstrably wrong, and even the literature proves that it is demonstrably wrong .

Take this paper by Chodorow-Reich, for instance:

http://www.brookings.edu...

It addresses the argument that easing cycles pose a threat to the profits of financial institutions and induce reaching for yield behavior: this paper demonstrates that those effects are temporary, and there are several mechanisms -- rise in prices of legacy assets, increase in state-contingent payoffs, etc. -- that lean directly against that. And that's WITH an overly tight policy that did not induce a rise in long-term rates. Similarly, when the Fed lifted, the yield curve should've steepened--but it didn't: long-term rates fell. That's not supposed to happen.

This isn't me "showing off what I studied," either, and you can cut the patronizing tone right now. I'm an expert on these topics, and I haven't any reason nor motive to prove that you or to anyone, because people know and respect that. Likewise, they can see right through your bullsh1t--namely, the fact that you're reacting to being proven wrong by attacking me.

If you weren't wrong, address my point: let's engage on substance. You're remarkably unwilling to do that. That's because you're (a) wrong, (b) out of your depth, and (c) don't know what you're talking about, so you see it fit to deflect. All you've done is complain that I DARED to provide an in-depth clarification, which happened to say, "It's more complex than you're letting on, and therefore you're wrong."

Very good! Pity the world doesn't operate upon what you study, but by people making informed and uniformed choices, mainly uninformed and emotional.

Yeah, you're right: people aren't rational and central banks don't always follow optimal policy, which is why long-term rates didn't rise following QE. I just mentioned that above, without even having gotten to this. My whole point is that economics is far more complex than you and many others are willing to admit, and attempting to distill it into tiny, false sound bytes to feign knowledge you dont't have isn't doing anyone any favors, and you should stop it.

Now that you have studied economics, study people, as people are money, not economic theory.

Sure, I'm interested in behavioral economics--but that's not what we're talking about. What's funny is, all economic models are "wrong," but they explain the world far better than anecdotes. There's evidence behind the things that I'm saying: unlike you, I'm not just spewing hot air.

Answer me this one question...do you subscribe to "trickle down economics"?

No, I don't.
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ResponsiblyIrresponsible
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2/4/2016 3:21:59 PM
Posted: 10 months ago
Well, it was great while it lasted: a substantive topic in the economics forum! Bench unfortunately jumped ship -- something about having a low attention span, a Frozen addiction, a Hillary Clinton fetish, and not speaking nerd, whatever that means -- but now we're stuck with totally unsubstantive sh1t because someone people can't deal with depth, context and being proved demonstrably wrong on a god-damned DEBATING website by people who know more than them

What's funny is I actually, in my time off, spent time debating people in the YouTube comments section.... because, for some fcking reason, I thought that was a good idea. They were exactly like him: persistent, strident, and totally convinced they were right, but no substance. They usually backed off because reality just did not comport with their views.

I mean... asking me if I support trickle down -- that's as patronizing as it gets. The short answer is "no," but if I were talking to someone competent, it would be a bit more complex: "No, I don't because the supply-side, usually, is a horrid way to combat AD shocks which comprise the bulk of U.S. recessions, but supply-side factors can be deleterious given a massive permanent shock, which is why no one wants a 90% tax rate."

If I wrote that--and mark my words, he will now that I have--he'll accuse me of "changing my mind," lmfao.... There's a reason economists regularly communicate with multiple hands, and I tried to communicate this in the MW thread: this sh1t is complex. It cannot be distilled into tiny sound bytes.

I also love his "all forums have someone like you!" snipe. If anyone wants me to take off and leave the forum in this guy's trusty hands, let me know.

What? 0 votes? Even the worthless members are voting no?

I rest my case.
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2/4/2016 3:38:18 PM
Posted: 10 months ago
Someone remind me to make a post later today on the yield curve. Some people, clearly, don't understand it.

I could probably even make it somewhat fancy, and create some graphs in Google sheets or something.
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walker_harris3
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2/5/2016 3:21:47 AM
Posted: 10 months ago
I mean... asking me if I support trickle down -- that's as patronizing as it gets. The short answer is "no," but if I were talking to someone competent, it would be a bit more complex: "No, I don't because the supply-side, usually, is a horrid way to combat AD shocks which comprise the bulk of U.S. recessions, but supply-side factors can be deleterious given a massive permanent shock, which is why no one wants a 90% tax rate."

Curious, why do you say supply side doesn't work? Coolidge, Truman, Kennedy, and Reagan used supply side, and the most prosperous times in our history followed.

One thing evident during the Coolidge administration is that his tax cuts on the top bracket from 60% to 45% to 25% actually steadily increased the tax burden on the "1%" from the beginning, and increased tax revenue at a very high rate from the beginning. The trends continued upwards throughout his entire Presidency.

Now, businesses and corporations are moving their HQ's and jobs to places where taxes are cheaper, leading to less jobs, less GDP and less tax revenue and more burden on the middle class. This is all because of our high taxes and regulations. Manufacturing is less than 10% of our economy now as well.

"It is a paradoxical truth that tax rates are too high and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now ... Cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus."

" President John F. Kennedy (November 20, 1962)
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2/5/2016 3:33:49 AM
Posted: 10 months ago
At 2/5/2016 3:21:47 AM, walker_harris3 wrote:
Curious, why do you say supply side doesn't work? Coolidge, Truman, Kennedy, and Reagan used supply side, and the most prosperous times in our history followed.

Because that falsely attributes causation, especially when we're looking at vastly different policy environments against varying shocks.

For one, Jack Kennedy wasn't a supply-sider: he took the top marginal rate from 91 to something like 73. He sold it as a supply-side cut, but in reality it was entirely demand-side--he also aimed at payrolls, if memory served, and wanted to jack up cap gains rates. Reagan's tax cuts weren't *nearly* as prosperous as people like to think: the 80s were entirely driven by the Fed: there was high unemployment when Reagan entered because the fed funds rate was 19% -- i.e., it was entirely Fed-induced to bring down inflation -- and then it came down steadily when they slashed rates aggressively. Not to mention, tax cuts amid high inflation, which was driven by a negative supply shock, are actually a good palliative. Tax cuts in response to a demand shock when they can be simply offset by monetary policy? Not so much.

One thing evident during the Coolidge administration is that his tax cuts on the top bracket from 60% to 45% to 25% actually steadily increased the tax burden on the "1%" from the beginning, and increased tax revenue at a very high rate from the beginning. The trends continued upwards throughout his entire Presidency.

Coolidge's term isn't something I know a whole lot about, but again it was a totally different policy environment in the 1920s -- and obviously bringing a 60% marginal rate down to 25% is far different from bringing a 35% rate or whatever down further. There very well could be benefits when the top rate is so high, but those would diminish over time. Regardless, the Fed controls demand.

Now, businesses and corporations are moving their HQ's and jobs to places where taxes are cheaper, leading to less jobs, less GDP and less tax revenue and more burden on the middle class. This is all because of our high taxes and regulations. Manufacturing is less than 10% of our economy now as well.

This is just flat wrong. Manufacturing has been tapering off since the 1970s, primarily as a function of globalization--which is the reason businesses are shipping jobs overseas, though the solution to that isn't a race to the bottom with Bangladesh into terms of slashing wages and labor protections. It's a secular trend and a change in the composition of the economy, which is only modestly impacted by tax rates unless you can actually demonstrate to me--and the burden is totally on you--that from the 1970s onward (when rates came down, by the way, drastically) tax policy actually managed to put a dent in productive capacity. Then rationalize that in the context of a NAIRU falling off the cliff, a rise (in the 90s) in trend NGDP growth and equilibrium real interest rates, etc. The parts of the story just don't fit together.

"It is a paradoxical truth that tax rates are too high and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now ... Cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus."

" President John F. Kennedy (November 20, 1962)

Again, from 91 percent to 73 percent, and he sold it as a supply-side cut to the business community, but it wasn't. Kennedy was no supply-sider. Even if he was, he'd be wrong, because the literature on this is not on his side.
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walker_harris3
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2/5/2016 6:26:19 AM
Posted: 10 months ago
At 2/5/2016 3:33:49 AM, ResponsiblyIrresponsible wrote:
At 2/5/2016 3:21:47 AM, walker_harris3 wrote:
Curious, why do you say supply side doesn't work? Coolidge, Truman, Kennedy, and Reagan used supply side, and the most prosperous times in our history followed.

Because that falsely attributes causation, especially when we're looking at vastly different policy environments against varying shocks.

For one, Jack Kennedy wasn't a supply-sider: he took the top marginal rate from 91 to something like 73. He sold it as a supply-side cut, but in reality it was entirely demand-side--he also aimed at payrolls, if memory served, and wanted to jack up cap gains rates. Reagan's tax cuts weren't *nearly* as prosperous as people like to think: the 80s were entirely driven by the Fed: there was high unemployment when Reagan entered because the fed funds rate was 19% -- i.e., it was entirely Fed-induced to bring down inflation -- and then it came down steadily when they slashed rates aggressively. Not to mention, tax cuts amid high inflation, which was driven by a negative supply shock, are actually a good palliative. Tax cuts in response to a demand shock when they can be simply offset by monetary policy? Not so much.
Right, but Kennedy always pointed to the long term supply-side pro-investment impacts of his proposed cuts. They weren't meant to be temporary Keynesian style cuts only for the recession at hand. Kennedy's Treasury Secretary Douglass Dillion even said a second term of Kennedy would have featured even further tax cuts. Also, Kennedy would've cut the gains tax from 25% to 19.5%.
https://www.youtube.com... Notice how Kennedy continues to stress "permanent." Also, If it were entirely demand sided, why would he lower the corporate taxes? The businesses fuel the supply, lower corporate tax=more supply to fuel the demand of the lowered taxes on the consumer and lower prices.

I don't know as much about the Fed as you do, so I can't really debate points about the fed to a huge extent, but I'm trying to learn and research more. High school doesn't really expand economic knowledge. I do know that stagflation was an entirely unique and rare situation, and that the only solution was what the Fed did late 70s early 80s. That's not to say that Reagan's policy had no influence on the prosperity of the 80s that led into the 90s.

One thing evident during the Coolidge administration is that his tax cuts on the top bracket from 60% to 45% to 25% actually steadily increased the tax burden on the "1%" from the beginning, and increased tax revenue at a very high rate from the beginning. The trends continued upwards throughout his entire Presidency.

Coolidge's term isn't something I know a whole lot about, but again it was a totally different policy environment in the 1920s -- and obviously bringing a 60% marginal rate down to 25% is far different from bringing a 35% rate or whatever down further. There very well could be benefits when the top rate is so high, but those would diminish over time. Regardless, the Fed controls demand.
So basically he and Harding inherited a recession in 1920 with a top margin tax rate of 77%.
Supply side isn't about getting taxes as close to 0 as possible, or cutting them as much as possible. It's about lowering enough to promote growth while still being able to sustain the government's expenditures. If you do it right, with a realistic approach, I think nothing can beat it.
I also don't think you can say that the Fed absolutely controls demand. They certainly have a degree of influence over it, but by no means do they control the supply side of the economy. That side of the economy is up to the individuals who make up the economy. Tax policy and how it is implemented within the fiscal policy of an administration can also influence demand.

The Fed policy creates a chain of events that causes fluctuations in aggregate demand in indirect manners.
Now, businesses and corporations are moving their HQ's and jobs to places where taxes are cheaper, leading to less jobs, less GDP and less tax revenue and more burden on the middle class. This is all because of our high taxes and regulations. Manufacturing is less than 10% of our economy now as well.

This is just flat wrong. Manufacturing has been tapering off since the 1970s, primarily as a function of globalization--which is the reason businesses are shipping jobs overseas, though the solution to that isn't a race to the bottom with Bangladesh into terms of slashing wages and labor protections. It's a secular trend and a change in the composition of the economy, which is only modestly impacted by tax rates unless you can actually demonstrate to me--and the burden is totally on you--that from the 1970s onward (when rates came down, by the way, drastically) tax policy actually managed to put a dent in productive capacity. Then rationalize that in the context of a NAIRU falling off the cliff, a rise (in the 90s) in trend NGDP growth and equilibrium real interest rates, etc. The parts of the story just don't fit together.

Well yea, that's my point. Now that the world economy is globalized, our workforce has to compete with the work forces of the world. I'm not saying slash everything down to extreme southeast Asian levels, but let's at least create a more favorable situation for business to stay here. We can agree that business moving from here to Mexico and Canada is much more preventable than trying to stop business from moving to Asia. We also run huge trade deficits, with these same nations that our jobs are being shipped out to. We didn't run these deficits until things like NAFTA the WTO and other globalization measures were enacted.

Burger King just merged with a Canadian company to become tax based in Canada. Doing so is the only way to avoid high US income taxes. Since moving, Burger King sales were up on average almost 10% last year, and revenue sharply increased as well. It's painfully obvious that they moved for fiscal reasons.
Further, Canada's tax reform actually follows exactly what happened under the Coolidge administration. Canada dropped from 43% to 26% in 200, and since, corporate tax revenue as a % of GDP has increased on average 3.3% per year. Our average corporate tax revenue as a % of GDP has increased in the same time frame on average by only 2.3% per year.

The only positive action Congress could take from my perspective would be to enact a substantial corporate tax rate reduction as part of a narrowly focused fundamental reform. Permanently improving the investment environment in the United States and making firms more competitive internationally would encourage more investment and would invigorate the recovery and strengthen the economy for the long run.

"It is a paradoxical truth that tax rates are too high and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now ... Cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus."

" President John F. Kennedy (November 20, 1962)

Again, from 91 percent to 73 percent, and he sold it as a supply-side cut to the business community, but it wasn't. Kennedy was no supply-sider. Even if he was, he'd be wrong, because the literature on this is not on his side.

Literature?
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2/5/2016 1:51:29 PM
Posted: 10 months ago
At 2/4/2016 3:11:17 PM, ResponsiblyIrresponsible wrote:

I said it was more complicated than that and I corrected you. You said banks would necessarily take a hit to their profits, and I corrected you: that's not true. There are a lot of potentially countervailing forces and mechanisms through which long-term interest rates could rise. You'll note that, whereas I am attempting to engage you on substance, all you're doing is blowing hot air.

If a positive interest rate is a profit or income, then a negative interest rate is a cost or loss. Period. Some "expert" you are. You've spent so much time being a legend in your own mind, you have ignored the obvious. The fact that costs or losses may be mitigated is moot in that it's a pain in the posterior. For now, it's somewhat complicates the movement of large sums of monies, depending upon the impact such costs and money movements have upon other core business interests. Meetings must be held to discuss which mechanisms are to be utilized in the best possible manner against other core business interests, tax dynamics, etc. To pontificate theory from behind a computer is easy compared to the day-to-day running of any particular business, as theory has no context to the individual business activity. If you were in business, you'd know that, for it's far more complicated than you perceive.

I'm not addressing anything else, as your self-aggrandizing is just too tedious and puerile for my taste.

Adieu.
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2/5/2016 2:39:20 PM
Posted: 10 months ago
At 2/5/2016 6:26:19 AM, walker_harris3 wrote:

To be honest, I have no real interest in actually debating this. I read, like, a paragraph of what you wrote above and just cringed--not because it was stupid or because I found it "insurmountable" or whatever, but because I literally have not the slightest interest in debating tax policy. Otherwise, I would've commented on that tread (that I believe you made, since I recognize a lot of the arguments) on Bernie Sanders.

I might offer some remarks later with some citations as to why companies "tossing their jobs overseas" or the Kennedy tax cuts were in no way, shape or form a supply-side cut, and why, even if there were modest supply-side effects, the comparisons are just null and void. But, for now, I'm tired and remarkably uninterested in talking about fiscal policy: my specialty is monetary economics for a reason, lol....
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2/5/2016 2:48:08 PM
Posted: 10 months ago
At 2/5/2016 1:51:29 PM, PointBlunt wrote:
If a positive interest rate is a profit or income, then a negative interest rate is a cost or loss. Period.

No, it isn't because banks operate on both sides of the yield curve, borrowing short and lending long. The overall shape of the yield curve, which is determined by economic fundamentals, is what determines whether banks profit. We're not talking about a profit or loss from a short-term CD or something -- banks don't generally buy those, they sell those, in which case they're *borrowing* at a much lower rate. What matters is how that shift in policy -- and it's not solely a nudge downward in nominal interest rates, but a shift in policy -- is perceived by markets and impacts their expectations of (a) the evolution of policy and (b) nominal GDP growth. It isn't "X, period." Economics is NEVER "X, period," and that you're suggesting as much when the classic caricature of an economist is "on one hand, on the other" just demonstrates how little you actually know, which is why you get so frustrated when I pointed out the inaccuracies in your post -- about which you have lied, insinuating that this was in some way a position shift, when I provided you QUOTES from my first post demonstrating otherwise -- and even bothered to go into depth on a very complex topic, because that depth was over your head. That's why you haven't responded to me substantively and instead have opted for ad-hominem: you're trying to deflect blame for your own ignorance.

Some "expert" you are.

Lol, oh the searing fcking irony -- I provide you with facts and analysis, you flip out and deflect blame and lie about the content of my post, and then have the gall to attack MY intelligence and my knowledge when you're trying to distill economics into a simplistic sound byte into which it will not go. We might have actually found a member dumber than Mikal -- congratulations, bro. That's a real honor.

You've spent so much time being a legend in your own mind, you have ignored the obvious.

A "legend in my own mind".......

Yeah, uhhh, no. No one is a "legend" on a debating website, despite what they think or how many threads they make declaring it true, but people here respect me and respect my opinion because I actually know what I'm talking about, unlike you, which is why you're so inanely truculent at having been proven wrong.

This isn't "obvious." There are a lot of variables at play,none of which you actually understand, ESPECIALLY when you don't understand that a negative policy rate in Japan, as in the SNB, is applied to a small subset of excess reserves -- new ones -- and will be with almost 100% certainty a relatively temporary stuff insofar as it is perceived credible and the BOJ doesn't falter, which will push up long-term rates and neutral real rates. This isn't the complex piece of this, per se, but it has nevertheless totally eluded you.

The fact that costs or losses may be mitigated is moot in that it's a pain in the posterior.

Let me translate this: "Regardless of whether there are trade-offs associated with a negative interest rate for banks' bottom lines, I'm going to concede that my earlier statement -- that they took a loss, PERIOD -- could be wrong, but without actually having the decency to concede."

I never denied it will be a pain in the posterior, but obviously it's only applied in a very narrow sense and likely won't be passed onto deposit rates, and was likewise the case in
Sweden/Denmark/Switzerland/EU. I'm saying the impact on bank bottom lines is far, far more complex than you will readily admit, as is the shape or the yield curve -- which is positively sloping when times are expected to be good and negatively sloping when things are expected to be bad. The yield curve is what determines bank profits.

For now, it's somewhat complicates the movement of large sums of monies, depending upon the impact such costs and money movements have upon other core business interests.

It does, which is why you're "its a loss, period" remark is especially fcking dense.

Meetings must be held to discuss which mechanisms are to be utilized in the best possible manner against other core business interests, tax dynamics, etc.

I'm sure Kuroda held these meetings extensively prior to implementing it, and the BOJ isn't exactly a totally independent institution, so there might have been a discussion with Abe as well. Sure, this could be the case.

To pontificate theory from behind a computer is easy compared to the day-to-day running of any particular business, as theory has no context to the individual business activity.

Lol.

First, don't use terms you don't understand. Pontificate means "to speak or express your opinion about something in a way that shows that you think you are always right."

I don't think I'm always right -- that's why you gave you a bunch of fcking caveats and "what if's" as to what will happen to bank bottom lines, because this is unbelievably complex and myriad scenarios could actually take place. That's what people who know their sh1t do: on the flip side, people who think this is black and white (like, for instance, dumb libertarians) think everything falls into two categories because they're ignorant of the depth of the issue they're discussing (e.g., you). Ironically, you're far more guilty of this than I am.

Second, this isn't just theory -- this is how the yield curve operates in practice, and that is what actually determines the impact on bank bottom lines. Of course we need to apply theory when we're talking about abstract concepts like expectations of the future path of policy. And of course that is relevant to how businesses actually operate because it determines the transmission of policy changes to the real economy -- ironically, by arguing that a negative policy rate would shaft banks, you *conceded* that some theory is important; your analysis was just superficial and lacked rigor, depth and context, which is why your conclusion was so embarrassingly simplistic.

If you were in business, you'd know that, for it's far more complicated than you perceive.

LMFAO.

Oh the searing fcking irony. I've been telling you through my correspondence with you that it's far more complex than YOU perceive, and you actually have the gall to throw this crap at me?

I'm not addressing anything else, as your self-aggrandizing is just too tedious and puerile for my taste.

In other words, let's lob a bunch of ad-hominem attacks and then take off like a coward with your tale between your legs after getting completely and utterly owned on a policy that *you* attempted to pontificate on, but don't understand, and instead have opted for attacking me and incessantly b1tching that I actually provided depth and context -- which everyone else seems to love, to look for, and to actively seek out, which is why people here wanted my opinion on this -- when that is what is SUPPOSED to take place on a debating website.

You haven't engaged on substance in the slightest. You said, "This is what happens, and that's it," which is absolutely, 100% fcking wrong, disgusting and, ironically, self-aggrandizing. It's humble to say that you don't know how things will actually play out because there are a myriad of possible scenarios: the problem, of course, is that you're ignorant of all of those.

Adieu.

Peace.
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