Hedging against inflation?

[3 hound]

The loans are still calculated on your ability to repay them through income. So you'd borrow 100k and have to repay 99k over 10 years for example. You still have a $9900 loan repayment. In the meantime, you have a big pile of cash you can do stuff with.

Make sense?

Why would a bank lend you money for 10 years if they will be paid back less than they loaned you??

 

[sptrawler]

Why would a bank lend you money for 10 years if they will be paid back less than they loaned you??

It is basically what quantitative easing is about, the reserve bank printing money, so that the commercial banks can lend it out at next to nothing to to companies to build production and stimulate growth.
If when it gets to 0% companies still aren't spending, well then you have to start and make a disincentive for them holding onto their money, so interest rates go negative, then if the companies don't spend their money on increasing productivity and output, it costs them.
A bit simplistic, but that is the gist of it, from my understanding.
They have the option, borrow $1m to build up the company at 1%, or sit on $1m and pay interest on it at -7%, their choice.
Just an example.

 

[over9k]

Why would a bank lend you money for 10 years if they will be paid back less than they loaned you??

They borrow it from the central bank at an even lower rate - borrow from the central bank at -0.2%, loan it to you for -0.1%, skim the difference.

 

[sptrawler]

Talking about the banks.

Big four bank profits tipped to hit over $11b as rate hikes loom

The impact of rising interest rates on banks will be front and centre this week, as a round of bank profit results gets under way.

www.smh.com.au

From the article:
The big four banks are expected to report over $11 billion in profits in the coming weeks and investors are betting higher interest rates will further boost earnings as the era of ultra-cheap debt comes to an end.

The impact of rising interest rates on banks will take centre stage this week, as ANZ Bank, National Australia Bank and Macquarie Group kick off a round of bank profit results that will be delivered over the next fortnight.
Following Tuesday’s highly anticipated Reserve Bank board meeting, analysts are predicting a $3 billion half-year cash profit from ANZ Bank on Wednesday, and a $3.4 billion half-year profit from National Australia Bank on Thursday.
Next week, Westpac is expected to deliver a $2.8 billion half-year profit, while Commonwealth Bank, which reports on a different calendar, is tipped to notch up $2.1 billion in third quarter profits.

Macquarie Group, which is mainly exposed to conditions on global markets, is predicted to deliver a record full-year profit of about $4.5 billion this Friday.
Investors have pushed bank shares higher this year amid strong credit growth, low bad debts, and predictions that a sharp decline in profit margins will start reversing when the RBA lifts official rates from record lows, which is expected to begin on Tuesday.
Net interest margins - which compare bank funding costs with what they charge for loans - have been compressed as interest rates have plunged amid fierce competition and a boom in less profitable fixed-rate lending.

 

[3 hound]

They borrow it from the central bank at an even lower rate - borrow from the central bank at -0.2%, loan it to you for -0.1%, skim the difference.

So basically you are saying infinity money can be created to fund anything we want at no total cost in fact banks would make a profit and wealth in the real economy would grow.

Why as someone with an engineering background trained in basic thermodynamics find this a version of perpetual motion and free energy.

Surprised we are not all infintillionaires by now.

 

[qldfrog]

So basically you are saying infinity money can be created to fund anything we want at no total cost in fact banks would make a profit and wealth in the real economy would grow.

Why as someone with an engineering background trained in basic thermodynamics find this a version of perpetual motion and free energy.

Surprised we are not all infintillionaires by now.

you will soon be with hyperinflation..look at the trillions debt of governments and what it means to the citizens: where are these trillions???.

 

[againsthegrain]

When I was a kid growing up in a east/central European country a million was equivalent to 100. It was normal to go buy lollies for 2k and parents would talk how many million this and that costs. Its a state of mind you get used to. Everybody was a multimillionaire

 

[3 hound]

where are these trillions???.

That's easy from my observations a lot of the people I observed who for some reason got stimulus checks even tho they didn't have a job to lose poured their printed money into poker machines at the RSL and topped up on toilet paper, Pringles and cartons of cigarettes.

 

[sptrawler]

So basically you are saying infinity money can be created to fund anything we want at no total cost in fact banks would make a profit and wealth in the real economy would grow.

Well the real question is what is money? in Australia it is a piece of plastic that sits in your pocket and you can exchange it for goods or services.
The underlying value of that plastic is zip, its value is only the confidence that someone has in the system and country that underpins that particular currency, they are confident that if they give you the goods or services the bit of plastic you give them will be able to be given on to the next person and it will get the same value.
If people lose confidence in the system or the country that underpins that currency, then they won't accept the plastic note will retain is relative value and is really why gold always fluctuates with public confidence.
So in a stable country like Australia, the U.S, U.K and most western places, the general public and the countries have confidence that those that run the 'system' now what they are doing and take steps in a measured manner and is why currency values move up or down against the reserve currency which is $U.S.
Go to a third world country where that confidence doesn't exist and inflation can swing massively, as confidence in the currency ebbs and flows.
Again only my take on it, but as long as the first world reserve banks are working in unison, the underlying balance is maintained, peoples money holds its relativity and the confidence of the value of the bit of plastic in the pocket is maintained.
But yes in reality each country can print infinite money, it will only affect is relative value, to other currencies. That's the Fiat monetary system, smoke and mirrors and a lot of blind faith in the numbers on spreadsheets.
It is also the real worry with Russia and China, they want to change the reserve currency from the $U.S, which would change who actually controls the relativity of the currencies.

E.G 2020

Characteristic	Inflation rate compared to previous year
Venezuela	2,355.15%
Zimbabwe	557.21%
Sudan	163.26%
Lebanon	84.86%

Inflation Rate - Countries - List

This page displays a table with actual values, consensus figures, forecasts, statistics and historical data charts for - Inflation Rate. This page provides values for Inflation Rate reported in several countries. The table has current values for Inflation Rate, previous releases, historical...

tradingeconomics.com

 

[3 hound]

When I was a kid growing up in a east/central European country a million was equivalent to 100. It was normal to go buy lollies for 2k and parents would talk how many million this and that costs. Its a state of mind you get used to. Everybody was a multimillionaire

The next crises will be for mathematicians to come up with new catchy names for really big numbers.

 

[JohnDe]

Something is amiss.. if I have no money I can borrow a million and get the million to keep + the interest the bank pay me to keep the free million.

Why don't I borrow all the money on the planet then and get paid (interest) to do so, gotta be a catch here.

Which bank will lend you a million dollars when you have no money?

I need to know, so that I can borrow from them.

 

[over9k]

So basically you are saying infinity money can be created to fund anything we want at no total cost in fact banks would make a profit and wealth in the real economy would grow.

Why as someone with an engineering background trained in basic thermodynamics find this a version of perpetual motion and free energy.

Surprised we are not all infintillionaires by now.

Nobody's ever said at no cost. You're absolutely correct that there's major shall we say "side effects" of all this fuckery. Every action has a reaction and all that.

Please don't take me explaining all this as me endorsing it - there's MAJOR criticism of all of this from a lot of people out there. Problem is that the powers that be are dominated by a particular school of thought/way of thinking and if they're in charge, they're in charge.

 

[3 hound]

Which bank will lend you a million dollars when you have no money?

I need to know, so that I can borrow from them.

With negative interest, why not.

I didn't borrow a million but my bank gave me a housing loan when all I had in the bank was a credit card debt and literary $0 deposit for the house. Got exactly the same for my 4wd.

The manager said she doesn't care how much money I have in the bank it's what I can afford in repayments is the basis for their decision to give me a mortgage or not.

Her gamble failed........I paid out all my debts (in the last month or so whenever I joined here) 15 years early so she lost all that interest earnings for the bank. It was very much a milestone in my life.

 

[JohnDe]

With negative interest, why not.

I didn't borrow a million but my bank gave me a housing loan when all I had in the bank was a credit card debt and literary $0 deposit for the house. Got exactly the same for my 4wd.

The manager said she doesn't care how much money I have in the bank it's what I can afford in repayments is the basis for their decision to give me a mortgage or not.

Her gamble failed........I paid out all my debts (in the last month or so whenever I joined here) 15 years early so she lost all that interest earnings for the bank. It was very much a milestone in my life.

That was before, now is very different.

Banks have tightened their lending criteria, a lot.

Bank Lending Criteria

What is bank lending criteria? Read their lending guidelines on employment, borrower type, loan structure and discover out how to get approved.

www.homeloanexperts.com.au

 

[3 hound]

That was before, now is very different.

Banks have tightened their lending criteria, a lot.

Bank Lending Criteria

What is bank lending criteria? Read their lending guidelines on employment, borrower type, loan structure and discover out how to get approved.

www.homeloanexperts.com.au

You asked and I provided you an example.

 

[JohnDe]

You asked and I provided you an example.

Yes, you said "I have no money I can borrow a million and get the million to keep." I wanted to get in on this money borrowing opportunity of yours, but turns out like everything else...just big talk.

 

[divs4ever]

Explain this, I do not even get what negative interest rates means, sounds like it supposed to mean the lender pays you to borrow their money instead of charging you.?



Channeling my inner economist - things will get worse then they will get better.

as far as i can understand .. negative rates ARE a charge ( or tax ) to hold your money 'safe '

this is not a totally alien concept , if your savings were gold or silver bullion kept in a secure vault/facility that storage fee would be expected

HOWEVER since your money is unlikely to be stored as physical notes in a vault , but more likely digitally as credits on a computer network ( similar in concept to the cryptocurrencies in some respects ) this smells very much like a scam ( or stealth tax ) ESPECIALLY as your bank considers your deposits as an unsecured loan ( and they can play with the value as much as they like and your millions of bucks are very likely to be back in circulation the very next day , or quicker )

will things get worse for 90% of the world's people ?? i can't guarantee it , but that has often been the outcome in the past , so that is a major strategy focus ( reducing that harmful impact )

 

[divs4ever]

Something is amiss.. if I have no money I can borrow a million and get the million to keep + the interest the bank pay me to keep the free million.

Why don't I borrow all the money on the planet then and get paid (interest) to do so, gotta be a catch here.

because the ECB and BoJ are neck-deep in this and HATE competition ( so would most likely brand you a war-criminal or something , and send NATO or just seize your assets )

as George Carlin once said .. it's a big club and you ain't in it ( and neither am i )

 

[3 hound]

as far as i can understand .. negative rates ARE a charge ( or tax ) to hold your money 'safe '

this is not a totally alien concept , if your savings were gold or silver bullion kept in a secure vault/facility that storage fee would be expected

HOWEVER since your money is unlikely to be stored as physical notes in a vault , but more likely digitally as credits on a computer network ( similar in concept to the cryptocurrencies in some respects ) this smells very much like a scam ( or stealth tax ) ESPECIALLY as your bank considers your deposits as an unsecured loan ( and they can play with the value as much as they like and your millions of bucks are very likely to be back in circulation the very next day , or quicker )

will things get worse for 90% of the world's people ?? i can't guarantee it , but that has often been the outcome in the past , so that is a major strategy focus ( reducing that harmful impact )

As to if it gets worse or better I guess that depends on if people in power think accumulated wealth = you stole from people less wealthy and hence it's good and right to redistribute your wealth to keep everyone about the same.

For me it means I have to find a way to own things gov can't touch which in reality might be impossible.

 

[over9k]

The manager said she doesn't care how much money I have in the bank it's what I can afford in repayments is the basis for their decision to give me a mortgage or not.

This is correct - there's very few "assets" they'll actually count in your favour to borrow against or reduce their risk profile or what have you.

Kind of like how I've got 6 figures of business gear but they won't let me borrow a red cent against any of it.