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comment by kleinbl00
kleinbl00  ·  2585 days ago  ·  link  ·    ·  parent  ·  post: World's central banks ease away from negative interest rate policies

The object of quantitative easing is to increase spending by improving access to capital. The million-dollar project you undertake at 6% for 10 years is a 1.3 million dollar project; knock the interest rate down to 3% and you save $150k. In many industries that could be your entire profit margin. a 3% rate cut is the difference between success or failure for some projects.

Negative interest rates, on the other hand, are a tool to keep borrowers from hoarding their cash instead of spending it on million dollar projects. This is the problem many economists and pundits pointed to with the interest rates being as low as they were - firms were borrowing the money but not spending it on capital projects. They'd hoard cash, or buy back shares, or otherwise absorb it internally to produce no net effect on the economy. Hit them with a fee for sitting on cash and suddenly it becomes more attractive to put it to work.

Shorting -

Shorting is shitty. Yeah, you can make money that way but your downside is undefined and a central bank should NEVER be betting that the firms they're moderating currency for are gonna suffer under your control. That's not guidance, that's malevolence.

Finance is a positive-sum game and the better a central bank does their job, the bigger the positive sum. Shorting is a negative-sum loophole of a positive-sum game and you'll find that there's a lot of variance about what different countries will allow.





EnumClass  ·  2583 days ago  ·  link  ·  

    ... a central bank should NEVER be betting that the firms they're moderating currency for are gonna suffer under your control.

When the central bank decides to raise interest rates, it does so by selling bonds in order to ensure their price falls. That might appear to be a 'malevolent' act, forcing the price down and (deliberately) making it difficult for money creation (borrowing) to happen. Do you object to the selling in general (i.e. deliberate pushing down of asset prices?), or just to a more narrow form of selling (e.g. selling something you don't own already - i.e. shorting?)

kleinbl00  ·  2583 days ago  ·  link  ·  

I object to shorting - the mechanism by which you profit on the misfortune of a security. Which is not to say I don't practice it from time to time but as I said, it's a zero-sum application of a positive-sum game and as central banks are tasked with increasing the positive sum, there's no reason or justification for them to short anything.