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23 votes
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Why is a stock market crash so bad?

Why FED/ECB/whatever raising interest rates is bad for stock markets? (I am aware that this is an assumption - my information could be wrong) This is because interest rates critically determine price ...
1muflon1's user avatar
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18 votes

Why is a stock market crash so bad?

The previous answer is amazing from economist technical viewpoint, but misses two important points of why a stock market crash is bad: "Stock market" is an abstraction. There is no "...
DVK's user avatar
  • 708
14 votes

Mortgage loans from foreign banks at lower interest rates

The low interest rate will be in a different currency. If your domestic currency falls in value, the value of the mortgage in terms of the domestic currency goes up. Entities borrowing in a foreign ...
Brian Romanchuk's user avatar
14 votes

Mortgage loans from foreign banks at lower interest rates

What does stop me from taking a loan from a bank in a rich EU-country to build or buy a house in a poor country like Russia, while having EU-level interest rates below 3% instead of the Russian 15%? ...
jpa's user avatar
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12 votes
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Cash and negative interest rates

Actually they're saying that, when cash is available, people need not to deposit their money into the bank, and hence is "guaranteed" (not taking into account risks associated with holding on to cash, ...
Art's user avatar
  • 2,794
10 votes

What are the causes of negative real interest rates?

If there is inflation, what is your alternative? If you do not lend, your money loses even more of its value. A numerical example: If inflation is 5% and you can lend at 2% nominal interest rate, you ...
Giskard's user avatar
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8 votes

Why is the money supply perfectly inelastic?

The Fed controls the nominal money supply as they are the only ones who can add or remove money from the economy by printing it. Real money supply is only affected by increases or decreases in ...
TheSaint321's user avatar
8 votes

How to borrow at risk free rate

A private person will almost never have an access to borrowing at risk free rate. However, governments such as Germany or Switzerland can borrow at essentially for all practical purposes at risk free ...
1muflon1's user avatar
  • 56.7k
8 votes

Why do people buy negative interest rate bonds?

There are several reasons why it makes still sense. Nominal negative return does not mean that real return is negative. There is a difference between nominal interest rates and real interest rates ...
1muflon1's user avatar
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7 votes

Why should I get a bond with negative interest instead of having a bank deposit account either zero interest or positive interest

It makes little sense to me either, but here are some possible reasons for buying a bond with negative interest rates rather than depositing the same amount in a bank: The deposit-taking bank may go ...
Henry's user avatar
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7 votes

Why is there a positive risk-free interest rate?

The interest rate is (1) the price needed to take on risk and (2) the price needed to delay consumption. The reason there is a positive risk free rate, even though there is no risk, is because of the ...
M3RS's user avatar
  • 1,087
7 votes

What are the causes of negative real interest rates?

The same reason that oversupply leads to falling prices in any other market. There is a huge amount of money out there, and a lack of good returns with adequate levels of safety, so money is cheap. ...
pjc50's user avatar
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6 votes
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Consequences to lending and value of national currency from a negative interest rate and 140-year mortgages in Sweden

There is some concern about the interest rates (currently at -0.5%) fueling a housing bubble in Sweden. This article at Fidelity states: In a bid to track the ECB, Sweden has cut its interest rate ...
user100487's user avatar
6 votes
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Why could interest rates go up if Brexit happens?

What would happen in the event of a "Leave" vote in the referendum? Well, the pound would quickly fall in value against its major trading partners - and some falls have already happened as the "Leave" ...
410 gone's user avatar
  • 8,168
6 votes
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LIBOR rates: Are these monthly or yearly interest rates?

To answer the first part, it's an "annualised" interest rate convention - like all other quoted interest rates. For example, if a one-month money market rates are unchanged at 4%, you would receive ...
Brian Romanchuk's user avatar
6 votes
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Why is the inverted yield curve a good predictor of impending economic recession?

There is a fair amount of ambiguity to this question. The first question is: what is the yield curve? A fixed income investor may refer to the yields across all maturities as the yield curve, while ...
Brian Romanchuk's user avatar
6 votes
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Would capitalism without banks work?

You ask: "what would happen if every country in the world were to make a law that would make it illegal to lend money at a positive rate of interest?" We know what happens, because we've already seen ...
410 gone's user avatar
  • 8,168
6 votes
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Did Capitalism and Adam Smith Support a Central Bank?

Does Adam Smith ... support a Central Bank/Federal Reserve? Adam Smith was firmly in favor of central banking (although not necessarily in the same way as understood today). In Chapter 3 Book 4 of ...
1muflon1's user avatar
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6 votes
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Simple description of how interest impacts inflation

The theory is called Neo-Fisherishm. The Fisher equation states $$r \approx i - \pi_e,$$ where $r$ is the real interest rate, $i$ the nominal, and $\pi_e$ the expected inflation rate. Primary ...
AKdemy's user avatar
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6 votes
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Loans that don't have to be paid back (only the interest)

Classic example are the British consol bonds. British consol bonds are perpetuities so that means the principal never has to be paid back (although government could repurchase them on an open market). ...
1muflon1's user avatar
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6 votes
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How to use Leibniz Rule of integration to find interest rate in Expanding Variety model

The Leibnitz rule for differentiation of an integral is a consequence of the fundamental theorem of integral calculus. A so-called integral function is defined as $$F(x) = \int_a^x f(t)dt\;\;\;\;\;\;\;...
BakerStreet's user avatar
  • 3,802
5 votes
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What is the purpose of interest?

Interest is a key mechanism to ensure that resources are properly allocated within an economy. There are lots of uses to which money can be put: consuming goods, building highways, constructing a new ...
Ubiquitous's user avatar
  • 16.9k
5 votes

Larry Summers on the causes of secular stagnation

French economist Jean-Baptiste Michau has published in 2018 a relatively simple model of secular stagnation: To investigate secular stagnation, I add two features to a standard Ramsey model with ...
against very long user names's user avatar
5 votes

What is Negative Interest Rate?

Great set of questions! Here are some ideas: What it is?: An investment that pays the investor a negative interest rate is one where he or she pays X money upfront, and receives $X\cdot(1+r)$ later ...
Fix.B.'s user avatar
  • 2,668
5 votes

Why should I get a bond with negative interest instead of having a bank deposit account either zero interest or positive interest

@Henry gives a good answer with lots of interesting reasons. However, there are lots macro-model setting where the demand for risk free assets is positive, even when the interest on savings is ...
BKay's user avatar
  • 16.3k
5 votes
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Why does falling global bond yields signal coming deflation?

Bond yields falling from their current near-zero position will place them in negative yield territory. Negative bond yields are deflationary by definition. Paragraph 3, sentence 5 of the article says: ...
FreeMarketUnicorn's user avatar
5 votes
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Is the time value of money natural or artificial?

Let's first write down two realistic reasons as to why the "time value of wealth" (since here "money" is considered in its function as store of value), is "natural and not artificial", to use the OP's ...
Alecos Papadopoulos's user avatar
5 votes

Would capitalism without banks work?

Under most capitalism-like systems, companies are funded in two ways. One is debt with positive interest, the other is by selling equity to shareholders. If you could effectively prohibit debt, then ...
Dan's user avatar
  • 1,356

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