“Imagine going to the bank for a mortgage and getting paid to take out your vast home loan. You would still pay in monthly instalments, but the total repayments would add up to less than the total. The longer you take to pay it back, the more money you save. Too good to be true, right?
“Or how about putting your spare cash in a savings account at the end of each month, only to find your balance was smaller than when you last looked. Who would put cash into an account like that?
“This is what life could look like in a world with deeply negative interest rates.
““Going deeply into negative territory with interest rates would change the world as we know it,” says Ricardo Garcia, author of the UBS report The future of Europe: the eurozone and the next recession.
“…The key problem is the terrible starting point: the European Central Bank and governments have little ammunition in a battle against a recession.
“The ECB is far from alone, though. Almost all central banks already slashed interest rates close to zero after the financial crisis in a desperate effort to stave off another great depression… Even when growth did return, it was modest and fragile.
“Interest rates have stayed at or close to rock bottom.
“Savers might pull their cash out of the bank and stuff it under their mattresses instead to stop negative rates pinching their hard-earned deposits. This would undermine the goal of policy and threaten banks, so an even more radical policies has been discussed: abolish cash.
“If all money is electronic, savers cannot hide it at home.
“The IMF studied the feasibility of this last year. It looked at “decoupling” cash from electronic money, instituting an exchange rate between the two, set by the central bank to match the negative interest rate. Cash would lose its value in line with electronic money regardless of efforts to keep it safe.
“Meanwhile, borrowers would face different incentives. Debt would be better than free, pushing businesses and individuals to borrow as much as possible.
“Low borrowing costs have already built fears of a debt bubble. Negative rates would threaten to become a bonanza. Regulators would probably step in to ration loans…
“…in desperate times, rates might go deeply negative, along with bumper rounds of money printing as central banks purchase assets other than the government bonds favoured so far – perhaps even shares.
“If one major central bank takes the plunge, others might be forced to follow as negative rates push a country’s currency down, to the detriment of other nations’ exports.
““If we have an important player within the OECD going for interest rates significantly below minus 1pc, it creates a strong incentive for others to do the same,” says Garcia. “It could trigger a chain reaction.””
“It was the best of times for London home owners and it’s slowly turning into the worst of times.
“Having enjoyed year-on-year gains of 20 percent in 2014, housing in the U.K. capital is now steadily falling for the first time since the financial crisis. In February, values dropped almost 4 percent compared with a year earlier, the most since 2009.”
“The Financial Conduct Authority (FCA) is to investigate parts of the second charge and subprime credit markets which it believes are designed to benefit from consumers going into arrears.
“It raised concerns that the business models of some retail lending products, including some subprime credit and second charge mortgage products, “are designed to benefit from consumers not repaying their debts”.”
“The manufacturing sectors of the eurozone’s two largest economies [France and Germany] missed expectations as they continued to contract in April.”
“Germany is bracing for its worst GDP growth in a decade as its economy grapples with the global industrial downturn and the eurozone’s slowdown.
“Its government halved its growth forecast for 2019 to just 0.5pc after Europe’s biggest economy narrowly avoided recession last year.”
“Tomato ketchup, handbags and video game consoles are among the US imports facing EU tariffs, as the European bloc hit back in the latest twist in the transatlantic dispute over aircraft subsidies.
“The European commission threatened to impose tariffs on US imports worth $20bn (£15.3bn) on Wednesday, publishing an 11-page catalogue of items at risk, which also included aircraft and tractors, following a World Trade Organization ruling against Washington last month.”
“The World Bank warned Wednesday of a deepening economic crisis in the occupied West Bank if the Palestinian Authority and Israel do not resolve a dispute over tax transfers. Israel collects around $190 million a month in customs duties levied on goods destined for Palestinian markets that transit through its ports, and then transfers the money to the PA.
“In February, Israel decided to deduct around $10 million a month from the revenues — the sum the PA paid families of prisoners or prisoners themselves serving time in Israeli jails — prompting the Palestinians to refuse any funds at all.”
“Indian airline Jet Airways will “temporarily” halt all domestic and international flights after failing to find emergency funds to keep it afloat. Jet had requested 4 billion rupees (£44m) from state-run banks while it sought an investor to acquire a majority stake in it. It had also requested around £166m from its lenders.”
“The Indian consumer is holding tight to his purse strings… It’s also a slowdown that caught companies by surprise.
““If you’d asked me (around) last September I couldn’t have imagined this would happen,” says Anurang Jain, managing director at Varroc, a large auto component manufacturer. September was also the time when the IL&FS shadow bank crisis hit and credit flow froze. In the months since, some auto makers have been forced to cut production by as much as 25 percent.”
“Egypt plans to slash fuel and electricity subsidies in its 2019/2020 financial year, the finance ministry’s draft budget shows, but raising fuel prices closer to international levels could turn out to be an even more severe burden on the population…
“…potentially leading to protests that would add to the ones in other African oil producing nations like Sudan and Algeria.”
“According to Eunomix Business and Economics Ltd, measuring a range of social, economic and governance measures, South Africa’s performance has slumped more in the past 12 years than any other nation, not at war.
“”South Africa’s decline over the past 12 years is similar to that of war-torn countries like Mali and Ukraine, or countries that are affected by a significant political crisis and economic crisis like Venezuela.”
“Get ready for another Argentina default! Incumbent President Mauricio Macri is slipping deeper in the polls and inflation is ridiculously high, now over 51% annualized.
“Argentina is facing a “Macrisis”, as one fund manager called it, lumping the words Macri and crisis into one word.”
“The conditions of the South Korean real estate market now resemble those seen just before a drawn-out slump that began in 2012, KB Kookmin Bank said Wednesday.
“At the time, the market underwent a 15-month decline in prices.
“Real estate transactions this February plunged 37.7 percent on-year to 43,444. In the Seoul metropolitan region they fell 54.6 percent to 18,390, and in Seoul proper a staggering 74.3 percent.”
“A Japanese agricultural bank’s $61 billion spending spree on bundled leveraged loans abroad has begun to attract the attention of the nation’s politicians. Government officials answered questions from an opposition party lawmaker Thursday about Norinchukin Bank’s purchases of collateralized loan obligations.
“The lender is among the biggest buyers of the structured securities, which have been compared to securitized products that soured during the global financial crisis.”
“A decade after the financial crisis, the government still maintains many of the same incentives that drove too much investment into residential real estate.
“Washington still stands behind mortgage monsters Fannie Mae and Freddie Mac. Mortgage rates remain historically low and recently moved lower. And anyone hoping it will be a long time before America’s next housing mania has to be concerned about a revival in a particular type of risky lending.”
“Almost 10 years after the Great Recession ended, the growing threat of a new economic slowdown raises a troubling question: When the next recession strikes, what can the world’s central banks do?
“With interest rates low and their balance sheets still loaded with assets bought to fight the 2008 crisis, do they have the tools to respond? This column is one of six looking at that question.”
“Corporate debt as a share of gross domestic product has risen dramatically over the past decade and, with it, leverage has increased and credit quality declined. Many investors are left wondering if credit markets could be the harbinger of the next economic downturn.”
“…why is aluminum falling so drastically? Possibly because it’s a leading indicator for a global economic slowdown.”