Roland Dürre
Friday February 26th, 2010

0.x %

This year, the balance sheet of InterFace AG for 2009 was finished as early as February. When we analyzed the result, we discovered that the interest we were paid for our investments in 2009 was significantly less (in the five digits range) than in 2008. Mind you, this happened although we had put quite a bit of the profit into savings and 2009 was a good business year for us.

The explanation dawned on us quite soon:

Between 2008 and 2009, there was a drastic decline of interest rates. Nor did the trend reverse itself during the first months of 2010. On the contrary: currently, we get less than 1 % interest for our investments. Taking the inflation rate into consideration, this adds up to a negative interest rate.

The banks should currently enjoy golden times. They practically get their money for free! However, the interest rates for mortgage loans and overdrafts are hardly lower than before.

Wrong! Many banks are still in dire straits. I just read that nobody knows how, for instance, the Commerzbank is supposed to pay back its federal loan.

I used to believe that banks are supposed to take money from people who can spare some and give it to enterprises and persons who just need some. But apparently, bank business no longer has anything to do with the classical bank mandate.

Surprise, surprise! I recently read in the “Süddeutsche” that the Deutsche Bank, after now having again finished with a huge profit in 2009, no longer considers bank stock as investment. Instead, it is now considered an object of speculation. That sounds plausible. Consequently, you would have to end up making a profit if the market value climbs. And it is only logical that declining market values will cause loss.

RMD
(Translated by EG)

P.S.
A reader of my 6 % article wrote to say that “tax evaders” actually do have to pay 6 % per year (plus interest on interest). If it is considered tax fraud, you will even pay 12 %. Phew!

2 Kommentare zu “0.x %”

  1. Chris Wood (Friday February 26th, 2010)

    Hi Roland, let us consider the reason for interest. I remember somewhere you wrote that the nominal interest rate cannot go below zero. That is not true. Some time ago, the Swiss franc was rather stable, but all other major currencies had considerable inflation. So much money was deposited in Swiss accounts that the banks charged a fee for the privilege, rather than paying any interest. In effect there was a negative nominal interest rate of about -1%. Of course the rate cannot go much lower, because people will start depositing their money under the floorboards or in safes.
    In the following, I write only about “real” interest, that is the difference between nominal interest and the rate of inflation. I avoid the difficult topics of how inflation can be measured, and why it happens.
    Interest is paid because people would rather have money now than later. A main reason is that investment now will bring bigger benefits later than could be bought now. The investment may be in farmland, machinery, education, research, etc. Another reason is that later one will be dead, thus money is borrowed to buy the house one needs now.
    So why are current real interest rates negative? You Roland, in another posting expressed your fear that normal old people will in future be living in poverty, with insufficient pensions. Other people think the same. Now they have more than they need. Past the age of 65, employees will not be permitted to have jobs, and will really need money. So people are ready to invest despite negative interest. Personally, I don’t expect things to get that bad in the rich countries. They will not be ready to drop living standards much, to help the world’s starving millions. And they will have enough old people to constitute a powerful lobby (unless pensioners get disfranchised).
    Another way to look at this is that more money is being saved than can be profitably invested. Investment is getting harder, because compensation is being demanded for investment that damages the environment. Also, if we invest where labour is cheap, can we be sure of repayment? And investment in Germany is faced with increasing competition from growing educated workforces, particularly in Asia.
    Perhaps the population is cleverly investing more and more, driving interest rates down to levels where necessary investments with low return are made (e.g. renewable energy). Perhaps the government is manipulating people in this direction. Born in 1940, I, am still investing, rather than spending all my pension.

  2. zinseszins (Thursday March 18th, 2010)

    […] ist ein Interesse, das entsteht, wenn Interesse fr die wichtigsten jederzeit die Zinsen wegen …IF-Blog Blog Archiv 0,x %Die Bilanz der InterFace AG fr 2009 haben wir dieses Jahr schon im Februar fertiggestellt. Beim […]

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