I thought this other Hamlet quote to be appropriate.
A while back I wrote a couple of posts on the negative yields for bonds in Europe. I won’t bother digging them up, but, as any idiot could see, this was going to lead to utter madness.
Well, the madness is here.
With NIRP raging in the Eurozone and over €1.5 trillion in European government bonds trading with negative yields, many were wondering when any of this perverted bond generosity will spill over to other debtors, not just Europe’s insolvent governments (who can only print negative interest debt because of the ECB’s backstop that it will buy any piece of garbage for sale in the doomed monetary union). In fact just earlier today we, rhetorically, asked a logical – in as much as nothing is logical in the new normal – question:
Little did we know that just minutes after our tweet, we would learn that at least one place is already paying homeowners to take out a mortgage. That’s right – the negative rate mortgage is now a reality.
Thanks of Mario Draghi’s generosity with “other generations’ slavery”, and following 3 consecutive rate cuts by the Danish Central Bank, a local bank – Nordea Credit – is now offering a mortgage with a negative interest rate! This means, according to DR.dk, that Nordea have had to pay instead of charging interest to to a handful of customers, says housing economist at Nordea Kredit, Lise Nytoft Bergmann for Finance.
From DR, google-translated:
The interest rate has balanced around 0 in a level between minus 0.03 percent plus 0.03 percent. Most have paid a modest positive interest rate, but there are so few who have had a negative rate. It is quite an unusual situation, says Lise Nytoft Bergmann.
It is residential customers who have chosen to stick with F1-loan that now benefit from the negative interest rate. F1 loan form has otherwise been strong returns in recent years in favor of fixed interest loan.
Although interest rates are negative, it is not something that can be felt by customers as contributions and other costs continue to be paid. In turn, interest will be deducted from the contribution.
Precisely because it is an unusual situation, Nordea Kredit’s IT systems are not geared to the situation when the computers are only used to collect interest.
Lise Nytoft Bergmann says that there is no cause for concern, and that the new situation can be handled, “but sometimes we have to use duct tape and paste.”
This is just the beginning: according the Danish media outlet, as a result of variable-refinancing, as recently as a week from now “a greater share of customers could have a negative rate.”
Mortgage Denmark is one of the mortgage banks, where F1 rate also is close to zero, and here you are very excited about the upcoming negotiations, says Christian Hilligsøe Heinig, chief economist of the Mortgage Denmark.
We have an auction just around the corner and it is very exciting to see how interest rates are going. We can go and get negative interest rates, says Christian Hilligsøe Heinig to JP Financial.
And just like that, first in Denmark, and soon everywhere else in Europe, a situation has now emerged where savers who pay the bank to hold their cash courtesy of negative deposit rates,are directly funding the negative interest rate paid to those who wish to take out debt. In fact, the more debt the greater the saver-subsidized windfall.
That all this will end in blood and a lot of tears is clear to anyone but the most tenured economists, however in the meantime, we can’t wait to take advantage of the humorous opportunities that Europe (and soon Japan and the US) will provide in the coming months, as spending profligacy will be directly subsidized and funded by the insolvent monetary system, while responsible behavior and well-paid labor will be punished, first with negative rates and soon thereafter: with threats, both theoretical and practical, of bodily harm.
Well, I don’t believe this will hit the US. But, I’ve been wrong about such matters, before.
In the mean time, this is a huge business potential for the people in the US.
Think about it ….
The Euro is losing value against the US dollar (and other currencies). Assuming this continues, and it will because of the massive QE announced in the Euro zone, then this already causes a positive return on investment (ROI). Add to that a negative interest rate …. well, then, it doesn’t matter about the price of the home, but, simply the terms of the bank loan (and other costs). But, the house on credit, find a bank which pays even a nominal positive interest rate and deposit the money loaned to you for the purchase of the home. Dutifully make the payments. Rinse and repeat. To make it really big, rent the home out for the amount of the payments. Done.
Mind you, don’t get greedy. Lock in the negative interest rates. Know that the Euro will continue to decline in value for some time. But, at some point, all of this comes crashing down. It will end and end horribly.
PS …. Dirk how long of a drive are you from Denmark?