• Follow Essays, Opinions and Curated News for the Public Health, Economics, Finance & Policy Management Space on WordPress.com
  • Member Statistics

    • 682,019 Subscribers-to-Date [Sponsored by a generous R&D grant from iMBA, Inc.]
  • Our ME-P Channels

  • ME-P Archives Silo [2006 – 2017]

  • CERTIFIED MEDICAL PLANNER® program

    New "Self-Directed" Study Option SinceJanuary 1st, 2017
  • Dr. David Marcinko [Publisher-in-Chief]

    untitled

    Distinguished Professor, Endowed Chairman and Wall Street physician executive Dr. David Edward Marcinko MBBS DPM MBA MEd BSc CMP® is originally from Loyola University MD, Temple University in Philadelphia and the Milton S. Hershey Medical Center in PA; Oglethorpe University, and Atlanta Hospital & Medical Center in GA; and Aachen City University Hospital, Koln-Germany. He is one of the most innovative global thought leaders in health care business and entrepreneurship today. Dr. Marcinko is a board certified physician, surgical fellow, hospital medical staff Vice President, public and population health advocate, and Chief Executive & Education Officer with more than 400 published papers; 5,150 op-ed pieces and over 135+ domestic/international presentations to his credit; including the top 10 biggest pharmaceutical companies and financial services firms in the nation. He is also a best-selling Amazon author with 30 published text books in four languages [National Institute of Health, Library of Congress and Library of Medicine]. Dr. Marcinko is past Editor-in-Chief of the prestigious "Journal of Health Care Finance", and a former Certified Financial Planner®, who was named "Health Economist of the Year" in 2010, by PM magazine. He is a Federal and State court approved expert witness featured in hundreds of peer reviewed medical, business, management and trade publications [AMA, ADA, APMA, AAOS, Physicians Practice, Investment Advisor, Physician's Money Digest and MD News]. As a licensed insurance agent, RIA and SEC registered affiliate, Dr. Marcinko is Founding Dean of the fiduciary focused CERTIFIED MEDICAL PLANNER® chartered designation education program; as well as Chief Editor of the HEALTH DICTIONARY SERIES® Wiki Project. His professional memberships include: ASHE, AHIMA, ACHE, ACME, ACPE, MGMA, FMMA and HIMSS. Dr. Marcinko is a MSFT Beta tester, Google Scholar, "H" Index favorite and one of LinkedIn's "Top Cited Voices". Presently, Professor Marcinko is "ex-officio" and R&D Scholar-on-Sabbatical for iMBA, Inc.

    entrepreneur

    Frontal_lobe_animation

  • PodiatryPrep.org


    BOARD CERTIFICATION EXAM STUDY GUIDES
    Lower Extremity Trauma
    [Click on Image to Enlarge]

  • Most Recent ME-Ps

  • ME-P Free Adverting Sales Consultation

    The “Medical Executive-Post” is about connecting doctors, health care executives and modern consulting advisors. It’s about free-enterprise, business, practice, policy, personal financial planning and wealth building capitalism. We have an attitude that’s independent, outspoken, intelligent and so Next-Gen; often edgy, usually controversial. And, our consultants “got fly”, just like U. Read it! Write it! Post it! “Medical Executive-Post”. Call or email us for your FREE advertising and sales consultation TODAY [770.448.0769]

    Product Details

    Product Details

  • Medical & Surgical e-Consent Forms

    ePodiatryConsentForms.com
  • Hope Hetico RN MS [Managing Editor]

    Prof. Hetico

     

     

     

     

    ME-P SYNDICATIONS:
    WSJ.com,
    CNN.com,
    Forbes.com,
    WashingtonPost.com,
    BusinessWeek.com,
    USNews.com, Reuters.com,
    TimeWarnerCable.com,
    e-How.com,
    News Alloy.com,
    and Congress.org

    Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM)

    Product Details

    Product Details

    Product Details

  • iMBA White Papers

    2017 Customized Industry Topics [$1,500 unlimited corporate license]March 5th, 2017
    Medical Clinic Valuations * Endowment Fund Management * Health Capital Formation * Investment Policy Statement Analysis * Provider Contracting & Negotiations * Marketplace Competition * Revenue Cycle Enhancements; and more! HEALTHCARE FINANCIAL INDUSTRIAL COMPLEX
  • Ann Miller RN MHA [Executive-Director]

    iMBA VIRTUAL OFFICES [1.770.448.0769] Atlanta, GA.
    Location doesn't matter. We welcome new long-distance clients and colleagues.

  • ME-P Publishing

  • SEEKING INDUSTRY PARTNERS?

    If you want the opportunity to work with leading health care industry insiders, innovators and watchers, the "ME-P" may be right for you? We are unbiased and operate at the nexus of theoretical and applied R&D. Collaborate with us and you’ll put your brand in front of a smart & tightly focused demographic; one at the forefront of our emerging healthcare free marketplace of informed and professional “movers and shakers.” Our Ad Rate Card is available upon request [770-448-0769].
  • Reader Comments, Quips, Opinions, News & Updates

  • Start-Up Advice for Businesses, DRs and Entrepreneurs

    ImageProxy “Providing Management, Financial and Business Solutions for Modernity”
  • Up-Trending ME-Ps

  • Capitalism and Free Enterprise Advocacy

    Whether you’re a mature CXO, physician or start-up entrepreneur in need of management, financial, HR or business planning information on free markets and competition, the "Medical Executive-Post” is the online place to meet for Capitalism 2.0 collaboration. Support our online development, and advance our onground research initiatives in free market economics, as we seek to showcase the brightest Next-Gen minds. ******************************************************************** THE ME-P DISCLAIMER: Posts, comments and all opinions do not necessarily represent iMBA, Inc.
  • OIG Fraud Warnings

    Beware of health insurance marketplace scams ================================================ OIG's Most Wanted Fugitives at oig.hhs.gov

The World Experiments with Negative Interest Rates

Join Our Mailing List

Below Zero

ImageProxy

By Dan Timotic CFA

As of late April 2016, six central banks in Europe and Asia have adopted negative interest rates in an effort to stimulate their national economies. The experiment began in Denmark in 2012, but the big step came in June 2014 when the European Central Bank (ECB) dropped its benchmark rate below zero. Sweden and Switzerland soon followed, and Japan and Hungary went negative in early 2016. Taken together, these economies represent about one-fourth of global economic output.1–2

Although the Federal Reserve remains committed to raising the federal funds target rate, the Fed is watching the efforts of foreign central banks with an eye toward expanding its tools in the event of an economic downturn. On a more immediate level, the overseas experiment is affecting the dollar and helping to suppress interest rates in the United States.3–4

Reverse Economics

Central banks lower interest rates for two fundamental reasons: (1) to encourage business investing and consumer spending by making it cheaper to borrow and less lucrative to hold onto cash; and (2) to lower the value of the national currency in order to make exports more appealing and create an expectation of future inflation, which may further stimulate current spending.

The push into negative territory reflects the same goals, but it reverses traditional economic concepts by turning borrowers into creditors and creditors into borrowers. Although specifics vary, the central banks are pulling rates downward by assessing a negative interest rate on certain short-term deposits from commercial banks. These banks actually lose money on their deposits, which in theory should stimulate the banks to lend money to other banks, businesses, and consumers.

The greatest fear regarding negative rates is a mass exodus from the banking system. The experiments in Europe and Japan are still new and the rates relatively moderate, but so far banks and their customers seem to be weathering the transition, albeit with lower margins and additional fees.5 Deposits in eurozone banks grew by $327 billion from June 2014 (when negative rates were implemented) through October 2015.6 Some banks assess negative rates on large commercial customers, but they have been hesitant to do so with retail customers. One small Swiss bank instituted a charge of 0.125% on savings accounts and gained more customers than it lost.7

These early responses suggest that businesses and consumers may be willing to pay a premium to deposit cash assets safely in a bank. Keeping large amounts of cash outside of a bank can be expensive, requiring guards, safes, and other security measures. Average consumers might keep cash under a mattress, but it is difficult to pay bills — or buy merchandise over the Internet — with cash. This cost-benefit balance may change if rates continue to decline.

Bonds and Mortgage Rates

By April 2016, more than $8 trillion of government bonds in Europe and Japan were trading at negative interest rates.8 As with banking, this suggests that some investors are willing to accept a loss in return for the security of government bonds. However, negative or very low yields may put pressure on pension plans and insurance companies, which depend on low-risk, fixed-rate investments.9

Low rates have driven housing prices up in Denmark and Sweden, creating fears of a “bubble.” Some Danish homeowners have even seen the monthly interest on their adjustable-rate mortgages turn into monthly credits due to negative rates.10

***

WA_16051_Experiment_Interest_Rate

***

Currency Competition

After the ECB instituted negative rates, the euro dropped sharply against the U.S. dollar and was still down about 17% in April 2016.11 A strong dollar stimulates European exports at the expense of U.S. exports and makes it more difficult to raise U.S. interest rates, which would only make the dollar more appealing for foreign investors.

Denmark, Sweden, Switzerland, and Hungary all dropped rates in large part to keep their currencies competitive with the euro.12 Denmark’s experience, the longest-running experiment, suggests that negative rates may be effective when the primary goal is to control currency but less effective as a stimulus to growth.13 On the other hand, Japan’s initial efforts have seen the yen rise unexpectedly against the dollar, unsettling markets.14

How Low Can They Go?

Early eurozone results are tepid but encouraging. Annual GDP growth improved to 1.5% in 2015 versus 0.9% in 2014, and lending by eurozone banks (which had been decreasing) increased slightly by 0.6% in 2015.15 It’s unclear how much worse the European situation might be without negative rates.

Assessment

After a tentative beginning, central banks have become more aggressive. In March 2016, the ECB dropped its deposit rate to –0.40%, and the Swiss National Bank rate was –0.75%.16 It remains to be seen how banks and consumers will respond to even lower rates, and whether reverse economics will strengthen the global economy or create new challenges.

All investments are subject to market fluctuation, risk, and loss of principal. Investments, when sold, may be worth more or less than their original cost. Investing internationally carries additional risks, such as differences in financial reporting and currency exchange risk as well as economic and political risk unique to a specific country. This may result in greater investment price volatility.

References

1, 5, 9, 16) International Monetary Fund, 2016 2, 12) Reuters, April 10, 2016 3) The New York Times, March 5, 2016 4, 11) European Central Bank, 2016 6) The New York Times, December 3, 2015 7–8, 10, 14) The Wall Street Journal, April 14, 2016 13) Bloomberg, February 15, 2016 15) The Wall Street Journal, February 28, 2016

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

[PHYSICIAN FOCUSED FINANCIAL PLANNING AND RISK MANAGEMENT COMPANION TEXTBOOK SET]

          Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™         Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

***

Advertisements

2 Responses

  1. More on NEGS

    Negative interest-rate policies adopted by several central banks in Europe and Japan have driven a significant amount of global government bond yields into negative territory.

    It started about two years ago, when the European Central Bank (ECB) took the unprecedented step of lowering its key interest rate below zero. The ECB hoped that, by charging banks to deposit money with the ECB, they would instead put the money to work by lending to businesses and consumers. Earlier this year, Japan followed suit.

    For an investor, a negative yield to maturity means that the interest and principal payments that the investor collects as the bond matures are worth less than the current price of the bond.

    But, it’s a bit more complicated for U.S.-dollar-based investors because a portion of the return of an international bond can come from its associated currency exposure. This exposure can be partly neutralized through hedging, which can make the “currency-adjusted yields” of international bonds look similar to comparable yields of domestic bonds.

    Currently, for U.S. investors, hedged international bonds would have positive “currency-adjusted yields,” while European and Japanese investors would face negative “currency-adjusted yields” when hedging.

    International bonds can provide important diversification benefits, and they are the world’s largest asset class, representing nearly one-third of the global capital market’s value. International bonds are driven by some factors that are relatively different from those that drive U.S. bonds. For example, global central banks’ monetary policies have diverged, as the Federal Reserve began raising rates while many others have done the opposite. Differences in economic policies, inflation, and growth can translate into differences in interest rates across countries.

    So, some hedged international bonds can play a role in a diversified portfolio and can serve as a counterweight to stock market volatility.

    Dr. David E. Marcinko MBA

    Like

  2. NEGS

    Earlier this week, the U.S. Treasury 10-Year Yield reached a record all-time low of 1.32%. Investors in U.S. Treasuries bonds (0-10 years’ maturity) are now losing money when adjusting for inflation. Comparatively, U.S. stocks currently yield around 2% in dividends annually.

    The phenomenon of low rates has been even more exaggerated in Europe than in the United States. Germany, Switzerland, Denmark, Sweden all currently have negative interest rates.

    Essentially, investors in these countries may be forced to pay cash just to hold money in the bank. In the most extreme of these cases, the Swiss 3-month Libor rate was at -0.8% as of late June! We also saw record-lows in France and U.K.

    Patrick Bourbon CFA

    Like

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: