View Full Version : 0% the new Y2K?
Admiral Huddy
09-01-2009, 09:12
I have just been given an urgent project to test our banking software in the event of 0% rates. Remembering that dividing by zero can cause programs to fail if not checked before the calculation. Obviously, the bank feels that this could be a possibility and is paniking a bit as this must be completed by end of February.
In addition to this, I've also been asked to look at negative rates at the same time. I can't get my head round this one. If this were to happen, the banks would pay you interest for Mortgages and you pay interest on savings :p
Interesting times indeed.
dirtydog
09-01-2009, 11:02
I wonder if it is causing any problems in the US where base rates are already 0%. Although banks themselves will never lend to customers at that rate, obviously.
How can you have a negative rate? People would be taking out mortgages just to earn some money ;D
dirtydog
09-01-2009, 11:13
negative interest rate
a rate below zero, whereby the lender, actually or technically, pays interest to the borrower. In 2002, for example, the federal funds rate was lower than the rate of inflation, resulting in a real interest rate that was, technically, negative.
I don't think there have ever been literally negative rates before though? Like -0.5%? I know having a 0% base rate isn't new as Japan did it in the 90s. Retail customers and businesses wouldn't be able to borrow money at that rate but banks and institutions would be able to get it that cheaply from the government.
Is promotion of business interests allowed here? I know a man who can sell you a software tool to help with this. Sadly the tool I work on doesn't handle the arcane programming language you guys use, but we just bought another tool that does. :)
Anyway, I'm no economist so you'd have to check this out, but it's my understanding that base rates can't go negative (in numerical terms). Instead, they use a technique with a horrible name - 'Quantitative Easing' - which essentially means buying up high quality bank assets (e.g. bonds) for cash. Not that far removed from the bailouts we've already seen.
Admiral Huddy
09-01-2009, 11:18
How can you have a negative rate? People would be taking out mortgages just to earn some money ;D
Easily. The banks don't quite play ball when it comes to the basis rate so although the basis rate might be negative, the banks may still keep this as postive or zero.
The purpose of a negative basis rate is to encourage people not to save and spend thereby forcing people to spend. I choice the word forcement because it wouldn't pay to hang on to cash.
The rate also helps over inflated currencies, such as Zimbabwean dollars, to invest in safe house UK banks
A negative interest rate for borrowers would simplay means the bank calling the loan so they don't pay you interest.
No no, let it divide by zero. We'd all be INFINITELY RICH!!! :cool:
Wow that's something I hadn't thought about - could be another reason for banks not to pass on the full cut :D
Great stuff, made a mint from Y2K , about time we had another :p
Chuck Norris CAN divide by zero!
Admiral Huddy
12-01-2009, 15:10
Great stuff, made a mint from Y2K , about time we had another :p
Bless those days which paid for half my house
Likewise, though in my case they just meant I had more to waste/have less debt. :o
Japan have had implied negative (risk free) rates on short dated deposits on a number of occasions, and it's not caused them any problems.
Divide by zero would never be a problem either, as the interest rate is always (1 + r), not r.
Admiral Huddy
13-01-2009, 17:15
I see - problem is our legacy software is based on a database which is 25+ years old.
It still shouldn't be a problem - There should never be an occasion where you actually divide by the zero. At zero interest, you would multiply / divide by 1 (for -1%, you would divide/multiply by 0.99).
This does assume that the original coders followed at least basic maths. Which is not a very safe assumption.
Just run a regression test with a zero rate, and see what breaks.
Then go on holiday.
Admiral Huddy
13-01-2009, 17:52
Which is not a very safe assumption.
Just run a regression test with a zero rate, and see what breaks.
Then go on holiday.
Exactly..
I've already found a few examples :
B4139C B60AM2 DIV RTE,J WK2 H 930518
mod date is on far right.. RTE is not checked fo 0.
Piggymon
13-01-2009, 22:33
Welcome to BD Borris :)
Welcome to BD Borris :)
Your bruise has an account? :shocked:
Piggymon
14-01-2009, 08:25
LOL ! ;D
Borris the bruise has gone now \o/
Admiral Huddy
05-02-2009, 13:06
Base rate is now at 1% and further cuts maybe on the cards.
C&G now have to charge 1,500 of their customers 0.001% (8p/£100,000/month) interest because their systems can't handle 0%. Apparently, they're trying to fix that. All I can say is 'lucky you', whoever those 1,500 customers are. :)
Matblack
05-02-2009, 14:00
Can't believe that this time last year I was paying around £180/ month in interest on the mortgage now its less than £60, soon to be about £40 :shocked:
MB
I'm still paying the same as I was last year. :'(
Base rate is now at 1% and further cuts maybe on the cards.
Well it really looks like we are going to hit 0% then. I hate to think of the exchange rates ...
Euro 1.14
USD 1.46
edit:-
http://www.forbes.com/feeds/ap/2009/02/03/ap6002162.html
http://www.bloomberg.com/apps/news?pid=20601085&sid=avxHscaqt.8g&refer=europe
"Chancellor of the Exchequer Alistair Darling (http://search.bloomberg.com/search?q=Alistair+Darling&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) has suggested that he may have to scale back his prediction of a recovery in the second half of the year. He said yesterday that major economies are facing the worst slump since the 1930s."
In the 70s Switzerland had negative interest rates on swiss franc deposits by non residents, to try and stem appreciation against the dollar. The rate was -40% annually.
Thinking about negative interest rates on loans, rather than giving you money directly shouldn't it just come off the capital of the loan, not that it'll ever actually happen.
"Chancellor of the Exchequer Alistair Darling (http://search.bloomberg.com/search?q=Alistair+Darling&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) has suggested that he may have to scale back his prediction of a recovery in the second half of the year. He said yesterday that major economies are facing the worst slump since the 1930s."Lucky that the rest of the world had already faced up to that particular little fact, and ignored Darling in the first place, as befits the mendacious mong faced gonad.
Lucky that the rest of the world had already faced up to that particular little fact, and ignored Darling in the first place, as befits the mendacious mong faced gonad.
LMAO I fully agree and I was hinting of that, but you've put it brilliantly. For example IMF and the rest of the world say the economy is going to shrink..... Darling predicts growth Q2 ;D
Chuckles
05-02-2009, 16:09
Apparantly the general feeling is that this is the last of the cuts and the next change will be an increase. Hopefully not until 2010 though :)
Meh - I was told that by a Mortgage adviser at Lloyds a few weeks ago. Look what happened next. :)
They're obviously not far off the bottom though so I expect they're probably right.
Lucky that the rest of the world had already faced up to that particular little fact, and ignored Darling in the first place, as befits the mendacious mong faced gonad.
Feel free to tell us what you really think of him. ;D
...the mendacious mong faced gonad.
;D;D;D
Argentina or somewhere went to -0.25 for a short time in the 70s.
It's happened before :-(
Admiral Huddy
05-03-2009, 13:06
Rates down to .5%.. It's looking more likely that 0% will be with us before the summer, and possibly lower.
BoE and the Goverment are running out of headroom.. The next step is likely to bring more cash into circulation.. Germany did this in the 1930s.. Mmm What happended next. :p
leowyatt
05-03-2009, 13:08
was on the news earlier an injection is on the way. Great news for all the variable rate customers.
Our mortgage is unfortunately fixed at 6.15% I think it is. :(
Would cost over £3k to get out of it too.
leowyatt
05-03-2009, 13:15
I don't think anyone is offering variable anymore Mic. Most people I know are in fixed rate.
Briggykins
05-03-2009, 13:23
BoE and the Goverment are running out of headroom.. The next step is likely to bring more cash into circulation.. Germany did this in the 1930s.. Mmm What happended next. :p
Yeah, I don't get why a cash injection is being considered. Germany, Yugoslavia, latterly Zimbabwe, in all cases it led to hyperinflation. I don't know much about economics but has simply printing more money ever worked?
Matblack
05-03-2009, 13:37
This is getting silly now, we've droped the rates a few times and the market hasn't really reacted, another tack needs to be tried, I really feel for those who are trying to live off their savings and are quickly eroding their capital, not good. Of course we're quite happy, as always I'll keep over paying the mortgage at the same rate and more cash will come off the capital which would have gone on paying off the interest, the difference however is small enough for me to afford to be altruistic.
MB
Our mortgage is unfortunately fixed at 6.15% I think it is. :(
Would cost over £3k to get out of it too.
Still not bad though. 6%is still very low in the scheme of things.
Annoying, but I really don't get all thus ho har about people saying you need 25% to get a mortgage. 10% equates to around a 6% mortgage which is still very good. not the best deal you can get but not to be sniffed at either.
Yeah, I don't get why a cash injection is being considered. Germany, Yugoslavia, latterly Zimbabwe, in all cases it led to hyperinflation. I don't know much about economics but has simply printing more money ever worked?
I don't think the current plan is technically printing money as such, as I understand it the BoE will buy bonds and other such assets from government, companies etc with "money" they have just created. So while the money in circulation increases in theory you've taken assets out of the economy of an equivalent value, then when they're finished they can redeem the bonds/sell the assets and take the money back out of the system.
LeperousDust
05-03-2009, 17:11
But surely its still money from nowhere whichever way you play that card. I don't know what will happen, neither do they. But its happening so i guess we'll see.
Admiral Huddy
05-03-2009, 17:54
As said before, you can't buy consumer confidence, which is what they are trying. A -ve interest rate will force people to spend. I'm pretty sure Japan did it 15 years ago or so.
FrostedNipple
05-03-2009, 18:51
Eurgh, my isa is now earning even less (i assume) :( What is inflation currently at?
I don't think the current plan is technically printing money as such, as I understand it the BoE will buy bonds and other such assets from government, companies etc with "money" they have just created. So while the money in circulation increases in theory you've taken assets out of the economy of an equivalent value, then when they're finished they can redeem the bonds/sell the assets and take the money back out of the system.
This is correct. There are no plans to warm up the printing presses (beyond the usual replacement of existing notes and whatever else they do). The £75bn will be used to buy up low(ish) risk government and corporate debt.
My mortgage is 5.8% fixed until 2012. No exit penalty though so I'll be heading to Oxford to see the 'local' mortgage types in a week. I was considering trying to move onto an offset scheme but they're all disappearing too, for reasons that are probably obvious.
Eurgh, my isa is now earning even less (i assume) :( What is inflation currently at?
ISA's shouldn't drop until the end of the month. But it's a fair bet they'll drop another 0.5% or so then!
However, April 5th is the new tax year so there will hopefully be some good new fixed term offers. By good I mean relative to 0.5% of course, I think we can forget 6% for another year or two.
Think inflation is still over 2%, not sure on an exact figure.
[Edit] I could be wrong, they've just changed mine backdated to March 1st. Gits.
Got some money in an old ISA I was looking to transfer. I just found this gem:-
Our Barclays Cash ISA allows you to transfer your cash ISA from other providers. Open an account from just £1 and start earning a variable interest rate from 0.10% AER/tax-free* paid annually.
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