0% the new Y2K?

[Admiral Huddy]

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

Interesting times indeed.

[dirtydog]

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.

[Desmo]

How can you have a negative rate? People would be taking out mortgages just to earn some money

[dirtydog]

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.

[Mark]

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]

Originally Posted by Desmo

How can you have a negative rate? People would be taking out mortgages just to earn some money

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.

[Jonny69]

No no, let it divide by zero. We'd all be INFINITELY RICH!!!

[Solari]

Wow that's something I hadn't thought about - could be another reason for banks not to pass on the full cut

[Grandad]

Great stuff, made a mint from Y2K , about time we had another

[Fayshun]

Chuck Norris CAN divide by zero!