Negative Interest Rates

Tue, 11 May 2021 21:28:04 +0530

Have ever thought, even in your wildest dreams, that you will be paid to borrow some money? I know it sounds dumb but it actually happened in Europe.

Now before we go into the details of why Europe implemented negative interest rates it’s crucial to understand the concept. When an economy is in a deflationary spiral i.e where prices are tanking to everyday lows, profits are down, decreased spending there has to be some sought mechanism to boost public spending. Which effectively means that people need to borrow at lower interest rates. If the circumstances are dire then the central bank has to step in and decrease the rates below zero. You might ask why would the banks be willing to lend to loss in the first place. Well, it turns out that private banks park their money at the central bank to earn small interest which the central bank then lends to the government. Remember that the incentive to deposit is to earn some interest. But as the interest rates have tanked you have to pay the bank to store your money. I know it sounds scary!. So why would a bank deposit when it has to cough some of its own money ?. Hence lending in the short term is the only way banks can survive in the deflationary cycle.

Gym Conundrum Plaguing the humanity

Mon, 15 Mar 2021 12:35:04 +0530

The silliest problem that poses threat to your finances is the gym subscription problem. Whether you take an annual or monthly membership , we all can agree that most of that goes down the river. We might comfortable say that gym owners are next to government employees in the way they earn. I know what you have been thinking. Just bill the amount of days you visit the gym.

But I think you should step back a little bit and ponder over this. Subsidizing other humans is not new, throughout your whole life you have been subsidizing some parts of others life. The most complicated financial instrument runs on this simple principle (insurance). Maybe in the future you get treated in a fancy hospital with money from your health insurance friends. And maybe you also paid for your friend while you’re studying. If we think deeply, we might also say that the billing should be done on the amount of time you spent with the equipment. Probably this problem can be compared to OTT subscriptions. If your friend, who is a movie buff, consumes 80 hrs of content per week whereas you consume merely 20 hrs. Will your friend agree to pay more than you ? Probably not because you can’t gauge the films. If that’s the case then you should be willing to pay more for blockbuster films.

Finance on Aneesh Indavarapu

Negative Interest Rates

Gym Conundrum Plaguing the humanity