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In Denmark's case, the rates are set to defend the krone's peg against the euro. Denmark being above average in terms of stability within the euro zone sets negative rates to shoo people from parking their money there, which would otherwise drive demand and increase the exchange rate for the krone.

In Europe as a whole, yes, it is in deep stagnation. There is no where near enough investment opportunity for the wealth within the block, and this is made doubly worse by the governments subsidising all investment, essentially eating half the investment opportunity (while simultaneously creating a beaurocratic nightmare which also needs to be paid for). All the remaining wealth just piles into any old unproductive asset which can out perform the -0.6% bank rate.

If you really want a laugh, read up on how banks are competing to acquire physical currency because cash is cheaper to store in a guarded vault than a database entry with the ECB.

>> If you really want a laugh, read up on how banks are competing to acquire physical currency because cash is cheaper to store in a guarded vault than a database entry with the ECB.

Hahaha, so as the governments the world over propagandize (read black money/corruption) people to move to digital cash the banks are legally allowed to hold mountains of them. And ...even charge people a fee to withdraw there own money as cash.

https://www.bloomberg.com/news/articles/2020-01-31/german-ba...

> If you really want a laugh, read up on how banks are competing to acquire physical currency because cash is cheaper to store in a guarded vault than a database entry with the ECB.

I have read about that, and it was worth a good laugh and a "what's the world coming to" kind of head shake. Mind boggling.

> Right now it seems there is too much money searching for returns.

Or too little returns available for all the money. This is the expected end-game for a well developed society, where people have most of what they need so extra capital can't move the needle anymore...

What is kinda good. The problem happens where not everybody is included on that "well developed society" and the excluded people don't make a difference because they get too little money to participate.

We are in uncharted economic waters, and we have been for about 12 years. Not only is there 0% (or lower!) interest rates, we also have QE (central banks buying government assets directly), we have central banks buying corporate debt now!

This is creating market bubbles. Worthless tech stocks is one place. Housing prices have soared. Whatever might happen might happen quickly.

Have we ever been in "charted" economic waters?

> And that money is not somehow just going to disappear over time.

It almost did, in 2008. Something like $3 Trillion evaporated in a very few months. To prevent a disaster that hurt a huge chunk of people, the Fed injected $3 Trillion back into the economy. The Fed was starting to draw that back down, but the economy got jittery, and then Covid happened.

We have the problem (too much money) because the price of fixing it was too high (short-term catastrophe).

Growth correlates best with productivity and productivity is a factor of capital effiency and manpower, and manpower increases with population.

> I don't know how / can't believe how in the 1980s we had the era of 15% interest rates, etc (ok, I have some idea, central bank policies, inflation, etc) -- but it seems now we're in a "forever-0%-interest" situation.

Yes, 17-20% interest rate was not unusual in 70s, 80s, but home prices were much much lower back.

I reckon housing prices would be lower now too if interest rates were at that level. Most people care about what their monthly payment is going to be. If they're paying 20% interest the principal is going to have to be low enough to accommodate their budget. Increase rates and watch demand dry up as the monthly cost skyrockets for those financing the purchase. Prices should drop accordingly.

You're right.

Interest rates have a direct affect on property value.

Note that I do believe that this effect isn't quite as present in the "ultra-luxury" markets (or at least as a much lower impact)

I was interested in how it was possible so did a quick Excel calculation of monthly payment.

For a 100 000 USD home without a down payment, and a 10 year loan you'd pay 1738 USD per month for a total of 208 500 USD. I've used 17% yearly interest rate.

=PMT(0,17/12;10*12;100000)

Today if you used 3% interest rate, your monthly payment would be 965 USD for a total of 116 000 USD.

Buying homes on loans was insanely expensive in 70s-80s but probably the growth of prices of homes made up for it.

In practice, since people can afford to pay $1738 USD per month, they bid up the price of the same house to =FV(0.03/12;10*12;-1738) or 243 000 USD.

Ah so the problem is that the supply of houses is very limited and prices are dictated by amount average house buyer for specific house can afford. It makes sense.

This is another proof why government shouldn't intervene into the market by offering loans or subsidies. Usually what they end up doing is completely opposite of the intention. Instead of subsidizing young buyers to buy homes for less cost, they end up subsidizing the owners of the houses.

Inflation adjusted, median price in 1980 was 180k, it peaked up to 280k in 2007, then dropped back down to 190k by 2011, and has now risen back to 280k in 2020. Feels like a correction is due, but if rates stay so low, who knows.

If you think the overall market is one where supply of housing and/or land is constrained, it might be more relevant to adjust for earnings growth, not just inflation.

Alternatively, if you think for the market as a whole there are not meaningful constraints on supply of housing or land, the more relevant adjustment might be for increases in construction costs.

There is an important point missing. The bank can always lend for a better interest than it gives to its customers. In these cases, they lend for a negative interest rate! Thus the customer pays 0% but the bank still makes money on the loan from for example a government bond of -1% that it is linked to.