RE: Re: RE: Re: RE: Re: P.S.

["Devine, James" <jdevine@xxxxxxx>]

 negative real interest rates are hardly a mystery, since we had them (ex
post) in the U.S. during the 1970s. It does seem impossible to have them in
a deflationary economy (such as that of Japan during the last 10 years or
so) because deflation raises the real interest rate, given any nominal rate:
real rate of interest = nominal rate of interest + rate of deflation. With
zero nominal rates (supposedly the minimum nominal rate possible), a
deflation rate of %5 implies a positive 5% real rate.

JD
-----Original Message-----
From: Michael Perelman
To: pen-l@xxxxxxxxxxxxxxxxxxx
Sent: 5/11/2002 5:14 PM
>Subject: [PEN-L:25902] Re: RE: Re: RE: Re: P.S.

Jim and Sabri, negative real interest rates seem to have existed in
Japan.
Here is one of the earliest references.
Wudunn, Sheryl. 1998. "Zen Banking: Some Interest Rates in Japan Drop
Below Zero." New York Times (7 November).

"The slide below zero shows how some investors have become so downbeat
about the Japanese economy that they are willing to invest only in
Government bonds, the safest bets in the country.  It also means that
there are so many yen around that some banks, mostly foreign banks, are
willing to pay someone to take them off their hands for a time."

It is risky to hold cash because theft is easier, so corps. with tons of
money, in effect, pay the gov't to hold their money in return for bonds.
Sort of like the negative interest rates that goldsmiths were said to
charge for holding $$$.
 --
Michael Perelman
Economics Department
California State University
Chico, CA 95929

Tel. 530-898-5321
E-Mail michael@xxxxxxxxxxxxxxxxx