2019-28 The cost of storing cash

Earlier in the course we discuss the cost of storing cash. This article from the Guardian provides an estimate. It is about safety boxes for billionaires.

"The cheapest safety deposit box, which is just 5cm high, 16cm wide and 49cm deep, costs £600-a-year-to rent. That compares to £465 for a box twice the size in Harrods, and £240 in Metro Bank – the UK’s largest supplier of safety deposit boxes with 150,000 boxes across 70 branches."

You probably do not qualify so I am going to use the info on Metro Bank. 

1. A box twice the size of a box for billionaires would be 10cm by 16 cm by 50cm = 8000 cubic cm. It costs 240 pounds a year, or about USD 300
2.  So it would hold 8litres = 8kg of water
3.  Assume, generously, that paper money is four times lighter than water (nowadays banknotes are not flat). That means the box would hold 2 kg of banknotes
4.  A USD100 note weighs 1 gram. So this would be 2000 such notes, or $200 000

So the yearly cost of holding cash in a Metro Bank safety deposit box is $300/$200 000, or 0.15%

This limits how negative interest rates can become.

If you do qualify, here is the website:  https://www.internationalvaults.com/

It will cost you five times as much but they will pick you up in a Rolls Royce. And bigger boxes probably have lower prices per unit of volume.

2019-27 Another risk to watch

This Bloomberg article discussess the worries of central bankers about one important consequence of low interest policies: risky behaviour by investors (investors here are understood, as in common language,  as people who buy stocks and bonds. Recall that, in economics, this is not considered investment: it is just a change in ownership.  We define investors as people who build new factories, machines, office buildings etc).
What is the issue: with low interest rates around the world, people are searching for return, and put insufficient weight on risk. Here are a few quotes from the aticle:
"A prolonged period of low rates could also “spur reach-for-yield behavior, thereby increasing the vulnerability of the financial sector to subsequent shocks,” .
The ECB -- whose own benchmark rate is below zero -- highlighted threats to investment funds, insurers and in some real-estate markets. It also had a warning that mispriced assets could face corrections in future.
At Germany’s Bundesbank, which has long warned of the dangers of too-loose policy, Vice President Claudia Buch says there’s an “underestimation of credit risk.”"

2019-26 China is getting old

Please read the article in the Economist, posted in Readings as 2019-26 Old China

2019-25 Cryptocurrencies in China

Don't have much future. From the Economist: 

China’s central bank announced a new crackdown on cryptocurrencies in the country’s financial hub, Shanghai. The government had encouraged the development of blockchain technology. But the bank, which has ambitions to launch its own digital currency, warned that this should not be confused with the unregulated issuance of virtual currencies.

2019-24 The world economy is slowing down

From the Economist daily update:

The OECD predicted that the world economy would grow at just 2.9% this year, its weakest showing for over a decade. The club of mostly rich countries also forecast little improvement in growth over the next two years. It blamed, among other things, political uncertainty and the Sino-American trade war, and called for clearer climate-change policies. Note: OECD - the organization of Economic Cooperation and Development - is an international organization with 36 members; mostly developed countries but also some emerging economies. More information can be found here and here. It is an excellent source of economic data.

2019-23 Minimum wage

We have just talked about the effect of minimum wages on unemployment. Please read the article:
2019-23 As Push for Higher Minimum Wages Grows, New York Offers a Test, posted on MLS under Readings.
It is a mandatory reading; there will be question (s) about it on the exam.
It describes the situation in adjacent areas in two neigbouring states: New York and Pennsylvania. New York has been increasing minimum wage significantly. It is now $11.10; next year it will be $12. In contrast, minimum wage in Pennsylvania is $7.25

Here is a graph showing restaurant employment changes in the counties at the border of Pennsylvania and New York

2019-22 FED on climate change

The US central bank, FES, has a dual mandate: "The Fed is legally charged with promoting stable prices and maximum sustainable job growth". It has recently started paying attention to global warming. The article posted under 2019-22 Readings describes the discussion. Please read the article.