I read a news story today (link) where some economists (or rather, analysts who focus on economists, which is a little like saying “con men who study charlatans”) speculate on the possibility of a zero percent prime rate from the Fed.

Aside from the obvious economic turmoil this would generate, if this were to happen, one hidden cost will be the computer downtime as software on Wall Street (and many other places) is patched to fix all the points where division by zero is tickled.

You read it here first.

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13 Responses to NAN

  1. erik says:

    Not to mention the effects of the tickling itself!

  2. Justin says:

    That’s a really interesting thought… You’re probably right about that one! Time to dust off the COBOL I guess 🙂

  3. Jack Hughes says:

    I’d be amazed if it is a problem… zero % interest rates would be one of the first boundary tests I’d document (and code in the unit tests).

  4. Reuben says:

    Call me Mr Thicky if you will, but when would you need to divide by a percentage rate?

  5. landon says:

    @Reuben: You’re probably right. Then again, software is a tricky business, and who knows when someone would take (say) a reciprocal of an interest rate to do some kind of analysis.

    @Jack: I don’t have a sense for how well financial apps are written. Spreadsheets, probably not so well reviewed. I don’t know about analysis programs, or “that Smalltalk thing the consultant whupped up five years ago.”

    The primary worry is: Large body of code out there, and an interesting boundary condition that *I’ll bet* hasn’t been tested everywhere. Mitigate that with “why would you ever divide by an interest rate?” and there probably won’t be a problem.

    Just don’t be surprised to see the DOW go to NAN or zero or -INF or something because of IEEE arithmetic poisoning…

  6. Johnny says:

    It will serve the totalitarians *cough* I mean economists right if everything does crash. It still won’t stop the Federal Reserve from debasing/inflating/creating our currency and proportionately destroying the last shreds of economic stability we have left. lim x—>0 (1/x) = INF….GO ZERO!!!!!

  7. Ben, UK says:

    We’ve had a similar (but not as extreme) issue here in the UK. They reduced VAT (sales tax, I guess) from 17.5% to 15% as a stimulus measure, with one week’s notice. Cue massive expenditure on overtime and consultants as systems that have been running at 17.5% for nearly 20 years suddenly need to run at 15%.

    Obviously a sales tax change is foreseeable and the rate shouldn’t have been hardcoded anywhere, but it was – and even worse VAT isn’t supposed to go down, only up.

    The other issue this highlighted is basic maths failure at all levels because this is actually a price drop of 2.13% (1.175/1.15) and not 2.5%, so a lot of people bodged it but bodged it.. poorly.

  8. Jack Hughes says:

    @landon – what are the odds on the “smartest guys in the room” bankrupting most of western civilization AND messing up their IT systems so it can’t cope with 0% interest rates. You’d have to be nuts to think that…oh, wait…

  9. was predicting this in October 08. I like the division by zero angle, though.

  10. And here it is. The fed cut interest rates to zero. Last October, predicted negative interest rates this summer (essentially paying people money to borrow and spend). We’ll see if it comes to pass.

  11. Bob says:

    Related story – my company (in Canada) had a bug in their financial software related to exchange rates. Apparently the designers of the software had always assumed that the exchange rate between the Canadian dollar and the US dollar would be less than one. However, there was a period last year when the CAD became more valuable than the USD for the first time in several decades. The software couldn’t handle this, resulting in various negative numbers and infinities in the output. They had to scramble to issue a patch.

  12. landon says:

    @Bob: (tiny little vindication dance)

  13. alessandro says:

    for the interest (+1 point for pun) of accuracy i’d like to say that the first SFish place where i read a piece on negative interest rates was futurefeedforward (.com,.net or something)

    im just not sure that lenders of last resort would be happy to accept it..

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