A bold new experiment is underway. Actually, let’s not call it an experiment. Let’s call it what it really is — an attack … an attack on cash.
In Sweden, Switzerland, Denmark and the euro zone, central banks are using negative interest rates as a primary weapon in trying to bludgeon economies into growth or to force investors to park their cash somewhere else (i.e., America, which ultimately hurts the U.S. economy). Here at home, Janet Yellen has said this year that if circumstances warrant, negative interest rates are “on the table” … and one Fed official in the third quarter projected negative rates in America. The same is at play in the Bank of England.
These are worrying signs of Western economies buried so deeply under debt that currency has become entirely disconnected from money. We — and by “we” I mean governments and monetary officials — see dollars and euros and pounds and francs as the real-world analog of Monopoly scrip. It’s just colored paper.
And therein lies our greatest threat as sovereign individuals — the threat that money as we now know it goes bye-bye.
That’s not an idle worry.
Some highly respected Harvard eggheads as well as some highly respected central bankers have suggested that negative interest rates should also usher in the abolishment of cash. The reasoning is sound, if not chilling.
By imposing negative interest rates on consumers, the thinking goes, consumers will spend their money instead of letting it decay inside a bank account (wishful — and idiotic — ivory tower musings). Commercial banks, meanwhile, will not want to keep cash on deposit with reserve banks for the same reason and, thus, will be more eager to lend more money to get it out the door (again, wishful — and idiotic — ivory tower spittle).
If nothing else, some theories claim consumers won’t mind negative interest rates because currency in the bank is easier to spend than cash in an electronic world … which gets to — and misses entirely — the point of central banker ideas to abolish cash and go to an all-electronic form of currency.
Grab Your Cash
Think about it from your own perspective: What would you do if the First, Second and Third National Banks of Somewhereburg announced that, commencing at sunrise, all the money you have in the bank is now subject to charges — negative interest rates? Henceforth, you will essentially pay the bank to warehouse your money, much like you’d pay the local self-storage facility to warehouse boxes of your junk you don’t want at home.
You’re willing to pay that to keep piles of old books and clothes and maybe the furniture Grandma bequeathed to you that you don’t want cluttering your house. But are you willing to pay your bank to store your money?
Likely not. That is not an arrangement anyone has ever grown up with in America. Bank customers will yank their cash out of the bank. They will store it at home (meaning central bankers will, unwittingly, fuel a raise in home invasions), or they will move it into other assets that they determine will maintain value — be that precious metals, art, prepaid gift cards, bank cashier checks.
In effect, we will see the rise of alternative forms of currency — and potentially a run on the banks.
People will not see money in the bank as a convenience just because they can spend it more easily. Much of America is cash-poor to begin with, and they won’t willingly give up money because of a perceived convenience. They will find workarounds to avoid paying yet another fee to a bank that is already robbing them blind with ATM fees, low-balance fees and you-breathed-air-in-our-lobby fees.
Banks, too, could very well balk. If they’re nervous about peeved customers yanking cash from their accounts, banks will be exceedingly reticent to lend. And in a negative-rate world, a bank could end up in a situation where it pays borrowers. If nothing else, they’d lend money for free, to the degree that deposits stuck around. Banks would be living Bizarro World, and their profit margins would erode.
Your Haven From Negative Interest Rates
I wish this was a hypothetical exercise in currency reducto ad absurdum. Alas, it is not. This is what central bankers, economists and Harvard Pooh-Bahs and others are seriously talking about. We already have one Swiss consumer bank that, next year, will begin imposing negative interest rates on average savers.
If there was ever a message that clearly screamed BUY GOLD (and silver)! … this is it.
In a world where your savings account loses money every month instead of earns it, the 0% that gold generates is suddenly a positive. Gold prices will rise.
Seriously. Buy gold.
It will be the only form of money to protect you if negative interest rates are the next stage of the still-unfolding global financial crisis.
Until next time, stay Sovereign…
Jeff D. Opdyke
Editor, Profit Seeker