Yesterday, we looked at how governments around the world are outlawing physical cash and replacing it with purely digital currencies.
And I (Chris) showed you why it’s a danger to your wealth.
Without the “escape hatch” of physical cash, you’re helpless against bankers’ most bizarro idea to date – negative interest rates on savings.
And as you’ll see today, this doesn’t just mean seeing part of your savings go poof each year.
It’s an attack on your economic liberty… one that will send even more investors seeking safety in gold.
The only difference is that unelected central bankers, rather than elected lawmakers, call the shots.
Dan Denning works alongside Legacy Research cofounder Bill Bonner on The Bonner-Denning Letter. And he’s been warning readers that it’s critical to pay attention to what’s going on…
If you value sound money and political freedom… if you value limited government and taxation with representation… and if you value enterprise and privacy… then you’re going to hate the financial future that’s coming.
The bad news is that negative rates are a trend in motion.
Typically, commercial banks earn a positive rate of interest on the deposits they hold with their central bank. (These deposits are known as “reserves.”)
It’s an important stream of income for banks.
But when a central bank sets rates in negative territory, your bank has to PAY interest on those reserves.
And along with central banks in Switzerland, Denmark, Sweden, and Japan, that’s what the European Central Bank (ECB) has done.
So far, banks have tried to eat those costs. They fear that charging folks to deposit money with them will trigger mass withdrawals.
And they’re right. Already, there’s been a spike in the demand for safe deposit boxes and safes to store large cash piles in.
But there’s only so much of a hit to earnings banks can take before they buckle. Eventually, they have to pass along the cost of negative rates to their customers.
That’s what Germany’s second-largest bank did yesterday. As Bloomberg reported…
Berliner Volksbank, the country’s second-largest cooperative lender, started to apply a minus 0.5% rate on deposits exceeding 100,000 euro ($110,000) in its first charge for retail clients. The move may encourage other lenders to follow suit, with both Deutsche Bank AG and Commerzbank AG signaling that they’re warming to the idea.
And Germany isn’t the only rich European country doing this to savers.
Last week, Spar Nord Bank said it would hit deposits of over 750,000 kroner ($110,000) with a minus 0.75% rate.
Denmark’s second-largest lender, Jyske Bank, says it’s doing the same.
And when my folks in Ireland tried to move some of the stocks in their retirement account to cash deposits, the proposed charge was minus 0.75%.
At that rate, for every €100,000 they put on deposit, they lose €750 a year.
I can tell you, it’s galling to have to fork over hard-earned savings like that. If that’s not a war on savers, what is?
But don’t expect that to last.
Here’s how Bill put it to readers of his free daily newsletter back in March 2016 under the title “Why Interest Rates Are NEVER Going Back to Normal”…
Central banks destroy the real economy with cheap money and extractive policies. Then, as the economy slumps, they need to bring their policies in line with the slumping economy. They need to swear off raising rates back to normal.
And since their policies can never produce real prosperity, they can never produce an economy that can support normal interest rates.
This year, Bill was proven right.
But it’s slashed rates two times instead.
And it’s been signaling it will cut rates again at its next scheduled rate-setting meeting on October 30.
Don’t forget, the U.S. had a zero interest-rate policy for seven years under President Obama. It’s not far-fetched to think the Fed will go back to zero… or lower.
President Trump sure wants that. Just last month he tweeted:
The Federal Reserve should get our interest rates down to ZERO, or less…
The USA should always be paying the lowest rate. No Inflation! It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing. A once in a lifetime opportunity that we are missing because of “Boneheads.”
As he puts it, it’s now Inflate or Die for the Fed.
There are no lengths it won’t go to in order to keep the credit bubble… and the stock market… inflating.
That includes hitting you and other U.S. savers with a negative rate.
Here’s Marvin Goodfriend of Carnegie Mellon University at the Fed’s annual retreat in Jackson Hole, Wyoming, in 2016…
The most straightforward way to unencumber interest rate policy completely at the zero bound is to abolish paper currency. In principle, abolishing paper currency would be effective, would not need new technology, and would not need institutional modifications.
Goodfriend isn’t some obscure academic. President Trump nominated him to serve on the Fed’s seven-member Board of Governors.
And as Dan has been warning, that’s a concern if you value your economic liberty…
There is an effort underway to do away with your individual economic liberty and your preference to hold cash. “If that could be overcome,” Goodfriend seems to be saying, “then we could make you act the way we want you to.”
In a world where government has unrestricted control of the money, and hiding in physical cash is no longer an option, there’s no end to what a central bank could force you to do.
That’s the bad news: Your wealth… and your freedom… are under attack.
As regular readers know, we called the start of a 27% run in gold last August.
And we’ve been bullish ever since.
Gold, as we explored in these pages two weeks ago, was also one of the hottest investment themes at our second annual Legacy Investment Summit in Carlsbad, California.
And as we’ll get into tomorrow, the steady march of negative interest rates is going to spur gold even higher.
That’s because gold is immune from central banks’ negative interest rate tax.
So stay tuned for more on that in tomorrow’s dispatch.
Regards,
Chris Lowe
October 8, 2019
Dublin, Ireland