If You Have a Bank Deposit, You Will Be Charged to Save Money
AIKEN, South Carolina – The Dow had a good day on Monday. Up 229 points… or about 1.5% [ed note: it didn’t last]. The significance of that is uncertain. Is the market staging a comeback from this year’s losses? Or is it just lollygagging around as usual? TBD.
We are still aghast and agog over the spread of NIRP – negative-interest-rate policy. In Japan, for example… where almost two-thirds of government debt carries a negative yield… savers pay a bankrupt government for the privilege of lending it fictitious money.
JGB yield, weekly – this one is truly from the “you couldn’t make this up” department.
It is a trifecta of absurdity: First, the money is phony. Second, the borrower is insolvent. Third, the interest rate is less than nothing.
And yet, this is not just some strange fluke or financial skullduggery. Central banks in Sweden, Denmark, Switzerland, the euro zone, and Japan – all of them presumably run by sober adults – have pushed their key lending rates into negative territory, too.
They’re doing this to drive bank lending rates into negative territory. Not only will bondholders pay to lend money to governments but also anyone with a bank deposit will be charged to save money. And now, the Fed is considering following suit… and pushing its key rate into negative territory.
When asked whether the Fed would consider taking its rates negative, during her recent grilling on Capitol Hill, Janet Yellen left the door wide open:
“In light of the experience of European countries and others that have gone to negative rates,” she said, “we’re taking a look at them again.”
The fixers …
Cartoon by B. Rich
Yesterday, after spending the night near Charlottesville, Virginia, we drove down to South Carolina, puzzling over NIRP on the long drive. It is a real head buster… It only makes sense if you don’t try to make sense of it.
The logic, as we reminded readers yesterday, is that everything in the world of money is relative. If the economy is backing up, you think you are making progress just by standing still.
The interest rate you have to pay on borrowed funds is also known as the “hurdle rate.” You have to be able to earn more than the interest rate – the hurdle rate – or it doesn’t pay to borrow money. But what if the interest rate is below zero?
Suddenly, even a dead man, stretched out on the ground like a fallen post, can clear the hurdle. When interest rates are backing up, in other words, even a corpse will appear to be moving forward. But wait. He isn’t really moving forward, is he?
A little bit lower, and the dead can jump them too….
Photo via nordicskiracer.com
Monetary scholars Milton Friedman and Anna Schwartz had a theory about the Great Depression. They said the authorities, who failed to keep the quantity of money topped up, were to blame. This is what is known as “monetarism” – the idea that maintaining the right supply of money in the economy is what keeps it on an even keel.
Today, credit is money. When borrowers stop borrowing, credit goes down. And if credit goes down, a recession… or depression… is almost unavoidable. Negative interest rates are a desperate move. Central bankers believe it will keep the money supply from contracting by encouraging people to borrow.
But what a crazy system: People must go further and further into debt (get poorer), or it melts down!
Anna Schwartz and Milton Friedman – their well-meant, but completely erroneous interpretation of the Fed’s failings during the Great Depression has done incalculable harm ever since. Note: it is simply untrue that the Fed didn’t attempt to print its way out of the depression. Between the fall of 2919 and early 1933, its balance sheet expanded by more than 400%! The money supply did contract – but for reasons that were at the time outside of the Fed’s control.
Photo credit: Teresa Zabala / The New York Times,
South… Then West
Our drive took us south and then west. We followed the Jerry Falwell Highway to the Seminole Trail… from the hilltop mansions of the Piedmont region of Virginia through the hollows and hardscrabble farms farther south… past the sleek edifices of Charlotte, North Carolina, and down through the scrub pines of the Carolinas.
Jiffy Lube… Burger-in-a-Hurry… River of Life Church… Chick-fil-A… tumbledown shacks… brick ramblers… Jeff’s Tire… Joe’s Tire… Adult Superstore… Calvary Baptist… Liberty University… Church of the Redeemer… Lothian Lutheran (and not a single liquor store for 100 miles)… Prince of Peace Congregationalist… Grace’s Palm Readings… angus cattle in a field… red tractors… yellow tractors… green tractors… hundreds of RVs… barbed-wire fences… red dirt… mills… plants… warehouses… Jerry’s TV repair (abandoned)… a pile of sawdust as big as one of the Alps… Martha’s Café… Fat Boy Subs… rusty plows… fallen down barns…
“Eat More. Pay Less,” advertised a buffet restaurant.
There are many ways to meet Jesus …
Photo via oddee.com
“Who was Jesus?” asks a billboard (helpfully offering a phone number: 1-888-THE-TRUTH).
“Accident? Get a lawyer FIRST,” suggests another.
In Columbia, we passed the South Carolina Center for Mental Health. Beneath it, a prankster had scrawled a message. We passed too quickly to read it carefully, but we thought it said:
“Half-wits,” with an arrow pointing to the left.
“Full retards,” with an arrow pointing to the right.
“Central bankers… straight ahead.”
There’s one of them!
Photo credit: Toru Hanai / Reuters
Chart by: Investing.com
Chart and image captions by PT
The above article originally appeared as “If You Have a Bank Deposit, You Will Be Charged to Save Money” at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.
You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
One Response to “Trifecta of Absurdity”
Most read in the last 20 days:
- Gold Sector Update – What Stance is Appropriate?
The Technical Picture - a Comparison of Antecedents We wanted to post an update to our late December post on the gold sector for some time now (see “Gold – Ready to Spring Another Surprise?” for the details). Perhaps it was a good thing that some time has passed, as the current juncture seems particularly interesting. We received quite a few mails from friends and readers recently, expressing concern about the inability of gold stocks to lead, or even confirm strength in gold of...
- Don’t Blame Trump When the World Ends
Alien Economics There was, indeed, a time when clear thinking and lucid communication via the written word were held in high regard. As far as we can tell, this wonderful epoch concluded in 1936. Everything since has been tortured with varying degrees of gobbledygook. One should probably not be overly surprised that the abominable statist rag Time Magazine is fulsomely praising Keynes' nigh unreadable tome. We too suspect that this book has actually lowered the planet-wide IQ –...
- Incrementum Advisory Board Meeting, Q1 2017 and Some Additional Reflections
Looming Currency and Liquidity Problems The quarterly meeting of the Incrementum Advisory Board was held on January 11, approximately one month ago. A download link to a PDF document containing the full transcript including charts an be found at the end of this post. As always, a broad range of topics was discussed; although some time has passed since the meeting, all these issues remain relevant. Our comments below are taking developments that have taken place since then into...
- What is the Best Time to Buy Stocks?
Chasing Entry Points Something similar to the following has probably happened to you at some point: you want to buy a stock on a certain day and in order to time your entry, you start watching how it trades. Alas, the price rises and rises, and your patience begins to wear thin. Shouldn't a correction set in soon and provide you with a more favorable buying opportunity? Apple-Spotting – a five minute intraday chart showing the action in AAPL on February 1, 2017 - an...
- Trump and the Draining of the Swamp
Swamp Critters BALTIMORE – The Dow is back above the 20,000-point mark. Federal debt, as officially tallied, is up to nearly $20 trillion. The two go together, egging each other on. The Dow is up 20 times since 1980. So is the U.S. national debt. Debt feeds the stock market and the swamp. What’s not up so much is real output, as measured by GDP. It’s up only 6.4 times over the same period. Debt and asset prices have been rising three times as fast as GDP for 36 years! Best...
- Gold and Silver Divergence – Precious Metals Supply and Demand
Gold and Silver Divergence – Precious Metals Supply and Demand Last week, the prices of the metals went up, with the gold price rising every day and the silver price stalling out after rising 42 cents on Tuesday. The gold-silver ratio went up a bit this week, an unusual occurrence when prices are rising. Everyone knows that the price of silver is supposed to outperform — the way Pavlov’s Dogs know that food comes after the bell. Speculators usually make it...
- When Trumponomics Meets Abenomics
Thirty Year Retread What will President Trump and Japanese Prime Minister Shinzo Abe talk about when they meet later today? Will they gab about what fishing holes the big belly bass are biting at? Will they share insider secrets on what watering holes are serving up the stiffest drinks? [ed. note: when we edited this article for Acting Man, the meeting was already underway] Japan's prime minister Shinzo Abe, a dyed-in-the-wool Keynesian and militarist, meets America's...
- The Great Wailing
Regret and Suffering BALTIMORE – Victoribus spolia... So far, the most satisfying thing about the Trump win has been the howls and whines coming from the establishment. Each appointment – some good, some bad from our perspective – has brought forth such heavy lamentations. Oh no! Alaric the Visigoth is here! Hide the women and children! And don't forget the vestal virgins, if you can find any... You’d think Washington had been invaded by Goths, now...
- Receive a One Percent Gift When Buying or Selling a Home
How to Save Money When Buying or Make More When Selling a Home In your professional capacity and perhaps also in your private life, you may be closely involved with financial and commodity markets. Trading in stocks, bonds or futures is part of your daily routine. Occasionally you probably have to deal with real estate as well though – if you e.g. want to purchase an apartment or a house, or if own a home you wish to sell. The people who took this photograph probably want to...
- Silver Futures Market Assistance – Precious Metals Supply and Demand
Silver Is Pushed Up Again This week, the prices of the metals moved up on Monday. Then the gold price went sideways for the rest of the week, but the silver price jumped on Friday. Taking off for real or not? Photo credit: NASA Is this the rocket ship to $50? Will Trump’s stimulus plan push up the price of silver? Or just push silver speculators to push up the price, at their own expense, again? This will again be a brief Report this week, as we are busy...
- Unleashing Wall Street
To Unleash or Not to Unleash, That is the Question... LOVINGSTON, VIRGINIA – Corporate earnings have been going down for nearly three years. They are now about 10% below the level set in the late summer of 2014. Why should stocks be so expensive? Example of something that one should better not unleash. The probability that a win-lose proposition will develop upon meeting it seems high. It wins, because it gets to eat... Image credit: Urs Hagen Oh,...
- Boondoggles for the Swamp Critters
Monster or Mozart? BALTIMORE – Investors seem to be holding their breath, like a man hiding a cigarette from his wife. It’s just a feeling, and it’s not the first time we’ve had it... but it feels as though it wouldn’t take much to send them all running. Actually, they're not going anywhere yet... but there is a lot of overconfidence by those who were very worried when prices were a lot better - click to enlarge. Meanwhile... we’re coming to a deep...