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.

 

Japan 10-Year Bond Yield(WeeklyJGB 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.

 

1015house-of-cardsThe fixers …

Cartoon by B. Rich

 

Head Buster

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?

 

hurdles02A 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!

 

schwartz and friedmanAnna 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, The Friedman Foundation for Educational Choice

 

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.

 

jesus 2There 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.”

 

KurodaThere’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.

 

 
 

Emigrate While You Can... Learn More

 
 

 
 

Dear Readers!

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”

  • FreemonSandlewould:

    Between the fall of 2919 and early 1933, its balance sheet expanded by more than 400%!

    Ok I’m thinking you have a Reverse Arrow(tm) time machine.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • How to Stick It to Your Banker, the Federal Reserve, and the Whole Doggone Fiat Money System
      Bernanke Redux Somehow, former Federal Reserve Chairman Ben Bernanke found time from his busy hedge fund advisory duties last week to tell his ex-employer how to do its job.  Namely, he recommended to his former cohorts at the Fed how much they should reduce the Fed’s balance sheet by.  In other words, he told them how to go about cleaning up his mess.   Praise the Lord! The Hero is back to tell us what to do! Why, oh why have you ever left, oh greatest central planner of all...
  • India: Why its Attempt to Go Digital Will Fail
      India Reverts to its Irrational, Tribal Normal (Part XIII) Over the three years in which Narendra Modi has been in power, his support base has continued to increase. Indian institutions — including the courts and the media — now toe his line. The President, otherwise a ceremonial rubber-stamp post, but the last obstacle keeping Modi from implementing a police state, comes up for re-election by a vote of the legislative houses in July 2017.  No one should be surprised if a Hindu...
  • Moving Closer to the Precipice
      Money Supply and Credit Growth Continue to Falter The decline in the growth rate of the broad US money supply measure TMS-2 that started last November continues, but the momentum of the decline has slowed last month (TMS = “true money supply”).  The data were recently updated to the end of April, as of which the year-on-year growth rate of TMS-2 is clocking in at 6.05%, a slight decrease from the 6.12% growth rate recorded at the end of March. It remains the slowest y/y growth since...
  • What is the Buffet Indicator Saying About Gold?
      Chugging along in Nosebleed Territory Last Friday, both the S&P 500 and the Nasdaq composite indexes closed at record highs in the US, with the Dow Jones Industrial Average only a whisker away from its peak set in March. What has often been called the “most hated bull market in history” thus far continues  to chug along in defiance of its detractors.   Can current stock market valuations tell us something about the future trend in gold prices? Yes, they actually...
  • The 21st Century Has Been a Big, Fat Flop
      Seeming Contradiction CACHI, ARGENTINA – Here at the Diary we have fun ridiculing the pretensions, absurdities, and hypocrisies of the ruling classes. But there is a serious side to it, too. Mockery makes us laugh. And laughing helps us wiggle free from the kudzu of fake news.   Is it real? Is it real? Is it real? Above you can see what the problem with reality is, or potentially is, in a 6-phase research undertaking that has landed its protagonist in a very disagreeable...
  • A Cloud Hangs Over the Oil Sector
      Endangered Recovery As we noted in a recent corporate debt update on occasion of the troubles Neiman-Marcus finds itself in (see “Cracks in Ponzi Finance Land”), problems are set to emerge among high-yield borrowers in the US retail sector this year. This happens just as similar problems among low-rated borrowers in the oil sector were mitigated by the rally in oil prices since early 2016. The recovery in the oil sector seems increasingly endangered though.   Too many oil...
  • Will Gold or Silver Pay the Higher Interest Rate?
      The Wrong Approach This question is no longer moot. As the world moves inexorably towards the use of metallic money, interest on gold and silver will return with it. This raises an important question. Which interest rate will be higher?   It’s instructive to explore a wrong, but popular, view. I call it the purchasing power paradigm. In this view, the value of money — its purchasing power —is 1/P (where P is the price level). Inflation is the rate of decline of...
  • Rising Oil Prices Don't Cause Inflation
      Correlation vs. Causation A very good visual correlation between the yearly percentage change in the consumer price index (CPI) and the yearly percentage change in the price of oil seems to provide support to the popular thinking that future changes in price inflation in the US are likely to be set by the yearly growth rate in the price of oil (see first chart below).   Gushing forth... a Union Oil Co. oil well sometime early in the 20th century   But is it valid to...
  • Warnings from Mount Vesuvius
      When Mount Vesuvius Blew   “Injustice, swift, erect, and unconfin’d, Sweeps the wide earth, and tramples o’er mankind” – Homer, The Iliad   Everything was just the way it was supposed to be in Pompeii on August 24, 79 A.D.  The gods had bestowed wealth and abundance upon the inhabitants of this Roman trading town.  Things were near perfect.   Frescoes in the so-called “Villa of the Mysteries” in Pompeii, presumed to depict scenes from a...
  • A Bumper Under that Silver Elevator – Precious Metals Supply and Demand
      The Problem with Mining If you can believe the screaming headline, one of the gurus behind one of the gold newsletters is going all-in to gold, buying a million dollars of mining shares. If (1) gold is set to explode to the upside, and (2) mining shares are geared to the gold price, then he stands to get seriously rich(er).   As this book attests to, some people have a very cynical view of mining...  We would say there is a time for everything. For instance, when gold went ...
  • Silver Elevator Keeps Going Down – Precious Metals Supply and Demand
      Frexit Threat Macronized The dollar moved strongly, and is now over 25mg gold and 1.9g silver. This was a holiday-shortened week, due to the Early May bank holiday in the UK. The lateral entrant wakes up, preparing to march on, avenge the disinherited and let loose with fresh rounds of heavy philosophizing... we can't wait! [PT]   The big news as we write this, Macron beat Le Pen in the French election. We suppose this means markets can continue to do what they wanted...
  • The Knives Come Out for Trump
      A Minor Derailment GUALFIN, ARGENTINA – Yesterday, stocks fell. And volatility shot up.   When too many people have too many knives out at once, accidental cubism may result   Reports Bloomberg:   The Dow Jones Industrial Average tumbled more than 370 points, Treasuries rallied the most since July and volatility spiked higher as the turmoil surrounding the Trump administration roiled financial markets around the globe. Major U.S. stock indexes...

Support Acting Man

Austrian Theory and Investment

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com