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! We are happy to report that we have reached our turn-of-the-year funding goal and want to extend a special thank you to all of you who have chipped in. We are very grateful for your support! As a general remark, according to usually well informed circles, exercising the donation button in between funding drives is definitely legal and highly appreciated as well.

   

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:

  • LA5H5981sc
President George W. Bush presents the Presidential Medal of Freedom to Federal Reserve Chairman Alan Greenspan, one of 14 recipients of the 2005 Presidential Medal of Freedom, awarded Wednesday, Nov. 9, 2005 in the East Room of the Whiite House.  White House photo by Shealah CraigheadAlan “Bubbles” Greenspan Returns to Gold
      Faking It   Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. […] The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. — Alan Greenspan, 1961   He was in it for the power and the glory... Alan Greenspan gets presidential bling...
  • Slider-gold-img-1The Gold Situation
      A Growing Bullish Chorus – With Somewhat Muted Enthusiasm A few days ago a well-known mainstream investment house (which shall remain nameless) informed the world that it now expects the gold price to reach “$1,500 by early 2017”. Our first thought was: “Now they tell us!”. You won't be surprised to learn that the same house not too long ago had its eyes firmly fixed in the opposite direction.   Da bling be goin' somewhere, fellow rastas and homies! Photo via...
  • William SimonEnd of an Era: The Rise and Fall of the Petrodollar System
      The Transition   “The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros. The sooner the better.” Ron Paul   A new oil pipeline is built in the Saudi desert... this one is apparently destined for the Ghawar oil field, one of the oldest fields in Saudi Arabia...
  • Ulpian (1)European Banks and Europe's Never-Ending Crisis
      Landfall of a “Told You So” Moment... Late last year and early this year, we wrote extensively about the problems we thought were coming down the pike for European banks. Very little attention was paid to the topic at the time, but we felt it was a typical example of a “gray swan” - a problem everybody knows about on some level, but naively thinks won't erupt if only it is studiously ignored. This actually worked for a while, but as Clouseau would say: “Not...
  • Vote Early Zombie at Sharpstown High SchoolWriting on the Wall
      Time to Sell... Maybe BALTIMORE – Yesterday, the S&P 500 hit a new all-time high. And the Dow just hit a new record close as well. If you haven’t sold yet, dear reader, this may be one of the best times ever to do so.   It's still flying... sorta. Meet Bill Bonner's tattered crash flag Image credit: fmh   We welcome new readers with a simple insight: Markets are contrary, pernicious, and downright untrustworthy. Just when the mob begins to bawl most loudly...
  • croesus_av_stater_1Gold – Eerie Pattern Repetition Revisited
      Gold Continues to Mimic the 1970s Ask and ye shall receive... we promised we would update the comparison chart we last showed in late November in an article that kind of insinuated that it might be a good time to buy gold and gold stocks (see: “Gold and Gold Stocks – It Gets Even More Interesting” for the details). We are hereby delivering on that promise.   A Lydian gold stater from the time of the famously rich King Croesus, approx. 570 BC. It seems they already had this...
  • Toscana_Siena3_tango7174The Central Planning Virus Mutates
      Chopper Pilot Descends on Nippon Readers are probably aware of recent events in Japan, the global laboratory for interventionist experiments. The theories of assorted fiscal and monetary cranks have been implemented in spades for more than a quarter of a century in the country, to appropriately catastrophic effect. Amid stubbornly stagnating economic output, Japan has amassed a debt pile so vast since the bursting of its 1980s asset bubble, it beggars the imagination.   A...
  • tokyo whaleDestination Mars
      Asset Price Levitation One of the more preposterous deeds of modern central banking involves creating digital monetary credits from nothing and then using the faux money to purchase stocks.  If you’re unfamiliar with this erudite form of monetary policy this may sound rather fantastical.  But, in certain economies, this is now standard operating procedure.   The “Tokyo Whale” Haruhiko Kuroda explains his asset purchase madness with a few neat little slides. Photo credit:...
  • The-Deep-State-Mike-LofgrenAmerica Has Become a “Parasitocracy”
      Dread and Denial So, let’s return to the discussion you can’t have with your congressman, your mailman, or your barmaid. It’s the important one. It concerns what the Fed is really up to.   Eight years after achieving independence, a State modeled after the British merchant state was established in the US. It took a while for the Deep State to consolidate itself within it, a process that was accelerated greatly in the run-up to and aftermath of WW I. Illustration by Ana...
  • London-City-Scene lo rezFat People for Trump!
      Alphas and Epsilons BALTIMORE – One of the delights of being an American is that it is so easy to feel superior to your fellow countrymen. All you have to do is stand up straight and smile. Or if you really need an ego boost, just go to a local supermarket. Better yet, go to a supermarket with a Trump poster in the parking lot.   The protest vote attractor with the funny hair. Image credit: Liberty Maniacs   Trigger warning: In the following ramble, we make fun of...
  • robot tradersA Fully Automated Stock Market Blow-Off?
      Anecdotal Skepticism vs. Actual Data About one month ago we read that risk parity and volatility targeting funds had record exposure to US equities. It seems unlikely that this has changed – what is likely though is that the exposure of CTAs has in the meantime increased as well, as the recent breakout in the SPX and the Dow Jones Industrial Average to new highs should be delivering the required technical signals.  The bots keep buying... Illustration via...
  • TrumpoYellPlanet Debt
      Low Interest Rate Persons   She is a low-interest-rate person. She has always been a low-interest-rate person. And I must be honest. I am a low-interest-rate person. If we raise interest rates, and if the dollar starts getting too strong, we’re going to have some very major problems. — Donald Trump   Two low interest rate persons! The Trumpsumptive president (Donald the Tremendous) can be seen here indicating the approximate size of the interest rate that will...

Austrian Theory and Investment

Support Acting Man

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