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Category Archives: Negative interest rates

The Trouble with NIRP


ZIRP (Zero Interest Rate Policy) gives way to NIRP (Negative Interest Rate Policy) [courtesy Google Images]

ZIRP (Zero Interest Rate Policy) gives way to NIRP (Negative Interest Rate Policy)
[courtesy Google Images]

Speaking of NIRP (Negative Interest Rate Policy) Andy Hoffman recently wrote,

 

“I now believe negative interest rates for the entire world is inevitable; and with them, the imposition of increasingly draconian capital controls—from FATCA and FBAR-like reporting requirements; to limitations on withdrawals and capital exportation; and ultimately, “cashless societies” in which investors are forced to hold savings as digital deposits at insolvent banks—In which, arbitrary government decrees like negative interest rates—will be used to not only confiscate wealth, but destroy all remaining remnants of capitalism.”

 

A dire warning, indeed—but what, exactly, is “NIRP”?

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Interest Rate Manipulation Fails


Interest Rate Manipulation is Income Redistribution [courtesy Google Images]

Interest Rate Manipulation is Income Redistribution
[courtesy Google Images]

On February 9th, Business Insider Australia published “CARNAGE IN JAPAN:  Nikkei’s largest fall in years, yen spikes, government bond yields below 0%” which said in part:

 

“On Monday [February 8th], the benchmark Nikkei 225 index lost more than 900 points, closing the session at 16,085.44.  The 5.4% one-day decline was the largest since June 13, 2013 . . . .  Since January 29th, the day the Bank of Japan adopted a negative-interest-rate policy, the Nikkei index has lost more than 10%.”

Since mid-December, when the U.S. Federal Reserve increased the U.S. interest rate by 0.25%, the U.S. stock market has also suffered a significant decline.

Japan lowered its interest rates to zero—and then to a negative interest rate—their stock markets fell.

The U.S. raised interests from 0.25% to 0.50%, and the US stock markets fell.

The world’s stock market indices are falling. Judging by the US and Japanese recent experiences with raising—and lowering—interest rates, interest rate manipulation is insufficient to overcome whatever forces are causing the market declines.

This implies that neither the Bank of Japan nor the Federal Reserve has any viable tools–including interest rate manipulation–that can reliably stimulate the economy and withstand the forces of economic depression.

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Chart: The World is Turning Japanese


NEGATIVE RATES, KURODA’S “PETER PAN” ANALOGY, AND GOLD’S SURGE

Nearly a year ago, Bank of Japan governor Haruhiko Kuroda described the unlikely inspiration behind Japan’s unprecedented monetary stimulus: Peter Pan.

Why am I not surprised?

I’m highly amused, of course–but not surprised.  The world’s economists have begun to emulate Pan’s “Lost Boys”.

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Posted by on February 12, 2016 in Economic collapse, Negative interest rates

 

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Even Wall Street Likes Gold Now


Negative interests should push gold higher.

video    00:04:33

 
22 Comments

Posted by on February 10, 2016 in Gold & Silver Coin, Negative interest rates, Video

 

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Crazy Ideas


The Economists' Motto [courtesy Google Images]

The Economists’ Motto
[courtesy Google Images]

Business Insider published an article entitled “This is how a central bank could kill off cash and bring in negative interest rates on your savings.”  According to that article,

 

“Since the financial crisis, the world’s understanding of economics has been undergoing a lot of rapid changeIdeas that would have been considered crazy just a decade ago are now seen as much more likely.”

 

The balance of the Business Insider article focused on “negative interest rates” as one of those “crazy” ideas.  Negative interest rates are undoubtedly “interesting” but, for now, I’m more interested in asking why “crazy” ideas are becoming “more likely”.

Most of this inquiry deals with “crazy” but a lesser part deals with “more likely”.

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Government’s War Against Savers


Government Squeezes the Savings--and Independence--Out of People [courtesy Google Images]

Government Squeezes the Savings–and Independence–Out of People
[courtesy Google Images]

Reuters published “India’s ‘gold monetization’ scheme could have a big impact on global demand”.  According to that article:

“Last week the Indian government approved the so-called gold-monetization scheme . . . [by] creating a system in which Indians holding private gold will be able to deposit it at banks—and then earn interest on their bullion holdings.

The government plans to then make the deposited gold available to buyers across India. The aim is to reduce gold imports from outside the country, which run at nearly 1,000 tonnes yearly.

“India’s cabinet also approved a ‘gold bond’ program in which citizens will be able to buy interest-bearing bonds backed by gold, rather than owning physical gold.

Estimates are that private citizens across India hold tens or even hundreds of millions of ounces of gold—which could become available to the banking system, if the monetization program is well received.”

 

First, a metric ton weighs 2,200 pounds.  If India imports 1,000 metric tons of gold at $1,200 per ounce, they’re importing $42 billion worth of gold each year.

India’s current GDP is about $2 trillion per year. Thus, India currently spends 2.1% of its annual GDP purchasing more gold from foreign sources. That’s 2.1% (more or less) last year; 2.1% this year; 2.1% next year.  Note that US economists hope that the US economy will grow by 3% annually.  Compare that 3% hope to India’s 2.1% annual drag on their economy due to purchasing foreign gold.  You can see that 2.1% is a significant expense for an economy the size of India’s and cause for governmental concern.

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What Causes Negative Interest Rates?


[courtesy Google Images]

[courtesy Google Images]

Natural News reported in “The cash crisis begins as Chase to start charging 1% fee on bank deposits starting May 1” that:

 

“Beginning May 1, JPMorgan Chase [JPM] will begin charging certain (wealthy) depositors for the ‘right’ to keep their money in JPMorgan Chase banks.

“As noted by GovtSlaves.info, the bank sent some of its larger depositors a letter that said it would charge them a “balance sheet utilization fee” of 1 percent annually on deposits in excess of the money they require for operations. In other words, that amounts to a negative interest rate on many of those deposits.”

 

Let’s start by assuming that the Natural News report’s conclusion that a 1% “balance sheet utilization fee” can be properly described as a “negative interest rate”.

The concept of “negative interest rates” is increasingly in the news.  However, the concept remains mysterious to most people.

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