Negative interest rates are spreading like a virus. Central banks in the Eurozone, Switzerland, Sweden, and Japan all have below-zero policy rates. “NIRP,” as economists call a negative interest rate policy, is a desperation move—but the only move those central banks have.
The Federal Reserve hasn’t followed—yet. When the next recession strikes, I believe Janet Yellen will choose to break the zero lower bound. The rationale was laid out in Jackson Hole. Look behind the headlines and you’ll see the Fed already preparing for NIRP.
In theory, negative rates should encourage consumers and businesses to spend more freely and stimulate growth. It hasn’t worked out that way. NIRP just punishes savers and makes everyone miserable.
I can see why rabbits would like this idea. The way to create r-selection is to flood the zone with resources. Negative rates mean banks will charge you for holding your money, so you might as well take it out of your savings account and flood it into the economy. Ideally this money is moved around by check, debit card, and credit card.
Sounds good. Until everyone tries to get their cash out of the bank, so they can horde it in a mattress. I have no idea how much people have in savings, or what it would take to render the bank’s cash reserves shaky, initiate a bank holiday, and then trigger bank runs, but this would look like among the best ways to try.
My guess is if they try it, they will couple it to some restriction, or charge on withdrawals. So if it appears this is imminent, get your money out and in your hand before it hits.
The Apocalypse is closer every day with these rubes.
[…] Negative Interest Rates Coming To America? […]
“Get your money out” sounds good if you are taking about a few grand. It’s less attractive when the amount in question is a sizeable chunk of what a typical bank branch has in the drawers.
Complexities compound rapidly and quickly reach absurd. Few banks could meet a demand for a cash withdrawal > $25-30k without placing an order for cash with the neatest reserve bank.
If a lockup is imminent, no one will be nimble enough to get the goodies.
When ZIRP hits, the only place you should be saving money is in storage food and water, camping supplies, survival training, ham radios, guns, and ammo.
The guy with money in the mattress better like the taste of paper and ink.
When ZIRP hits, it will coincide with withdrawal limits for cash. This is a form of what happened in Argentina after its 2001 economic crisis.
Parallels are imperfect; in Argentina banks had accounts denominated in Pesos and in US dollars. Anyone who got his dollars out before the banks were closed awakened the next day with a 100% gain in purchasing power (Argentina seized the dollars and devalued the Peso by a mile.) The coming crisis will be a collapse in bonds, a collapse in banks, and thus a collapse in the money supply. Surviving money will skyrocket in purchasing power. Only a reversion to barter presents any alternative to this. A barter economy in the USA would coincide with complete chaos, 95% mass starvation, etc. Given history, this is not the way to bet quite yet. The conditions that sprouted these past 50 years are unique. The great paradox may be that paper banknotes turn out to be the only way to preserve “capital.”