You Know Negative Interest Rates Are Bad When...
Submitted by Simon Black via SovereignMan.com,
Switzerland is famous for being punctual.
The trains. The buses. The meticulously crafted, hand polished luxury watches.
The Swiss are so culturally punctual that they even tend to pay their taxes well in advance of the filing deadline.
So it was quite a shock to hear this morning that the Swiss canton of Zug is asking its citizens to delay paying their taxes for as long as possible.
Why? Negative interest rates.
The cantonal government doesn’t want to take in a pile of cash, only to end up paying the bank interest on all the tax revenue.
Interest rates in Switzerland are among the lowest in the world; the official policy rate set by the Swiss National Bank is MINUS 0.75%.
Initially these negative interest rates only apply to banks; minus 0.75% is a wholesale rate pertaining to transactions among banks, and deposits they hold with the central bank.
But banks aren’t exactly charities.
So if a bank is paying interest to hold funds with the central bank, eventually they’re going to pass that cost on to the consumer. Even if that consumer is the government.
According to the Financial Times, the cantonal government of Zug estimates that they will save $2.5 million in negative interest rate charges by delaying tax receipts.
Just consider the magnitude of this decision: the monetary system has become so screwed up that a local government doesn’t want its citizens to pay taxes early.
In fairness, it’s not just Switzerland. All across Europe, interest rates are negative.
In the Euro zone, the main policy rate is only slightly ‘less negative’ at minus 0.3%.
And many of the bonds issued by European governments also yield negative rates.
In other words, you have to pay money for the privilege of loaning a bankrupt government your money.
In Germany, bond yields are negative all the way out to five years. It’s insane.
Clearly any rational individual is much better off simply holding physical cash, rather than keeping substantial funds in a savings account.
Cash doesn’t pay any interest. But it doesn’t cost any either.
It’s pretty sad statement when the 0% you earn from holding physical cash is considered ‘high yield’.
Of course, governments know this. They realize that no rational person is going to want to keep money in a bank, especially as negative interest rates cascade into consumer banking.
And that’s a huge reason why there’s such a push to outlaw cash.
If even a small percentage of depositors decided to close their bank accounts and withdraw all their savings in cash, the banking system would collapse.
There simply isn’t enough physical cash in the system.
Plus most banks are so highly leveraged, and they lack the liquidity to honor any meaningful amount of withdrawal requests.
This is one of the fundamental dangers of negative interest rates.
Central bankers, in an absurd, desperate attempt to generate inflation, are accomplishing nothing more than destroying the banking system.
And even when it doesn’t work– even when the numbers prove that their ridiculous goal of increasing inflation isn’t working– they just keep trying the same thing over and over again, making interest rates even MORE negative.
It’s madness.
These people have broken the concept of money.
Money is one of the most important social technologies in the history of the world, almost as important as language.
Money is supposed to mean something. It is supposed to be the metric by which we measure economic value.
But they’ve destroyed that. And it’s so obvious now.
But cutting the price of money (interest rates) so far into negative territory, money has become so worthless that even a government doesn’t want it.
And in doing so they have created the most absurd problems imaginable.
It’s pretty clear that this is not a risk free environment.
And as my colleague Tim Price pointed out yesterday, there is no single solution to protect yourself from the consequences of this madness.
We discussed last week that holding physical cash is a great option to hedge short-term risks in the banking system.
(In Switzerland, the highest denomination is the 1,000 Swiss franc note. In Europe, it’s 500 euros. In the US and Canada, it’s $100.)
But with so many politicians and idiotic economists calling for a ban on cash, plus all the greater risks with fiat currency, physical cash is only part of the answer.
Clearly precious metals make sense as part of a long-term, balanced approach.
But owning gold requires a steely-eyed, willful ignorance of the daily fluctuations in its paper price.
You can’t own gold and fret about it falling $20 in a single day, or 10% in a year.
Gold is simultaneously a form of money… as well as an insurance policy.
Trading fiat currency for gold, only hoping to trade the gold back for more fiat currency at a later date, pretty much defeats that purpose.
But even gold is not a single solution.
It may also make sense to own shares of a productive business– ideally one that’s recession-proof, has minimal debt, and is managed by competent people of integrity.
There are plenty of other options out there, and this short list is by no means exhaustive.
But the larger point is to start thinking in this direction. Look at the obvious risks and determine what makes sense for your situation.
Most people will unfortunately succumb to the default option– doing nothing and assuming that it’s all going to be OK because the smart guys in government will figure it out.
But this is pretty dangerous thinking.
You won’t be worse off for taking sensible steps to protect yourself from undeniable risks.
But should any serious consequences ever arise from this financial madness, they’ll happen very quickly, and it will be too late to do anything about it.
And at that time, looking back, it will all seem so obvious.
* * *
In fact, the concept of negative rates has become so ubiquitous that BNP Strategist Reiko Tokukatsu has written a book "Negative Rates" which has stunningly become a bestseller in Japan on their failed experience with negative interest rates and directly challenges the economic playbooks adopted by central bankers around the developed world. As Bloomberg reports,
The book, ranked the top among finance books since it went on sale on Dec. 10, says bond yields lower than inflation pass the debt burden to future generations and impoverish their lives, while keeping zombie companies alive, contradicting the Bank of Japan’s goal of reviving economic growth. The main beneficiary of the monetary easing is the government, which sees interest costs drop and a devaluation of its debt pile.
Tokukatsu is among skeptics of bond-buying stimulus including U.S. hedge fund manager David Einhorn, who said in 2012 that lower rates would cause people to hoard savings rather than consume as their investment returns drop while the cost of commodities surges. The BOJ and monetary authorities across Europe are betting that interest rates below zero will reduce borrowing costs for companies and households, driving demand for loans as well as encouraging investment in higher-yielding assets.
“Textbooks say negative rates are risk free but they are camouflaging the reality that contradicts the theory,” Tokukatsu said in an interview in Tokyo Jan. 6.
“It’s nonsense to strengthen a policy where risk and return don’t match,” said Hidenori Suezawa, an analyst at SMBC Nikko Securities Inc. in Tokyo. “Despite the easing, the 2 percent target wasn’t reached in two years. It raises questions about the necessity of strengthening a policy that carries side effects without results or extending it for three or five more years.”
Japan’s “declining working population and increasing number of pensioners are keeping demand down and helping keep inflation rates low,” said Comely. “QE is not going to deal with that structural issue.”
“The time is right for the BOJ to end quantitative and qualitative easing and taper,” said Tokukatsu at BNP Paribas. “The inflation rate isn’t negative so it isn’t deflation. The 2 percent target is too high but 1 percent is achievable.”
“Monetary easing has lasted too long,” Tokukatsu said. “Japan should lower targets appropriate for a mature economy with a falling potential growth rate.”
Simply put, Tokukatsu concludes: “It’s beneficial for the government but it’s financial repression for the people.”
(9 votes)
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Secretive, conspiring, globalist Central Banking that refuses to be audited and rapes the poor through negative interest rates...must be destroyed.
All that is required is that a sufficiently large number of people stop using their product... namely, fractionally-reserve-created currency.
i.e., stop getting loans for assets, stop using credit cards, stop using any form of credit for purchasing anything.
Sounds great. But without debt, eventually many would fall into abject poverty. The leeches, of course.
Yes, well, that is the consequence of the bankers, not me. I don't look forward to mass starvation and poverty, but that evil is already baked into the cake at this point.
You may be right.
I think he is.
Simply put, Tokukatsu concludes: “It’s beneficial for the government but it’s financial repression for the people.”
Zirp is so much mo' betta?
We depositors need better lobbists.
Lies and deception (fiat) always ends up like this. Just the nature of it all.
The cantonal government doesn’t want to take in a pile of cash, only to end up paying the bank interest on all the tax revenue.
Can't they nationalize a bank and pay interest to themselves?
They'd have to Zug-alize the bank. Or Cantonize it, I guess.
Credit Union.
The Fascist Black hole in action. Big Gov. must save Big Banks by allowing them to go negative interest rates so Big Biz won't go belly up and fire everyone which in turn would dry up tax revenues for Big Gov.
Fascist Circle Jerk
You nailed it...perfect example.....
ORACLE (ORCL)
Long Term Debt (courtesy of the FED's interest rate policy)
2015 $39,959,000,000
2014 $22,589,000,000
2013 $18,494,000,000
....and guess where Larry gets enough damn money to buy an entire Hawaiian Island (thank you Janet!)..
Yeah....he bought that island because it was the only one he could buy with deep enough water ports for his yacht. He also bought a mansion in Indian Wells, CA that so happens to have an 18 hole golf course on it, just so he could be near the Indian Wells Tennis Center ( home of the BNP Paribas Open ) which he bought and has built another stadium with a third on the way with a bulit in Tennis Museum.
I also hear rumors.....speakling of Hawaii.....that he is also looking at buying one of the two Hawaiian Airlines.
Primarily because his database is ALL up in Big Gov and Big Finance.
He's definitely part of the Fascist Regime.
Citizens must demand public square punishment of central bankers.
Sort of like the Saudis for with the worst criminals.
So buying 10oz Gold @ $1800. It doesn't matter that you can buy 6 more physical ounces today @ $1100. Isn't the idea to hold as much physical Gold in your possession. So Yeah right that makes fucking NO sense !!
"I don't know the amount of money I have. I only know how many pounds of money I have."
Ron Swanson
If you can't stomach price swings, stay away from PM's. Your brain is still operating in "fiat-mode", and you will never get it right if you try to 'play' gold or silver that way.
The proper way to think of PM's is as the stable core, with the fiat going up or down against it. Sure, you COULD 'trade' those differences if you choose. But you don't have to if you don't want to...YOU aren't chasing anything. You are where you want to be, and if you miss out on some profits here and there, you don't lose ground like you can with fiat. Fiat can and always does go to zero, gold and silver have NEVER been worth zero.
Agreed.
.
In 1900, 1oz of gold = $19.00 = the cost of good suit and possibly a good dinner out for you and your date.
In 2016, 1oz of gold = $1100 *fiat* = the cost of a good suit and possibly a good dinner out for you and your date.
It's subtle, but hopefully folks can see which one of these numbers has changed over time.... :-)
Yep, basically people have always been able to exchange PM's for "stuff", and the valuations have been remarkably stable. No matter what was going on around you, if you had some silver, some gold, you could go and get you some "stuff"...
But there have been plenty of people throughout history left holding fistfuls of worthless 'scrip' after their fiat currency collapsed. It didn't matter HOW much of it they had...they couldn't get ANY "stuff"...:-(
When I came home today, I got 5 letters in my mailbox....
extra costs for social benefits of which I don't receive any: 85 euro's (above the rest)
2 speeding tickets: 700 euro's + 75 euro's administration fees.... one for driving 39km/h where I was allowed to drive 30 and 1 where I drove through an orange light while driving 20 miles over the limit.
I PAY MORE FINES THAN A MUSLIM CONVICTED TERRORIST EVER DID!!!
A letter from the unemployment agency that I need to prove that I was looking for work...
now that's a funny one... I run a company with 16 employees and I have a turnover of 3 million...
If I don't respond, I'll get a fine... I tore it up, that will be worth it to hire a lawyer.
Fucking morons.
My electricity bill... that one is up by 30% and I used less electricity than last year... go fish...
and our nuclear power piece a shit has been shut down half of the year because of constant defects. If there's one going to explode in the future, it will be fucking over here. There's not a week that one hasn't been shut down.
And that's how our government works. They fuck it up in a thousand ways.
You even paid more than Jon Corzine!!!! Sorry about your electric bill. That wind shit will cost you more and already has. I have a lot of friends that travel to europe once a year to cycle various regions. So far several were robbed/pick pocketed in several countries. No air conditioning at hotels due to all that very expensive and unreliable green energy. I opt out every year because of that and what this world has eocome from a psychopathic and troublemaking standpoint.
What I missed:
Italy (twice); Czech Republic (this was a multi country ride); France, Portugal and Iceland. Outside of that there are a few other places that intrigue me.
The Czech Republic and Iceland would be places I wouldn't mind seeing. I know there are assholes everywhere and they should have been situationally aware. A couple I know well did the El Camino and outside of a few blisters, they had a fantastic time. Maybe where you are too, but that is where the first trip my friends took that lost her purse and passport. This happened on all the trips with others.
Sorry but this post was edited heavily.
Oh my god the horrors of a 98 degree farenheit German summer day and then no air conditioning. EuroPEONS have no idea just how poor they really are.
Yea, open the windows, so you can hear all the Moslem kids tearing around on their loud ass scooters. And shouting "allahu ahkbar!" all night while rampaging thru the city streets raping any white woman they can find.
Truly a nightmare.
I've never been robbed. But then again, I've never stabbed someone to death either.
Think about it.
First victim was robbed here:
http://www.synagogue.cz/jewish-monumets/synagogues/the-old-new-synagogue-2/
Hahahahaha! Bureaucrats are the same everywhere I think. Useless.
What country are you in? Best of luck with the lawyer. If your government is like the US government, you might have more luck beating your head against the wall.
That's awful! I'm glad you stopped your list when you did. I'm going to go make another drink now...
The E.U. needs all your money to pay for niggers and Moslems so they can have nice shoes and jackets on while they rape your children and wife.
The Austrian government has been chasing me all over Europe FOR OVER A YEAR about a 30 euro parking ticket I got in 2014. They really need that 30 euro to give to some Afghani kid so he can buy kebap and rape white women.
"When I came home today, I got 5 letters in my mailbox....
extra costs for social benefits of which I don't receive any: 85 euro's (above the rest)
2 speeding tickets: 700 euro's + 75 euro's administration fees.... one for driving 39km/h where I was allowed to drive 30 and 1 where I drove through an orange light while driving 20 miles over the limit.
I PAY MORE FINES THAN A MUSLIM CONVICTED TERRORIST EVER DID!!!"
SOOooooo........why don't you just move your company to the U.S. Or......Singapore ?
Currency markets are all ready indicating the enlightned & anointed socialists/communists/marxists are working overtime to destroy their bond & credit markets! Once that baby melts down its all over but the snivelling for everybuddy ... stimulus or not!!!
SOCIALSIM KILLS!
I'd take them up on the offer, rescheduling the tax payment to sometime in the 25th century - at which point it will be payable only in gold dinars.
Economists that were trained to believe markets should never correct excesses by being allowed to drop, even if mispriced. Economists that believe that they know better than markets. Same economists who are working hard on destroying the banking system and monetary system.
All investment = good investment
All consumption = good consumption
Neo/new/post/etc Keynesians are fucking retards, just like the "market" "monetarists" and all these pseudo-monetarist fags.
And some people wonder why the stock markets are so excessively priced. Duh. It's money looking for a home with *any* positive return, risk be damned.
"It may also make sense to own shares of a productive business– ideally one that’s recession-proof, has minimal debt, and is managed by competent people of integrity."
Just about fell out of my chair on that suggestion, NONE left out there !!!!
I've invested my money in businesses just like this one. High-End Corporate and Banker coffins and headstones. Hemp rope seeems to be making a comeback also...
Mortuary in Chicago.
2.5 million dollars of outright theft. No question of who's running the government in Europe.
Stop paying taxes. Sounds good. Let's makes this global and permanent.
If they would save $2,5 million at three quarters of one percent negative interest rates...that would mean the canton or township would have over $330 million on deposit for a year.
That's a lot of deposits for a township...maybe the reporter's math is off?
No, it's correct. Zug is quite small actually, only 100k people. If we take Canton of Vaud, about 750k people, they get 5-7 billion swiss francs in taxes per year.
5-7 billion francs at one to one US dollar? That's a lot of tax revenue. 10,000 per capita
That would be the one time in my life I would run down and pay my taxes early with a big, giant, shit-eating grin. Here, you want my money??? Take it, fuckers!
It depends if the return of your money not paid in taxes is better than the penalty rate for late tax payments. This is my big problem right now, and I have decided to delay half my remaining tax for 2015 until later. I also live in a negative tax economy.
Unfortunately it is not quite as good here in Denmark, where the rate set by our central bank is also negative: Any taxes for 2015 not yet paid are subject to a 2.2 percent rate calculated day by day, and not tax deductible.
Perhaps our government was wise at the start at 2015, when our currency was under attack, and the central bank rate became so negative: Here they stopped issuing new government bonds. Now they do not have to pay negative interest on large cash holdings.
0% interest rate by holding cash is considered a high rate of return compared with the negative interest rates. I suppose the government will need to tax them for that. Let's see.... how could they tax zero percent? There must be a way to stop this evil scheme. See?! Another good reason to eliminate cash.
Mr. Reiko Tokakutsu seems to conveniently forget to mention the Japanese government budget, these are the options for Japan to raise interest rates without going broke :
- print M0 and just give it to Government without getting bonds.
- massively increase taxation (austerity is not even an option at this point, that would spiral into a depression in no time flat).
So, which of those options does mr. Reiko Tokakutsu prefer?
In general the pretense that QE is about consumers and companies is silly, it's about government debt sustainability in the face of socialist welfare schemes combined with neo-liberal taxation regimes.
Easy one. Let Zug form it's own bank. That way they can take the (0.75%) and put it into an infrastructure fund or such. Screw the bank! Remember what Ben Franklin said, "Pay yourself first!"
The Old Man
They already have their own bank.