NIRP Has Failed: European Savings Rate Hits 5 Year High

Tyler Durden's picture

One year ago, when it was still widely accepted conventional wisdom that NIRP would "work" to draw out money from savers who are loathe to collect nothing (or in some cases negative interest) from keeping their deposits at the bank, and would proceed to spend their savings, either boosting the stock market or the economy, we showed research from Bank of America demonstrating that far from promoting dis-saving, those European nations which had implemented NIRP were, "paradoxically", also observing a jump in their rate of savings.

In what arguably was the first shot across the bow of conventional economic wisdom, BofA first admitted something which at least to its own conventional sensibilities, was quite amazing: NIRP is achieving the opposite of what it was meant to achieve.

The problem of low inflation remains evident. Swiss inflation has collapsed into very negative territory, albeit precipitated by the SNB abandoning their currency peg earlier in the year. While Danish inflation has moved away from zero post big rate cuts in 2015, it is still hovering at just 0.5%. And Swedish inflation has been stuck around zero since early 2013.

In other words, NIRP was pushing inflation lower, not higher, as the following stunner admitted:

Yet, household savings rates have also risen. For Switzerland and Sweden this appears to have happened at the tail end of 2013 (before the oil price decline). As the BIS have highlighted, ultra-low rates may perversely be driving a greater propensity for consumers to save as retirement income becomes more uncertain.

And the evidence as of October 2015:

 

One year later, everything has changed: not only has NIRP become "non grata" even among the caste of perpetually wrong career economists, but as a result of a scarcity in monetizable assets, something we first warned about in 2012, QE is no longer the preferred mode of monetary policy intervention, instead as the BOJ revealed last month, the current central banker intervention mechanism of "choice" is yield and curve targeting, something which has never been tried before, and which many - including Goldman Sachs - believe will fail.

But until it does, we present the latest testament to Europe's 2+ years of failed Negative Interest Rate Policy. This week Eurostat published the latest quarterly savings rate data for the Euro area. What it found is that not only has NIRP not pushed savings lower, but at 12.8%, the gross household savings rate in Q2 2016 had risen to the highest level observed since the 13% in Q3 2011.

The good news: Europe's savings rate still has a ways to go before it hits the crisis high 14.7% during the final quarter of 2008. But give it time, thought: with central bankers now openly improvising and in the process making the economic situation worse day by day, it is only a matter of time before savings not only hit new all time highs, but what until recently has been a trickle of disgruntled depositors pulling their cash from the bank and putting it in gold, as observed recently in both Switzerland and Germany, becomes a flood, presaging the end of the fractional-reserve banking model.

Until then, we can at least conclude that NIRP, yet another contraption created by economists to part savers with their money, has failed.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
rmopf2010's picture

Welfare states/big government all over the world are broken, monitary policies to avoid this is waste of time

 

nibiru's picture

It is funny how the whole post-WW2 generation having the horrors of life they had chosen guarantees of socialism and social-democracy with ever expanding government to answer their fears. The price will be paid by an uneducated generation of their children mesmerised with iPhones and Instagram believing those who their parents believed.

Now the goverment is god today and politicians are racing themselves who will be the most eager zealot.

http://independenttrader.org/the-law-of-the-unintended-consequences-and-the-government.html

Handful of Dust's picture

Those nasty hard working savers----TEARRISTS!

How dare they try to work hard and save!

Jail time ... how lewd they be ... morally unfit infidels....

There ought to be a law against saving like that.

Stuck on Zero's picture

The lower interest rates fall the more money you have to save to retire on.  Don't the central banks get this elementary concept?

rmopf2010's picture

State pensions are the politicians main concern, because they are  the most % of their votes.

Private sector pension funds the HELL with them ROTE in NIRP

NIRP is a smooth way to default on loans.

QE is for countries that otherwise NO ONE else would buy that shit BONDS without 15%~20% CDS. If weren't QE most European contries had already stoped paying welfare state/big Governement

Paul Kersey's picture

The idea that NIRP didn't work for the bankers and bondholders is incorrect. NIRP pushed bond PRICES higher, many asset prices higher, and house sales and prices in Germany, for instance, where mortgages fell below 1.7%, were way up:

"But with mortgage rates plunging, foreign buyers looking for a safe haven and -- more recently -- more than one million refugees arriving in the country, that received wisdom has been turned on its head. The European Central Bank's move to negative interest rates fueled that trend even further.

Can it last? House prices have increased 5.6 percent a year over the past five years, according to UBS, which is double the average annual rate of increase since 1970. Some catch-up is overdue as in real terms German house prices didn't rise over the past 40 years, according to Green Street Advisors."

And in Japan, another big NIRP country (mortgage rates at 1.5%), house prices and sales were also way up over five years:

http://www.tradingeconomics.com/japan/housing-index

76% of Americans have little of no money to put into savings, so NIRP wouldn't affect them. However, if the Fed went into NIRP mode, and it brought mortgage rates below 2%, the housing are refi markets would boom again (especially with 40-yr amortizations). Current US bondholders would also make bank.

Loftie's picture
Loftie (not verified) Paul Kersey Oct 13, 2016 9:38 PM

Karma for perpetuating the Greatest Injustice of the 20th Century.
http://wp.me/p4OZ4v-19

GunnerySgtHartman's picture

Of course they do - but they don't CARE.

Handful of Dust's picture

NIRP + Obamacare+ rising rent, insurance, taxes, and on and on killing the people.

 

ObamaCare just killed my health insurance — again
rmopf2010's picture

State pensions are the politicians main concern, because they are  the most % of their votes.

Private sector pension funds the HELL with them ROTE in NIRP

ONEwarrior's picture

Are you telling me the Europeans are actually putting money in the banks coffers? Are they that stupid? 

The only way to save these days is to keep stacking the PMs. And that includes lead. Oh that's right we're talking about Europeans.

Amun's picture

Welfare states/big government all over the world are broken"

 

Because by means of QE, bank bail-outs and NIRP

 

they transferred trillions of wealth from gennerations of the public/taxpayers to the 1% super-wealthy

 

The one and only purpose of your "Welfare states/big government " is exactly that

rmopf2010's picture

Not only the 1% take an European country like Portugal for example:

85% of their Budget is to pay Pensionists and Public servants

Do you think all the other things like having the lights on, the police cars running, Hospital consumables/drugs... ... The remaining 15% will be enough ?

Of course not solution debt!

Portugal now 132%/GDP if weren't NIRP and QE Portugal was dead broke, money does not grow in trees

Portugal 10million population 5million state dependent

If this is not dead broke what is it ?

 

hendrik1730's picture

Belgium, i.e. Wallonia and Brussels are 2 big black economic holes. Deficit spending, "g"immigrants all over, economy dead, over 50% government dependent, 15-25% unemployed, corrupt, undereducated, unwilling to work and totally dependent on money transfers from Flanders. An accident waiting to happen.

Amun's picture

Yes, it seems like alot - 85%, because it is 85% OF NOTHING

 

And why is the budget left with NOTHING?

 

Because 100s of times of that  85% has already been transferred to the super-wealthy

rmopf2010's picture

That 85% means

3.6Million Pensioners

0.7Million Public workers

0.4Million Unemployed setlement

0.4Million Minium garanteed income

That's 5.1Million individuals getting their income through taxes and debt

 

RiverRoad's picture

Europeans have been through these banking collapses so many times.  They know where to put their money.

debtor of last resort's picture

Moar bail in currency!

Jethro's picture

You beat me to the punch! Bravo!

Jethro's picture

Savings rate highs just in time for bail-ins!

SomethingSomethingDarkSide's picture

Are the citizens still suffering?  Then it is working..

All of the TBTF Banks have hired based on aquiring AUM rather than skill, and wouldn't know how to generate organic profit even if a guide book smacked them across the face.

They require big, fat government tits to suck on, and Politicians need the kick backs - that's how it all works.

HRH of Aquitaine's picture
HRH of Aquitaine (not verified) SomethingSomethingDarkSide Oct 13, 2016 2:10 PM

The quality of life, in Switzerland, is quite high. I am thinking that people there are awake, aware, armed and skeptical of the EU and the gimmigrants flooding Europe. The Swiss are a hard-working, no nonsense people. Taking one's cash out of the bank and converting it to PMs or stashing it in a safe place is the smart think to do when governments and bankers start doing stupid and crazy things,

GunnerySgtHartman's picture

The more the plans fail, the more the planners plan. - Ronald Reagan

bshirley1968's picture

Failed?  Failed at what?

It has accomplished its mission.  Just because it was not perfect in every aspect doesn't mean it failed.

It got more people in debt and more people in higher debt than would have otherwised happened; therefore, it is a success in the bankster world.  Sure it is going to crash and burn like all bankster schemes but it will have sucked some more real capital out of the hands of the little people before it does burn down.  And when it burns down, it will destroy a lot more little people than it will banksters.  Banksters will be stronger.  No stopping them as long as we let CBanks exist.

LawsofPhysics's picture

LOL!  This does not take into consideration all the physical cash people have been saving either!!!

BlackSun59's picture

And that's precisely why they want a cashless society.

Altesh's picture

Things are shaking at the foundation now, people who don't save up money now and network with friends and family deserve everything that's coming. It's gonna be a bumpy ride for a while. 

Osmium's picture

Whose ass do they pull the savings rates out of?  US personal savings rate was 5.7% for August 2016, yet 63% of the US population doesn't have $1000 in savings?  How the hell can you have a 5.7% savings rate when 2/3 of the population doesn't save?

It’s not news that Americans are terrible savers. In November, Pew Charitable Trusts reported that one in three American families have no savings at all. In December, Magnify Money released the results of a studythat found that 56.3% of people have less than $1,000 in their checking and savings accounts combined.

http://www.forbes.com/sites/maggiemcgrath/2016/01/06/63-of-americans-don...


Han Cholo's picture

Its probably a giant percentage of people who are out of work or under-employed. Things are pretty bad "out there" for lots of families these days. 

Its hard to save when the basic "stuff" a family needs keeps going up in price yet we are led to believe there is absolutely NO inflation, the economy is wonderful!

PoasterToaster's picture
PoasterToaster (not verified) Oct 13, 2016 2:12 PM

Failed to do what?  What exactly are they attempting to do?

Stanelli's picture

Not really a surprise. People know that something is wrong and this abomination called negative rates interest looks like a confirmation. When people are uncertain about their future, they save not spend. They're afraid. And if CB goes even deeper in the negative territory, they will be even more scared, ang guess what, they'll limit their spending even more.

Angry White Guy's picture

Why save?  Better to use the money to buy hard assets due to the 24/7 running of the printing press.  

Altesh's picture

You can save in PMs and other assets as well, doesn't have to be in a bank account or cash. 

Angry White Guy's picture

I've actually been saving in 50 and 100 counts of S&W .40 CAL, but yes agreed.

Buffy's picture

People TRUST the currency. They don't understand, that inflation/deflation is the dollar changing value. They believe the dollar is the constant and so they trust it. Ask most people what the value of something is, they will always respond in dollars...and if something goes up in dollars, then they mistake this as an increase in value. They do not equate value as purchasing power.

carambar's picture

This not news. Please move on. A year ago the ECB staff wrote that very low rates were not effective to push investment vs saving. this was the first hint that fiscal policy was the next step, but at the time the staff couldn't shout it load and clear as German werent in the mood yet.  

Raul44's picture

Interestingly, only recently we also read that US savings rate is at its highest as well. But, while in US people are saving now after dollar gained, in Europe people are saving at near all time low for Euro. I will leave it to the audience to figure out which one is smarter ;).