A “Negative Interest Rate Policy” (NIRP) trial balloon was launched in Europe overnight, as the saying goes, “desperate people do desperate things”!
Mario Draghi, the President of the ECB is apparently considering taking interest rates that financial institutions receive when depositing with the Central Bank to zero or even negative. Interest rates have already gone negative in Switzerland. As usual, my skeptical mind is wandering the future road as opposed to the immediate “positive results” that negative interest rate lunacy is “hoped” to produce.
The “hope” (hope is the vestige of fools) is that negative interest rates will “mobilize” money into “moving”, a jump start in other words. The “problem” as central bankers see it is that capital is “scared stiff”, banks won’t lend and people won’t spend or borrow, everyone wants safety. So, to “mobilize” money, what better way than to CHARGE for deposits? Right? Ah, maybe you’ll get movements that you really don’t want? Think about this on your own personal level, if a bank charged you (they almost do now) for your deposits, what would your thought process be? Take a minute or so to really think about this, what if the bank CHARGED you say $500 or $1,000 per year for every 100K you deposited with them? While thinking about this, keep in mind the “financial condition” of your bank or institution AND the financial condition and size of whatever entity that “insures” your deposits (ie. FDIC).
OK, my immediate (as in within 5 seconds) thought process went down 2 roads. First off, I’m thinking that a NIRP policy is the absolute and most perfect way to CAUSE a bank run. I mean think about it, the bank is going to CHARGE you for your deposits? Would withdrawing your money, digging a hole in your back yard and burying it (for free) be something that might cross your mind? But wait, everyone knows that “$100 ain’t what it used to be” so…if you’re going to “withdraw it”, maybe , just maybe you’d consider putting it into something that doesn’t devalue year after year, month after month, day after day? Like… Gold coins…or Silver coins that won’t get wet, mildew, “deteriorate, disintegrate and devalue”? Hey, Gold is “free”, you won’t even have to “pay” to save and it won’t ever rust or mildew or rot AND you won’t have to worry anymore about the “health” of your financial institution or “insurer”, what’s not to like?
OK, sarcasm aside, I see no better way for the “powers that be” to cause a series of bank AND currency runs. Negative interest rates are “perverse” no matter what angle you view it from. It is unthinkable and just plain lunacy that bankrupt and insolvent institutions have the cajones to actually CHARGE interest rates to BORROW money. That is exactly what this is folks, an insolvent institution “charging to borrow”. This is like Wimpy telling Popeye, “I’ll gladly take a hamburger today if you pay me interest on it next Tuesday”! If nothing at all up to this point made any sense to you like the TARP and other acronym plans, the various QE’s etc., THIS has to take the cake!
I just had a very bad thought, do you think Ben Bernanke has read about Draghi’s NIRP for Europe plan? I sure hope not, he’s probably already thinking…”WOW, how cool is this? I can pilot a MASSIVE helicopter drop, everyone will have money to blow however they like, and if I drop enough, these sheeple will surely deposit some of it. Bye bye national debt, if we make rates negative enough with a big enough “drop”, it’ll be no time until the national debt gets paid down and is wiped out”! Uhh yeah except for one small detail, every new Dollar created is MORE debt and each new Dollar dilutes the value of existing Dollars. …So, “everything is worth nothing”? Yes. Negative interest rates along with a valueless, fiat currency? Stupid is as stupid does!