Banking, Deflation and Negative Interest Rates
Like some quietly evolving financial virus, the world of banking is changing before our very eyes.
Perhaps it is striking your awareness. Perhaps not.
But there are steps you should take to stay ahead of this.
There are a number of factors at play here.
- Sovereign debt has soared to $200 trillion (Sovereign debt is the amount of borrowing by independent – sovereign – nations).
- Derivatives, casino like bets by banks and other financial institutions, has reached $1.2 Quadrillion. Yes, that’s a Q.
- There is a major global effort to eliminate cash as a form of money and replace it with digital money – zeroes and ones.
One example: Norway’s biggest bank has called for the elimination of cash.
There is growing evidence of this agenda in the U.S. and internationally.
- We are in a deflationary environment (short def: more goods and services available than money available to buy them = prices go down). Interest rates have actually turned negative in Europe, and now in Japan.
And several knowledgeable sources have predicted they are coming here. I would agree. (Treasury bill are currently paying 0%).
What are negative interest rates?
This means that you pay the bank or the government for holding your money. For example, a government entity issues a bond. Traditionally, the city, state or federal government would pay the investor who bought the bonds an interest rate. Say, again just for example, 5%. You buy a $50,000 bond and the government pays you $2,500 per year in interest until the bond matures and they pay you the principal.
You buy a CD at your bank that pays you 2%.
But now, in Europe and Japan, the bank or the government is charging you for the privilege of holding your funds. You buy the bond for $50,000. The government pays you no interest and when the bond matures, they give you $49,500.
Here’s a look at Swiss interest rates. See how they have dipped below zero.
When the bubble breaks – see 1 & 2 above – and to me it is not a question of if, but when, bank holidays (temporary bank closures) will ensue. There will, of course, be other ramifications, but “Bank Holidays” (cute euphemism) are a likely occurrence.
I am not writing this to freak you out. But this situation continues to deteriorate, and one can’t stick one’s head in the sand either.
Here are a few simple steps to take to give yourself some protection and breathing room.
- If you bank with one of the big “Money Center,” multi-branch banks (e.g. Bank of America, J.P. Morgan Chase, Citibank, Wells Fargo) I would encourage you to move your banking to a smaller regional or local independent bank or a credit union. The switching may occasion a bit of inconvenience, but these larger banks are pregnant with exposure to the derivatives casino.
- Take some Andy Jacksons or Ben Franklins out of the bank and put them in a safe at home. The amount is up to you, but I would suggest that you accumulate a month’s expenses in actual cash. Remember if banks close, your ATM won’t function and credit card limits could be reduced to the balance due.
Important datum: in a deflationary environment, cash is king.
- If you don’t have any precious metals (silver and gold bullion coins) buy some. I recommend 1 oz. silver coins called silver eagles. As a minimum, I would accumulate a month’s expenses in silver eagles (they are currently about $17.50 a piece as I write this on January 31, 2016).
Check locally for a reputable bullion coin dealer.
If you need or want some expanded individual consulting or advise on these and / or related matters, I do provide such on a professional basis. You can contact me at email@example.com.
However, I have not written this alert to promote this consultation service. I do provide the service and am happy to do so, but this is simply a general alert to friends and associates because of the growing evidence to hand. While this is an area I have written about in books and articles for some time, the fact that the Bank of Japan instituted negative interest rates in the third largest economy on earth Friday (January 29, 2016) prompted me to provide some rudimentary steps folks should take in this increasingly precarious world of banking and finance.
Keep your powder dry.