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Posts Tagged ‘Negative rates’

Subzero Rates Are Coming to the US and the UK | Mises Wire

Posted by M. C. on February 19, 2021

Negative rates are a huge transfer of wealth from savers and real wages to the government and the indebted. A tax on caution. The destruction of the perception of risk that always benefits the most reckless. It is a bailout of the inefficient.

https://mises.org/wire/subzero-rates-are-coming-us-and-uk

Daniel Lacalle

Negative rates are the destruction of money, an economic aberration based on the mistakes of many central banks and some of their economists, who all start from a wrong diagnosis: the idea that economic agents do not take more credit or invest more because they choose to save too much and therefore saving must be penalized to stimulate the economy. Excuse the bluntness, but it is a ludicrous idea.

Inflation and growth are not low due to excess savings, but because of excess debt, which perpetuates overcapacity with low rates and high liquidity and zombifies the economy by subsidizing the low-productivity and highly indebted sectors and penalizing high productivity with rising and confiscatory taxation.

Historical evidence of negative rates shows that they do not help reduce debt, they incentivize it. They do not strengthen the credit capacity of families: the prices of nonreplicable assets (real estate, etc.) skyrocket because of monetary excess and because the lower cost of debt does not compensate for the greater risk.

Investment and credit growth are not subdued because economic agents are ignorant or saving too much, but because they don’t have amnesia. Families and businesses are more cautious in their investment and spending decisions, because they perceive, correctly, that the reality of the economy they see each day does not correspond to the cost and the quantity of money.

It is completely incorrect to think that families and businesses are not investing or spending. They are only spending less than what central planners would want. However, that is not a mistake from the private sector side, but a typical case of central planners’ misguided estimates, which come from using 2001–07 as “base case” of investment and credit demand instead of what those years really were: a bubble.

The argument of the central planners is based on an inconsistency: that rates are negative because markets demand them, not because they are imposed by the central bank. If that is the case and the result would be the same, why don’t they let rates float freely? Because it is false.

Think for a moment what type of investment, company, or financial decision is profitable with rates at –0.5 percent but unviable with rates at 1 percent. A time bomb. It is no surprise that investment in bubble-prone sectors is rising with negative rates and that nonreplicable and financial assets are skyrocketing.

Instead of strengthening economies, negative rates make governments more dependent on cheap debt. Public debt trades at artificially low yields, and politicians abandon any reformist impulse, preferring to accumulate more debt.

The financial repression of central banks begins with a misdiagnosis assuming that low growth and below-target inflation is a problem of demand, not of the previous excess, and ends up perpetuating the bubbles that it sought to solve.

The policy of negative types can only be defended by people who have never invested or created a job, because no one who has worked in the real economy can believe that financial repression will lead economic agents to take much more credit and strengthen the economy.

Negative rates are a huge transfer of wealth from savers and real wages to the government and the indebted. A tax on caution. The destruction of the perception of risk that always benefits the most reckless. It is a bailout of the inefficient.

Central banks ignore the effects of demography, technology, and competition on inflation and growth of consumption, credit, and investment, and with the wrong policies generate new bubbles that become more dangerous than the previous ones. The next bubble will again increase countries’ fiscal imbalances. Even worse, when central banks present themselves as the agents that will reverse the effect of technology and demographics, they create a greater risk and bubble.

When this happens, it becomes necessary for to protect one’s savings with gold, silver, inflation-linked instruments, and stocks in sectors that do not suffer from negative rates. Author:

Daniel Lacalle

Daniel Lacalle, PhD, economist and fund manager, is the author of the bestselling books Freedom or Equality (2020),Escape from the Central Bank Trap (2017), The Energy World Is Flat (2015), and Life in the Financial Markets (2014).

He is a professor of global economy at IE Business School in Madrid.

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A New World Monetary Order Is Coming – Activist Post

Posted by M. C. on October 28, 2020

Making your life an open book.

Shutting you and access to your assets off with the flick of a switch.

https://www.activistpost.com/2020/10/a-new-world-monetary-order-is-coming.html

By Stefan Gleason

The global coronavirus pandemic has accelerated several troubling trends already in force. Among them are exponential debt growth, rising dependency on government, and scaled-up central bank interventions into markets and the economy.

Central bankers now appear poised to embark on their biggest power play ever.

Federal Reserve Chairman Jerome Powell, in coordination with the European Central Bank and International Monetary Fund (IMF), is preparing to roll out central bank digital currencies.

The globalist IMF recently called for a new “Bretton Woods Moment” to address the loss of trillions of dollars in global economic output due to the coronavirus….

Under a central bank digital currency, direct credits and debits could replace stimulus checks and taxes. It would be the vehicle through which modern monetary theory could be fully implemented – with the central bank becoming tax collector and funder of all government operations.

If depreciating the value of the currency through the inflation tax wasn’t enough, the Fed could also stick dollar-holders with a direct tax in the form of negative interest rates. Once paper notes are phased out, holding cash itself would no longer be a way for individuals to escape negative rates.

The only escape hatches would be volatile alternative digital currencies (such as Bitcoin) or hard money (gold and silver).

Under a monetary order where electronic digits representing currency can be created out of thin air in unlimited quantities, the best hedge is the opposite – tangible, scarce, untraceable wealth held off the financial grid.

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Central Bankers Have Declared War on Your Savings | Mises Wire

Posted by M. C. on December 2, 2019

Recently, European Central Bank (ECB) President Christine Lagarde bemoaned their surpluses, complaining that they would be better off spending the money on infrastructure and education. Desperate for a modicum of growth, Lagarde is of the philosophy that the only way to grow an economy is through government intervention.

https://mises.org/wire/central-bankers-have-declared-war-your-savings?utm_source=Mises+Institute+Subscriptions&utm_campaign=adfd4f6c6d-EMAIL_CAMPAIGN_9_21_2018_9_59_COPY_01&utm_medium=email&utm_term=0_8b52b2e1c0-adfd4f6c6d-228343965

…Lagarde is a proponent of the NIRPs , championing the unconventional mechanism to achieve growth. Since the eurozone has barely cracked 2% GDP, many are anticipating that Lagarde will deepen negative rates during her term as president. Anytime she has mused on the subject, Lagarde has usually dismissed concerns about the saver, noting that they are also consumers, borrowers, and workers.

Unfortunately, this contempt for savers is commonplace because it is antithetical to the Keynesian approach of spending. Disciples of John Maynard Keynes will contend that consumption over saving should only happen during the bust phase of the business cycle, but if you peruse any opinion pieces by individuals subscribing to this ideology, you will only come across spending prescriptions for every type of economy – boom or bust. They dismiss the fact that capital accumulation, not consumption, creates wealth.

This myth originates from Keynes’ The General Theory and Treatise on Money, in which he posits that a saver is reducing the income of another person because he or she is not consuming the goods or services extended by somebody else. Put simply, he considered saving a self-defeating act.

“Saving is the act of the individual consumer and consists in the negative act of refraining from spending the whole of his current income on consumption,” he wrote.

The crusade against savers has been prevalent in the Democratic primary. The likes of Sen. Elizabeth Warren (D-MA) and Sen. Bernie Sanders (I-VT) have grieved about hoarders , particularly those who are the top 0.1% (no longer just the 1% anymore; likely because these two people are the 1%, too). The presidential candidates are perturbed that the supposed capital hoarders are not putting their fortunes into the economy. This is nonsense talk to justify their wealth confiscation policies, since the affluent are saving and investing, not just stuffing their money under mattresses.

Negative rates, higher taxes, and inflation – the statists are employing every measure to gain access to the fruits of your labor…

If you don’t like it, then you are out of luck. You have nowhere to go. The globalists have declared war on mom and pop savers, pillaging bank accounts and conquering our lives. Is there a chance for victory? As long as the omnipotent and iniquitous institutions remain in charge, optimism over sound economics can only fade to black.

Originally published by Liberty Nation.

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Younger Generation Will Probably End Up Poorer Than Their ...

 

 

 

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Silicon Valley Joins War on Cash – LewRockwell

Posted by M. C. on February 28, 2018

  • Savers could no longer have the individual freedom to store wealth “outside” of the system.
  • Eliminating cash makes negative interest rates (NIRP) a feasible option for policymakers.
  • A cashless society also means all savers would be “on the hook” for bank bail-in scenarios.

https://www.lewrockwell.com/2018/02/tyler-durden/silicon-valley-joins-war-on-cash-tim-cook-seeks-elimination-of-money

Apple CEO Tim Cook has one big hope for the future – that he lives to see the end of money.

Speaking at a meeting for Apple shareholders in Cupertino, California earlier this month, Cook made it clear that he is firmly on the side of the war-on-cash establishment.

“Because why would you have this stuff! Why go through all the expense of printing this stuff and then some people steal it, and you’ve got to worry about counterfeits and all these things,” he continued.

As Apple’s CEO talked about the downsides of cash, BI reported that he became more animated, revealing his real passion about the topic… Read the rest of this entry »

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