Friday, March 11, 2016

"Never before has the world been so ruled by central banks. And never before have central banks commanded so much influence on the global economy."

Negative interest rates: A turn on a blind path

by GS Early

If there is one thing you need to bear in mind regarding the global economy in general and the U.S. economy in particular, it’s the fact that since the beginning of the Great Recession and the intervention of the central banks, we have walked in uncharted territory.

Never before has the world been so ruled by central banks. And never before have central banks commanded so much influence on the global economy.

In the U.S., the Federal Reserve has held some sway as more and more people bought into the stock market. As pensions disappeared (and pension managers) and got raided by bad management or buyout firms, and more workers were forced into 401(k) plans, more workers began to care about what the Fed chairman had to say about interest rates.

Most nations in the world don’t have the ‘investing class’ that we do in America. Most retirement funds aren’t in the hands of individuals. This puts U.S. citizens in a unique position in a unique period.

But the problem only begins there. Because now, as more nations start to move to what’s called a negative interest rate policy (NIRP) things are getting… curious.

When the big banks and financial manipulators nearly destroyed the world financial system with their newest round of schemes, the central banks were put in a position to either sit idly by and allow market forces to sort things out — likely gruesome amounts of wealth destruction, foreclosures and massive bankruptcies — or try to save what was left of the system with the institutions that were barely standing.

Most regulators now talk about how they couldn’t sit idly by when such an event of such enormity was taking place. But now we look back and wonder if doing nothing would have been the better course of action.

Now, the entire financial system is as dependent on the generosity of the central banks’ monetary policy as a heroin addict is to his dealer. But after almost a decade of easy money, it looks like there’s no end in sight and the central banks have fewer options to prime their economies.

So, they invent things.

First it was quantitative easing (QE).

And now it’s NIRP.

QE basically amounted to letting the banksters who started the mess borrow for nothing and ostensibly lend it to businesses and individuals and grow the economy.

Instead, the banks bought ultra-safe U.S. Treasuries and lent money to only their best customers at similarly low interest rates… and kept the rest on their books. Almost none made it out to the “economy’ in general. That’s why the economy has failed to achieve consciousness in eight years.

Now, other countries’ central banks are turning to NIRP. Why?

Basically, banks are required to keep a certain percentage of reserves in case something bad happens and there’s a run. Banks could also keep extra reserves… which they have.

So, central bankers now want to encourage the banks to start lending. To do that, they want to charge the banks for keeping extra reserves in the system, and force them to lend it out, or pay to keep it.

The problem is, like QE before it, no one knows how the banksters and their cohorts will react to this. Will they charge consumers to park their money in their banks? Will anyone keep money in a bank if they have to pay to do so? This is uncharted territory and we are playing as we go.

More than likely the central banks that have implemented NIRP — according to Barron’s, 30 percent of the value of stocks in the MSCI World Index are now represented by companies in NIRP countries — are trying to get more money into the economy.

As of this month, the Bank of Japan, the European Central Bank, Switzerland, Sweden and Denmark are all running NIRP. Even Fed Chairman Janet Yellen recently discussed NIRP for the U.S. at a recent Congressional hearing.

As of now, there are laws that prevent the Fed from going negative.

Regardless, with Europe and Japan in NIRP economies, that’s a lot of gravitational pull. And while the goal may be to spur bank lending, it’s also likely to get the banksters to prop up the floundering stock markets.

It’s anyone’s guess if it’s going to work. If the past is prologue, it will only spur another mess.

The best things you can do to avoid this is to stay away from the markets and the banksters. And remember life insurance companies are essentially banks. Avoid home equity lines of credit or anything that will increase your debt load to these institutions. Put your money to work in gold and silver for now.

There’s no telling how this will end, so for now, it’s best to be as cautious as possible.


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