The propaganda to accept negative rates as normal accelerates
Note: The referenced Bloomberg article may be behind a paywall, so I have provided a pdf version below. The original link is here.
…It seems crazy that anyone would voluntarily part with their money, only to end up with less of it.
But what if negative rates are totally normal?
Here’s a thought experiment: Imagine, for a moment, a time before the existence of a financial system. Rather than people accumulating wealth in pieces of paper (cash, bonds, stocks, etc.), the main way to build up wealth is to buy lots of physical things. Mansions, art, stores of grain, and so on. It should be obvious that this kind of wealth costs money to maintain. It degrades. You have to pay security guards. It can all go up in smoke in a fire. You can keep your wealth in physical things, but you’ll constantly pay a price for that—a negative interest rate, if you will.
But this is money we’re talking about! Why are we even talking about a storage fee? We all know that money in the modern era is just an entry in some digital ledger on the servers of a bank. Why should that cost anyone anything?
Well, it’s important to remember that money in the bank isn’t really something you have. It’s something that you are owed. When you log into your bank and see that you have $10,000 in your savings account, what that means is that your bank owes you $10,000.
And where does the bank get the money to pay you? From the entities that owe the bank money. Maybe the bank holds government bonds (in which case, the state owes it money) or it holds its money in loans to households and businesses (in which case, the private sector owes it money). You get the idea.
In other words, to store money at a bank requires the existence of some other borrower who will pay the bank.
The Non-Weirdness of Negative Interest Rates – Bloomberg August 8th
This Bloomberg article says that savers in Europe are having to pay to store their wealth, because saving is all too plentiful, and that this phenomenon will spread around the world. However, this propaganda diverts us from the real cause. The problem is that saving isn’t too plentiful; the central bank bond buying is only creating the illusion of excess savings.
This central bank bond buying is required to keep the system moving forward. These central bank bond buying programs have created artificial asset market demand as these banks scoop up trillions in sovereign debt and other securities. This excess bond “demand” has been the only real reason behind the collapsing bond yields. Furthermore, these manufactured lower rates have stimulated virtually all asset values and have allowed the governments to borrow with little thought of the ramifications to lost future economic growth and increasing deflationary pressures.
The controlled mainstream press can tell you that economic weakness and a savings glut are the two primary causes of falling interest rates, but the truth is much darker. The owners of the central banks have placed the entire world on a permanent IV drip of lower rates, which can easily accommodate a ballooning sovereign debt pile.
Take this to the bank; if it weren’t for these central bank asset buying programs, interest rates would be many times higher and the nation-states would have already gone insolvent. The controlled mainstream press can tell you that economic weakness and a savings glut are the two primary causes of falling interest rates, but the truth is much darker. The owners of the central banks have placed the entire world on a permanent IV drip of lower rates, which can easily accommodate a ballooning sovereign debt pile. This growing debt pile, by definition, is deflationary as all this past borrowing must be serviced in the future. Regardless of the rate of interest paid, the principal balance swells and drags down economic potential as the economy has to contend with the growing debt balance.
Indeed, negative rates are not weird when the central banks stand ready to vacuum up all the debt required to move bond yields lower, while they encourage elevated asset values. Elevated asset values also accommodate the growing debt pile, so the central banks will work to move asset prices higher over time.
Like I have been saying for a few years; we will look back and think that receiving interest on money is an anachronism.