Wednesday, September 21, 2016

Negative Interest Rates Could Cause A Run On the Banks

I'm a business major and had some Economics classes in college.  I can honestly tell you that we NEVER spent any amount of time discussing or writing papers on Negative Interest Rates.


Because they have NEVER happened in human history and no one in their right minds would EVER believe that a Government could sell a Treasury Bond for $10,000 today and promise to give the investor $9800 back in 10 years.

But that's exactly what is happening today for the FIRST TIME EVER!!

As we have said in the past, this Negative Interest Rate Policy (NIRP) may be the obvious trigger that brings the world into the CASHLESS SOCIETY.

"That's crazy talk Dennis!  How could that ever happen?"

If banks start charging investors here in the USA 1% to hold their $000's.....then people like me will quit using the bank to hold our savings.  Instead we will go to the bank and ask for our money in cash.  After they give us the cash we will take it home and put it in a gun safe or fireproof box.  When everyone does this, it will cause a run on the banks forcing them to shut down since they don't have enough cash in all the world to give people cash for their deposits.

The Central Banks would be terrified that they just lost control of monetary policy...since they can't tax or take your cash....and they would have no choice but to make cash obsolete....which would leave us with a cashless society....which the Bible has said all along would be with us in the very last days.

Today I received an newsletter discussing NIRP and wanted to point out some interesting things.

Negative interest rates are a new and untested monetary phenomenon rolled out by central bankers around the globe. Currently, $13.4 trillion of global debt earns less than 0% interest. More than 70% of global government debt yields less than 1% and more than 30% carries a negative yield. We will examine this phenomenon and why it matters to investors in the U.S. first by explaining the theory behind negative interest rates and second by surveying their potential impacts on global financial markets. Finally, we will outline what we believe are the major investment implications behind this monetary experiment.

Why Negative Rates1?

Global central banks are largely tasked with two objectives: maintain a healthy level of inflation, and maintain labor markets near full employment. While they have several tools to help achieve these goals, most central bankers have historically utilized one primary tool: setting short-term interest rates. With the global financial crisis and recession of 2008, central banks around the world and in the U.S. cut interest rates in an effort to stimulate the economy and stem the rise in unemployment. Slow growth in the ensuing recovery and limited fiscal responses from global governments encouraged central banks to keep rates extremely low thereafter.

Quantitative Easing (QE)

In the U.S., the Federal Reserve (Fed) pioneered the strategy of buying bonds as a complementary policy tool after they hit the zero bound, which is an interest rate near 0%, on short-term interest rates and desired greater stimulus. The resulting QE policy quickly became part of the toolkit of central bankers and has subsequently been deployed by many other nations. However, several regions experienced additional recessions after 2008, and central bankers overseeing those regions were unable to sufficiently reinvigorate their economies, even when adopting aggressive QE measures. With interest rates in these countries already at zero, the primary policy tool of cutting interest rates was no longer possible unless central banks could take rates into previously unimaginable territory—below the zero bound.

Negative Rate Experiment

In 2014, Europe's central banks cut rates below zero in an effort to stimulate a sputtering economy, and the impact on the yield curve can be seen in Figure 1. They theorized that going negative should act as the logical next step when interest rates were already at zero and QE proved insufficient.

However, negative rates pose a unique challenge to central banks. They can only charge commercial banks for assets held as collateral and banks are unlikely to pass those rates on to consumers. When faced with a negative interest rate, a consumer could pull money out of the bank and hold physical cash, which would not lose value. Passing negative rates on to consumers could thus have the unintended effect of causing a run on the bank.


As the article says, as of NOW the banks won't be able to pass on Negative Rates to the consumers because it WOULD CAUSE A RUN ON THE they will just be pressured to loan out as much money as they can and hold the least amount of capital that they can so THEY won't be charged negative interest by the Federal Reserve!

But one day this will change!  When banks run out of GOOD CREDIT customers to loan money to....they will be forced to loan money to BAD CREDIT customers....and ultimately they will have no choice but to pass on Negative Rates to their savers and preempt  a run on cash by declaring a cashless system.

And he causeth all, both small and great, rich

and poor, free and bond, to receive a mark in

their right hand, or in their foreheads: And that

no man might buy or sell, save he that had the

mark, or the name of the beast, or the number

of his name. Here is wisdom. Let him that hath

understanding count the number of the beast:

for it is the number of a man; and his number is

six hundred threescore and six.

(Revelation 13:16--18)


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