I do enjoy this job. Not only do I get to work with great people, but the subject matter is fascinating and ever developing. Several years ago I used to be able to prepare a piece throughout the week and then write it up. In the last year or so, I have needed to re-read the news and then often entirely re-plan the piece early in the morning of each day’s writing, just to keep abreast with the daily tectonic shifts in the economy and the political events affecting it. I get to read widely from some highly intelligent and fascinating minds and today is no different.
No doubt, you may have spotted that this week Japan announced it was going into Negative Interest Rates. What exactly does this economic signal mean to you and I and how can we react?
“Imagine a bank that pays negative interest. Depositors are actually charged to keep their money in an account.” (Bloomberg, 29 January 2016)
Firstly, if that sounds crazy, that is because it is. But what may surprise you is how quietly widespread this sign of economic desperation really is. Secondly, negative interest rates make investing in Physical Gold and Silver even more logical and attractive than just last week!
To understand the true significance of the news of Negative Interest Rates and how it will affect us, let’s look at how such a situation could come into begin in the first place. It all starts with the fiat currency system’s inherent weakness, which comes primarily from the immoral arrogance of its ideological founder, Keynes. Keynes was an economist who said in the 1930’s that “all government should have an elastic money supply (meaning governments should be allowed to do what you and I have too often dreamed about; be able to create fictional money.) This then allows governments to “spend into the wind.”
In the video above Mike Maloney explains the Keynesian system in greater detail: but to save you precious time, here is an extract:
“All the economists, that run things are Keynesians; Alan Greenspan, Ben Bernanke, Janet Yellen. They think that since they believe it, it [Keynesian economics) has to be true. Even if it’s not true it still has to be true, because they believe it. But Keynesian economics doesn’t work. Japan just went negative on their interest rates, so now the central banks that represent 20% of the world’s G.D.P., the world’s economy, is now in negative interest rate territory at the central banks and this is crazy.” (Mike Maloney, extract from video “Stimulate This? Keynesian Hubris Now Upon Us, 2nd February 2016)
I would like to just interject the even more crazy reality for us as Brits. Maloney, as many of you know, is American, so is looking from an American perspective. Our economy, on the other hand, is (currently) highly dependent and intertwined on the Euro Zone project; the Euro’s percentage of countries quietly in negative interest rates is not 20% but staggeringly nearer 30%!
“Several of Europe’s central banks have cut key interest rates below zero and kept them there for more than a year. Now Japan is trying it, too. For some, it’s a bid to reinvigorate an economy with other options exhausted. The Bank of Japan surprised us by adopting a negative interest-rate strategy. The move came 1 1/2 years after the European Central Bank became the first major central bank to venture below zero. The ECB cut a key rate further into negative territory on December 3rd, even though President Mario Draghi earlier said it had hit the “lower bound.” It now charges banks 0.3 percent to hold their cash overnight. Sweden also has negative rates, Denmark used them to protect its currency’s peg to the euro and Switzerland moved its deposit rate below zero for the first time since the 1970s. By the end of 2015, about a third of the debt issued by euro zone governments had negative yields. That means investors holding to maturity won’t get all their money back. Banks have been reluctant to pass on negative rates for fear of losing customers, though Julius Baer began to charge large depositors.” (Negative Interest Rates; Less Than Zero, Jana Randow and Simon Kennedy, Bloomberg Quick Take, January 2016)
What Mike Maloney does do exceptionally well is explain how the current economic system is doomed to fail: “Before the crisis of 08 nobody had ever heard of negative interest rates, nobody had ever contemplated the concept of negative interest rates or how they would work. This is a Keynesian solution and it’s a solution that can’t possibly work. And we’ve seen Europe’s economy prove this, they’re absolute proof that negative interest rates don’t work.”
To add a very symbolic visual to this, I was visiting family working at the time in Athens, Greece just in October 2015. We spent an afternoon in a local park. All the fountains in the park – and indeed the entire country – had been switched off, since the economic collapse in July (which is still ongoing today but whitewashed under another “bail-out”) in Greece. What a symbolic picture – a dry cracked park basin, where once water constantly flowed, as a symbol of an entire country’s monetary flow run dry. It is a visual reminder that there is no more public money left in Greece, not even for water.
“So now Japan are doing it,” Maloney continues, “And other countries will follow suit and I don’t know if it will take a year or two years. But you can bet that the U.S. will also be going the same direction. It is wrong because it assumes that you get purchasing power from typing ones and zeros; that you can create and this will actually buy something; what it gets is purchasing power. Why did we grant them the legal authority to and the right to violate the most moral of human principles, “Thou Shalt Not Steal?!” They steal when they create a brand new unit of currency. The way it gets its purchasing power is by robbing all the other units of currency of a minute amount of purchasing power and transferring that to the new unit they’re typing. It doesn’t create new purchasing power, what it does is steal it from one sector and gives it to another! It’s a morally corrupt principle and it’s going to end in a disaster for all of us. It’s going to cause some major problems and the problems are upon us.”
So, if negative interest rates are so crazy, why do the Central banks of the world increasingly using them? “In theory, interest rates below zero should reduce borrowing costs for companies and households, driving demand for loans. In practice, there’s a risk that the policy might do more harm than good. If banks make more customers pay to hold their money, cash may go under the mattress instead.” (Bloomberg). We at Bleyer would take this moment to encourage our readers to ring us and ensure that that money goes into the safe haven of Physical Gold and Silver – real money – and advise you on our wide range of secure Storage Options. We offer a variety of home safes.
We really encourage our readers to heed this warning sign. The very uncomfortable fact is that “[interest] rates below zero have never been used before in an economy as large as the euro area. Negative interest rates are a sign of desperation, a signal that traditional policy options have proved ineffective and new limits need to be explored.” (Randow and Kennedy) I have often written over the years that economically speaking we are in uncharted territory and there it is in black and white.
So, how is this likely to affect the global economy and what action do we take in relation to Gold and Silver?
Two commentators caught my eye this week. The first believes we are heading for a large re-valuation of the price of Gold and Silver upwards. His article is very detailed and shows a very in-depth financial know-how on how countries will now seek to balance their debts against their economies. I highly recommend a read because he writes about what life will look like if the price of Gold is re-adjusted upwards to either $22,000 an ounce or even $50,000. “Once the world’s currencies are “gold-backed”, then the gold held by individuals, trusts or corporations will cease to lie lifeless in stocks of gold. All gold will have become money and will spring to life in furthering economic activity: the revaluation of gold by Central Banks will also revalue, simultaneously, the 151,890 tons of gold which are thought to be in private hands at present – 183,000 tons total, minus 31,110 tons held by Central Banks = 151,890 tons in private hands.” (Tyler Durden, The Coming Re-evaluation of Gold, 2nd February 2016)
He concludes that, “For the U.S., the revaluation of gold means an end to its ability to obtain any goods it desires, in any quantity, in any place, at any price by simply tendering today’s mighty fiat dollar in mock-payment, in exchange for those goods. The U.S. economy will have to suffer a huge and also painful, wrenching adjustment to its new situation in a different world, where balanced trade and balanced budgets are relentlessly imposed by the new status of gold as international money. On the positive side, U.S. manufacturing will immediately spring to life to supply the U.S. market; employment and incomes will surge with the rebirth of U.S. manufactures. Once all currencies are “gold-backed” by revalued gold reserves, then gold is once again the international money, and the Dollar becomes nothing more than the national currency of the U.S., as quantities of gold become the international means of settling trade. We need not worry ourselves about how this will take place, because that it will happen is a certainty. All prices of goods and services around the world will really be gold prices, since all currencies will be redeemable at sight, in gold.”
The second piece that caught my eye, and provided an absolutely fascinating insight, was an interview in the Daily Bell entitled, “Exclusive interview with Antal Fekete: Resurgence of the Golden Bull,” with Anthony Wile, January 31, 2016.
Antal Fekete is an academic and economist of long-standing who has studied economies and economic theories, such as the Keynesian disaster we have been under for decades. Together with journalist Anthony Wile, they produce a discusive insight into the minds of those who truly grasp what is going on:
Anthony Wile: Hello, Professor Fekete. We seem to be on the cusp of some economic evolutions that may fit into your larger theses about deflation, disinflation and monetary cycles. Can you give us some insights into what is going on and how your perspectives are being proven out?
Professor Fekete: Without any doubt we are in a depression and a most severe deflation, conditions the coming of which I have long predicted. The direct cause is the counterproductive monetary policies of the Fed and other central banks of issue: the Bank of England, the ECB, the Bank of Japan. These central banks have pursued ZIRP [zero interest rate policy] with the effect of destroying capital all over the world economy, including financial capital (not excluding the value of their own issues) in addition to physical capital.
Anthony Wile: Is gold headed for a breakout?
Professor Fekete: The price of gold is fading into meaninglessness, as no one will be willing to sell any amount of gold against irredeemable currency payment, not even gold mining concerns.
Anthony Wile: Is now a good time to reintroduce Real Bills … and why?
Professor Fekete: Any time is a good time to administer the right medicine to the moribund patient. A gold standard cum real bills is the right medicine to the moribund world economy.
Anthony Wile: Are we reliving the beginning of the Great Depression?
Professor Fekete: Yes, except this time it is far worse.
Anthony Wile: What would you do to protect yourself if you were a middle-class investor? Would you buy a gun? Gold? Food?
Professor Fekete: All of the above. One word about buying gold. What you need is not physical gold per se but a gold income. Therefore, you should have gold in small denominations rather than large ones.
In conclusion, like Maloney and Fekete above, we cannot predict when this unprecedented economic collapse will happen. But all the commentators above agree that, at some point, it will happen; that the collapse of the current extended debt and fiat currency system is doomed to fail and that it will be worse than the Great Depression.
Please do take a look at our many Gold and Silver bars and coins. Prepare now and call one of our team to discuss how easy and discreet it is to transfer even the smallest savings out of the Historically Low Interest Rate system into Physical Gold and Silver.