Like an ambush, it has to come by surprise…
Whenever you hear a central banker or politician say something won’t happen, you can almost be certain it will happen. And probably soon.
Coming from a bureaucrat, the real meaning of “no, of course not” is “it could happen tomorrow.”
It’s like the old saying: “Believe nothing until it has been officially denied.”
These deceptions have a purpose: Politicians and central bankers have to surprise the public to get the results they want.
In the past couple of years, this has happened over and over again…
In January 2015, the Swiss National Bank (SNB) emphatically denied it was even considering letting the Swiss franc stray from its fixed exchange rate of 1.2 francs per euro. Then, days later, the SNB let the exchange rate appreciate 20% over the course of minutes, causing an earthquake in the currency markets.
In June 2015, Greece’s government spent weeks saying it wouldn’t impose capital controls. Then, one Sunday morning, the Greek Finance Ministry repeated the denial. Mere hours later, the Greek government declared a week-long bank holiday and announced it would impose capital controls after all.
The same pattern played out in Cyprus during the country’s 2013 banking crisis. On an otherwise ordinary Saturday morning, the government declared a surprise bank holiday. Then it imposed capital controls and confiscated bank deposits.
Cyprus slammed the trap shut without warning. It happened despite repeated promises from the highest Cypriot politicians that bank deposits would be safe.
By now, this pattern should be seared into your memory.
Last week, it happened again…
Negative Interest Rates—Spreading Like a Bad Rash
For the past few weeks, Haruhiko Kuroda, the head of the Japanese central bank, said he had no plans to adopt negative interest rates.
Then, last Friday—just a week after his most recent denial—the Japanese central bank cut Japan’s interest rate below zero for the first time ever.
This should not have surprised anyone.
Negative interest rates mean the lender literally pays the borrower for the privilege of lending him money. It’s a bizarre, upside-down concept. The European Central Bank, Denmark, Sweden, and Switzerland also have negative interest rates.
Negative rates could not exist in a free market. They can only exist in an “Alice In Wonderland” economy created by central bankers.
Producing more than you consume and saving the difference is the basis of prosperity. However, negative interest rates destroy the impetus to save. This is why negative rates are a huge threat to your financial prosperity.
Japan’s decision shows that negative interest rates are not some European anomaly. Negatives rates are a disease that’s spreading around the world. And I think the disease is on its way to North America.
The Federal Reserve has already discussed the possibility of using negative interest rates in the U.S. So has the Bank of Canada.
We’ll know the infection is imminent when officials start denying it.
The War on Cash and Negative Interest Rates
When you deposit money in a bank, you are lending money to the bank. In return, you expect to earn some interest. That doesn’t happen with negative rates. Instead, you pay the bank.
If you don’t like that plan, you can certainly stash your cash under the mattress. As a practical matter, this limits how far governments and central banks can take negative interest rates. The more it costs to store money at the bank, the less inclined people are to do it.
Of course, central bankers don’t want you to withdraw money from the bank. This is a big reason why they are trying to incrementally eliminate cash.
It’s no coincidence that Sweden, the closest thing to the world’s first cashless society, has negative interest rates.
If you can’t withdraw your money as cash, you have two choices: deal with negative interest rates... or spend your money.
Ultimately, that’s what central economic planners want. They are using negative interest rates and the War on Cash to force you to spend and “stimulate” the economy.
Negative interest rates, the War on Cash, and financial sneak attacks are radical and insane measures. They are signs of desperation.
But desperation doesn’t mean central bankers are weak. They are actually quite powerful.
Central bankers can make or break the fortunes of anyone with a brokerage account. They have the power to create or extinguish trillions of dollars of wealth by simply uttering a few words.
Giving any group of people this much power is incredibly dangerous.
Meanwhile, the mainstream media has endless praises for central bankers. It portrays them as selfless, benign bureaucrats trying to save the economy.
In truth, central bankers are the primary cause of most of the harmful distortions in the economy.
Think unlimited money printing, interest rate manipulation, the boom/bust cycle, propping up “too big to fail” institutions with bailout funds, the War on Cash, cronyism in the financial industry, and negative interest rates… just to name a few.
I think central bankers are the biggest threat to your financial well-being. Period.
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