NEGATIVE INTEREST RATES?
We keep hearing about "negative interest rates," but isn't that an oxymoron, a paradox, something that makes no sense? What does that even mean?
Let's simplify negative interest rates this week, so that we all understand what the media is talking about, but also so that we can highlight more failed attempts of administering unsustainable economic theories, square pegs in round holes.
For over five years, European countries and their central banks (their Federal Reserves) have instituted negative interest rates to "jump start" their economies. Instead of paying commercial banks to hold their cash reserves in the central bank, and the citizens to hold their savings with the commercial banks, the banks are charging everyone to deposit their cash. So, if you opened up a savings account with Swiss National Bank, YOU would have to pay THEM 1% a year for the pleasure of them holding and using your money!
Theoretically, they believe, wrongly, that this will discourage savings in order that banks will have to make more loans, and citizens will have to spend more of their hard-earned money, all to grow a failed economy founded on socialism.
These European Union types claim this policy will have positive effects because is also lowers their currency which helps exports with lower prices. This is similar to the New York Knicks claiming that their terrible season records every year help them get higher NBA Draft Lottery picks. Also, the Trump Administration is now planning to impose tariffs and trade penalties for countries who artificially manipulate their exchange rates.
Eurocrats also claim that these rates keep bond yields depressed which enable fragile euro members, such as Italy and Greece, to keep borrowing even with existing huge debt loads. This is akin to allowing the New York Knicks to continue to operate its failed franchise and steal ticket prices from fans held hostage by the league's oligopoly.
Finally, ECB President Mario Diaghi stated in March that negative rates are "a powerful instrument in enhancing, fostering the recovery and converging to price stability and achieving our objectives." Where did this guy to to school? How many times are we going to have save these guys? (A special remembrance and incredible gratitude to our fallen service members this Memorial Day).
What has actually occurred is that 1) European corporations and wealthy individuals have struck deals with banks like UBS Group AG to hold their cash in the bank's vault, instead of circulating through the economy, 2) individuals are not spending more, but swapping their savings among banks in Munich and Bulgaria to save a few tenths of a percentage point, 3) real estate inflation and over building is promoted as Swiss Bankers Association Chief Economist Martin Hess stated, "Holding cash is simply more expensive than building an empty house."
Five years later, the European Commission has lowered the euro zone's GDP growth rate expectation to 1.2%, nearly one-third the United States. Unemployment rates are 9% in France, while Italy, Spain, and Greece are double digits. The United States, after lowering taxes and regulations, is 3.9%. If the U.S. had 12% unemployment, there would be rioting in the streets, but why is it accepted in Europe?
It is accepted because socialism took over a long time ago, and we should not be complacent about the never-ending threat here to our American Dream. The reasons Europe is lying to its citizens, and grasping at this nonsensical manipulation of rates are numerous:
1) Taxes are too high. Individuals are not motivated and inspired to work hard, produce more, and keep the rewards for themselves and their families.
2) Regulations are a disaster. No one will start a new business because they can never get through the red tape, and they can never fire an employee.
3) Redistribution is accepted as the norm. Why work harder if the government takes your money, and it disappears into a black hole of entitlements and failed government bureaucracies?
4) The under-25 jobless rate is 16% in the euro zone. Since companies won't create new jobs, just take the government check and live with Mom and Dad, and drink their vino!
Politicians and technocrats mess around with monetary policy (interest rates) because it can give short-term boosts, and they use confusing terms and theories because 99% of us taxpayers have no idea what they are talking about. But, as JAM VIEWS continually preaches, the fundamentals are behavioral and mastered with simple math. The Federal Reserve and other central banks are only necessary because technocrats refuse to operate under fundamentally-sound economics, as a corporate CEO has to do. Without a central bank, the government would have to execute a balanced budget, could not have a $22 trillion mortgage, could not easily manipulate the currency to affect free trade, and could not print money for all of their misadventures they want to fund after already taxing the citizens to their maximum pain threshold.
Negative interest rates is the latest scam to cover socialism economics (oxymoron), and keep the masses quiet. Don't believe the fake news. Maybe we should send Indiana Hoosiers Coach Bobby Knight over to Brussels to teach them that if the fundamentals are not sound, eventually the fraud will be exposed under pressure, normally during March Madness! Maybe we should ask him to swing through Washington on his return trip. Stay diligent. Knowledge is power. Have a great week!
"All I know is what I read in the papers." - Will Rogers
** Thank you very much to the WSJ, Forbes, and Fortune for the above quotations and statistics.
** For more information on Jeff's Books, Blog, and Legal Challenge, please visit www.jeffmartinovich.com.
** To access JAM Views directly please visit jeffreyamartinovich.blogspot.com
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