Negative rates may not have found their way to bank deposits in most locales (yet), but that doesn’t mean the public isn’t starting to see the writing on the wall.
At first, NIRP was an anomaly. An obscure policy tool that most analysts and market watchers assumed would be implemented on a temporary basis in a kind of “let’s see if this is even possible” experiment with an idea that, from a common sense perspective, makes no sense.
But then a funny thing happened. Central banks from Denmark to Sweden to Switzerland went negative and stayed there. They even doubled down, taking rates even more negative and before you knew it, the public started to catch on.
When NIRP failed to resuscitate global growth and trade, the cash ban calls began. The thinking is simple (if crazy): if you do away with physical banknotes, the effective lower bound is thereby eliminated. You can make rates as negative as you like because the public has no recourse as people aren’t able to push back by eschewing their bank accounts the mattress.
If that seems far-fetched, consider that the ECB is seriously considering pulling the €500 euro note and the calls are growing louder for the Fed to drop the $100 bill. Of course officials are pitching the big bill bans as an attempt to fight crime – because only a criminal would pay with a $100. But the underlying push is for a cashless society wherein monetary authorities can effectively force citizens to spend and thereby boost the economy by simply making interest rates deeply negative.
Now that the cash ban calls have gotten sufficiently loud to be heard by the generally clueless masses and now that the likes of Jose Canseco are shouting about negative rates, savers are beginning to pull their money out of the banks.
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What happens to banks that have no money to lend? And when the banks fail, the current law in this country is that your deposits are forfeited unless any money is left over after their debts are paid. Of course there is always your FDIC insurance that can be paid back by printing more fiat currency. All of this is the very reason why the Federal Reserve banking system was initially passed.
David DeGerolamo
The more necessary discussion of personal debt and it’s management by the failing banking institutions after a collapse is fundamental in planning for a family’s future. Hoarding cash and ignoring debt obligations is a recipe for disaster. Debt-free living has never been more important.
Hopefully someone will do a piece on debt instruments and how personal debt affects individuals in a financial collapse. I’m convinced most people overlook this trap entirely, and wrongly believe that if they are in debt when SHTF occurs they come out ahead of the game.