We’d missed this recent call from one of Europe’s biggest (and as it happens most financially troubled) bank.
But it should not really come as a surprise. The world seems to continue heading down the slippery slope of more and more extreme intervention from the central planners.
What they are calling for is probably just a natural progression from the already spreading negative interest rates. If enacted it will probably have unintended consequences, just as negative interest rates have actually caused an increase in savings rather than forcing people to borrow and spend…
By Justin Spittler
One of Europe’s biggest banks just made a shocking statement… one that could affect the money in your bank account…
Dispatch readers know governments have launched all sorts of crazy schemes since the 2008 financial crisis.
In an effort to “stimulate” their economies, they’ve borrowed trillions of currency units. They’ve printed trillions more from nothing. They’ve cut interest rates to record lows.
But perhaps the most reckless policy has been negative interest rates.
Negative rates are a bizarre concept. In a normal world, you earn interest on cash you hold in a savings account. With negative rates, you pay the bank to hold your cash. Negative interest rates are a perversion of saving and capitalism.
• Negative rates were unheard of until two years ago…
Today, more than $8 trillion worth of government bonds have negative rates.
The European Central Bank (ECB) introduced them in 2014. The Bank of Japan (BOJ) started using them in January. Denmark, Sweden, and Switzerland have them too.
These countries think negative rates will “stimulate” their economies. The thinking is that people will spend more money if their savings are taxed. Mainstream economists tell us this will make the economy grow.
Regular readers know that’s a lie. Saving and production drive an economy, not spending.
• Deutsche Bank (DB) thinks the ECB and BOJ should “double down” on negative rates…
Deutsche Bank is Germany’s largest bank, and one of the world’s most influential financial institutions.
ZeroHedge reported on Sunday:
[T]he ECB and BoJ should move more strongly toward penalizing savings via negative retail deposit rates or perhaps wealth taxes.
Today, only big banks and other large financial institutions pay negative rates. For the most part, these institutions have yet to pass along negative rates to their customers.
Deutsche Bank thinks central bankers should go directly after people’s savings accounts. In other words, it’s lobbying for a wealth tax—or “bank account tax”—that would be a more radical version of negative rates.
• Deutsche Bank thinks central banks are running out of tools…
It thinks quantitative easing (QE) has “run its course,” according to ZeroHedge. Dispatch readers know QE is when a central bank creates money out of thin air and injects it into a financial system.
The U.S. used several rounds of QE after the last financial crisis. Europe and Japan are currently using QE.
We agree with Deutsche Bank that QE is doing nothing for the global economy. But launching even crazier policies is not the answer. A bank account tax would promote more reckless borrowing and spending than we’re seeing already.
In other words, it would only add fuel to an already huge problem…
• Negative rates don’t work…
Europe and Japan are growing at their slowest pace in decades.
Their stock markets are doing poorly too. The STOXX Europe 600, which tracks 600 large European stocks, is down 7% this year. The Nikkei 225, Japan’s version of the S&P 500, is down 15%.
In Europe, large corporations are pulling money out of the banking system to avoid paying negative rates. Japanese people are hoarding cash at home to avoid negative rates.
• The U.S. doesn’t have negative rates yet…
But don’t rule them out.
In February, Federal Reserve Chair Janet Yellen said negative rates in the U.S. weren’t “off the table.”
Today, the Fed’s key rate is at 0.38%…well below its historic average of 5%.
Yellen’s kept rates low because the economy is hardly growing. In fact, the U.S. economy’s “recovery” from the 2008 financial crisis has been the weakest recovery since World War II. One piece of bad economic data could lead to the Fed dropping its key rate below zero. And if Europe or Japan introduce a bank account tax, you can bet the Fed would consider it too.
• Eight years of “easy money” have already warped the economy…
QE and rock-bottom interest rates have made it incredibly cheap to borrow money.
Americans have borrowed trillions of dollars since the last financial crisis. They’ve borrowed to buy televisions, cars, homes, commercial property, and even stocks and bonds. The Fed’s “stimulus measures” ignited a historic rally in stocks. Since 2009, the S&P 500 has more than tripled in value, hitting an all-time high. Bond prices have hit record highs too.
We’re now living in an “Alice in Wonderland” economy where stocks and bonds soar while the “real” economy barely grows.
• Casey Research founder Doug Casey says we’re in a very dangerous situation…
These reckless policies have produced not just billions, but trillions in malinvestment that will inevitably be liquidated. This will lead us to an economic disaster that will in many ways dwarf the Great Depression of 1929–1946. Paper currencies will fall apart, as they have many times throughout history.
• When people realize paper money is doomed, they’ll pile into gold and silver…
Regular readers know gold and silver are the ultimate wealth insurance. These precious metals have preserved wealth for centuries. They’re real money because they’re durable, transportable, easily divisible, have intrinsic value, and are consistent around the world.
Unlike paper currencies, governments cannot create more gold or silver with a few taps on a keyboard.
• Gold and silver have taken off this year…
The price of gold is up 22% this year. It’s at its highest price since January 2015.
Silver is up 27%. It’s at its highest level in a year.
Doug thinks this is only the beginning of a huge bull market for gold and silver. In fact, he thinks gold is in the early innings of a “true mania.” He says gold prices could easily triple in the coming years. Silver could see even bigger gains. As we recently explained, silver is cheaper than gold right now.
• Gold and silver miners are soaring too…
Mining companies are leveraged to precious metals prices. A 10% rise in the price of gold can cause gold stocks to jump 30% or more.
Gold’s 22% jump this year has caused the Market Vectors Gold Miners Fund (GDX)—which tracks large gold mining stocks—to surge 85%. Silver’s 27% move led to a 104% jump by the iShares MSCI Global Silver Miners Fund (SLVP), which tracks large silver mining stocks.
• Many Casey readers booked even bigger gains…and it’s not too late for you to join them…
Louis James, editor of International Speculator, has several HUGE winners in his portfolio.
If you don’t know Louis, he’s our resource guru. His specialty is finding small gold and silver miners with massive upside.
One of Louis’ latest picks is up 74%. Another is up 89%. One has skyrocketed 157%.
Like Doug, Louis thinks this is only the beginning. He expects the best gold stocks to rise 1,000% or more in the coming years. Those kinds of returns may sound impossible. But if you’ve ever seen a major gold bull market, you know they’re very real.
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Chart of the Day
The U.S. dollar just hit a 16-month low…
Today’s chart shows the performance of the U.S. dollar index. This index tracks the dollar’s performance against major currencies like the euro and Japanese yen.
You can see the U.S. dollar has plunged 6% this year. It’s at its lowest level since January 2015.
The dollar’s big decline this year has caught many investors off guard. After all, the Fed’s monetary policy isn’t quite as “easy” as Europe’s and Japan’s right now. The Fed is not currently printing money like the ECB and BOJ. It isn’t using negative rates like the ECB and BOJ either. Yet, the dollar is weakening relative to the euro and Japanese yen.
This suggests investors expect the Fed to join the ECB and BOJ in printing money and dropping interest rates to zero or lower. And Casey readers know a weaker dollar would be bullish for gold, which is “priced” in dollars.