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Hunter Lewis: Negative Interest Rates– Only The Start?

In the article, only the first bit of which is below, you will find several delightful ideas on how to stimulate consumer spending and thus to revive the economy. And anyone who invents the phrase ‘the zombification of the economy’ has my applause.

Personally, I am thinking of taking a strong position in cockle shells.


Negative Interest Rates: Only The Start?

By Hunter Lewis
Saturday, June 7th, 2014

As Ryan McMaken noted on June 5, the European Central Bank has instituted negative interest rates for member banks. This could soon spread to the US and also to consumer accounts. If so, you would find money taken out of your bank account each quarter unless you spend it. Some observers think that in the US at least it will start with higher account fees, which will be stealth negative interest rates, and then move to overtly negative rates.

The idea is that if low rates are not yet persuading you to spend, then why not punish you even more for saving. To make this more effective, there would also be a push for all electronic money, to keep you from stashing any away from the confiscation agents. Ken Rogoff, leading Harvard (and Republican) economist has just recommended this to facilitate negative interest rates and in general to increase government control over cash.

….

This is far from the only “innovation” that could be coming our way. In a speech on June 4, San Francisco Fed Chairman John Williams suggested that the Fed should at least take a look at “nominal income targeting.”

[SNIP]

23 Comments

  1. John Galt says:

    Thus the fiat money merry-go-round continues, it is fascinating in the same way as reading the London Times from 100-years ago* in that you know what is approaching for that lost world and that millions will die, but you are unable to alter the outcome.

    The only reason that I am holding any money at the moment is that I am saving up to buy a property. This is not an irrational use of money, but a perfectly sensible way of buying a home where a mortgage is not available (being a foreigner in a foreign land as it were).

    However, if I am being penalised for holding currency, then I will have to convert it into a form that will not be subject to such penalties (assets, equities, specie, etc.) and this will further exacerbate the situation.

    * = As Patrick Crozier from Samizdata is doing here.

  2. Single Acts of Tyranny says:

    Indeed, the whole negative interest rate thing seems like a suicide mission for banks. Why would you not simply convert the account into anything (even fiat cash) and store it securely?

    Like you, I’ve not held bank deposits in any quantity since 2008 preferring almost any other asset class. That said, the UK’s Ed Milliband, (our default next PM) doesn’t like private landlords, so goodbye to all that. He’s not keen energy companies or supermarkets (so bye-bye pension fund holdings), you know he will authorise more QE, so cash is a no-no.

    WTF?

  3. NickM says:

    True story from several years ago… Maybe 12 years ago. I moved from HSBC because they were ripping me off. I’m sure they were syphoning my cash. Anyway, I shifted to NatWest due to there being a branch just round the corner. So I see the managed and despite being about 27/28 I get a STEP card which is designed for school leavers. I ask why? Well, it was my poor credit rating. I objected. Apart from being (authorised) overdrawn a small quantity a few times and having had a single student loan that I paid back much quicker than I needed to I had never been in any significant debt, I didn’t have anything like a car on tick or a mortgage or whatever. Now the main difference with the STEP card was no overdraft whatsoever. Purely because what little borrowing I’d ever done I’d paid back with alacrity. They subsequently upgraded me to the usual Visa Debit.

    Madness.

  4. John Galt says:

    There must be something in the water with us Kitty Kounters Nick, because I had pretty much the same experience as you. In the end my father had to speak to his own bank manager and promise to act as guarantor to get a credit card with a shitty limit on it to establish a credit history. This was back in 1986.

    Nowadays, I just use credit cards for paying hotel bills and travel expenses and settle the full bill at the end of the month. It ensures that I retain a credit history, despite having no debt to speak of.

  5. Paul Marks says:

    Firstly (of course) most of this “money” does not even exist – it is just credit bubble, but leaving that aside…..

    The ECB is still technically keeping the interest it lends money at “positive” (I was caught by the original news reports as well) – it is just the interest rate that it gives to banks who (stupidly) leave money with it, that is going to go “negative” (i.e. they are charging banks who leave money with the Central Bank).

    If any of this would sane the banks would respond by pulling out money from the Central Bank but NOT lending it (leaving it in their own vaults instead).

    However, as the money does not really exist………

    By the way I would not be surprised if Hunter Lewis is correct in his predictions.

    Hunter Lewis is a good man – for example his refutation of Keynes (“Where Keynes Went Wrong”) is first rate.

    The capital structure of the economy is utterly distorted (by the endless propping up of the “broad money” credit bubble) – so distorted I do not know where to start to talk about it.

    So I will stop here.

  6. Mr Ed says:

    Paul Marks, blown by a bubble!

  7. RAB says:

    Nick. Your credit rating is gold plated if you owe squiggly amounts of money to all in sundry. That way they know you will want to borrow more and more, not when you owe nothing to anyone.

    My credit rating is crapolla because I owe nothing to anyone, and like John Galt, pay off my credit cards at the end of every month. Banks fuckin HATE me! because they can’t make any money off of me.

    I used to get cold calls offering to re-mortgage my house. When I told them I didn’t have a mortgage and bought the place for cash, they used to put the phone down on me. Well that’s refreshing I thought, rather than the other way round.

    When we bought this computer that I am writing on now, there was an interest free deal available. They checked my credit rating and refused the deal. Fuck it we’ll pay cash I said and did on the spot. And that’s what we always do now, and that’s also what they are trying to get control of.

    No more cash is their ideal. Completely computerised via smart phone is the way they want to proceed. Then they will be able to confiscate whatever they wish from your earnings and just leave you with pocket money. They have already just allowed HMRC to raid your bank account if they feel you owe them money. No discussion, no court orders, no argument.

    It is also a way to enforce the health and eco fascism rules they are itching to bring in. Pop down the Offie for a six pack… Computer says NO. You are over your limit for units this week. Fancy a Cheeseburger or a Pizza? A Kebab!!! are you out of your mind? You had one last week, Computer says NO! This is the way to Electronic Serfdom.

  8. Julie near Chicago says:

    They’re gonna have a hard time getting me to buy a “smart phone.” I have an old-fashioned land-line telephone with an actual answering machine attached. I screen my calls; it’s amazing how few callers are interested in talking to me once they realize they have a machine not a person.

    I do have one of those cheap $25/3 months cells that I keep turned off, for road emergencies and to ask the S-I-L if we need milk. I keep meaning to wrap the thing in tinfoil, on principle.

    I only use the CC for on-line purchases (not many, except insurance and health-care payments) and the once-per-thousand-times I make a really pricey purchase, such as the new 11″ Air Book and associated dongle. I pay it off at least once a month, usually twice. My rating is considered Quite Good, I think, but not Spectacular. A friend’s is Spectacular, even though she’s sometimes late and runs a balance which I think trends to the north, despite best efforts.

    People who think “paperless” is the way to go are thinking with some third-party plug-in, not the OEM’s wetware. (I hope I’m not offending anybody here.) There is first and foremost the security issue. There is also the total and complete reliance on somebody else entirely to maintain complete and honest records of your financial dealings of all sorts. There is the simple fact that the Internet is far from 100% reliable, and for many folks even in the U.S. there are well-populated places where it’s even less reliable than that. There is also the fact that somebody named Isaac Asimov (doubtless among others) pointed out centuries ago, that inevitably in the fullness of time bits are lost here and there. He did a calculation of some sort which showed that it doesn’t matter whether we’re talking electronics,paper, or stone tablets — eventually records will become corrupted. My point is that even today “paperless” means total reliance that your machines won’t go flooey in some spectacular manner. Sure, sure, backup every 5 minutes, preferably off-site, preferably a strictly-local connection (not how those two work together), and you should also back-up your back-up every 5.2 min.

    AND, of course, print everything out. So there’s a paper trail.

    Bah!

    I refuse to do “online banking” or to use ATM cards. I don’t like using checks either. Insofar as is physically possible, I pay with the little pieces of paper and metal that are popularly known as “cash.” And I cash checks in person. At my bank.

    Studies Show that in fact nowadays the Paperless Office generates more paper than ever. Just as (it is said) housewives (or -husbands) now spend MORE time cleaning house than they did before the vacuum cleaner. (Presumably per sq. ft.)

    And that’s the end of that rant. At least for now. :>))

  9. Julie near Chicago says:

    The greater and more pertinent question: Where do you guys recommend parking your non-banked wealth-markers? The first issue being that of liquidity. It’s difficult to sell off .001 acre every time you make a milk run to the grocery store. If you take 1/10 oz gold or silver to the local dealer, he probably (I can’t swear for sure, but I’m sure) has to report the sale to the IRS, so they know how much you “made” on the deal in these inflationary times. (Which, you’ll notice, the financial PTB are encouraged to continue.) Of course all assets, including money, are subject to swiping enabled by inflation, via the Income (or Sales !!!) Tax.

    As for energy, forget heat, fuel, and refrigeration. You can’t afford it anyway.

    It’s true, perfectly true and I agree, that 98% of the time things end up being nowhere near as bad as we fear.

    But it is equally true that the other 2% of the time things turn out far, far worse. “Hope for the best if you must, but plan for the worst,” is not a bad motto.

    . . .

    Speaking of “survivalism,” I trust you folks all realize that in the U.S., barter is no barrier to the Tax Man. If you barter, that’s very nice, but you’re supposed to pay income tax on bartered services. In the case of bartered physical goods, I’m not sure if the tax is considered sales tax or income tax. (Over a certain limit, of course.)

    I will stop now. Time for my hemlock break.

  10. RAB says:

    Before I realised that I was a Libertarian, I used to think of myself as a Cynical Optimist… In that in any prospective situation I expected the worst case scenario, and if it turned out better than that, I cheered up a bit. ;-)

    Liquidity is indeed the question. How do you keep what is yours out of the hands of the “Man” and be able to function in our society, given the confiscatory powers that the State has and the inflationary games they can play with the money supply. Gold and silver etc can be stolen by the State, and Barter is what paper and coin was supposed to bypass and ease the facility of exchange of goods and services. I have no answers at the moment.

  11. Julie near Chicago says:

    Maybe you and Vanessa and Saffie and Lucy and I can ease the world’s suffering by making the current Coercionists’* decades-long dream come true, proving their lives have not been wasted, thereby enhancing their self-esteem (!), and — getting them off everybody else’s backs.

    We shall simply find a nice cave, hopefully not too damp, and not already inhabited by bears, and live alone on nuts and berries. (I hope Saffie and The Luce will settle for nuts and berries. The latest is, they’re not supposed to have garlic or Macadamia nuts, so Hawaii is out.)

    *Coercionists.* See the LONG discussion presently going on at Samizdata over what to call Libruls/Proggies/Leftists/Statists/Big-Government-lovers/Totalitarians/etc. I suggested a neologism, “Diktatists,” but that got no response. My next idea was “Coercionists,” and this I like a lot. No prior baggage, says exactly what it means. Coercionists believe in Coercion as the appropriate method of getting people to do whatever they’ve decided is good for us. Every toolbox needs a sledgehammer, and it’s immoral not to use it when the need arises. Thank the Dark Lord that we have sledgehammers!

  12. Single Acts of Tyranny says:

    “Gold and silver etc can be stolen by the State”

    Not if it’s stashed abroad….

  13. John Galt says:

    Julie – I think the simplest answer is that you have to work within the context of the current state. While you have a functioning economy (despite it teetering on the brink), you should keep 90% of your wealth in assets that will generate income / capital value (preferably both), but also keep 10% of your wealth in some form of reserve that can be used as barter / exchange in the event of a temporary destruction of the currency / economy / war.

    You should keep enough currency to pay at least 6-months worth of bills and hold this in cash. It is not ideal, but I usually keep about £20,000 ($33,500 USD) in cash, when I used to live in the UK it was hidden in a safe in a compartment I made underneath the bottom stair.

    Some Examples of the sorts of thing you can do:
    Cheap secret compartment!
    Secret Stairs

    Traditionally, people have thought of gold bullion, gold coins or diamonds, but in the event of actual collapses possession of such has been made illegal or marks you out as a “hoarder” and can lead to you being targeted by police or criminals (usually the same in such circumstances) seeking to gain possession of your hoard. You are rarely able to get face value for your goods.

    An alternative that worked well in the Argentinian collapse was jewellery which has the advantage of not being particularly high value, but because everyone will be trading similar things it will not mark you out as being a hoarder. Buying lots of identical rings which have a specific weight and gold rating is a good backup as you can guarantee you can get a decent scrap gold price for them.

    Surviving Argentina’s Economic Collapse

  14. Julie near Chicago says:

    JG, thanks for the suggestions. Very helpful. I did, last time around, spend a fair amount on non-perishable food and TP. And bath soap. Paper (which includes plastic and foil *g*) and cleaning stuff are the priciest things in the grocery store, as far as I can tell. And people in seriously socialist or other situations of deprivation are ALWAYS talking about the shortage of soap and “bog paper.”

    Of course here, there are runs on guns and especially ammo every time there’s a crash on the horizon, and even sans immediate emergency the sale of such items is way up. People intend to use them as both defensive and tradable items.

    Anyway, we all have these juggling problems (at least in the 99% — I don’t know about Mr. Buffet. They say he has a rather modest home in Omaha. Of course Mr. Strong is in China, and god only knows where Mr. Soros is on any given day. I get the feeling Mr. Bore lives on his jet).

    And thanks very much for the link.

  15. John Galt says:

    One obvious suggestion is to follow what the Latter Day Saints do in terms of preparedness. They have dried goods and provisions which last up to 30-years so if you have storage space available in your cellar or a dry corner of an outhouse, this can be as good an investment as all the gold and diamonds you can muster. Obviously in the event of an actual emergency you would need to transfer into your indoor living area to protect it from thieves and looters (including the government).

    If you can stomach the religious aspects of the publication, the Latter Day Saints Preparedness Manual is also a good source of information that has been developed over many years.

    http://www.tacticalintelligence.net/downloads/LDSPrep-V8.pdf

    There is an LDS Home Storage centre in Naperville, IL which you can visit to purchase and can your goods on site.

    How and why to visit a local LDS cannery

    A good experience buying LDS / Mormon food

    In terms of tangible, tradable goods that can be used as currency in an emergency, common grades of ammunition (if it can be purchased without reporting), bottles of alcohol with a high spirit level such as vodka which effectively last forever and also canned preserved meat which have high protein levels (corned beef, spam, etc.)

    Another thought is to buy the items necessary to manufacture alcohol as this could be another valuable skill during an economic collapse. This is on my particular “To Do” list, including some practice using it.

    How to make a still

    Make your own homemade fuel

    You should cycle through any canned goods as they near expiry, but in the event of an actual disaster, you can ignore the sell by dates. If shit hits the fan, people will pay good money for tins of dog food (literally).

    If you want to be extra cautious, creating a fake partitioned wall in a cellar or attic to store these goods is also useful with access through the floor or ceiling, but this sort of preparation is only for the genuinely paranoid.

    That would be me – when I get my new place in Penang in 2016 anyway.

    :-)

  16. Paul Marks says:

    I reject the theology of the LDS Church (the “Mormons”) – but they live longer and more healthy lives than we do (and have more children). And Utah is likely to have a much less terrible future than many places do (including here).

    In evolutionary terms – their way works, our way does not.

  17. bloke in spain says:

    Quick improvised valuables cache.

    Most fitted kitchens will have a short length of kickplate. Often a 60cm length below/next to a fitted fridge/freezer or other appliance. This is held in place by clips, screwed to the back, clip to the support legs & a silicon bead run to fill gap where it meets floor.
    You will need:
    Sharp knife
    Awl (can be improvised from tip of sharp knife, bottle opener etc
    1 screw (pref slotted). Can be purloined from the kitchen in question
    Screwdriver or improvisation.
    Something to grip screwhead. Cutlery drawer usually provides. Bending the tines of a fork in extremis.
    Neatly cut silicone bead. The unit carcass usually overhangs the kickplate by a couple centimeters so a hole drilled near the top of the kickplate will be out of view except from floor level. Go just deep enough to give screw a ‘start’. Drive screw to sufficient depth to get firm hold in kickplate. Using screw gripper, pull kickplate until clips release. Voila! Useful void. Stash valuables, re-clip kickplate, remove screw. Small ball of damp paper can be pushed into hole will fool even quite close inspection.

    Used this for short-term rentals, hotel rooms where fitted furniture of often uses similar construction, even the odd office. I keep a purposed tool-kit in the car or distributed in luggage, when travelling..
    Caches have so far survived three break-ins & one fairly enthusiastic police search.

  18. Mr Ed says:

    Long term improvised valuables cache George de Hevesy, (1943 Nobel Chemistry Prize) dissolved two German scientists gold medals in aqua regia and stored them in solution for the German occupation. Add, say, bicarb of soda to precipitate the gold. Medals restruck after the War. Gestapo search came to nothing, German dozes outwitted by a Hungarian Jewish Nobel Laureate, ha ha.

    http://www.nobelprize.org/nobel_prizes/about/medals/

  19. Julie near Chicago says:

    Thanks for all the great info and the stories. Especially JG and the Bloke. :)

    Anyway, I have to run out now and get some aqua regia. I figure it will be great for clearing up the hard water hereabouts.

    More seriously, the survivalists strongly recommend vacuum-packing even dried foods, and including packets of anti-oxidants. Drat, all my info on that is on the Drive That Crashed two weeks after AppleCare ran out.

    The truth is, I do NOT think that being anyplace where you have to depend on a grid-supply for water and sewer is a very good idea. One good thing about my old house is that it’s still unincorporated, so we all have well & septic. (Of course the town is hot to incorporate us, so as to sell us city water & sewer, as well as sidewalks, for which unwanted “upgrades” we will be permitted to pay, and which will thereafter entitle the city to charge us property tax.) And natch, in the US there are many many many places where the EPA or even local ordinances will frown upon digging up the back yard to bury say five or six 500-gal. tanks of LP gas for when the electricity fails. And the medium-sized brouhaha a few months ago when there was talk of banning wood-burning stoves nation-wide. Sustainable Development, I believe know. Not sure what became of that.

  20. Paul Marks says:

    The EPA is indeed a clear and present danger to “un incorporated” houses (with their own water supply and septic tanks) – indeed to any independence what-so-ever.

    And beware the “smart grid”.

  21. Julie near Chicago says:

    Yes. Exactly. We have now got “Smart Meters” (I think) in Naperville (old house) and probably in Rockford too (new house). If it weren’t that the Little Girl actually has a job here that’s as safe as any (outside of government proper) and that she likes and that pays enough to live on, and that I feel a strong need to be with her (since she’ll have me *g*), I would never have bought this house. –Well, not bought it yet, technically. Closing is supposed to be June 30.

    Now the closest supermarket has a sign up: No Guns are Permitted on These Premises.

    I don’t intend to shop there anymore. Especially since armed stick-ups of stores is far from unheard-of around here. Admittedly, those are mostly gas-station marts and carry-out fast food places, and mostly latish in the evening, but still.

    There was a newsletter piece that went around a few weeks ago advising “preppers*” not to think in the usual terms of trying to hunker down “out West” someplace because, basically, west of the Mississippi goes from dry to semi-arid to arid, and there just isn’t enough natural water supply to sustain very many people. Except in a relatively few favored spots. This article said that in fact overall, the 20th century was unusually wet in America, and especially in the West.

    There are ongoing initiatives around the country to make it illegal for people to have even backyard home gardens. How much of this is Agenda 21 and how much “Big Ag” (Archer-Daniels-Midland or whichever way it goes, can never remember, ConAgra, so forth) I don’t know. And there’s the story of the guy who had a few acres–maybe 5?–where he could legally mini-mini-farm to the extent of a couple of cows, pigs, goats, and a flock of chickens, and did so for years and years, then one day he woke up to find a notice that he had to lose the livestock, like yesterday. All but the chickens. So he did. In the unlikely case that I remember correctly, the day came when he was told the chickens were no longer acceptable, and I think that was the last straw and he’s fighting it.

    But you know all the horror stories too, I’m sure. The guy in the ‘burbs, forget where, who had 2 acres, most of which he used for his vegetable garden, horticultural hybridization experiments’ being his hobby. This he had been doing for something like 20 years. When the PTB shut him down, the neighbors were up in arms, because they loved his garden, not least because he was quite generous with the produce. Again, not sure if this was EPA, Agenda 21, BigAg, simple gov-throwing-its-weight-around, or connivance of the whole bunch. Probably “E, all of the above.”

    *Preppers: Those trying to devise a degree of self-sufficiency for themselves so as to have at least a fighting chance of survival if the infrastructure breaks down, or in the case of revolution/civil war/mass rioting/roving gangs. Presumably people who might be “preppers” are targetted for closer inspection as possible “terrorists,” along with “survivalists,” Tea Party-ers, perhaps Evangelicals or “Fundamentalist Christians” (but I won’t swear to that), and for sure anybody who ever breathed the same air as somebody involved in a “militia organization.”

  22. Paul Marks says:

    Like Common Core in education, Agenda 21 (in everything that can be said to be connected to the “environment”) is controlled by socialists (although sometimes they shy away from the s word) – but many business enterprises back them (for money).

    Such businessmen are like farm animals who think the farmer is their friend – not understanding that they are being fattened up for the slaughter house.

  23. John Galt says:

    There was a newsletter piece that went around a few weeks ago advising “preppers*” not to think in the usual terms of trying to hunker down “out West” someplace because, basically, west of the Mississippi goes from dry to semi-arid to arid, and there just isn’t enough natural water supply to sustain very many people.

    That sounds like a self-resolving problem to me… :-)

    But seriously, the PTB want to tie you into their big picture, big architecture, big footprint solutions because it preserves both their quasi-imperial bureaucracies and their livelihoods.

    The worst thing that you can demonstrate is that you can live a perfectly acceptable life without their demands for Danegeld, interference and control.

    They are trying to hold you to ransom and you are saying no. How dare you!

    :-)

    Good luck with the fascists Julie!

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