Negative interest rates resemble theft.

“Who are these men?”

That is a quote from a Paul Newman movie called “The Verdict”. It isn’t about Central Bankers setting interest rates, but it might as well be.

Last night, the Bank of Japan (BOJ) went to a negative interest rate policy (NIRP). That is a giant step towards banks charging to hold depositors money. Initially the move will have its impact on the relation between banks and the central banks. Eventually it will trickle down to the commercial banks and their relationships with their customers and depositors.

BOJ has been the lead sled dog headed for the cliff since 2000 when they were the first central bank to move to zero interest rates (ZIRP). The effort is part of a Keynesian effort to depreciate the currency, stimulate trade, and basically dig out of their economic hole with a devalued and cheaper currency.

The United States and others went to ZIRP circa 2008, and we continue to follow the failed and flawed policies of Japan even though we are full witness to its failures and the inextricable position of that policy. There is no way out.

Zero Hedge Reports,

“…. the Bank of Japan, which not even the most optimistic central bank watchers had expected would unleash anything remotely as aggressive to prevent price discovery, stimulate asset prices and boost the exporting of deflation, became the latest central bank who, after a 5 to 4 vote, unleashed the monetary neutron bomb of Negative Interest Rates in the process pulling an anti-Draghi and shocking markets, even if admitting it can no longer boost QE due to previously discussed concerns it would run out of monetizable bonds in the very near future.”

So the question arises, “How would you react to someone, something, dipping into your savings account each month?” If the central bankers here force negative rates, banks will eventually charge you to hold your money. Of course, there is no actual “cost” to holding your money. Money today is pixilated digetry on main frame computers.

Negative interest rates resemble theft.

Savers will once again be asked to “play along” with the program to resuscitate the economy. But how can this negative rate environment not shut down consumption, retail sales, and contribute to more of the central banks largest fear, deflation? The velocity of money will continue to plummet. What impact will this have on the heralded “middle class”?

Zero Hedge concludes,

“However, the best news in all of the above is that the BOJ's action takes the world one step closer to the full collapse of the central bank regime as with every incremental expansion of "emergency" policies, with every new "policy error", the monetary emperors demonstrate how naked and ultimately powerless they have been all along.”

We must conclude with the larger question. Someone is playing a big game with “our chips”. And the question remains, “Who are these men?” The United States revels in its democratic form of government. However, the sad final note is that unelected bodies, the Federal Reserve’s central bankers, and the Supreme Court, seem to hold the reins.

 

James Longstreet