Economics Professor: Negative Interest Rates Aimed at Driving Small Banks Out of Business and Eliminating Cash

More than one-fifth of the world’s total GDP is in countries which have imposed negative interest rates, including Japan, the EU, Denmark, Switzerland and Sweden.

Negative interest rates are spreading worldwide.

And yet negative interest rates – supposed to help economies recover – haven’t prevented Japan and Europe’s economies from absolutely tanking.

Nor have they even stimulated spending. As ValueWalk points out:

Japan has had ultra-low rates for years and its economy has been terrible. Trillions of debt in Europe now trades at negative interest rates and its economy isn’t exactly booming.  Denmark, Sweden and Switzerland all have negative interest rates, but consumer spending isn’t going up there. In fact, savings rates have been going up in lockstep with the decrease in interest rates, exactly the opposite of what the geniuses at the various central banks expected.

Why is this happening? Simply, savers are scared. Lower interest rates have wrecked their retirement plans. Say you were doing some financial planning 10 years ago and plugged in 3% from your savings account.  Now its 0%.  You still have to plan for your retirement. Plug in 0%. What happens to your planning now?  0% compounded for X years is 0%.  The math is simple. So in order to have your target savings at retirement, you need to save more, not spend more. But for some reason, the economists that run central banks around the world can’t see this. They are all stuck in their offices talking to one another and self-reinforcing this myth that they can drive spending up by reducing the rate of return on investments.  Want to see consumer spending go up?  Don’t wreck their savings plans so that they are too scared to spend.  But that’s too simple. Instead, central banks use a chain of causation that doesn’t exist to try to create change 3 or 4 steps down the line. It hasn’t worked, and it won’t work. It isn’t in an individual’s self-interest to go out and spend their money on more “stuff” in order to spur economic growth.


So what’s really going on? Why are central banks worldwide pushing negative interest rates?

Economics professor Richard Werner – the creator of quantitative easing – notes:

The experience of Switzerland [shows that] negative rates raise banks’ costs of doing business. The banks respond by passing on this cost to their customers. Due to the already zero deposit rates, this means banks will raise their lending rates. As they did in Switzerland. In other words, reducing interest rates into negative territory will raise borrowing costs!

If this is the result, why do central banks not simply raise interest rates? This would achieve the same result, one might think. However, there is a crucial difference: raised rates will allow banks to widen their interest margin and make their business more profitable. With negative rates, banks’ margins will stay low and the financial situation of the banks will stay precarious and indeed become ever more precarious.

As readers know, we have been arguing that the ECB has been waging war on the ‘good’ banks in the eurozone, the several thousand small community banks, mainly in Germany, which are operated not for profit, but for co-operative members or the public good (such as the Sparkassen public savings banks or the Volksbank people’s banks). The ECB and the EU have significantly increased regulatory reporting burdens, thus personnel costs, so that many community banks are forced to merge, while having to close down many branches. This has been coupled with the ECB’s policy of flattening the yield curve (lowering short rates and also pushing down long rates via so-called ‘quantitative easing’). As a result banks that mainly engage in traditional banking, i.e. lending to firms for investment, have come under major pressure, while this type of ‘QE’ has produced profits for those large financial institutions engaged mainly in financial speculation and its funding.

The policy of negative interest rates is thus consistent with the agenda to drive small banks out of business and consolidate banking sectors in industrialised countries, increasing concentration and control in the banking sector.

It also serves to provide a (false) further justification for abolishing cash. And this fits into the Bank of England’s surprising recent discovery that the money supply is created by banks through their action of granting loans: by supporting monetary reformers, the Bank of England may further increase its own power and accelerate the drive to concentrate the banking system if bank credit creation was abolished and there was only one true bank left – the Bank of England. This would not only get us back to the old monopoly situation imposed in 1694 when the Bank of England was founded as a for-profit enterprise by private profiteers. It would also further the project to increase control over and monitoring of the population: with both cash and bank credit alternatives abolished, all transactions, money creation and allocation would be implemented by the Bank of England.

If this sounds like a “conspiracy theory”, the Financial Times argued in 2014 that central banks would be the real winners from a cashless society:

Central bankers, after all, have had an explicit interest in introducing e-money from the moment the global financial crisis began…

***

The introduction of a cashless society empowers central banks greatly. A cashless society, after all, not only makes things like negative interest rates possible, it transfers absolute control of the money supply to the central bank, mostly by turning it into a universal banker that competes directly with private banks for public deposits. All digital deposits become base money.

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  • Smokey

    They already took the gold, now they’re coming for the cash = total population control.

  • jadan

    Political revolution is coming under Sanders. The key to revolution is the nationalization of the privately held central banks. We need sovereign money per our Constitution. We need the greenbacks that won the Civil War. If we don’t end the Fed, the Fed will end us.

    • Tyler Hardin

      Yes, political control of the money supply has worked wonders throughout the world. *That* is exactly what we need.

  • October 14th, 2015 1% now wealthier than 99% combined; 40% of US children in poverty; 30,000 children poverty-murdered daily. Arrests of .01% are when now?

    Credit Suisse documents in Global Wealth Report 2015 that the world’s wealthiest 1% now own more assets than Earth’s 99% combined.

    http://investmentwatchblog.com/1-now-wealthier-than-99-combined-40-of-us-children-in-poverty-30000-children-poverty-murdered-daily-arrests-of-01-are-when-now/

  • Here is the .01% list – Which Corporations Control the World?

    A surprisingly small number of corporations control massive global market shares. How many of the brands below do you use? It’s a Small World at the Top. Largest banks hold a total of $25.1 trillion. Enough to fund the federal U.S. government for over 7 years or roughly $3500 per person on earth.

    http://www.internationalbusinessguide.org/corporations/

  • Robert Colescott

    I can see the need to go cashless in case they start imposing large “fees” on savings and checking accounts. Everyone would be lining up at the banks to withdraw everything in cash.

    • Don Robertson

      And the solution is? Get VISA and MasterCard opposed to doing away with cash. A cashless society will be impossible without these two giants in the stream of cash that is the economy approving of the strategy.

      How could that be done? How could VISA and Master Card be made to oppose the cashless society that looks like it could vastly enrich these enterprises?

      Turn in your credit and debit cards. Go back to cash now, before it’s too late. If enough people turn in their plastic, VISA and MasterCard will put an end to the notion real quick.

      It’s really not that tough to do. You just go to the bank and make a withdrawal once a week before you do your shopping.

      Such a personal fiscal policy helps cut down on the impulse buying too. It pays big dividends to get the plastic out of your wallet.

  • Wow, just wow! Managing Director Mrs. Heidi Nelson Cruz Company Description: The Goldman Sachs Group, Inc. (Goldman Sachs) is a global investment banking, securities and investment management firm that provides a range of services worldwide

    His money trails that of Ted Cruz, whose team has boasted of $19 million raised, thanks in part to the Texas senator’s wife, Heidi, a Goldman Sachs executive on leave, who has become a fundraising dynamo. Heidi Cruz is a campaign trail star — but she could end up being a liability Except for perhaps Bill Clinton, no candidate spouse in the 2016 presidential campaign has proved as productive and effective as Heidi Cruz. Heidi Cruz, the daughter of Seventh-day Adventist missionaries and Harvard Business School graduate, is a managing director at Goldman Sachs, on leave during her husband’s presidential campaign.

    http://www.zoominfo.com/p/Heidi-Cruz/483895701

  • K. Chris C.

    So-called central banking is fraud, theft. In America the central bank is also Unconstitutional, and therefore doubly illegal.

    But then the fifth-column that runs the bankster fraud also own and control the US government.

    Is it time for the guillotines and “Return” yet?

    An American citizen, not US subject.