by Nick Giambruno, International Man:
“It’s a big club and you ain’t in it!”
I’m often reminded of these words, spoken by the great comedian George Carlin, when I read about the annual World Economic Forum meeting in Davos, Switzerland.
That’s where the global power elite gather to discuss the big issues of the day. The most important world leaders attend. As do the CEOs of the largest companies, leaders in the mainstream media and top academics. Central bankers attend, too, along with a wide assortment of celebrities.
Three types of meetings happen in Davos, according to the BBC:
- Public meetings, which anyone can attend.
- Closed meetings, which you can only attend by invitation.
- Secret meetings, which are unannounced. The public doesn’t know the agenda or who attends.
The biggest and most important deals take shape in these secret meetings. And this year, I think there was one secret meeting with huge historical significance.
I think world leaders decided to dramatically escalate the War on Cash, making it easier for them to impose negative interest rates.
Negative interest rates mean the lender pays the borrower for the privilege of lending him money. It’s a bizarre, upside-down concept.
Negative rates could not exist in a free market. They can only exist in an Alice in Wonderland economy created by central bankers.
Think of it as “punishment interest.”
That’s a common term in Germany for negative interest rates. I think it’s an apt description.
Punishing savers is exactly what central bankers—who are really central economic planners—would like to do. They think stinging savers with negative interest rates will encourage them to spendnow. It’s effectively a tax on saving money.
Central planners just want you to spend money. Even if you have to go into debt to do it. Consumption based on fear of negative interest rates is somehow supposed to “stimulate” the economy.
However, their harebrained scheme is not working. Switzerland, Denmark and Sweden all have negative interest rates. But consumer spending is not being “stimulated” in those countries. It’s totally (and predictably) backfiring on the central planners. And it’s easy to see why.
Negative interest rates make it harder to save. Put $1,000 in your bank account at the beginning of the year, and it becomes $950 by the end of the year. And that’s not even accounting for inflation.
This scenario scares people. It doesn’t induce them to spend.
Producing more than you consume and saving the difference has always been the basis of prosperity. Prudent saving and thriftiness are supposed to be good things. However, negative interest rates destroy the incentive to save. That’s just one of the reasons it’s such a toxic concept.
But there’s another important reason to fear negative interest rates…
If you don’t like the sting of negative interest, you can withdraw your money from the bank and stash the cash under your mattress. The more it costs to store money at the bank, the less inclined people are to do it.
Of course, this is not the outcome central economic planners want. It puts a natural limit on how far down they can drive interest rates.
Their solution to this “problem” is to push the world closer to a cashless society. That cuts off your main escape route from punishment interest.
Central planners are doing this by phasing out larger denominations of currency notes, which makes large cash transactions impractical. Some are outright prohibiting cash transactions over a certain amount. France recently made cash transactions over €1,000 illegal, down from the previous limit of €3,000.
Statist economists even advocate declaring all dollar bills with a serial number ending in “9” invalid.
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