by Doug Casey, Casey Research:
Your bank could soon “tax” your savings.
It sounds like a sick joke. After all, the money in our savings accounts is supposed to earn interest, not get eaten away by it. At least, that’s how things used to work.
These days, most savings accounts pay virtually nothing. And now, some banks are starting to charge people who keep money with them.
Dispatch readers know we’re talking about the latest radical government policy: negative interest rates.
The European Central Bank (ECB) introduced negative rates in 2014. Japan started using them in January. Switzerland, Denmark, and Sweden have them too.
These governments introduced negative rates to “stimulate” their economies. Idiotic politicians think people will spend more money if they’re charged to save money.
It hasn’t worked. Europe and Japan are both growing at their slowest rates in decades.
What’s worse, negative rates have backfired. We’ll explain how in today’s issue. As you’ll see, negative rates could become YOUR problem—even if you live somewhere that doesn’t have them yet.
But first, let’s take a look at how negative rates are taking over the world…
• More than $13 trillion worth of government bonds have negative rates…
That’s about one-third of the world’s government bonds. Keep in mind, negative rates were practically unheard of until about two years ago.
Negative rates have seeped into the corporate bond market too. According to Bloomberg Business, more than $500 billion worth of corporate bonds have negative yields.
• Buying a bond with a negative rate is one of the worst investments you could ever make…
You’re guaranteed to lose money if you hold the bond until it matures. The only way to make money is to sell the bond for more than you paid for it. This means you have to find a “greater fool.”
Negative rates aren’t just a big problem for investors either.
• Negative rates are starving banks of income…
Banks make money charging interest on the loans they issue.
For centuries, this was a great business. But with negative rates spreading like a virus, a lot of banks can’t make money issuing loans.
According to Financial Times, European banks have lost €2.6 billion since the ECB introduced negative rates in 2014. And it’s only getting worse.
In June, German banking giant Deutsche Bank (DB) said its business will suffer as long as negative rates are in place. Three weeks ago, Commerzbank, another big German lender, said its revenues could fall by €100 million a year if rates stay low.
According to Bank of America (BAC), European banks could lose €20 billion per year by 2018 if the ECB keeps rates where they’re at.
• European banks are doing everything they can to offset negative rates…
Several Spanish banks have cut costs to the bone.
In April, Banco Santander S.A., Spain’s biggest bank, announced plans to close 450 bank branches and eliminate 1,660 jobs this year. Liberbank S.A., a small Spanish regional bank, plans to close a quarter of its bank branches over the next few years. Banco CEISS, another Spanish regional bank, plans to lay off 1,120 workers.
But a bank can only cut costs so much before it hurts their business…meaning banks will have to come up with other ways to get around negative rates.
• On Friday, the Royal Bank of Scotland (RBS) said it will pass along negative rates to customers…
Here’s a memo it sent to its clients:
As you will be aware, there are a number of currencies which now attract negative overnight rates for deposits.
To date we have been flooring deposit rates at zero per cent but we have now reached the stage where we can no longer sustain this level of floor.
As a result of the continuing interest rate situation we will be implementing negative interest rates.
The Bank of Ireland (LON: BKIR) also said on Friday that it will pass along negative rates to its customers. HSBC (HSBC), Europe’s biggest bank, plans to do the same thing.
Keep in mind, Ireland and Scotland don’t have widespread negative rates yet. And yet, both the Bank of Ireland and Bank of Scotland are going to implement the “bank account tax.” This proves negative rates can reach you no matter where you live in the world.
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