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.
• To be clear, both banks are only going to “tax” the bank accounts of its business clients…
Everyday people are safe for now…but they might not be for much longer.
Last year, Alternative Bank Schweiz AG became the first Switzerland bank to pass along negative rates to everyday depositors.
Last week, a small bank in Germany began “taxing” the accounts of everyday people. CNN Money reported on Tuesday:
Raiffeisenbank Gmund am Tegernsee, a community bank in southern Germany, said it would charge a fee of 0.4% on deposits of more than 100,000 euros held in current accounts.
• Regular readers knew this day would come…
We said banks would eventually have no choice but to pass them along to everyday people. And that’s exactly what’s happening…
• People across Europe and in Japan are bracing for the bank account tax…
They’re pulling cash out of the banking system and stashing it at home where negative rates can’t reach it.
In June, Business Insider reported that sales of home safes in Europe have “shoot through the roof.” In Japan, home safe sales have soared to the highest level since the 2008–2009 financial crisis.
Last week, credit agency Standard & Poor’s said this trend will likely accelerate:
If negative interest rates spread beyond major financial institutions to the overall economy, the economy will shift increasingly towards a cash-only economy.
• Folks in Europe and Japan are loading up on gold…
Europe was the biggest source of global gold “investment demand” during the first half of this year. Investment demand includes gold coins, bars, and ETFs.
Japanese people are also buying gold at the fastest pace in years. According to Financial Times, Japanese gold investment demand has climbed four straight quarters. That’s the first time this has happened in a decade.
• Negative interest rates are a sign of desperation…
The average person in Europe and Japan is starting to realize this. Folks are losing faith in their “leaders,” the banking system, and their paper currencies.
They’re buying gold because it’s real money.
As we often point out, gold’s preserved wealth for centuries because it’s unlike any other asset. It’s durable, easy to transport, and easily divisible.
Just as important, gold’s value isn’t tied to a central bank or government. Destructive polices like negative rates actually make people want to own more gold.
• You might not think negative rates are anything to worry about if you live in America…
After all, the Federal Reserve’s key interest rate is 0.25% and it’s talking about raising rates.
But we don’t care what the U.S. government says. We care what they do.
And right now, the Fed is quietly laying the groundwork for negative rates. To see what they’re up to, watch this short presentation.
When the public realizes negative rates are coming, there’s going to be a mad rush into gold. According to Casey Research founder Doug Casey, the price of gold could easily triple in the coming years.
You’ll want to own gold before this happens. But, before you spend another dime on gold, you need to see this video. It explains how to get some of the best prices we’ve ever seen on gold coins. Watch this FREE video to learn more.
Chart of the Day
European bank stocks have been obliterated over the past year.
Today’s chart shows the performance of the STOXX Europe 600 Banks index since last August. This index tracks 48 of Europe’s largest banks. You can see it’s plummeted 40% over the past year.
The longer negative rates stay in place, the more damage they’ll do to Europe’s banking system. Other European banks may soon have no choice but to implement their own bank account tax.
Unfortunately, this won’t be the only nasty side effect of negative rates. Tomorrow, we’ll explain how this experimental policy is steering the global banking system to a repeat of the 2008–2009 financial crisis.
Delray Beach, Florida
August 22, 2016
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