The European Central Bank cut its benchmark interest rate to a record low on Thursday and, in an unprecedented attempt to stimulate the euro zone economy, said it would begin charging interest on deposits held by the bank.
The so-called negative deposit rate has never been tried on such a large scale and is a bid to push down the value of the euro and encourage banks to invest excess cash rather than hoard it in central bank vaults.
Sounds like a good way encourage people to invest outside of Europe.
I’m guessing the negative interest rate was announced around 8:45 am EST, judging by the spike in gold prices.
Bank run maybe? Not much point keeping your few measly euros in a bank if they are going to charge you for the privilege.
I wonder if sub-zero percent interest rates are Sharia compliant?
Why would anyone leave their money in a bank run by muggers? This is theft pure and simple. I have been gradually taking my cash out of the banks and putting it out of the reach of thieving governments and their accomplices at the banks.
If the fools in the EU think this is the way to prosperity, then they are much stupider than I even thought they were.
the only way to generate wealth is through productivity and that is something that is sorrily lacking in the EU.
The only road to prosperity has been proven to be through capitalism.
Committees don’t generate wealth.
I bet most people don’t laugh at those old jokes about keeping your money in a mattress any more.
To be candid, I’m figuring to take out all my own savings as this crooked fad among banks continue. After all why keep money in a bank when they steal it daily for themselves? There is no incentive. You might as well put it with your storage unit.
Banks used to be there to protect your money. Not steal it like thieves.
Socialists have never subscribed to the Unexpected consequences paradigm.
If they cut regulations and capital gains taxes they might actually get somewhere…
Well that and taking a meat axe to welfare state entitlements.
Force everybody to take their money out of safe keeping, surround them with violent criminal third worlders, make sure only criminals have guns and make the cops useless tape drapers and note takers
Here we go!
This was planned way back, they asked the arrogant banks, wouldn’t it make more sense to keep your money in your mattress?. They replied you need a bank account, you cant cash your pay check or pay your bills without one. In other words you pay the bank from now on because you have to, and you have no choice.
Well said.
All this socialist crap will just continue in Europe and here until enough people get fed up and turf them, one way or another. But they are not there yet, witness the Americans electing Obama and about to possibly reelect Wynne in Ontario. The LIVs have to wake up first.
If these government thieves get desperate enough even hiding your money in the mattress will not help as they will change the currency and make the old stuff worthless. It has happened before.
About 10 years ago I was talking to and old Austrian guy in Singapore who had lived though WW2. He said the only way to keep your money safe was ti literally keep it in your bed mattress. I thought he was a little eccentric or nuts at the time.
Guess not so much.
With a negative interest rate of 0.1%, banks will be less likely to park unused funds with the ECB. Rather than earn a small return on otherwise stagnant Euros, they may now have to put them to work by loaning them out, resulting in increased economic activity. And a lower Euro won’t be such a bad thing – better for their exports and better for non-Eurozone tourists. With 500+ million people and a stagnant economy, this will work if the banks don’t continue to sit on the money.
canuck66 – yes, that is the way I read it too. Initially I thought it was designed to remove money from personal bank accounts, thus causing the inevitable bank run. However, if the ECB is going to charge ‘lending banks’ who stash their money there, then the obvious choice will be for those banks to float some loans and get the money out on the street and into the economies. I certainly can’t say if it will be successful or not, but there is a certain logic to it.
The cost of the central banksters preferring stasis to deflation then correction is deferred inflation and then in spades. Penalizing thrift and incentivizing debt will not end well.
Not sure I follow your reasoning. If there were reasonable investments the money would already be moving. If the negative interest rate creates movement it then creates mal-investment. How is that supposed to be beneficial to the economy?
speaking of LIVs, other than canuck66 no one seems to understand what they are trying, or they just ain’t read the article. canuck66 gets it.
So if you’re in one of the countries that adopted the Euro (France, Germany, Spain, Italy and others IIRC) the value of your nest egg has just been reduced arbitrarily. I expect that the Swiss, British and Scandinavians are patting themselves on the back for retaining their national currencies.
Why would anybody put their hard-earned Euros in a savings account if unaccountable politicians can reduce its value with a stroke of the pen?
You realize of course, that this has never been tried on this large a scale before.
This has the potential to wipe out trillions of Euros worth of private investment.
Yeah well, a run on the banks the result of this insanity is capital flight….meaning less or little investment in Europe.
Remember the recent flight of the so-called French wealthy borgeous to Belgium like Gerard Gepardeau?
Dutch taxation sent all manner of Dutch farmers here to Morontario.
hiding your money in the mattress will not help as they will change the currency and make the old stuff worthless. It has happened before.
That’s were precious metals come in.
I admit to some confusion here. The negative interest rate is supposed to force money into circulation and investment. However, the Basel 3 rules require banks to increase their reserves, many of which are not in compliance. It would seem that these two forces are in conflict.
Will this not produce a capital flight from Europe?
Read my first post. I understand what they hope to accomplish, but I think it won’t work quite the way they wish. (But that may still be better than the status quo.)
Has it occurred to anyone that there may be an underlying reason people aren’t willing to invest in Europe? I mean, if it was a good idea to invest in Europe wouldn’t they already be doing it? Just sayin’
It smells like desperation. The lowest interest rates in history of modern banking has not stimulated economic expansion and they have run out of ideas. This latest move will only make it worse. Unemployment is rising throughout Europe along with cost of living primarily due to competition from China, a very expensive immigration fiasco and a disastrous green energy policy that begs the question, “heat or eat”. Very similar to what the USA is facing. It’s a house of cards just begging to collapse. Can’t help but notice that the stock markets on this side of the pond are breaking record highs. If one looks at the underlying economy, there is nothing there to support this. Gonna be one hell of a bang when this bubble bursts. Stock up on dry dog food. By law it has to be fit for human consumption.
The most basic concept in economics is that of voluntary trade for mutual benefit between individuals, based on their respective judgments with regard to the value of the items being traded. A well-functioning economy requires these judgments and trades to be made freely, without government interference or “encouragement”.
The nature of government is coercive. Coercion cannot produce, create, discover or invent. Coercion cannot help the economy because it cannot improve individuals’ judgment.
A poorly-functioning economy is caused by coercive government intervention that interferes with individual judgment. The solution is to eliminate that interference.
One has to ask where demand will come from. The Euros have a aging demographic, a huge unemployment rate and unsustainable government debt. Where does the discretionary income come from? Combine that with a lack of confidence by citizens and you end up in a spiral downward. Negative interest rates are not new the Japanese tried that and are back printing money.
As governments find it impossible to borrow more money to run their affairs and pay interest on their debt desperate measures are inevitable. It will make no dif whether they are the socialists in power or some other group like Le Pen who think they have another way. The way out will be a long painful experience. Individuals subvert their own interests to government in exchange for rules for living, protection and community. When people realize that government cannot deliver this one can expect insurrection.
The banks will shift their money somewhere else. They won’t lend it out. Why go through the hassle of vetting borrowers? Especially when they are being given money by the central government banks.
Buy shares in banks