People's QE: Central Bankers War on Savings
Personal_Finance / War on Cash Feb 23, 2016 - 12:22 PM GMTBy: Sol_Palha
"It is not in the world of ideas that life is lived. Life is lived for better or worse in life, and to a man in life, his life can be no more absurd than it can be the opposite of absurd, whatever that opposite may be." ~ Archibald Macleish
QE for the people was actually proposed by Jeremy Corbyn last year in Britain last year, and it did not sit too well with, central bankers. Mark Carney Governor of the Bank England had the audacity to state that QE for the people would remove "fiscal discipline". Central bankers have been anything but disciplined; they have systematically created every boom and bust cycle for the past 50 plus years. To create a boom cycle, they loosen the cash spigots and vice versa. We are not stating that QE for the people is a good idea, but it's as good as any idea the central bankers have floated over the past 3-5 decades.
However, what if central bankers were not planning QE for the people but QE from the people; how would they achieve this? That is where negative rates come into play. If you make it expensive to save, it could force the masses to speculate, and this is what the negative interest wars are all about. The masses will revolt at having to pay interest to the banks on their money while the banks will have the ability to lend this money out and profit from it. Now banks want to rape you twice.
Talk about getting taxed to death. First the government taxes you on your earnings and then now banks could start charging you interest for holding onto your funds, that they will lend someone else and profit of from; what a perfect scam. It could inadvertently force people to speculate as they desperately search for higher yields and could lead to the creating of the term "QE from the masses".
Negative rate wars gaining traction
Sweden has further lowered rates from -0.35 to -0.5 in their bid to hit their pie in the sky target of 2% inflation. Switzerland and Japan have also embraced the negative rates bank wagon, and a host of other nations are becoming more open to this option. It is just a matter of time before our central bankers are forced to join the pack. In the era of "devalue or die" resistance is futile, and that is why we are sure it's just a matter of time before the Fed reverses course and starts to lower rates. They will prepare the masses for this by listing a host of negative factors that has forced them to reassess the situation.
There are some reasons to expect that the masses will be forced to speculate as the Fed has already succeeded in making things so hard for the average person that out of desperation they might turn to speculation as a means of survival.
- 76% of families are living from pay check to pay check.
- According to CBS 33% of families earning $75,000 per year; this phenomenon is not restricted to just the so-called working poor.
- While the official unemployment rate is currently below 5%, the unofficial rate is close to 23% according to shadow stats.
We are in the midst of a full-blown currency war as a nation after nation jumps on the negative interest bandwagon. Swiss national bank president Thomas Jordan seems to confirm that negative interest wars are here to stay: "Our monetary policy is clear," he said. "It is based on two pillars: the negative interest rates and the willingness to intervene in the currency market if necessary."
The above image shows you just how quickly a host of nations in Europe have embraced negative rates, and it is destined to spread to North America and finally Asia.
The key to the markets are the masses, and the masses believe that the Fed and the government can solve their problems. Until they think otherwise, nothing is going to change, and the outlook will continue to worsen.
Game plan
If you are going to speculate, at least, understand how the financial markets operate and what drives them. The main driving force behind the markets are emotions (otherwise known as Mass Psychology); understand this and you will have a better understanding of how the markets operate and won't have to place your faith in shills on Wall Street who openly market themselves as experts. Compile a list of blue chip stocks or stocks that are showing strong rates of growth. Two good metrics to look for would be strong quarterly earnings growth rates and or strong quarterly revenue growth rates. Some companies to consider are HRL, PPC, OCLR, CIEN, AMZN, RTN, OA, etc.,
How will Gold fare in a negative interest environment?
Conventional wisdom states that precious metals trend upward when rates are rising. We are living in strange times, and central bankers are breaking rules left, right and centre so this old paradigm might not hold true. If the masses are forced to speculate, they could decide that Gold is a better storage of wealth. However, for that to come to pass, the average Joe would have to understand the true meaning of the word inflation and that Gold is a currency and not some ancient relic that has no place in the 21st century. This is not going to be an easy feat so, while we expect Gold to trend higher in the years to come, the next bull run is not going to begin with a bang. Another possibility to consider is that if the cost of holding money in a bank becomes prohibitive, it could trigger a run on the banks. We will examine this issue in more detail in a follow-up article.
"How does one become a butterfly?" she asked pensively. "You must want to fly so much that you are willing to give up being a caterpillar." ~ Trina Paulus
by Sol Palha
Sol Palha is a market analyst and educator who uses Mass Psychology, Technical Analysis and Esoteric Cycles to keep you on the right side of the market. He and his partners are on the web at www.tacticalinvestor.com.
© 2016 Copyright Sol Palha- All Rights Reserved
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