Tag Archives: NIRP

The War on Cash: Implications for Gold & Silver

Government bureaucrats, central bankers, and Wall Street executives all have reasons for ridding the masses of their cash. It should be no surprise to anyone that they are working together to achieve that goal. But why? The self interest of bureaucrats is one factor, they don?t like privacy. They dream of the day when they can access all your financial information with just a few keystrokes. The knowledge will help them more aggressively tax and regulate.

Central bankers have a different motivation. Their policy of preference is NIRP?.Negative Interest Rate Policy. Bankers in Switzerland, Sweden, Denmark and Japan have already launched NIRP. Their counterparts elsewhere, including the U.S., are planning for it. The plan is to create an environment where customers must either spend their savings or pay their bank interest to hold deposits. For this to work the government must coerce the masses into turning their cash into electronic money. Otherwise everyone will just withdraw their cash over time and literally hide it under their mattresses. When you have to pay a bank say, 1% to access your money, holding physical cash gives you a better return (0% vs. ?1%). Those of you convinced that the Fed is set on higher long term interest rates should note the following: History shows that economic downturns/recessions lead to lower interest rates. With current rates near historic lows it?s not difficult to imagine a negative interest rate scenario. Already, U.S. banks are making it more difficult to withdraw cash. Most banks only keep nominal amounts of cash on hand and then make you jump thru hoops if you attempt to withdraw any quantity of consequence.

Bankers are drooling over the profit potential for all transactions to be done electronically. They stand to rake in processing fees every time you use a card or cell phone for purchases as opposed to using cash. In a cashless society bankers will gain a larger customer base, as the public will no longer have the option of holding currency outside the banking system.

The public needs to remember the true reasons that the powers that be want to eliminate cash from circulation. You can be assured that politicians and bankers won?t be truthful as to their reasons for eliminating cash. Wall Street wants you to focus on the convenience of electronic payments. Bureaucrats are preoccupied with stigmatizing cash as a tool for drug dealers, tax cheats and terrorists.

If the public ultimately loses the ?War on Cash? here are some likely ramifications for precious metals investors. Negative interest rates should drive significant demand for gold and silver. NIRP is a testament to the fact that central bankers will try literally anything to produce inflation. Such a controversial policy should set off alarm bells for anyone who isn?t concerned about inflation, or who may be betting on deflation. If central bankers want inflation, they have the power to create it. As always, inflation fears will drive demand for physical bullion.

While politicians and bureaucrats can theoretically win the ?War on Cash? because they have complete control over the issuance of paper money, they cannot win a war on bullion. Physical bullion is private and ?under the radar?, a nightmare for regulators.

If politicians attempt to tax and regulate precious metals they are likely doomed to fail. Gold confiscation had only marginal success in 1933 when the U.S. population consisted of approximately 85 million obedient patriots. A similar confiscation attempt today in our country of 325 million diverse individuals would likely be a logistical nightmare at best and chaos at worse.

Politicians and their allies in the banking industry aren?t likely to eliminate the masses desire, or ability, to transact privately using barter instruments such as gold and silver bullion. The drive to eliminate cash will inevitably push the public into cash alternatives, most notably precious metals.


Gold, Silver & Negative Interest Rates

Could negative interest rates be on the horizon? As we discussed in a recent article on this site, a documented “war on cash” has already been initiated in several countries worldwide. In Sweden, Switzerland, Denmark and the euro zone, central banks are using negative interest rates policy (NIRP) as a primary weapon in trying to force feed stagnant economies into growth. Here in America, Janet Yellen recently said that if circumstances warrant, negative interest rates are ?on the table.? Another Federal Reserve governor was quoted last fall as stating ?negative interest rates are inevitable in the U.S.? The same thought process is in play at the Bank of England.

How Negative Interest Rates Could Affect Banking

Some highly respected central bankers and influential financiers have suggested that negative interest rates should also usher in the abolishment of cash, a topic we recently elaborated on at this site. These supposed intellectuals theorize that by imposing negative interest rates on consumers, depositors will spend their money as opposed to paying a bank to store their cash. These same bankers publicly state that the masses won?t object to negative interest rates because currency in a bank is easier to spend than cash in our electronic world. The truth is more likely that central bankers and federal governments simply want to abolish cash and go to an all-electronic form of currency. Imposing zero or negative interest rates is major step in attaining that end result.

I believe that depositors will not view money in the bank as a convenience because they can spend it more easily. Much of the world is cash-poor already and they won?t give up their cash for a perceived convenience. The public will ultimately find alternatives to avoid paying a fee, in this case negative interest, to a bank that is likely already robbing them with ATM fees, minimum balance fees, etc., etc?

Think about it from your own personal perspective. What would you do if all the banks announced that, at the start of the business day tomorrow, all your deposits are now subject to various fees and charges equating to negative interest rates? From now on you will essentially pay the bank to warehouse your money, much like some individuals pay the local self-storage facility to warehouse boxes of their junk.

Are you really willing to pay your bank to store your money? I doubt it. Since this is an arrangement never envisioned or experienced in the history of America, bank customers will likely yank their cash out of the bank, assuming the cash is actually there. They will store it at home or move it into assets that will hopefully maintain its value such as collectibles, gift cards, cashier?s checks and of course precious metals.

An Argument For Gold and Silver

This is not a hypothetical essay on eliminating cash. Negative interest rates and cash elimination are under serious discussion by central bankers and influential politicians worldwide. There are several European consumer banks already committed to imposing negative interest rates on depositors this year.

If there ever was a message that makes a clear-cut argument for buying gold and silver, this is it. In a world where your bank deposits effectively lose money annually, the 0% interest that gold earns annually suddenly doesn?t look so bad. If negative interest rates are the next stage of the global financial crisis, gold and silver may become one of the only forms of money to protect you.

By Douglas Trinder, Precious Metals Analyst, Jack Hunt Gold & Silver