Once central bank medalling gets out of hand there’s no going back. We lurch from one insanity to the next which is why today we learn that in an effort to cheapen the value of the Euro against other currencies interest it will reduce its overnight bank lending rate to MINUS 0.1%. This is the first time an experiment with negative interest rates has ever been undertaken. That’s right – negative overnight interest rates are a first.
In the game of global currency wars central banks cannot operate in isolation. Other central banks will of course follow suit as they all try and protect their local interests. At the same time the ECB has announced that interest rates will be cut from 0.25% to 0.15%. And there was me thinking an economic recovery was in hand. That kicks that idea into the long grass. No one reduces interest rates if an economy is in a state of recovery.
Negative interest rates are insane.
The ECB will claim they are an attempt to make it costly for banks to keep money idle and to drive other market interest rates lower. They also believe that in cheapening the euro, they will get an advantage over their competitors by making euro exports cheaper.
“What next?” you may ask. Well, you can be pretty sure that quantitative easing in one guise or another is around the corner. We are first generation to ever witness central bank intervention at this level and the lack of concern amongst the public simply indicates they have no idea what is going on or how the banking system works.
Who gains from this? Why, bloated indebted governments of course – how else will they keep the party going. Print and be damned…
The madness continues and as the ECB passion for negative interest rates becomes is revealed, my passion for gold and silver just gets stronger by the day.