It was never going to be beautiful.That is to say using central banks as a primary substitute in fixing bankrupt western economies in particular in a sea of geopolitical mess. Investors increasingly need to know what are the risks of central banks running out of ammunition and their diminishing impacts to fix the sluggish, credit addicted economies.
At the worst scenario, investors recognize that the offloading of government debt to their central banks as we see more prominent in United States and the European central bank will erode serious confidence in the related currencies especially on the longer run.
Cash may have its attraction but if the central banks’ asset quality becomes into question and quantitative easing is not sufficiently working particularly in Europe what happens next? What is next is negative interest rates. But European banks as well as Wall Street ones are not healthy enough to have to endure paying high interest rates on ever increasing amounts of capital of theirs held at the central bank.
Regular clients are still too leveraged to accelerate lending by the bankers and besides, most clients do not want to borrow more because of fear of another 2008 debacle. That is why I suggest a people’s monetary easing of essentially giving money away by the central bank especially to the poor and middle class but in reasonable amounts including special education and training vouchers.
It will be highly stimulative to consumption thereby reducing deflation fears, add to productivity and give the overly leveraged more confidence that they will not go bankrupt or be slaves to financiers by taking on more debt.
But it will never happen as bankers will lose opportunities in their mind to lend further and make more money as this free money in hand will be seen as unhealthy competition. And if central banks give more money away, it will diminish to some extent banks’ private control of the economy inclusive of the key families that run them.
Such an aporoach that could even be done through the vehicle of tax credits would make negative interest rates unnecessary if done properly.
If businesses are charged prohibitive interest rates then they will start getting involved in more barter, go to BRICS currencies, use Bitcoin, store money in depositories they can even build for themselves. The ridding of the 500 denomination euro note and talk of even eliminating the 100 dollar US notes explain such government worries well beyond efforts to prevent money laundering.
It is also no wonder that leaders in the West want all money transactions to become digital.Of course companies can set up their own banks in offshore jurisdictions where regulators may not force them to pay negative interest on their money.
And if they did why would they care as the negative interest would go to the banks they own in turn the companies themselves. Multinationals have the power to defeat direct negative interest rate policy impacts on them and the savvy well-off.
The western central bank’s negative interest policy will be rather just another peg in the casket of too much money going offshore and not circulating in the West. This amount is calculated to be up to a trillion dollars regarding US corporations.
So investors could also just stash cash in deposit boxes of two hundred euro denomination notes if they are charged negative interest. If the banks overly hike deposit box rates as a reaction, there are always private depositaries or buying safes and putting them in a panic room, for example.
While gold would be a natural place to go, the main bullion banks and central banks will do everything to maintain the existing value or somewhat decrease its value. That is not so bad and a very small volume of real gold takes up little room in a deposit box.
Just a bar alone represents millions. But a certain amount of cash could be put in your box should governments do a Roosevelt on gold and force confiscation at depreciated prices.
This is why I say countries that are not bankrupt like Switzerland and Singapore or pro gold like Russia and China will be the best places to fold up and park your cash and precious metals.
Of course the ECB could play s brutal game with those of the small countries but less so with China, including Hong Kong and Russia.Sberbsnk is one of my favorites as well as Rossbank of SGF as far as Russia goes. But the latter as a subsidiary of a French bank could come under ECB pressure.
Of course, to avoid negative interest rates, one could simply buy shares in the stock market. Prudence is required at this time because years of quantitative easing have inflated prices to very high levels even after some corrections. One is then left with property which is good on the longer term but with some exceptions has been overinflated, that is right by quantitative easing.
For westerners, little choices are left except possibly places with highly devalued currencies for property buying. The more stable ones are Australia, Canada snd New Zealand. But it can be argued prices are inflated there too.
Emerging markets may look better if not now in some months ahead as properties there may see adjustments if low commodity prices endure, political risks are heightened and their currencies further depreciate.
In summary, I like some but not a lot of cash and gold in safety deposit boxes in countries like Switzerland, Singapore snd to a lesser extent China and Russia. Russia is again as previously stated the most pro money place I have ever seen. China, as well does not jump to the ECB or US treasury imperatives nor Russia though of course can be impacted seriously.
As well keep shares in offshore brokerage accounts of good reputation and begin looking at smashed down commodity producers. You can buy most American company shares on other exchanges outside the US thereby avoiding ridiculous paper work and intrusiveness of the US treasury department and SEC.Or if regulations are such avoid buying US company stocks all together. The paper work intrusiveness may not be worth it to you.
Finally remember that large government deficit producing countries will be pushing for deposit bail ins where their central authorities close down a bank or restructure it. Again, this is essentially state theft. The ECB has already done so.
This reinforces my view that the Swiss,likely will never do such bail-ins but could come under heavy EU pressure on many fronts. Private property and asset value protection have great respect in that country placing it and Hong Kong at the very top as the most most pro open and pro business economies in the world along with Singapore. Check the respected Heritage Foundation on such research on the most economically free countries.
And keep buying physical gold one could argue as the US currency will eventually come under pressure. Gold has gone up in the last several months with the vast majority of world currencies. It will happen for the US dollar and is.
Back to the central bank. When they go bust or when they are just no longer as credible as wealth holders and producers,
there could be an even greater collapse than in 2008. There is a reason why bank shares have been hammered.
The central banks cannot guide the system to decent growth which is extremely bad for the regular banking business and so are resultant negative interest rates. They are not good to the bottom line and scare the heck out of them and common depositors.
In the end especially if Trump does not get elected in the United States, the whole system could start going down. For the very wealthy, that may mean getting out of the EU especially the eurozone.
These European main commercial banks have subsidiaries worldwide to facilitate diversification of assets to fiscally more stable places. Passports from credible offshore places are available to the well off.
The central banks need to now tell the national governments that they are not going to incessantly bail out profligate bureaucracies.
That there is only one way to kick start the economy which is people’s monetary easing and reducing the pointless bureaucratic spending to top up crony capitalists and non-productive programmes and tax structures. Manufacturing must be brought back and expanded in the West as Trump is firmly stating with support for decent wages. There is too much a lopsidedness between creditor and debtor nations.
Central bsnks are holding financial time bombs. Ones that are already costing the Swiss central bank probably hundreds of millions of dollars. These losses in the billions may very well show up in the huge important central banks of America, Europe and Japan. Then what and how will central banks be able to help governments and so readily stabilize markets.
If and when this happens beware. The whole system could unravel with sharpened political pressure to get government more involved in central bank policy making. And of course war is the great distractor in the midst of economic chaos. And I believe the suppression of gold prices will be more difficult especially in gold friendly countries including Australia and Canada and if mass military breakouts happen.
Good luck with developing sound investment strategies in the evermore brutal world. You will need to and PDC consultancy has many more additional insights well outside the mainstream for success and survival at the very least. Go to “Contact Us” for further analysis and opportunities. Client numbers are limited.