White letter by Bruno Colmant.
In "Patients sick of the pestilence", Jean de La Fontaine describes the world's ruin without forgiveness: "They were not all dead, but they were all struck". This sad reality was suggested to the financial world. Day by day, it enters the dark of negative interest rates. After deduction, these interest rates are obviously already red: it is enough to think that the repayment of bank deposits is less than the loss of buying the currency. Savings lose 1 to 2% of its value annually. But things get worseNominational interest rates, which seem to interest rates, become negative. Many governments, including the Belgian state, are lending to a negative interest rate during the 10-year period. In other words, the Belgian state repay less than what he lends. If investors pay for the security of investment in the public economy, it is a sign of distrust of the private economy and the future.
Because interest is the price of the time applied to monetary capital, negative interest rates cause a step back of time. Everything happens as if this is reversed and capital is destroyed by the future. In this regard, some very old and revolutionary monetary theories developed by French Proudhon (1809-1865) or the Belgian-German Gesell (1862-1930) recommended the application of negative interest rates to the money to make it perishable, as well as the acquired goods from that same currency. This would expel the currency's privilege to be a good super consumer and investment to coagulate temporarily savings without being injected into the economy. These economists were considered good utopian carlatants. The twenty-first century will prove to them just.
If investors pay for the security of investment in the public economy, it is a sign of distrust of the private economy and the future.
It is in this context that the International Monetary Fund (IMF) has recently published an investigation on the effects of immersion in an economy characterized by high (deeply) negative rates to combat recession. This research is important (and is in no way innocent) because economic theory has always emphasized the operational limit of negative interest rates to stimulate economy.
Indeed, if interest rates become negative, individuals (and companies) may prefer to have physical money (currencies and in particular notes) instead of seeing their savings saved by negative interest rates. It is therefore clear that there are strongly negative rates, for example, from -3% to -4% would go hand along with the restriction of the use of cash or that the removal of species would be lower than the requested amount (a € 100 bank withdrawal will be € 96 or € 97). The IMF reflects various models on this issue, such as the removal of cash, the introduction of an exclusive electronic currency, the application of negative interest rates to large payments, etc.
Negative interest rates are a failure of cash circuits.
The real question is either negative, and even very negative, interest rates will probably result in the deployment of consumption or investment. I am extremely doubtful: many studies show that investments are more responsive to the forecast of increased demand and growth rather than reducing interest rates. Similarly, individuals tend to increase their savings to compensate for low or negative interest rates (before or after inflation). This is also intuitive: negative interest rates are alert to the state of the economy, because they carry out a message of abnormal operation. Individuals thus protect themselves from future hesitant by increasing guardian savings. Very negative interest rates would create a panic between the paralyzed population, while packing bubbles in the property and real estate. Social inequalities would be increased. It would be a dangerous financial repression.
We live in unplanned monetary times and probably predecessors of incomprehensible breaks.
Negative interest rates do constitute a misconduct of the money circuits. This is an abnormal situation that reflects the interference of central banks in the natural economy's expectation. If negative interest rates reflect the abandonment of capital to ensure the security of a new legacy, this direction, which other countries like the United States and the United Kingdom has not followed, reflects the obligation to ensure the sustainability of the euro in a context of heterogeneous economies, in order to facilitate the financing of the states and weaken the euro. If we project this trend in the future, This leads to depriving private banks of their profitability and increasing the nationalization of the financial sector, since central banks have lost their independence.
The ECB indirectly nationalizes the entire bank sector.
In conclusion, we live in unplanned monetary times and probably predecessors of unexpected pauses. No situation in monetary history is a reference to current observations: the balances of central banks are multiplied by unknown factors, public debts (especially camouflaged as pensions) are inexorably leading to social bankruptcy of states. low because interest rates are lowest for centuries. In the euro area, the European Central Bank (ECB) is the "ultimate resource lender" not banks but states, whose credit and quality banks. The ECB indirectly nationalizes the entire bank sector.
The IMF's research document is little doubt that central banks will definitely push interest rates in case of recession and that money savings will be paid for them. The result may be very painful for the operation of the economy, but those responsible for this sulfuric and sophisticated monetary alchemy will be long replaced by their successors who will choose to choose the verdict of history. In addition, the Fontaine story goes out of course: "Depending on whether you are powerful or miserable, judicial sentences will make you white or black."