Tag Archive for Banks

German Response to Negative Interest Rates: Safe Deposit Boxes

Image: -JvL-

Image: -JvL-

The Japanese response to negative interest rates was to buy personal safes. The German response is to pull money out of bank accounts and stick it in safe deposit boxes. Both are perfectly understandable reactions to the prospect of having to pay interest to a bank for holding deposits. It is particularly interesting in Germany, where the Bundesbank a few years ago admitted that the average real rate of return on savings deposits has been negative for nearly the past 40 years. Now that nominal rates have turned negative too, the facade of savings accounts as a safe place to park money to earn a little bit of income has finally been ripped away.

A Lesson From the Greek Crisis: Safe Deposit Boxes Are Not Safe

The following article by Carl Menger Center Board Member Prof. Joseph Salerno originally appeared on the website of the Ludwig von Mises Institute. After numerous news reports have highlighted how many Greeks sought safety in gold purchases, we can only hope that they take Prof. Salerno’s warning to heart and keep their gold safe from confiscation.

A Lesson From the Greek Crisis: Safe Deposit Boxes Are Not Safe
By Joseph T. Salerno

Last week the Greek government imposed capital controls to prevent cash from escaping from the Greek banking system, which is on the brink of collapse. These repressive financial measures, which were invented by “Hitler’s banker” Hjalmar Schacht in the 1930s, include the closing of banks, limiting cash withdrawals from ATMs to 60 euros ($67) per day, and the banning of all money transfers via credit and debit cards to accounts held in foreign countries. Despite these Draconian controls, Greek banks continue to hemorrhage cash and, after yesterday’s referendum, it is probable that the daily limit on withdrawals from ATMs will be tightened. Worse yet, the reeling Greek public suffered another shock yesterday when Deputy Finance Minister Nadia Valavani revealed to Greek television that the government and banks had already agreed that people would also not be allowed to withdraw cash from safe deposit boxes for as long as the controls were in place. This may be part of a fallback plan if the ECB ends its bailout of the Greek banks. The government with the banks’ connivance would seize the cash euros stored in these boxes and compensate their lessees by crediting an equal sum of euros to their increasingly inaccessible checking deposits. The cash would then be fed into ATMs to postpone the day of reckoning for Greece’s zombie fractional-reserve banks.

Banks As Cash Cows

Banks have had a symbiotic relationship with government almost since they first came into existence. Bankers have funded government operations, especially wars, and in return were granted competitive advantages that freed them from the competitive pressures to which other businesses were subject. That relationship continues today. Bank deposits are “insured” by the federal government, allowing banks to lend depositor funds to riskier borrowers with the knowledge that the government will step in and absorb any losses in the event that bad loans force the bank to go under. Banks have access to the Federal Reserve’s discount window and other Fed lending facilities, enabling them to take out loans at below-market-rate interest rates if they find themselves in a financial pinch. And if things get really bad, banks can just lobby the government for an outright bailout. After all, you wouldn’t want the entire financial system to collapse, would you?

Who Suffers From Negative Interest Rates?

Liquidity PyramidEver since the European Central Bank (ECB) decided to drop interest rates on its deposit facility into negative territory, there has been a lot of chatter about the consequences of those negative interest rates. A negative interest rate means that, when a depositor deposits money into an account, the depositor has to pay the bank for that deposit, rather than the bank paying the depositor as would be the case with positive interest rates. The ECB’s introduction of negative interest rates, first -0.10% and now -0.20%, was intended to keep banks from holding money at the ECB, and instead to lend that money to consumers and businesses in order to stimulate spending and economic recovery.

The Perfect Banking System

The perfect banking system, like the perfect monetary system, is one which serves the needs of consumers and savers, and not the needs of the government. It is a system in which entrants are free to enter and leave the market with a minimum of restrictions, and in which no banks are bailed out. Almost…

Ron Paul: US Sanctions on Russia May Sink the Dollar

Ron Paul on sanctions against Russia hurting the dollar.
Authored by Ron Paul. Originally appearing at the Ron Paul Institute.

The US government’s decision to apply more sanctions on Russia is a grave mistake and will only escalate an already tense situation, ultimately harming the US economy itself. While the effect of sanctions on the dollar may not be appreciated in the short term, in the long run these sanctions are just another step toward the dollar’s eventual demise as the world’s reserve currency.

Here’s the Mobile Payment

Smartphone being used to make a mobile payment at point of sale.

The Atlanta Fed wants to know: “Where’s the Mobile Payment?” Well, as anyone who has ever used Bitcoin can tell you, mobile payment is one of Bitcoin’s strengths. Take, for example, the case of Mission Market, an upscale convenience store in Fullerton, CA, which accepts Bitcoin as payment at point of sale (POS). Ring up your items, tell them that you want to pay with Bitcoin, and the POS tablet displays a QR code. Swipe it with your smartphone and Bitcoin will be debited from your account and credited to Mission Market’s account. Quick, easy, painless. No cash to change hands, no credit card bill to pay at the end of the month.