This is Going to Sound Crazy
I work as a financial researcher and writer, and that probably sounds boring.
But part of my job is to make boring things seem not boring. So consider this story that I’ve been following for a while, because it’s completely unprecedented in the entirety of human history as far as I can tell.
In Denmark (and possibly elsewhere in Europe) for the past year or so, some people have been able to get a negative interest mortgage.
To explain — because it needs explaining — these people take out a loan, and are paid interest on the loan. They still have to pay the loan back, but while they do, each month they get a small amount of interest paid into their accounts.
Think about it for a second. Someone wants to borrow money — a lot of money, like several hundred thousand dollars, for instance. And when they go to the bank to ask for money, the banker says, “we will only loan you money if we can pay you to take it.”
It’s not good news when central bankers start to lose their marbles in their policies, because central bankers are generally complacent, thoughtful and insightful. They don’t want to make a crazy move. They’d rather do nothing and just collect a giant paycheck. But if they’re pursuing this kind of bananas policy, you know they’ve already begun to panic.
Don’t ignore this never-before-seen-in-the-entirety-of-human-history warning sign. There’s an axiom in finance that gets tossed around. People say, “oh it’s different this time” in reference to a foolish idea that has been tried and has failed many times. “It’s different this time,” you’ll hear someone say, trying to convince themselves of something ridiculous.
They’re usually referring to a prediction that has been falsified many times over. This “different this time” is different, this time. We’ve never seen a sustained negative interest rate policy. We don’t know what will happen, because there’s no track record of what comes next. Bankers don’t know. They’re hoping it will “fix” everything, but they don’t know. There’s no model to follow. No history.
Most people reading this probably think I’m bonkers, and I probably am, but I’m in good company with the world’s leading smarty pants, Ivy League educated central banks who now think it’s sane monetary policy to PAY people to take loans.
What can we do?
Normally, as a part of my work, I write long research papers telling people why they need to do X or Y in order to make money or to protect themselves from loss. That’s normally how things work. Investments either go up or down. So you can tell people what they should buy or not buy or sell or short or buy or sell options on in order to make money/avoid losing money.
But when we’re talking about this kind of currency shenanigans, the “what to buy/sell” question gets strangely distorted. Normal ideas about investing, like “how much available cash will a company likely have over the next 8 quarters?” stop making sense. How can you estimate cash flow when the cash part of the equation has one foot in toon town?
Low interest rates are one thing. They create a variety of incentives — by design. But negative interest rates?
If things were really going to get bad, the safest place to be would be cash. That way you could side step draw downs in stocks, bonds, real estate, and commodities. You wouldn’t get ahead, but you wouldn’t fall behind either.
But central banks are way ahead of you. No more hoarding cash. They need you to spend it, or at least borrow it. To entice you, they’ll charge you interest for any cash you own. They’ll pay you interest for any cash you borrow and spend. Want to hold physical cash? Good luck getting it out of the banks!
Governments around the world have been slowly introducing ever more draconian currency controls to keep money in the banking system, where they can control it. Some governments are even taking physical cash out of circulation. They want all transactions and accounts to be on the wire — so they can get their take and control the system entirely.
All of these policies show us that the world’s central banks are making a wager. They’re betting the entire fidelity of the currency system on the idea that they can centrally plan the world economy. They’re willing to risk sinking the ship… to avoid having to patch a few holes in the ship.
Most people reading this also don’t have the capacity or means to take the most drastic steps to protect yourself from central banker policy.
You can’t buy foreign real estate or start a business overseas. You can’t open a foreign bank account. You can’t get yourself deleveraged from the US. But you can do a couple basic things.
At the risk of cementing your belief that all of my screws are loose: consider buying gold and/or silver now. It’s really easy. Just go to any local bullion dealer or any reputable online vendor. Buy a few hundred or few thousand dollars worth and put it some place safe. Tell just one other trusted person where you’r keeping your precious metals in the event of your demise.
You can also buy staples like beans, coffee, sugar and flour at relatively cheap prices in bulk. Store them correctly and they’ll last a while.
I’m not calling for the end of the world. It’s not a Mad Max scenario. But things don’t have to get terrible to get worse.
The best part of this advice is that it won’t cost you anything. Most insurance is use it or lose it. You can eat your beans if I’m wrong, right or irrelevant. You can sell your precious metals for close to what you bought them for even if this experiment turns out peachy.
But wouldn’t you rather have this type of insurance and not need it, and then need it and not have it?