Hang Onto Your Wallets: Negative Interest, the War on Cash, and the $10 Trillion Bail-in

In uncertain times, “cash is king,” but central bankers are systematically moving to eliminate that option. Is it really about stimulating the economy? Or is there some deeper, darker threat afoot?

Remember those old ads showing a senior couple lounging on a warm beach, captioned “Let your money work for you”? Or the scene in Mary Poppins where young Michael is being advised to put his tuppence in the bank, so that it can compound into “all manner of private enterprise,” including “bonds, chattels, dividends, shares, shipyards, amalgamations . . . .”?

That may still work if you’re a Wall Street banker, but if you’re an ordinary saver with your money in the bank, you may soon be paying the bank to hold your funds rather than the reverse.

Four European central banks – the European Central Bank, the Swiss National Bank, Sweden’s Riksbank, and Denmark’s Nationalbank – have now imposed negative interest rates on the reserves they hold for commercial banks; and discussion has turned to whether it’s time to pass those costs on to consumers. The Bank of Japan and the Federal Reserve are still at ZIRP (Zero Interest Rate Policy), but several Fed officials have also begun calling for NIRP (negative rates).

The stated justification for this move is to stimulate “demand” by forcing consumers to withdraw their money and go shopping with it. When an economy is struggling, it is standard practice for a central bank to cut interest rates, making saving less attractive. This is supposed to boost spending and kick-start an economic recovery.

That is the theory, but central banks have already pushed the prime rate to zero, and still their economies are languishing. To the uninitiated observer, that means the theory is wrong and needs to be scrapped. But not to our intrepid central bankers, who are now experimenting with pushing rates below zero.

Locking the Door to Bank Runs: The Cashless Society

The problem with imposing negative interest on savers, as explained in the UK Telegraph, is that “there’s a limit, what economists called the ‘zero lower bound’. Cut rates too deeply, and savers would end up facing negative returns. In that case, this could encourage people to take their savings out of the bank and hoard them in cash. This could slow, rather than boost, the economy.”

Again, to the ordinary observer, this would seem to signal that negative interest rates won’t work and the approach needs to be abandoned. But not to our undaunted central bankers, who have chosen instead to plug this hole in their leaky theory by moving to eliminate cash as an option. If your only choice is to keep your money in a digital account in a bank and spend it with a bank card or credit card or checks, negative interest can be imposed with impunity. This is already happening in Sweden, and other countries are close behind. As reported on Wolfstreet.com:

The War on Cash is advancing on all fronts. One region that has hogged the headlines with its war against physical currency is Scandinavia. Sweden became the first country to enlist its own citizens as largely willing guinea pigs in a dystopian economic experiment: negative interest rates in a cashless society. As Credit Suisse reports, no matter where you go or what you want to purchase, you will find a small ubiquitous sign saying “Vi hanterar ej kontanter” (“We don’t accept cash”) . . . .

The Lesson of Gesell’s Decaying Currency

Whether negative interests will actually stimulate an economic recovery, however, remains in doubt. Proponents of the theory cite Silvio Gesell and the Wörgl experiment of the 1930s. As explained by Charles Eisenstein in Sacred Economics:

The pioneering theoretician of negative-interest money was the German-Argentinean businessman Silvio Gesell, who called it “free-money” (Freigeld) . . . . The system he proposed in his 1906 masterwork, The Natural Economic Order, was to use paper currency to which a stamp costing a small fraction of the note’s value had to be affixed periodically. This effectively attached a maintenance cost to monetary wealth.

. . . [In 1932], the depressed town of Wörgl, Austria, issued its own stamp scrip inspired by Gesell . . . . The Wörgl currency was by all accounts a huge success. Roads were paved, bridges built, and back taxes were paid. The unemployment rate plummeted and the economy thrived, attracting the attention of nearby towns. Mayors and officials from all over the world began to visit Wörgl until, as in Germany, the central government abolished the Wörgl currency and the town slipped back into depression.

. . . [T]he Wörgl currency bore a demurrage rate [a maintenance charge for carrying money] of 1 percent per month. Contemporary accounts attributed to this the very rapid velocity of the currencies’ circulation. Instead of generating interest and growing, accumulation of wealth became a burden, much like possessions are a burden to the nomadic hunter-gatherer. As theorized by Gesell, money afflicted with loss-inducing properties ceased to be preferred over any other commodity as a store of value.

There is a critical difference, however, between the Wörgl currency and the modern-day central bankers’ negative interest scheme. The Wörgl government first issued its new “free money,” getting it into the local economy and increasing purchasing power, before taxing a portion of it back. And the proceeds of the stamp tax went to the city, to be used for the benefit of the taxpayers. As Eisenstein observes:

It is impossible to prove . . . that the rejuvenating effects of these currencies came from demurrage and not from the increase in the money supply . . . .

Today’s central bankers are proposing to tax existing money, diminishing spending power without first building it up. And the interest will go to private bankers, not to the local government.

Consumers today already have very little discretionary money. Imposing negative interest without first adding new money into the economy means they will have even less money to spend. This would be more likely to prompt them to save their scarce funds than to go on a shopping spree.

People are not keeping their money in the bank today for the interest (which is already nearly non-existent). It is for the convenience of writing checks, issuing bank cards, and storing their money in a “safe” place. They would no doubt be willing to pay a modest negative interest for that convenience; but if the fee got too high, they might pull their money out and save it elsewhere. The fee itself, however, would not drive them to buy things they did not otherwise need.

Is There a Bigger Threat than a Sluggish Economy?

The scheme to impose negative interest and eliminate cash seems so unlikely to stimulate the economy that one wonders if that is the real motive. Stopping tax evaders and terrorists (real or presumed) are other proposed justifications for going cashless. Economist Martin Armstrong goes further and suggests that the goal is to gain totalitarian control over our money. In a cashless society, our savings can be taxed away by the banks; the threat of bank runs by worried savers can be eliminated; and the too-big-to-fail banks can be assured that ample deposits will be there when they need to confiscate them through bail-ins to stay afloat.

And that may be the real threat on the horizon: a major derivatives default that hits the largest banks, those that do the vast majority of derivatives trading. On November 10, 2015, the Wall Street Journal reported the results of a study requested by Senator Elizabeth Warren and Rep. Elijah Cummings, involving the cost to taxpayers of the rollback of the Dodd-Frank Act in the “cromnibus” spending bill last December. As Jessica Desvarieux put it on the Real News Network, “the rule reversal allows banks to keep $10 trillion in swaps trades on their books, which taxpayers could be on the hook for if the banks need another bailout.”

The promise of Dodd-Frank, however, was that there would be “no more taxpayer bailouts.” Instead, insolvent systemically-risky banks were supposed to “bail in” (confiscate) the money of their creditors, including their depositors (the largest class of creditor of any bank). That could explain the push to go cashless. By quietly eliminating the possibility of cash withdrawals, the central bank can make sure the deposits are there to be grabbed when disaster strikes.

If central bankers are seriously trying to stimulate the economy with negative interest rates, they need to repeat the Wörgl experiment in full. They need to first get some new money into the economy, money that goes directly to the consumers and local businessmen who will spend it. This could be achieved in a number of ways: with a national dividend; or by using quantitative easing for infrastructure or low-interest loans to states; or by funding free tuition for higher education. Consumers will hit the malls when they have some new discretionary income to spend.

_____________

Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including the best-selling Web of Debt. Her latest book, The Public Bank Solution, explores successful public banking models historically and globally. Her 300+ blog articles are at EllenBrown.com. Listen to “It’s Our Money with Ellen Brown” on PRN.FM.

64 Responses

  1. Bad money will drive good money out of circulation.
    Digital money will drive good money out of circulation.
    Bank fictitious money will drive Sovereign “coined” money out of circulation.
    Quote Soddy, “(Money)… if it is to fulfil its proper role as the distributive mechanism of society. To allow it to become a source of revenue to private issuers is to create, first, a secret and illicit arm of the
    government and, last, a rival power strong enough ultimately to overthrow all other forms of
    government. ”
    Please share and add

    International Movement for Money Reform
    The Swiss population will be the first in the world to vote on their banking and money system. This is an incredible breakthrough – but there is still a lot of work to be done to prepare for the historic vote.
    http://positivemoney.org/2015/11/swiss-citizens-initiative-collects-105000-signatures-triggers-referendum-on-money-creation/

  2. Utter nonsense! Central bankers are criminals — plain and simple. They have stolen $trillions and enslaved billions through their massive RICO violations. Positive or negative interest completely begs the question of why there is ANY interest — there shouldn’t be, it’s our sovereign currency and they and their government accomplices must be harshly punished for stealing it. The feds must issue our own debt-free, interest-free, and tax-free currency, as they have in the past. There must be state non-profit lending utilities that make interest-free loans to qualified borrowers for private, business, and infrastructure purposes. Those loan repayments must then be zeroed upon receipt to prevent inflation. The banking crime syndicate criminals must be severely punished, because with their illegally acquired wealth and power they have caused much death, destruction, and misery worldwide. No more absurd economic red herrings or straw men; cut to the chase.

  3. Reblogged this on Dreams of Liberty and commented:
    What should happen but never will…

  4. Hello,
    How can I protect myself from the upcoming finanical crisis? I just retired and have my savings in one of the big banks. Would changing to a good credit union be a good choice? I live in Washington state.
    Chuck

    • “Would changing to a good credit union be a good choice?”
      In the modern world of digital currency, there is nowhere to hide that is safe…………

      • I guess a safe full of cash is the only way…thanks for the come back Brian

        • Cash is either ‘printed paper’ or a digit recorded on a computer. Good luck mate, we’re ALL in the same boat.

        • Perhaps commodities that are easily sold, i.e. gold, silver,

          • I can envision more and more people seeking ‘safety’ in precious metals should fiat currency become a fading wealth item; however, I can also envision governments pulling an FDR and confiscating said metals…

  5. […] Source: WEB OF DEBT BLOG In uncertain times, “cash is king,” but central bankers are systematically moving to eliminate that option. Is it really about stimulating the economy? Or is there some deeper, darker threat afoot? Remember those old ads showing a senior couple lounging on a warm beach, captioned “Let your money work forRead more… […]

  6. […] Ellen Brown Writer, Dandelion Salad The Web of Debt Blog November 20, […]

  7. Bankers, schmankers.
    They tend to be financiers and money-handlers. Their grasp of economics or macro-economics is pathetic or based on discredited theories. Naturally, their highly-paid acolytes will continue to pump apologist, self-serving white paper after white paper defending the bankster view and prevailing theory. Only folks who conflate wealth with wisdom take their economic views seriously.
    Professor Richard Wolff has discredited these bankers time after time (Not to mention Michael Moore’s “Roger and Me” which discredited their globalist kin).
    Recall the obvious. Remember something called the “law of supply and demand?” Look to the _demand_ side of the equation first. With no demand there can exist no markets. Period.
    What generates demand in our consumerist economy? Currency in a working man’s wallet. How does he come to this currency in a post-“closing-of-the-commons” (or _privatized_ commons) age?
    By trading his talents and time for currency, usually by working for an employer. That said, when employers for the sake of (dare I say it?) greed, _send_ factories overseas to wage-slave states–surprise, there exists no place for the newly-unemployed worker to trade his skills/time for currency. Hence, demand, but for the Maslovian necessities dies. Remedy? Bring back jobs, any jobs, FDR make-work type perhaps. But _create_ those jobs. Then, with money in circulation and with every citizen working and thus “credit-worthy,” banks should have no problem with their bottom-line. These finance capitalism “remedies” to the very _real problems_ finance capitalism _caused_ would be a riot, were the consequences not so damned tragic…
    Be well.

  8. […] Ellen Brown Global Research, November 20, 2015 The Web of Debt Blog 20 November […]

  9. […] Hang Onto Your Wallets – Negative Interest, the War on Cash, and the $10 Trillion Bail-in […]

  10. Reblogged this on Fazl's Blah.

  11. Ellen, my friend, you are whistling in the wind. That is not to say that what you say is wrong but you are fighting the wrong battle. The Republic is FUBAR and cannot be saved by putting fresh lipstick on this pig.

    • I tend to agree, in that merely getting more money out there might not have any profound effect, and even starting some public banks is a partial and timid overture to the more robust socialistic approach that is needed. I’m thinking in terms of socialism in the sense that the economy be truly run for the citizens of the nation, with government for the people owning much of it and firmly controlling the greater part of it, not the present purely self-seeking capitalist pigs.

  12. […] SOURCE with thanks https://ellenbrown.com/2015/11/20/hang-onto-your-wallets-negative-interest-the-war-on-cash-and-the-10… […]

  13. The dirtball thieving bankers (yes, I know that is redundant) are already charging non-account holders a fee to cash a check at the bank upon which the funds are drawn. This is outright theft … but hey, we’re being stolen blind in a hundred ways; so what’s one more? 😦

    And where are the Republicans for whom SUPPOSEDLY a contract is a sacred bond. Egad.

  14. and excellent article!! however the real point was missed..banks have not been paying any real interest for a decade or more.and that is one of the reasons the dow is at an all time high people who have jobs/money to save/invest having been convinced by the wall street criminal and their counter part the controlled media that the only alternative is the stock markets and other wall street instruments through 401k s .this is a false assumption by the public..the whole idea is to get all the money in one place so when the nwo decides to take total control they have you by the gonads.and a decade back this was floated ,but stalled because the greedy banks/ wall street and local/regionals, all got very greedy and started charging for every transaction.and they were forced by congress and the people to stop.so it fell flat.quess what??there back!!!! i m retired and don t use much cash ,i use a debit card and automatic payments system of the bank i use.well yesterday the little local bank i use charged my account $10.00 for a wire transfer deposit.i called them i they said thats the way it is..so there is much more than ellen wrote about here they can support themselves by feeing you to death and thats “”the plan””charges for every transaction ,in other words every purchase /every deposit/every payment /every inquiry and on and on.they will invent ways to get your hard earned so-called legal tender.

  15. […] Hang Onto Your Wallets: Negative Interest, the War on Cash, and the $10 Trillion Bail-in […]

  16. […] Ellen Brown EllenBrown.com November 20, […]

  17. […] Ellen Brown Global Research, November 20, 2015 The Web of Debt Blog 20 November 2015 Region: USA Theme: Global […]

  18. This article does not understand what negative interest is. It is very simple – let me explain. With positive interest, you bank $100 and get back $110 after a time. With negative rates you bank $100 and get back $90 – that’s a negative rate. Negative rates typically happen indirectly due to inflation. Clearly at the moment we do not have negative rates.

    • As if the 40 – 50% the govt gets through many layers of taxres – income, sales use, excise, tolls, fees – isn’t enough…it never ends…

  19. Do negative interest rates only operate in the direction that favors banks over depositors or do they also operate in the direction that favors debtors over banks? Do they also require banks to pay interest on loans? Might they require banks to issue loans with a decreasing principle? In other words, that banks should start paying people to take out loans (i.e. free money)? At this point, wouldn’t helicopter money make more sense?

  20. Crytocurrencies and the Blockchain can take out the banks. They are currently terrified. The Blockchain decentralised trust. We don’t need banks.

    The Blockchain is The most important invention since the Internet Itself.
    — Marc Andreessen, one of Silicon Valley’s top venture capitalists

    The revolution will not be televised. It will be cryptographically time stamped on the block chain.
    — Dominic Frisby, writer Moneyweek

    Blockchain technology will not only change the way we do payments, it will change the whole trading and settlement topic
    — Oliver Bussmann, CIO, UBS.

    Blockchain technology continues to redefine not only how the exchange sector operates, but the global financial economy as a whole.
    — Bob Greifeld, CEO of Nasdaq-OMX Stock Market, Inc.

    One can imagine a world in which securities lending, repo, and margin financing are all traceable through blockchain’s transparent and open approach to tracking transactions. That could revolutionize regulators’ approach to monitoring systemic risk in these areas, including the oversight of collateral reuse, to name just one potential use.
    — Kara M. Stein, SEC Commissioner

    Bitcoin gives us, for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate.
    — Marc Andreessen, one of Silicon Valley’s top venture capitalists

    Clearing houses are a wonderful invention, but if you have a public ledger that is trusted, you can evolve back to a bilateral (trading) world but proceed with instantaneous settlement. We currently settle at T+3. Why not settle in 5-10 minutes
    — Bob Greifeld, Nasdaq CEO

    Blockchain is a really disruptive development, and banks have a lot of fear concerning this technology because in the pure theory of blockchain, a lot of processes within a traditional bank would be obsolete.
    — Thomas F Dapp, research analyst, Deutsche Bank.

    But the real innovation is the blockchain itself, a protocol that allows for secure, direct (without a middleman), digital transfers of value and assets (think money, contracts, stocks, IP). Investors like Marc Andreesen believe this is as important of an opportunity as the creation of the Internet itself.
    — Peter Diamandis, Futurist and the author of “Abundance – the Future is Better Than You Think” and “Bold – How to Go Big, Create Wealth and Impact the World

    I think they’re [banks] going to fail, and I think, ultimately, the people working on these projects [Blockchain] at the banks are going to end up leaving the banks to work at startups that are building it [Blockchain] outside.
    — Digital Currency Group CEO Barry Silbert.

    Digital currencies have immense potential to improve human welfare by strengthening the capacity of governments to deliver more responsive services and secure the rights of their citizens to property, identity and increase financial inclusion…And because it is an open-source protocol for innovation, a wide range of services and products can be built by entrepreneurs and non-profits on top of it. More than 2 billion adults around the world do not have access to a bank account. Without a connection to the financial support services that typically accompany formal bank accounts, the unbanked have very limited access to the savings and borrowing mechanisms necessary to drive broad-based economic growth.

    — Brian Forde is a former Senior Advisor at the White House Office of Science and Technology Policy

    We should think about the blockchain as another class of thing like the Internet — a comprehensive information technology with tiered technical levels and multiple classes of applications for any form of asset registry, inventory, and exchange, including every area of finance, economics, and money; hard assets (physical property, homes, cars); and intangible assets (votes, ideas, reputation, intention, health data, information, etc.). But the blockchain concept is even more; it is a new organizing paradigm for the discovery, valuation, and transfer of all quanta (discrete units) of anything, and potentially for the coordination of all human activity at a much larger scale than has been possible before.

    — Melanie Swan, autor of Blueprint for a New Economy

  21. There are no ‘gates’ high enough to protect these Bankers.

  22. […] runs Web of Debt. This piece was reprinted by RINF Alternative News with permission or […]

  23. […] Posted on November 20, 2015 by Ellen Brown in the Web of Debt Blog […]

  24. […] Hang Onto Your Wallets: Negative Interest, the War on Cash, and the $10 Trillion Bail-in  by Ellen Brown, http://www.ellenbrown.com/   In uncertain times, “cash is king,” but central bankers are systematically moving to eliminate that option. Is it really about stimulating the economy? Or is there some deeper, darker threat afoot? – Remember those old ads showing a senior couple lounging on a warm beach, captioned “Let your money work for you”? Or the scene in Mary Poppins where young Michael is being advised to put his tuppence in the bank, so that it can compound into “all manner of private enterprise,” including “bonds, chattels, dividends, shares, shipyards, amalgamations . . . .”? – That may still work if you’re a Wall Street banker, but if you’re an ordinary saver with your money in the bank, you may soon be paying the bank to hold your funds rather than the reverse. – Four European central banks – the European Central Bank, the Swiss National Bank, Sweden’s Riksbank, and Denmark’s Nationalbank – have now imposed negative interest rates on the reserves they hold for commercial banks; and discussion has turned to whether it’s time to pass those costs on to consumers. The Bank of Japan and the Federal Reserve are still at ZIRP (Zero Interest Rate Policy), but several Fed officials have also begun calling for NIRP (negative rates). – The stated justification for this move is to stimulate “demand” by forcing consumers to withdraw their money and go shopping with it. When an economy is struggling, it is standard practice for a central bank to cut interest rates, making saving less attractive. This is supposed to boost spending and kick-start an economic recovery. – That is the theory, but central banks have already pushed the prime rate to zero, and still their economies are languishing. To the uninitiated observer, that means the theory is wrong and needs to be scrapped. But not to our intrepid central bankers, who are now experimenting with pushing rates below zero. – Locking the Door to Bank Runs: The Cashless Society The problem with imposing negative interest on savers, as explained in the UK Telegraph, is that “there’s a limit, what economists called the ‘zero lower bound’. Cut rates too deeply, and savers would end up facing negative returns. In that case, this could encourage people to take their savings out of the bank and hoard them in cash. This could slow, rather than boost, the economy.” – Again, to the ordinary observer, this would seem to signal that negative interest rates won’t work and the approach needs to be abandoned. But not to our undaunted central bankers, who have chosen instead to plug this hole in their leaky theory by moving to eliminate cash as an option. If your only choice is to keep your money in a digital account in a bank and spend it with a bank card or credit card or checks, negative interest can be imposed with impunity. This is already happening in Sweden, and other countries are close behind. As reported on Wolfstreet.com: – The War on Cash is advancing on all fronts. One region that has hogged the headlines with its war against physical currency is Scandinavia. Sweden became the first country to enlist its own citizens as largely willing guinea pigs in a dystopian economic experiment: negative interest rates in a cashless society. As Credit Suisse reports, no matter where you go or what you want to purchase, you will find a small ubiquitous sign saying “Vi hanterar ej kontanter” (“We don’t accept cash”) . . . . – read more. […]

  25. […] ⇧   Hang Onto Your Wallets: Negative Interest, the War on Cash, and the $10 Trillion Bail-in | WEB OF DE… […]

  26. Gessell was a Henry George equivalent for Money.
    While George believed Land (since it was not created by private labor) should be publicly owned and a tax charged on its use (rent) and paid to its owners (the public), Gessell extended that to Money which he saw as a public utility which should be taxed (interest) for public finance.
    This is the opposite of the transaction taxes we have today (sales and income taxes). Benjamin Franklin also believed that a tax on money (a kind of wealth tax) would be better than a tax on transactions which are a penalty on trade and labor.
    solution:
    eliminate fraction reserve banking which enables the banking system to privately create most of the money supply.
    once bank created money no longer exists the state has more room to create its own debt free money..electronically spending it into use.
    All money and all payment systems could essentially be run as an electronic state utility which can tax money for public use (interest) or create new money (seniorage). Both are better than transaction taxes.

  27. […] Published on Sunday, November 22, 2015 by Web of Debt […]

  28. […] Continue Reading […]

  29. […] https://ellenbrown.com/2015/11/20/hang-onto-your-wallets-negative-interest-the-war-on-cash-and-the-10… […]

  30. […] https://ellenbrown.com/2015/11/20/hang-onto-your-wallets-negative-interest-the-war-on-cash-and-the-10… […]

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