The spread of negative interest rates has been highly publicized in recent months in a trend that could, unfortunately for depositors, continue. While much has been made of low rates in the U.S. in recent weeks while the ten year note sits around 1.4%, the fact is that in some countries depositors now not only receive zero yield but must pay for the privilege of having a bank hold their money.
Some European banks began cutting rates below zero in 2014, and Japan has followed. Sweden, Switzerland and Denmark have also adopted negative interest rates. By some estimates, almost half a billion people in a quarter of the global economy are now in areas with negative interest rates.
It would seem that this new era of negative interest rates is nothing more than another tactic employed by central banks to try to spur growth and inflation. In fact, some might argue that the practice is being utilized as more traditional methods of driving growth have failed.
To comprehend negative rates, it is important to have an understanding of the rationale behind such measures.
In theory, one might assume that negative interest rates means lower borrowing rates for customers, and therefore a potential increase in lending and economic activity.
While this theory may hold some water, the practice also has the potential to backfire-and in a major way.
Many banks have thus far been very reluctant to pass rates into negative territory, concerned that such a move would drive customers to leave.
Unfortunately for some areas of the global economy, the move into negative territory may have even more room to grow and spread.
What if it gets to the point that depositors think “Enough is enough!” What if capital starts finding its way into safe deposit boxes or even stuffed under mattresses? What if banks begin to bleed as investors withdraw capital or refrain from further deposits?
A bank run is one possibility-in which a bank cannot keep up with withdrawals it is facing and it may eventually have to declare bankruptcy.
Another scenario is that banks simply cannot make enough loans as capital dries up, thus producing no positive economic effects.
Neither scenario is good…
To make matters worse, a bank can take steps to prevent withdrawals in the event of a run on the bank.
Not only could you have to pay for the bank to hold your money, but it may be difficult to withdraw your funds in the event of a bank run.
Let’s also not forget the effects such measures have on currency values. Negative rates cause declining currency values. If the era of negative rates is ongoing and spreads, there could potentially be a currency race to the bottom.
As the value of your currency declines, so does your wealth and purchasing power.
Also not good…
Now, more than ever, is the ideal time to consider allocating into hard assets. Now may be the right time to begin acquiring and holding physical precious metals like gold and silver. These assets may potentially help preserve your purchasing power in the face of declining currency values. In addition, these metals could potentially increase significantly in value as more investors jump ship from risk assets and banks.
These metals have been considered a reliable store of wealth and protector of value for thousands of years, and their reputation as such may keep investors looking to them for security.
Don’t wait for negative interest rates to come to your local bank, or for the next stock market crash. Explore your options now. Buying and holding physical gold and silver has never been easier and more convenient than it is today, and our team of account executives can show you step by step how to begin acquiring these hard assets. We can even show you how to use your IRA account to grow your precious metals portfolio.
Don’t wait for gold and silver prices to rise further. Call us today at 1-800-341-8584 to get started.Tags: advantage gold, bank run, bond market, central banks, deposits, Germany, gold, negative interest rates, silver