No free lunch

We’ve reported previously that the ECB introduced negative interest rates to dissuade banks from parking their money with the central bank to both get some velocity into their monetary supply (try and get people to spend the printed money) and stop other countries investing in the Euro and forcing it up.  Late last week the Swiss National Bank resorted to same with -0.25% rates as the Franc hit its ceiling against the Euro in response to the falling Rouble.  The US Fed gave the market comfort it’s near zero interest rates would ‘patiently’ be around for a fair while yet and now many expect Australia too will need to reduce our 2.5% to 2% next year. Not only do such moves erode the wealth of savers (return below inflation) but it promotes unsustainable bubbles (ala huge rally on Wall St just on the word ‘patient’) when the fundamentals aren’t there.  This quote from Greg Canavan puts it succinctly from a macro view:

“…. abolishing the rate of interest causes massive distortions. It stops us from saving and encourages us to consume…eventually we will consume our capital stock (by borrowing against it), then find we can’t service the debts…and then we’ll be in all sorts.

That’s the dangerous path we’re heading down. No one really sees it right now because we’re deep in the forest. But from a bird’s eye view, we’re going the wrong way.”

By all means carefully play this game and probably make money for a little while longer, but do so knowing the crash will likely be sudden and severe and so have your insurance back up in place now or before you do…physical gold and silver.