“Punishment Interest” _ A Sign Of The Times

Because there will be no shortage of bloggers talking about the mid-term elections today, Asylum Watch will offer up some other insanity, about which you need to aware.

The doldrums of the Great Recession are still with us nearly five years after we were told the economy had returned to recovery mode. The Federal Reserve takes credit for saving the US economy from a total economic collapse. Apparently, the nearly $800 billion the taxpayers ponied up to bailout various banks and financial institutions (TARP) and another $800 billion you ponied up for President Obama’s “stimulus plan” was just so much fluff.

The Fed, led at the time by Ben Bernanke, came up with a two-part plan to energize the economy and put people back to work.

The first part of the plan was dubbed Quantitative Easing (QE). Under QE, the Fed created trillions of dollars out of thin air to relieve (purchase) banks of toxic assets on their books (sub-prime mortgage-backed securities). This gift to the banks would make their balance sheets go from unhealthy to healthy. The Fed, also, created a few trillion to help the federal government continue to grow their debt by purchasing US Bonds.

The second part of the plan goes by the snappy acronym, ZIRP, which stands for Zero Interest Rate Policy. The idea behind ZIRP, so we were told, was to give the Too Big To Trust banks essentially free money which they, in turn, would lend to businesses and individuals. The businesses would use their low-interest loans to expand their production of goods and services and would hire more workers. Individuals would use their low-interest loans to consume the additional goods and services that the businesses were generating. In other words, the Fed was counting on you, the consumer, to go deeper in debt and to indirectly finance the business expansion and the hiring of more workers. Also, ZIRP was to act as a disincentive to save and if retirees dependent on interest income got hurt, well it was for a good cause.

Had QE and ZIRP resulted in the economy roaring back to live and growing at 4% or more and the good paying jobs came back, the Fed would have ended their programs in a year or so and most of us might have agreed had it had all been for a good cause. Unfortunately, it has not work out as advertised. In spite of the manipulated unemployment numbers and job growth numbers, everyone, including the Fed, knows that this has been the worse “recovery” in American history.

Fed Chair, Janet Yellen, has all but admitted that QE and ZIRP haven’t worked as planned and the Fed recently end the QE part of their recovery plan. Many professional Fed watchers and other pundits have said the Fed is all out of tricks. They may be wrong. There have been rumors and whispers for along time that central bankers were consider the possibility of negative interest rates. Seriously! Maybe they’ll call it NIRP.  The idea, I guess, is if the prescribed medicine doesn’t produce the desired results, give the patient a stronger dose; i.e., make depositors pay to keep their money in banks. It may sound like a crazy idea, but our cousins across the Big Pond, have recently cracked open the door to negative interest rates (some people call it punishment rate). If the ZIRP club wasn’t big enough to get businesses to borrow and invest and consumers to borrow and spend, then the central bankers will just pull out a bigger club. The excellent Wolf Street blog fills us in on the latest insane measures:

Last summer, the ECB imposed negative deposit rates on member banks. At first, it was 0.1%, which has now doubled to 0.2%. The reason? The ECB dragged out its “mandate,” which is, as it said, “to ensure” that “price stability” is “below but close to 2% inflation,” which in turn is “a necessary condition for sustainable growth in the euro area.” Whatever. There is not a scintilla of evidence that inflation is required for economic growth; however, there is plenty of evidence thateconomic growth can stir up inflation. The good folks at the ECB know this. It’s just the official pretext for using inflation to eat up debt – along with savers.

And now, one of Germany’s smaller banks, Deutsche Skatbank, a division of VR-Bank Altenburger Land, has decided to introduce “punishment rates” on some of their client accounts:

Retail and business customers with over €500,000 on deposit as of November 1 will earn a “negative interest rate” of 0.25%. In less euphemistic terms, they have to pay 0.25% per annum to the bank for the privilege of handing the bank their hard-earned money or their business cash.

It looks an awful lot a tax the rich scheme and for now it is. But, what will happen over time is that the threshold for the punishment rate will fall and the punishment rate will become more severe. No doubt Janet Yellen will be watching this trend very closely. You, too, should keep an eye on this bit of insanity and you may want to be thinking of alternatives to conventional banks for keeping your money safe from the money grabbers.

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.

Henry Ford


Well, that’s what I’m thinking. What are your thoughts?

4 thoughts on ““Punishment Interest” _ A Sign Of The Times

  1. Don’t worry, when Cherokee warrior Elizabeth Warren wins the presidency and is sworn in on January 20, 2017 she’ll take all our money. For our own good of course. It’s socialism. It’s compassionate. It’s for the children.

  2. Not to worry, Obama is going to meet with Yellin and straighten out the whole thing.Hmmm , I seem to recall a time when the Fed was suppose to be independent, and never have contact with the administration. I recall when the Punchball Chair sat with Ms clinton in the balcony during Bill’s State of the Union speech and folks had a fit. Long gone days.

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