This can't be good....

[miradoblackwarrior]

Reading one of my other blogs, and came upon this entry. Thoughts, anyone?

http://globaleconomicanalysis.blogspot.com/2015/11/swiss-banks-abs-hits-customers-with.html

Mish Shedlock is a bit of an alarmist, I grant you, but he is also often right!

[rosarugosa]

Hi Mirado: I clicked on the link and got a page with a bunch of different topics and this at the top:
Sorry, the page you were looking for in this blog does not exist

[kib]

I got the same. There is a list of posts by date and time, is it one of those?

[SteveinMN]

Same result here, too, but from the title I found this Reuters link (http://www.reuters.com/article/2015/10/16/swiss-negative-interest-rates-idUSL8N12G41V20151016) to a similar article.

The article is not large; copy/pasted here with credit as per the link:

The Alternative Bank Switzerland (ABS) is to introduce negative interest rates for some depositors next year, a spokeswoman said on Friday.

Many Swiss banks have been hit by deposit charges to keep cash with Switzerland's central bank, a policy introduced in January to make the strong Swiss franc less attractive to foreign investors.

"On transactional accounts ... there will be negative interest rates of -0.125 percent from the first franc," the ABS spokeswoman said, adding that this would come into effect from the start of next year.

At the end of 2014 ABS, which offers "ethical" banking services, had just over 33,000 clients. The deposit charge will apply to around 8,000 of them, she said.

The reason for the decision was that ABS's strict investment criteria meant it kept a large portion of cash with the Swiss National Bank, she added.
Major banks like UBS and Credit Suisse have introduced deposit charges for some large clients but Swiss broadcaster SRF said ABS would be the first Swiss bank to introduce negative rates for smaller clients.

Maybe it's just me, but it really doesn't sound like something to worry about; at least not right now. Depositors of small amounts in savings here in the U.S. have long faced the prospect of account maintenance charges that can put a serious dent in their balances. Couple that with the almost-nonexistent interest rates these days and it seems you've almost got the same situation.

[kib]

If that's the case I'm also not quite seeing it. If your money loses money - I mean actual loss, not just inflation issues - in a bank, well ... take it out.

[jp1]

If that's the case I'm also not quite seeing it. If your money loses money - I mean actual loss, not just inflation issues - in a bank, well ... take it out.

The problem is that if enough people decide that it's better to keep cash in their mattress (and if interest rates are truly negative, then indeed it is) the bank(s) will quickly collapse in a heap. Our fractional reserve banking system only exists because of the trust people give it. (FDR managed to instill trust by instituting a bank holiday and telling people that any bank that opened after that holiday was sound. Easy enough back then before the internet. Today, probably not so much.) If enough people think they're better off just holding paper then the charade is over.

[kib]

mmm hmm ... but if the charade isn't working for anyone but the big bricks, if everyone else is actually paying to participate in a losing game and it's so obvious we can't even pretend it's somehow a good idea, of at least some theoretical benefit to us, is it really working at all? There has to be some give and take. If ALL the incentive to put the money in a bank is removed, if the incentive is in fact negative rather than even neutral, that's no longer a reasonable proposition. I wouldn't go to a casino in which every gambler lost, I wouldn't line up to have someone hit me on the head with a stick if I could just stay home and avoid it. Banking is optional, even if the alternative is a PITA. You want me to bank, show me why. I am aware I'm not going to fund my retirement with CD accounts any more. But show me Some positive or I'm out.

[Dhiana]

Aren't a lot of paychecks directly deposited into a bank account?
No bank account = no pay.

Same with Social Security checks now, too?

Even i you take all the money out right away, banks will decide to still charge a fee to have the account in the first place.
They'll get their money one way or another.

[jp1]

mmm hmm ... but if the charade isn't working for anyone but the big bricks, if everyone else is actually paying to participate in a losing game and it's so obvious we can't even pretend it's somehow a good idea, of at least some theoretical benefit to us, is it really working at all? There has to be some give and take. If ALL the incentive to put the money in a bank is removed, if the incentive is in fact negative rather than even neutral, that's no longer a reasonable proposition. I wouldn't go to a casino in which every gambler lost, I wouldn't line up to have someone hit me on the head with a stick if I could just stay home and avoid it. Banking is optional, even if the alternative is a PITA. You want me to bank, show me why. I am aware I'm not going to fund my retirement with CD accounts any more. But show me Some positive or I'm out.

You are 110% correct. But you're probably smarter than the average dog. I'm reminded of your description of your husband when he first met you and his focus on your jahoobies. Would he really notice if his bank was charging a negative 1% interest rate?

[ApatheticNoMore]

I guess the alternative might be treasuries for long term savings (stocks are not really an alternative to banks) and keep cash on hand for monthly expenses (but hard to pay rent that way - yes you probably could pay utility bills with cash if you personally visited your utility company branch every month. But what a pain!). See it's kind of: what alternatives are there for paying bills? Those used by "the unbanked"? Uh mostly very costly, prepaid cards, check cashing places etc.. Bitcoin? Maybe ... For savings: if interest rates on treasuries was also negative, I don't know is that even probable, would bond holders who aren't just U.S. citizens really accept that, would they really hold them just for the security of getting something back?

[miradoblackwarrior]

Thanks to SteveinMN for recovering and pasting the article. My thought is that there are troubling signs in Europe--again? Still? I'm just not sure anymore. Every time we have "good" news in this country, there is a backtrack the following month, usually with some lame explanation about why the backtrack, complete with gushy reasons not to worry. I'm sorry, but I've been worried since 2006 (!)--before the downturn, when everything was starting to crumble. I could see it in my own life, just by opening my eyes and focusing on my bottom line. The downturn in 2008 just proved my point.

I'm just me in the world. I can live as simply as I can, stay out of debt, stick to cash, and save, save, save. But every now and then some tidbit comes along that tells me we are in a heap of #@$%&, and that nothing is as rosy as we are led to believe. It is said that housing starts have risen, but I look at the real estate ads and see falling prices. It is said that unemployment has come down, but I hear of grownups stringing together multiple part-time jobs to pay the bills. There is too much propaganda, or, worse, omission of the things happening around the world. It frightens me, and maybe it makes me particularly cynical. Maybe I'm chicken little, but he only had to be right once to say "I told you so."

I just think we are entering another challenging time again in the world. Maybe we never left it. The influx of refugees, the ranting of Donald Trump, the silly plans and schemes of politicians--all are coming to a head. I can feel it, I can see it.

I starting YMOYL to pad my knowledge and look for inspiration as I eliminated debt and cut back on my life. I don't have anymore to cut back, and I don't have anymore holes to tuck money into. You are all wildly intelligent people, with experience and creativity, who might give me some knowledge or ideas. Hopefully, the world will someday heal, and I can stop being such a worry-wart. But, you folks have never talked about such things before (I've been here a while), and I am curious about a conversation on the world at large.

Susan

[Dhiana]

"... cut back on my life. I don't have anymore to cut back, and I don't have anymore holes to tuck money into. You are all wildly intelligent people, with experience and creativity, who might give me some knowledge or ideas. Hopefully, the world will someday heal, and I can stop being such a worry-wart. But, you folks have never talked about such things before (I've been here a while), and I am curious about a conversation on the world at large.

Susan

Many of us have worked hard as you have to put ourselves in the best position possible to survive the coming challenges. But we do get to a point where there isn't much left to do, not much left to cut back, and then some of us worry even more.

But how do you flourish? With all the negative in the world, what positives do you bring?

[kib]

Susan, I've felt a lot of the same things you have. Wildly ironic, 2006 was the year I got married, so maybe I'm incorrectly placing the blame for the world's decline on my DH's shoulders. Really I'm sure it's his fault, so sorry about that. :~)

I do look back on that year and feel like I should have made some totally different choices as far as real estate, investments, securing my part time perk-rich job as opposed to leaving it ... (an infuriating perfect storm of bad choices on my part that year, that I've never been able to retract). That was the last year I can remember where the opportunities seemed to be ripe for picking. I'm not quite chicken little, but I have had an uneasy anxiety about my / society's security since then. 9/11 didn't rock my world that much - it was horrible but not exactly surprising - but the bursting of the housing bubble was a personal disaster for me.

I do know someone who avoids banks entirely, he basically goes to the post office and buys money orders for all of his bills, and insists on paying cash and receiving cash whenever possible. He is on the fringe, probably able to do a lot of transactions in cash re his employment, probably one of those mavericks not participating in any form of health insurance payment and hoping not to get caught.

One thought I have is that (slippery slope here) I can understand the bank charging a fee for something like a checking account. Even though it's mostly automated, there's a lot of effort and activity involved in that. But charging for holding of large sums of money that they can then use to wildly leverage their lending base ... that's just wrong.

[catherine]

Perhaps because of my interest in alternative currencies, I don't see negative interest as the Armageddon that many people might. In fact, I think that demurrage, which is essentially negative interest, could be an important tool in making our future better, not worse.

I know--this sounds like heresy (please don't burn me at the stake!), and not being an economist, it's hard for me to wrap my mind around, too, but I've read enough to be interested in the possibilities.

Here some information on why shaking up the status quo banking-wise might not be a bad thing. There are many innovative ways to shift the paradigm of money as we know it.

https://en.wikipedia.org/wiki/The_Future_of_Money

http://www.theguardian.com/commentisfree/2009/jan/20/george-monbiot-recession-currencies

Disclaimer: The idea of a trend in negative interest doesn't bother me at all, since I don't have any money. "Freedom's just another word for nothing left to lose."

[LDAHL]

I understand the Eurozone has something like $2 trillion in negative interest debt outstanding. They elected to go that route to rely less on quantitative easing early on in the financial crisis. Whether all this signals we will be in a "new normal" of lower returns on financial assets for some long period I have no idea. In my view, the best strategy is to own a little of everything, keep my overhead as low as possible and fund it from pensions, social security(at some point) and a TIPS ladder, avoid most types of debt, maintain a reasonable level of liquidity, manage my tax liability as best I can and adjust my discretionary spending as the situation demands.

[Ultralight]

I understand the Eurozone has something like $2 trillion in negative interest debt outstanding. They elected to go that route to rely less on quantitative easing early on in the financial crisis. Whether all this signals we will be in a "new normal" of lower returns on financial assets for some long period I have no idea. In my view, the best strategy is to own a little of everything, keep my overhead as low as possible and fund it from pensions, social security(at some point) and a TIPS ladder, avoid most types of debt, maintain a reasonable level of liquidity, manage my tax liability as best I can and adjust my discretionary spending as the situation demands.

I imagined this in Ben Stein's voice.

[kib]

Hmm. I won't burn you at the stake, but the concept of demurrage given our current banking system is a really slippery slope. At what point is demurrage not a recovery of costs to the holder, but a usurious gouging for that service?

As far as alternative or co-existent currencies ... I'm getting old and stupid. I find my own stash of flyer miles, gift cards, rebate offers, coupons, hour-credits and "real" cash incredibly hard to keep track of, I'm not sure I support the idea of even more wealth-marking divisions. YMMV. :)

[LDAHL]

I imagined this in Ben Stein's voice.

Who was it who said the wisest advice is usually the dullest?

Want to lose weight? Eat less and exercise.

Want to accumulate wealth? Spend less, save more and diversify.

[catherine]

Hmm. I won't burn you at the stake, but the concept of demurrage given our current banking system is a really slippery slope. At what point is demurrage not a recovery of costs to the holder, but a usurious gouging for that service?



Good question. It's interesting that an example of demurrage is actually a pillar of Islam--zakat, so theoretically demurrage should not represent or promote usury.

[miradoblackwarrior]

And yet----

http://www.eudebtclock.org/

[kib]

Yes, that's where it gets confusing. Our monetary system is built around debt creation. So theoretically, increasing debt is a sign of a functioning system. The question is, is it a viable system?

[Ultralight]

Yes, that's where it gets confusing. Our monetary system is built around debt creation. So theoretically, increasing debt is a sign of a functioning system. The question is, is it a viable system?

Like a weightlifter on steroids is a viable athlete.

[kib]

Nice!

[Williamsmith]

Invest your money in tangible, useful and durable items. Live life to the fullest now when you can but put plan B into action when necessary. Plan B could be a remote retreat with basic necessities, or the ability to live in place with basic needs met or possibly something like a floating retreat on a sailboat with enough flexibility to obtain resources. It's all up to your creativity. But plant and nurture relationships....they will keep you most safe in hard times if you belong to a strong group of similar thinking friends. Most of all, don't fret about the future. Remember you were worried ten years ago about things and here we are still getting by.

[ApatheticNoMore]

have an impressive resume ... ha well that's probably the best advice but not always implementable in the real world. You need quite a lot of savings to make up for unemployment, better not to be unemployed for long (if at all, but layoffs can happen to almost anyone).