The easiest way to think of present-day monetary policy is as a coordinated centrally planned effort to suspend consequences by edict in a profound King Canute episode of economic folly.
As we’ve explored before, when interest rates are artificially suppressed, all money becomes “hot money” as it has to chase yield anywhere it can get it. (When the music finally stops I predict a forthcoming crisis particularly in seniors who have been hounded out of meagre fixed income returns and into “safe equities that will never go down because the Fed won’t it happen”).
So given the data points:
- » Cyprus, which was serially restructured through a process of Calvinball economics to make a depositor bail-in retroactively “legal”.
- » Those “bail-in” provisions quickly hopped the Atlantic and found it’s way into Canadian budgetary policy.
- » The IMF floats various “one-time” haircuts simultaneously across all depositors. (ZeroHedge: IMF Discusses “One-Off” Wealth Tax”)
And banks are now acting on their own:
- » JPM Chase recently enacted a policy to limit business account wire transfers destined for foreign accounts to $50,000 per cycle. (ZeroHedge: Creeping Capital Controls at JPM Chase)
- » Now (too big to prosecute) HSBC limiting cash withdrawals of their own customers’ deposits “unless they can provide evidence to why they want it“. (BBC: HSBC Imposes Restrictions on Large Cash Withdrawals)
It gets worse.
Negative interest rates are no longer unthinkable monetary policy absurdities that should make everybody realize how horrifically unstable the global financial system has become by mere virtue of having a trial balloon floated.
Mario Draghi speaks of negative interest rates as a distinct possibility.
- » We face a future where negative interest rates are not unthinkable, they may very well be likely.
- » Banks are now arbitrarily implementing capital controls on their own customers
- » Not to mention that instead of depositing money in banks and earning 0.5% interest you could simply buy their preferred shares and capture a 5% coupon (although I would be wary of that, just sayin’)
Why on earth would anybody actually deposit money in a bank?
Will it be any surprise then, when old-school savers start squirreling their money under the mattress, but that still won’t put their wealth out of reach of confiscatory governments since they are officially targeting higher inflation (Globe and Mail: Bank of Canada’s Poloz ponders lack of inflation ).
When the realization sinks in, that’s when a genuine buying panic into physical gold and silver starts.
So can anybody really be surprised at all at the ascent of Bitcoin?
One of the fallacies of those downplaying the significance of Bitcoin is that there is “no official government backing” of it as a form of money or currency.
This demonstrates ignorance of monetary history as anybody who cares to look will discover that when something takes on monetary functions it happens outside of governments. Then over time, the paper representations of a commodity-backed money (the fiduciary medium) becomes inexorably co-opted through government malfeasance and fractional reserve banking until the medium is no longer backed by anything.
It plays out over such a long period of time that the general public fails to notice that a profound change has occurred in their monetary system.
Detlev S. Schlichter’s Paper Money Collapse gives a good overview of this process by which a useful commodity becomes imbued with monetary properties, acquires exchange value apart from its use value and begins to be used as a medium of exchange.
Until now this has played out with commodity backed money, but henceforth will be complimented by cryptographically secured currencies, such as Bitcoin.
What they have in common is that they are both inelastic forms of money, which is anathema to governments and central bankers. Their sentiment could best be summed up in their chief apologist Paul Krugman, who opined, quite simply “Bitcoin is Evil”.
Tell a pensioner, who’s been eking out a living on a fixed-income in a mult-year ZIRP environment that NIRP is coming, that within the next few years he should factor on perhaps 25% to 50% of his savings to be confiscated in some sort of co-ordinated bail-in to rescue his bankrupt government, and until that happens that same government will be trying it’s damnedest to ignite inflation and when he decides to pull what little he has left out of the bank to sock under his mattress, have the bank tell him “Uhm, no sorry, we can’t let you do that”.
Then tell him that deflation (and ergo Bitcoin) is evil – because it can’t be inflated by government decree, because it becomes more valuable and can buy more over time, because it cannot be confiscated or be subject to capital controls, and what will he say?
Perhaps he will quote Machiavelli:
“…there will be traits considered good that, if followed, will lead to ruin, while other traits, considered vices which if practiced achieve security and well being”