Japan Enters Currency Default by Taking Interest Rates Negative

By: Curtis Wayne 0 Comments   1/29/2016

Today Bank of Japan cut interest rates on new deposits from 0.1% to -0.1%, in an effort to ensure that the money they pump into the system does not get put into reserves by banks. 

This is a major decision by BOJ as they become the latest country to experiment with negative interest rates as it tries to stop the global economic slowdown from driving it back into deflation.

Here is what an article on Fortune has to say about it.

“Most importantly for the BoJ, it drove the yen back down to its lowest in over a month against the dollar. By 0430 ET, it was at JPY120.94, nearly 2% lower on the day.”

“The phenomenon of negative interest rates, long thought of as impossible for practical purposes, is now becoming widespread. The BoJ joins the European Central Bank, Switzerland, Denmark and Sweden in having a negative interest rate on at least one of its official credit facilities. All five central banks are struggling with chronically low inflation, and are anxious to stop a destructive spiral from forming in which wages and prices chase each other lower.”

“This has three main implications, Stein argued.

“First, more central banks are likely to use negative interest rates if underlying economic conditions worsen, not just now but in future downturns as well,” he wrote. “Second, those central banks that currently have negative interest rates are unlikely to be in any hurry to move them back into positive territory.”

Thirdly, he said the ECB in particular may favor further rate cuts over more asset purchases in future. The ECB has repeatedly run into legal trouble in Germany every time it tries to depress interest rates by buying government bonds.”

This has never happen before in the history of the world.  Negative interest rates cannot exist in an economy without a massive illusion of wealth. 

Negative interest rates usually cause many problems, like;

  1. Bank runs, as savers remove their cash in order to save it
  2. Liquidity crisis, as banks run out of money to pay investors removing money
  3. High interest rates, as the demand for liquidity forces banks to pay more
  4. Higher wages, as money has less value it takes more to keep people working

But in the upside down world we are in right now, none of these things are happening in Europe, Switzerland, Denmark or Sweden. 

These nations and people are so leveraged with debt that they cannot make the payments on the interest of their debts, so the Central Banks have to default.

Negative interest rates is one way to default on your loans.  It allows nations to borrow money without paying it all back.

We have two major nations in currency default, Japan and Europe.  Before the end of the 2016, we may have others, including the U.S.  

Negative interest rates will help keep money in world stock markets, which will keep the illusion of growth going a little longer.  But in reality, the profits of companies are plunging

Sooner or later the markets are going to crash.

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