This story is a must read and read carefully. The unprecedented actions of the Swedish Riksbank may be the precursor to a whole new phase of the quantitative easing shell game. And make no mistake about it, a true shell game is going on with the worlds fiat money supply.
The central bankers are moving ever greater amounts of consistently devaluing currencies from one hat to another in an attempt to get the public or should I say, the sucker, to spend money it doesn’t have. Of course, hustlers don’t work alone. A partner usually jumps in first and throws money around to get everyone excited, or perhaps stimulated is the more appropriate word. Can you guess who the partner is in this scenario?
I’m reading through the minutes of the latest FOMC meeting as I write this missive. The FOMC again is reiterating the need to keep interest rates low for the foreseeable future. If we fit this FOMC fact together with the recent comments out of China’s central bank confirming their decision not to touch interest rates or lending standards for at least the next six months a puzzle begins to take shape. The puzzle is a picture depicting the fear of an economic slowdown dramatically out weighing any concerns about inflation. And if we now add the story below to the puzzle a crystallization of the image appears.
The picture I have just described is overwhelmingly Gold bullish. I trust you will not dismiss the $25 gold advance today as coincidence.
Bankers watch as Sweden goes negative
By Andrew Ward in Stockholm and David Oakley in London
For a world first, the announcement came with remarkably little fanfare.
But last month, the Swedish Riksbank entered uncharted territory when it became the world’s first central bank to introduce negative interest rates on bank deposits.
Even at the deepest point of Japan’s financial crisis, the country’s central bank shied away from such a measure, which is designed to encourage commercial banks to boost lending. But, as they contemplate their exit strategies after the extraordinary measures of the past two years, central bankers will be monitoring the Swedish experiment closely.
Mervyn King, the Bank of England governor, has hinted he may follow the Swedish example as the danger of a so-called liquidity trap, where cash remains stuck in the banking system and does not filter out to the wider economy, is an increasing concern for the UK.
Hoarding is exactly what happened in Japan earlier this decade when the Bank of Japan implemented quantitative easing between 2001 and 2006. Japanese banks refused to lend, in spite of central bank stimulus, because of fears over the dire state of the economy.
If this continues to happen in other economies, central bankers may be left with little choice but to follow the Swedish example. John Wraith, head of sterling rates product development at RBC Capital Markets, says: “The success of the UK’s quantitative easing experiment hinges a lot on whether the banks will use the extra money they are getting for lending to individuals and businesses. “If there is no sign of this over the next few months, then the Bank of England might consider a negative interest rate. In essence, it is a fine on banks that refuse to lend.”
