On March 4, the Bavarian Banking Association recommended to its member banks that they take out all their deposits being held with the European Central Bank (ECB) and stockpile the cash for use as loans in order to stimulate the economy. This recommendation comes as the ECB prepares for negative interest rates, and the charging of interest to banks under their authority for sequestering cash in their facility.
Like with the Federal Reserve in the U.S., ever since the ECB began its own form of quantitative easing and zero interest rates, banks within the Eurozone have simply borrowed cheap money from the central bank and either bought government bonds or parked it with the ECB where they received a modicum of interest. This has resulted in a sharp slowdown in the velocity of money, and a massive decrease in lending to businesses and the general economy.
German newspaper Der Spiegel reported yesterday that the Bavarian Banking Association has recommended that its member banks start stockpiling PHYSICAL CASH.
Europe, of course, has been battling with negative interest rates for quite some time.
What this means is that commercial banks are being charged interest for holding wholesale deposits at the European Central Bank.
In order to generate artificial economic growth, the ECB wants banks to make as many loans as possible, no matter how stupid or idiotic. – Sovereign Man
There are many downsides to this backdoor form of ‘helicopter money’, the primary of which should be a sharp rise in price inflation as the process of artificial economic stimulation will force prices higher as an extraordinary money supply results in shortages, just as we saw seven years ago in sectors such as housing. And as history has also shown, rarely do wages rise in equal measure to inflation, which would leave Germany (and others who may follow this), in a stagflationary environment as people would be unable to afford to buy many goods and services that they do now.
As usual, insane Keynesian central planners continue to believe that more debt equates to economic growth. And despite 20 years of this failing in Japan, and seven years of this failing in both the U.S. and Europe, those who follow the false religion of credit expansion will inevitably collapse the entire financial system, just as we are seeing today in places like Brazil, Argentina, and Venezuela who have already tried this and failed.
Kenneth Schortgen Jr is a writer for Secretsofthefed.com, Examiner.com, Roguemoney.net, and To the Death Media, and hosts the popular web blog, The Daily Economist. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.