If the world ever wanted to see in real time what people do when their government puts a tax on their savings, then all they need to do is take a look at Japan now that their central bank has implemented a negative interest rate policy (NIRP). Because just weeks after the Bank of Japan’s (BOJ) head Kuroda announced the new policy out of thin air, runs to get cash out of banks have begun in earnest, with sales of personal safes exploding across the country and people stacking them with millions of 10,000 yen currency bills.
NIRP is a draconian tax on anyone with money in a bank account, or paper investment account, and is done in the attempt to force the spending of money whether the people want to do this or not.
Earlier this week, we were amused but not at all surprised to learn that Japanese citizens are buying safes like they’re going out of style.
The reason: negative rates and the incipient fear of a cash ban. “Look no further than Japan’s hardware stores for a worrying new sign that consumers are hoarding cash–the opposite of what the Bank of Japan had hoped when it recently introduced negative interest rates,” WSJ wrote. “Signs are emerging of higher demand for safes—a place where the interest rate on cash is always zero, no matter what the central bank does.”
Although banks have thus far been able to largely avoid passing on negative rates to savers, there’s only so long their resilience can last. At some point, NIM will simply flatline and if that happens just as a global recession and the attendant writedowns a downturn would entail occurs, then banks are going to need to offset some of the pain. That could mean taxing deposits.
“Demand for 10,000-yen bills is steadily rising in Japan, even as the nation’s population falls and the use of credit cards and other forms of electronic payment increases,” Bloomberg writes. “While more cash might sound like a good thing, some economists are concerned that it shows Japanese households are squirreling away money at home instead of investing it or putting it into bank accounts — where it can make its way back into the financial system and be put to productive use.” – Zerohedge
Of course the only problem with this methodology is that even if you can protect your cash and wealth from imposed bank fees and taxes, most people will lose purchasing power due to the invisible tax known as inflation. And this is why holding large amounts of cash on your person (or in a personally controlled secure area – safe) can be just as detrimental over time since the cost for goods and services will eat at your wealth anyway.
In addition, it is the fear of what is now taking place in Japan that is causing academics, business analysts, central banks, and even governments to impose capital controls on the amounts of cash one can take out, and the desire to ban physical cash altogether as they themselves look to implement negative interest rate policies. Which in the end means there is only one true way to protect your money, and that is to take excess wealth and transfer it into precious metals like gold and silver which will increase in value even as goods and services do the same.
And without the fear of any taxed confiscations due to NIRP.
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.