Not Even a Toaster

Back in antique ages, it was considered de rigueur for banks to offer some trifling consumer appliance as an inducement for placing depository funds with that institution. Receiving a toaster for opening a new bank account was simply expected–until digital clocks became even more enticing. Of course, one could also expect an interest return on deposits as well. The rate varying with the slope of the yield curve: lower rates for shorter maturities and higher one for longer. This representing the curve’s classical configuration. Though whether steep, flat, or inverted some reasonable interest return was forthcoming.

But that was monetary privilege and quite on the wrong side of history. With short money now yielding two basis points and the 10-year treasury at 200, squeezing return from modern debt instruments is like extracting courage from a conservative: We’re not yieldists! Though for all that, we Americans are comparatively awash in interest return. In Europe, you bring a toaster to the bank. For, to the astonishment of many, Germany has just successfully sold a tranche of sovereign debt at negative interest rates. Yes, you pay them to take your money. Now that’s a business model. From reading I have not been able to determine whether the bonds were sold with actual negative coupons or whether the yield was bid negative at auction, though either way investors of supposedly sound mind handed the German government 100 (in euros) with the solemn promise to pay back 99. Again, this is the business you want to emulate.

So why would ostensibly sentient investors purchase these investment vehicles? After all, simple cash offers a superior zero rate without the hassle. The answer is anticipation. The European Central Bank has pledged to quantitatively ease approximately 1.1 trillion euros, purchasing 60 billion/month in sovereign assets. So investors are now aquiring German bonds and suffering negative rates with the assurance that committed ECB demand will drive yields even more negative in the future. Thus offering them a tidy profit to sale. It’s like buying a 1996 Chevy Impala for $40 grand for no other reason than another’s promise to buy it later for even more. Rationale is found only in resolution.

As an aside, if you are curious about the purpose of the ECB.

The ECB’s main task is to maintain the euro’s purchasing power and thus price stability in the euro area.

Assignment: maintain euro purchasing power
Strategy: debase euro
Response from the Wharton School of Business:
4329b-black-guys-laughing
I can understand the mirth. As the Euro has cratered in currency exchanges, one gets the distinct impression of intentional failure at the ECB’s primary task. Perhaps leaving such important chores to mere economics PhDs wasn’t the wisest course of action. Probably pipe-fitters and termite exterminators were more intellectually suited to comprehend the effects of currency printing on purchasing power. But what’s not yet done is done and I suppose the European people are just going to have to habituate themselves to inflation and tourists in equal magnitude. The euro will purchase much less as its weakness attracts strong currency visitors–a few of which may even leave at vacation’s conclusion.

So what will all of this mean? Wealth, or at least the perception thereof, has masked a great deal of the pain from Western dispossession. A loss of purchasing power and negative interest yields are going to pull back a corner of that mask for indigenous Europeans. Whether it reveals enough to alter attendance within the modern state religion is left to speculation. Though it will undoubtedly be more interesting than a free toaster.

10 thoughts on “Not Even a Toaster

  1. In recognition of the ECB’s successful price stability efforts, April chocolate rations will be increased from 18 grams to twelve grams (not my joke – I borrowed it).

    I’ve thought before that one strategy to begin to deal with the FedReserve, which is neither, was to clarify its objectives, and to limit them to maintaining dollar stability. Currently their mission is like the “commerce clause”, i.e. managing the Economy, or maximizing Prosperity, and therefore includes everything and anything.

    ECB’s mission is straightforward, and obviously ignored, just like prop 187. Processes are cynically established to occupy the peasants with organization and navigation, and in the rare instances when the do it successfully, they see the true nature of the system. And then of course they get up and dust themselves off, and carry on as though nothing had happened. Please just keep the African ball games in steady rotation, and don’t “mess with my SoshaCurity”.

    “Wealth, or the perception thereof…” Temporary perception at that, and easy to create and maintain after “we” had bombed any industrial competition to pieces.

    Meanwhile, David Crowley suicided himself…probably twice in the head, not that anyone is paying attention.

  2. A few other reasons why people may be willing to pay Germany to hold their money:

    Plain old savings accounts might be confiscated in Cyprus-style bail-ins. A fat pile of cash is a tempting target, and hiding in government debt instruments makes it harder to grab.

    Greeks, Russians, etc. may not care if they lose “only” a few percent, to keep their future purchasing power safely backed by the violence of Germans. Fiat currency is not, as is commonly claimed, backed by nothing. Rather, it is backed by the ability of the currency sponsor to deal violently with to those who don’t accept it. Germans seem a good bet on that score.

    Cheers,
    prat

    • That’s a valid point regarding the justifiable fear of deposit confiscation. There’s alternatives in bullion and positive dividend yield equities, though holding either may represent more risk than some investors want to absorb.

      For liquid short term money, this may be the most rational deployment–especially considering the ECB’s artificial demand floor.

  3. “Whether it reveals enough to alter attendance within the modern state religion is left to speculation. Though it will undoubtedly be more interesting than a free toaster.”

    My Republican acquaintances tell me that I’m a communist for believing that banks should exist to serve the native population, and not the other way around. My Democratic acquaintances tell me that I’m a Nazi for believing that banks should only issue loans to those who intend to repay them.

    As someone who has dreamed neither of the dictatorship of the proletariat nor of an efficient highway system, I’m unsure how to respond to such lucid and well-reasoned arguments. In my darker hours I’ve even considered pledging allegiance to Tajikistan and getting a sex change in the interest of placating my betters on both ends of the political spectrum.

    But one troubling thought arises. With the Overton window shifting ever-leftward, who’s to say that today’s Tajik-supplicating transvestite isn’t tomorrow’s bigoted reactionary?

    • “With the Overton window shifting ever-leftward, who’s to say that today’s Tajik-supplicating transvestite isn’t tomorrow’s bigoted reactionary?”

      The laws of physics and biology may seem as if they have been superseded by the the march of central banking and cultural Marxism, but they will eventally make their presence known – in spectacular fashion. I can assure you, the ones running the show right now
      cannot spit in the eye of God forever.

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