Since 2014, one by one, several central banks around the world are pushing interest rates negative to try to re-inflate their economies to unsustainable levels of growth – countries such as: Denmark, Sweden, Netherlands, Japan, Austria, Belgium, Finland, France, Ireland, Italy, Spain, and Germany. In addition to central banks forcing negative interest rates through banks, there are negative corporate bonds, such as giant chocolatier, Nestle’.
Today, there are $10 billion in bonds with a negative interest rate. According to legendary bond-fund manager Bill Gross, “This is a supernova that will explode someday.” Meaning, if interest rates ever rise, then this $10 billion in bonds will be worth $5 billion, or less, in an instant.
Let’s examine what some people and companies are doing, on the front lines of negative interest rates:
- Home safes are selling out in Japan because individuals are taking their money out of the bank and keeping their savings in cash at their home. Being charged to put money in a bank is something they want to avoid. They also need room in their safes for gold. Japanese individuals have been buying gold ingots since 2014, when it became less likely that Prime Minister Shinzo Abe’s financial policies would jump start the Japanese economy. Instead, Abe has been devaluing the Japanese Yen so people are buying gold to maintain their purchasing power.
- In Switzerland, demand for the 1,000 Franc note is surging (their largest currency denomination) because people are taking their money out of banks to avoid negative interest rates.
- The second largest re-insurance company in the world, Munich Re, just took $8.1 billion out of their bank to purchase gold bullion. They did this to avoid Europe’s negative interest rates.
- One of the largest banks in the world, Germany’s Commerzbank, is looking into storing billions in cash vaults instead of paying interest by loaning their excess reserves to the European Central Bank.
There are some negative-interest rate bonds in the U.S., but it is not yet a formal policy of the U.S. Federal Reserve. However, interest rates may continue to fall in the U.S., and if they do turn negative, it would be prudent for you to have a plan on what to do if that occurred. One suggestion is to buy a home safe to store cash and gold. The purpose of the cash is to avoid bank fees from negative interest rates; along with having money if there are problems with the banking system. The purpose of the gold is to own something that will retain its value in the event that the U.S. dollar falls in value from excessive money printing or continued economic deflation.