Here's why the Fed's plot to impose negative interest rates is the single biggest threat to your financial freedom... and how you can protect your wealth (and even profit)...
As we speak, the soldiers of fortune at the U.S. Federal Reserve are devising an insidious plan to solidify their control over free markets and America.
I'm talking about a negative-interest-rate policy, or NIRP for short.
This prescription envisions banks lending cheaply and consumers spending robustly, spurring economic growth and propping up beleaguered markets.
But, as I'm going to show you, the reality is quite different.
This isn't just an insane policy, it's a MAD (mutually assured destruction) policy, the equivalent of a "nuclear option" in economics and finance.
Here's what the Fed wants you to believe, what's really going to happen, and how, if the Fed wins the battle it's about to wage, Americans will lose their war for economic freedom...
After causing the credit crisis by manipulating interest rates too low for too long, the Fed had to rescue big banks by implementing ZIRP, their zero-interest-rate policy, and then quantitative easing (QE).
The one-two punch allowed insolvent big banks to borrow at no cost (ZIRP) to buy trillions of dollars of U.S. Treasuries, which they'd re-sell to the Fed for fat profits under the $4 trillion buyback scheme (QE).
Too bad ZIRP and QE never trickled down to the economy at large, evidenced by GDP growth averaging less than 2% over the past eight years. Instead, the bulk of the Fed's "stimulative" efforts pumped up various asset classes, especially stocks.
Now, with economic growth faltering, recessionary fears mounting, and increasingly volatile stocks slipping, the Fed is floating the idea of NIRP.
And make no mistake - the Fed is just waiting for the next economic emergency to employ its new strategy.
First of all, there is an emergency coming. There's always another economic crisis just around the corner.
We know that because the Fed and other central banksters keep engineering them, then trying to fix them by hosing deflated asset bubbles with more easy money fuel to leverage them back up again.
The next emergency might be triggered by a cascade of energy company defaults, a major oil company collapse, regime change in a "friendly" oil-producing country if an anti-Western radical group assumes power, the insolvency of a mega bank, a debt payment moratorium or a default by a sovereign borrower, the Chinese economy crashing, any major stock market around the world spiraling out of control, or uncontrollable currency devaluations.
There's no shortage of potential emergencies - and as we've seen so far in 2016, many of the above scenarios are not only plausible, but probable.
At the beginning of 2016, U.S. markets shed trillions in value thanks largely to fears emanating from failing Chinese markets. If the cracks in the Chinese economy spread and markets there continue to falter...
Or take oil, which is currently trading around $33 here in the United States, and could go lower - I've predicted that oil could drop as low as $20 a barrel. When that happens, you're going to see a string of producers who can't profit at those levels forced to shutter operations, and banks will be forced to eat billions in defaults...
A tense situation in the Middle East has already lead to ISIS taking control of sizeable portions of Syria and Iraq, as well as oil reserves and means of production. Tensions between Iran, Saudi Arabia, and Yemen could produce further disastrous results, including regime change...
Any emergency the Fed sees as a threat to U.S. markets will trigger their knee-jerk reaction to lower interest rates.
Except interest rates are already so low that they'll have to take them all the way into negative territory this time in an attempt to spur lending by banks and spending by consumers.
But instead, NIRP will have the opposite effect, threatening the banks and magnifying the dangers facing savers and investors.
NIRP not only lowers the cost of borrowing, taking it into negative territory - which theoretically means borrowers get paid to borrow - it flattens the yield curve.
Just because banks incur a small cost to sit on idle cash doesn't mean they're going to lend more money. NIRP will result in banks lending less.
As rates get compressed along the yield curve, flattening it, banks will be faced with lending for longer periods at lower interest rates, not higher rates. That reduces their net interest margins and profits.
Besides, if you're a banker and rates have been manipulated to artificially low levels, are you going to lend a lot of money out at low fixed rates and face losing money on all those loans when rates eventually rise?
No way.
Banks are going to suffer. We know that because it's already happening in Europe, where the European Central Bank (ECB) instituted NIRP last year. Bank stocks across Europe have been pounded down on average 30%, with some down more than 60%, in just the past few months.
Obviously NIRP isn't working for the banks over there. And it isn't working for the economy either. Eurozone growth last quarter was 0.3%.
There's even talk of a possible "Lehman moment" resulting from a mega bank like Deutsche Bank imploding.
The reality of NIRP is banks can't pass along their cost of negative rates to customers.
Trying to raise rates on loans to offset the cost of being charged to park excess reserves in central banks is a non-starter.
Loan demand isn't growing so banks can't raise rates.
And worse, if depositors are going to be charged to park their money in banks, or fear they'd be denied access to their cash residing in banks, they'll pull their deposits and create all kinds of havoc for banks.
Consumers aren't going to run out and spend just because they might be charged to keep money in a bank.
Resorting to NIRP sends a direct message to consumers that the Fed's worried about deflation, it's a clear "no-growth" message. So why would still leveraged and indebted consumers run out and spend if they believe that prices will be cheaper down the road?
They won't. That consumers will defer spending in anticipation of falling prices is what the Fed fears most about deflation. That's why the Fed's message that it sees deflation won't stimulate spending, this time it will curb it.
As far as savers and investors, it's going to get really ugly under the shadow of NIRP.
Savers won't get anything on their short-term holdings and instead of being charged to park deposits at banks, will take their cash home.
Fixed-income investors, especially pension funds and big fixed-income institutional investors, will all chase whatever yield they can get by moving further out on the flat yield curve to pick up whatever incremental yield they can. Of course, that shoves them all into a compressed long end of the curve where they won't be compensated for the risks they're taking there.
You can see how badly that's going to end when defaults on the long end start exploding if a deep recession can't be avoided.
So, why is the Fed really planning on negative interest rates?
And make no mistake about it - they are planning on it despite what Fed Chairwoman Janet Yellen told Congress last month, that they had merely looked into legal issues.
That's simply not true. The Fed already told banks to model negative interest rates into their upcoming stress tests. And Fed Vice Chair Stanley Fischer, the Fed's unofficial-official policy whisperer, in a speech back on Feb. 1, 2016, told the Council on Foreign Relations in New York that the Fed was discussing NIRP.
What's nuclear about NIRP will be its fallout.
Because Americans will take cash out of banks, further impairing their deposit-base and reserve requirements, something will have to be done about cash and withdrawals.
The Plot to Kill the $100 Bill
Think this sounds like a conspiracy theory? Think again...
If former Treasury Secretary Lawrence Summers has his way, the Fed will eliminate the $100 bill under the auspices of reigning in terrorism and corruption.
The thinking goes that it's far more difficult for tax evaders, terrorists, drug dealers, financial criminals, and human traffickers to move or launder large amounts of cash without the aid of large bills. Summers notes that $1 million in €500 notes weighs 2.2 pounds, while the same amount in U.S. $20 bills weighs around 50 pounds.
This wouldn't be the first time the U.S. government's taken high-denomination notes out of circulation. In 1969, they discontinued the $500, $1,000, $5,000, and $10,000 bills.
But right now, under the specter of negative interest rates, and with an astounding 10.8 billion $100 notes in circulation, such a huge shift in monetary policy could only be to consolidate control over the currency and prevent a run on the banks.
As of now, the Treasury says it has no plans to discontinue to $100 note. Stay tuned.
Mario Draghi, head of the ECB, told the European Commission that eliminating the European Monetary Union's €500 note was being discussed.
Eliminating the $100 note is being pushed here by one of the most dangerous men the United States ever faced from within, Lawrence Summers.
Why is Summers dangerous? It was Larry Summers who, as Deputy Secretary of the Treasury under his mentor, former Goldman Sachs CEO and then Treasury Secretary Robert Rubin, pushed along with then Fed Chairman Alan Greenspan the final undoing of Glass Steagall, which led to the merger of investment banks and commercial banks and the credit crisis.
And for his hard work, Summers succeeded Rubin as Treasury Secretary and then pocketed millions from lending his name to a hedge fund that made millions betting against the leveraged banks Summers help create.
By eliminating large denomination bills, central banks can better control the money supply. If it's too hard to take stacks of $20 bills out of your bank and hide them somewhere, you'll leave them in the bank.
Which works out perfectly for the banks, because in an insolvency they can take your money, or at least restrict you from withdrawing it, to help meet their reserve requirements or avoid insolvency.
It's in the laws now - big banks can do that to you.
The Fed, under the guise of having to make NIRP effective, to save the economy, will push for the elimination of large denomination bills, to keep depositors' money in banks, to control the economy and save the banks (when their losses look like they'll threaten the economy and markets), to enrich them again when the dust settles.
As far as where to place some bets if NIRP looks like it's heading to our shores, I like Treasuries and gold.
If we're hit by any major emergency, there'll be a "flight to quality," which means a rush into U.S. Treasuries.
Before the Fed can pull the NIRP trigger, get into Treasuries immediately in the event of any emergency.
One way we play the Treasury market in my newsletters is by buying iShares 20+ Year Treasury Bond ETF (Nasdaqa: TLT). My paid subscribers just booked a nice 112% gain there when we caught the last market panic and the flight to Treasuries that caused.
iShares 20+ Year Treasury Bond
The iShares 20+ Year Treasury Bond ETF (Nasdaq: TLT) tracks the investment results of an index composed of U.S. Treasury bonds with remaining maturities greater than 20 years, giving investors exposure to long-term U.S. Treasury bonds without the hassle of actually owning them.
The fund has net assets of $9.77 billion under management; 20-plus-year maturities account for 96.15% of its bonds, while bonds with maturities of between 15 and 20 years make up 2.15%. The remaining 1.70% is cash and derivatives. TLT is incredibly liquid, with a three-month average volume of 9.78 million shares, and has been in existence since 2002.
Once you're in Treasuries, if the Fed NIRPs us, Treasury prices will rise as their yields go in the opposite direction. So getting into something like TLT, if your timing's right, can be a very lucrative move.
Then there's gold.
Personally, I'm not a big fan of gold. It doesn't pay me a dividend. It has been too hard to make any money on for too long now, especially relative to all the other money-making opportunities the market's been giving us lately.
But this time might be different.
Gold will be one of the few asset classes (I view gold as its own asset class) that Americans would be comfortable holding if they didn't want to just hide cash in their mattresses.
If you see an emergency unfolding, I recommend grabbing some gold. There are a number of ways you can do this, from buying physical gold to investing in miners, but for my money, the SPDR Gold Trust ETF (NYSE Arca: GLD) is the best vehicle for gold.
It's the largest physically backed gold exchange-traded fund in the world, and it's a cost-efficient and secure way for investors to access the gold market through a security traded on s stock market. Most importantly, it could see a nice move higher if after an emergency the Fed lowers the boom and NIRPs us.
When the dust settles on the Fed's negative-interest-rate experiment, America won't be the same.
The final nail in the free market's coffin will have been hammered in by the Fed, and most people won't have any idea an oligarchy of bankers will have turned the United States into their central-planned, socialist playground.
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