5 Min. Forecast

Essential Insights. On Time.
May 4, 2016

  • Negative interest rates: A tax by any other name
  • Like bread and butter: Negative rates and a ban on cash
  • China’s recipe for an ailing economy: A crackdown on doom-and-gloomers!
  • Intellectual property run amok: A copyright on herringbone-pattern cheerleader outfits?
  • A reader’s stillborn startup idea… in search of bug spray for bureaucrats… the wildest gold chart you’ve ever seen… and more!

time 00“The government pulled a fast one on millions of unsuspecting retirees,”says our Michael Covel, pied piper for the investing approach known as “trend following.”

“For as long as anyone can remember,” he says, “retirees have relied on interest income on their savings to add to their Social Security benefits. But the government has all but eliminated that. By manipulating interest rates all the way down to zero, the government has millions of older Americans scrambling to find ways to make ends meet.”

But you know that already, right?

time 15“The feds have something new in store for you,” Michael warns. “It’s a new stealth ‘tax’ aimed directly at your savings. And if you’re not prepared for it, it will wreak havoc on your retirement plans.”

Indeed, it could cost you thousands in income each year.

If you haven’t already guessed, Michael’s talking about negative interest rates — the sort already facing savers in Europe and Japan.

As a reminder, the Federal Reserve imposed a seven-year state of monetary emergency during the Panic of 2008 — cutting its benchmark fed funds rate to near zero. Only last December did it bump the rate up a tiny bit… and Fed chief Janet Yellen is signaling no more increases unless the economy perks up meaningfully.

“But what happens if we have another market meltdown?” asks Michael. “How will the Fed try to play the hero again?

time 40“In the bizarro world to come, you’re actually going to pay the bank interest for holding and using your money,” says Mr. Covel.

“Imagine making a deposit of $10,000 and getting back just $9,800 one year later. Well, that’s what’s coming. That’s their new plan. And you’ll never see it before it goes. It will just be removed from the balance of your account automatically. Just like employers withhold taxes from paychecks.

“And forcing people to pay banks to hold their money is a tax, no matter what name the Fed gives it.”

time 55To make sure collection of this tax is fully enforced, the government will escalate the war on cash.

We told you in February how negative interest rates in Japan have prompted a run on safes. Better to hold cash at home than in a bank where it’s guaranteed to lose value.

Solution? “Politicians are already considering a ban on paper money,” says Michael. “Without cash, you’ll be forced to keep your money in a digital account in a bank, where they can access it and tax it.”

As evidence, Mr. Covel submits the following. We’ve related most of this in The 5 already — just not all at once…

  • JPMorgan Chase no longer allows its customers to store cash in their safe-deposit boxes
  • And Chase is already imposing negative interest rates on customer funds in excess of $250,000
  • Former U.S. Treasury Secretary Larry Summers has even called for a ban on the $100 bill
  • Citigroup’s chief economist Willem Buiter has called for cash to be abolished. He said that nothing larger than a $5 should be in circulation.

“The government says these new currency laws are for fighting terrorism, money laundering and drugs,” Michael reminds us. “If you believe those are the reasons, I have a bridge in Brooklyn I’d like to sell you.

“By banning cash, the government can force you to keep your money in the digital banking system, where it can be accessed (and swiped). If your money is digitally trapped, you can’t escape the tax that’s coming."

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