Common Cents

Rolling plunder

Ralph Murphy

(2/2017) Interest rates on savings or demand deposits have hovered near zero since the 2008 financial crisis in the mortgage market. With new, pooled money access, banks don't compete for private sector funding as they did previously. In much of the world- commercial lenders also have to pay negative interest rates to store cash with their central banks. Before sympathy is felt or expressed- it should be noted that this type of lending also applies to those central bank loans- and negative rates mean they can afford the loan, but also must pay the bankers who take the money.

The Swiss used negative interest rates in the 1970's, but quickly discontinued the practice before adopting it again with a return to the Franc in 2015. There are different types of central bank- linked interest rates to include a target rate that's stood between -1.25 and -.25 percent- usually linked to interbank lending. Cash deposits are closer to the stated policy objective of negative rates, forcing bankers to invest in the private sector as they would have to pay for the storage. As the system has developed.

That storage is now "running" from the central banks and into Central Services Depositories (CSD's) that allow brokers and finance managers in Europe and elsewhere to control the assets. The money is privately controlled while still having access to central bank funds. Again, it appears with negative rates the select few access agents as bankers who are able to receive "loans", and securities afford the negative rate as do repo's direct cash transfers that are paid that rate. The lower the interest rate- the more they will be paid.

Negative rates were a little noticed or practiced technique until recently as they flout conventional economics and would be consistent with a very short-term emergency measure linked to oversupply in central bank storage. They have prevailed, but none of the nations employing them have reached their growth targets. They are similar to central planning and seldom reflect the supply and demand needs of cyclical, near term concerns. Sweden, which runs its own central bank outside the 19-nation European Central Bank (ECB) eurozone, has used negative rates for deposits and more recently withdrawals since 2009. Again the Swiss employ negative rates, as does Denmark. All three European nations are outside the shared currency zone. As European Union members - they are, however, bound to the European System of Central Banks, which help coordinate the various currencies almost as if they were eurozone members.

The ECB formally adopted negative rates in June 2014 affecting both deposits stored in their Frankfurt, Germany headquarters and the central bank securities linked to the eurozone member nations' domestic issue. A whole transfer and storage structure was created as the Asset Placement Program (APP) with tied delivery of payment (DVP) leading to its CSD private control and investment. Many of the principle owners likely didn't or don't know their securities have been outsourced. It's surely illegal as practiced, but since the 2009 Treaty of Lisbon, Brussels officials -presumed omniscient "gnomes" - can write any law they want to cover their tracks. Banks should compete for funds and investments. Right now, as to the CSD link- the only real competition seems access and that for "theft".

The Americans have a CSD arrangement tied to an emergent United States Depository Trust Company (DTC) with assets vaguely described as over $2 trillion in a New York based fund. Harboring over 100 nations’ ’'security assets," it also qualifies as an International Central Securities Depository (ICSD) common in Europe to facilitate cross border transactions. The United States doesn't employ negative rates from the Federal Reserve, but Chairperson Janet Yellen recently said the action would not be ruled out.

The Bank of England is a major storage center for reserve currency, and while interest rates for the pound have dropped, officials there have discounted a negative rate- for now. The Bank of Japan went the European "route" with the host yen a valued reserve currency, and negative rates for their Japanese Government Bonds (JGB's) at -10 percent since last February.

"Insider" data is very difficult to discern from available data. The volume and nature of what amounts to draining vast amounts of stored wealth by the very few with central bank access and being paid for it - does affect just about everyone. It's doubtful the "bankers" can explain what they're doing with what should be investment capital to those who earned it.

It is ironic that the people and businesses with the most to lose are also the top producers. Given banking services are vital to developed economies and their actions reveal a great deal about the economics and even the societies that harbor them. The relative trust that disciplined Americans place in those institutions just doesn't exist abroad where savings are kept apart on a regional basis.

Germans use nonprofit municipal linked Sparkassen (Public Savings Banks). Bank investment beyond that is very slight. There may be cultural blocks or past theft issues. Japan is another major economy that relies on local bank storage. The regional "keiretsu" (i.e. informal business groups) share stock with close production affiliates- often for a single major producer. All are linked to one, local bank that serves their area.

In Europe, the Danes were reportedly issuing checks to mortgage holders rather than receiving the payments as the negative rate effect has spilled into the open. Storage of personal or confidential data such as economic interests shouldn't be a point of contention as to control interests- no matter the medium of transfer. There are countless ways to access stored wealth. At this point, the government policy has to be one of regulation as to propriety and competence - not storage - as it is simply stolen.

Banking is a very unique industry as the input source of production isn’t owned by the producer. It borrows the money that is of very high social value to invest and produce. But, they have to return it. They can't if they don't have access to it, and that's an emerging problem as the drawdown does continue from pooled central bank funds that are too vast to immediately notice the losses. Banks should remain in the private sector, but the Federal Reserve founders were wise to single that industry out for oversight because lost capital due to faulty investment is routine in an environment of opportunism and theft.

Ralph Murphy is a former member of the CIA Headquarters Staff in Langley, VA.