At the beginning of this year Japan embarked on extraordinary central bank policy of “Negative Interest Rates”
A negative interest rate means the central bank, and perhaps private banks, will charge negative interest. Instead of receiving money on deposits, depositors must pay regularly to keep their money in the bank. This is intended to incentivize banks to lend money more freely and businesses and individuals to invest, lend, and spend money rather than pay a fee to keep it safe.
As with most things there are adverse reactions and unintended benefits. In some of the countries effected by this Central Bank policy there has been a shift in the way many people save. According to Deutsche Bank economist Torsten Slok, since the implementation of negative interest rates in Japan the sale of safes has spiked in Japan.
Forcing savers to pay the bank in order to keep money in a savings account, creates an environment where it is potentially cheaper for some to pull money from the bank and store it in a safe.
Central banks around the world have stretched global expansion, and this type of monetary policy effectiveness is fading. In our view, unless there is structural reform to government policies, we are approaching the limits of central banks impact. This has brought on a more patient approach to investing this year for our clients and models we manage, but we are still positioned to make tactical moves if warranted as the economic landscape evolves.
If you have any questions about what this means for you, contact your financial advisor.
Advisory services offered through EWG Elevate, Inc. dba Protection Point Advisors.
This represents a partial list of clients. They have not been compensated and were not selected based on duration, performance, account size.