The virus is an economic emergency too

As borrowers and spenders of last resort, governments must act now to avert a depression

Martin Wolf

Coronavirus death valley
© James Ferguson

The pandemic was not unexpected. But reality always differs from expectations.

This is not just a threat to health. It may also be a bigger economic threat than the financial crisis of 2008-09.

Dealing with it will require strong and intelligent leadership. Central banks have made a good start. The onus now falls on governments.

No event better demonstrates why a quality administrative state, led by people able to differentiate experts from charlatans, is so vital to the public.

A central question is how deep and long the health emergency will be. One hope is that locking down countries (as in Spain) or parts of countries (as in China) will eliminate the virus. Yet, even if this proved to be true in some places, it will clearly not be true everywhere. An opposite extreme is that up to 80 per cent of the world’s population could be infected.

At a possible mortality rate of 1 per cent, that could mean 60m additional deaths, equivalent to the second world war. This calamity would probably also take time: the Spanish flu of 1918 came in three waves, over a year. Yet it is more likely that this ends up in the middle: the death rate will be lower, but the disease will also not disappear.

If so, the world might not return to pre-crisis behaviour until well into 2021. Younger people might behave normally, sooner. But older ones will not. Moreover, even if a few countries do eliminate the disease, quarantines will be maintained against others.

In sum, the impact of the coronavirus is likely to be severe and prolonged. At the very least, policymakers must plan on that.

Line chart of Non-financial corporate debt as a % of GDP showing Global non-financial corporate debt has soared

The pandemic has already squeezed both supply and demand. Lockdowns halt essential supplies and a wide range of purchases, especially entertainment and travel. The result will be a sharp fall in activity in the first half of this year.

Above all, a depression threatens. Many households and businesses are likely to run out of money soon. Even in wealthy countries, a large proportion of the population has next to no cash reserves. The private sector — above all the non-financial corporate sector — has also gorged itself on indebtedness.

So consumer demand will weaken even more. Businesses will go bankrupt. People will refuse to sell to businesses deemed likely to go bankrupt, unless they can offer payment in advance. Doubt about the health of the financial system will re-emerge. There is a risk of a collapse in demand and economic activity that goes far beyond the direct impact of the health emergency.

Chart showing that the central banks have thrown almost everything at the crisis. Central bank policy rates (%)

It will also be particularly hard to contain the spread of disease in countries with limited social insurance and weak social control. This will affect the US above all: many sick people will refuse to go to hospital and will also be forced to work. Social insurance is efficient.

As lenders of last resort, the central banks must ensure liquidity by keeping the cost of borrowing low and financing credit supply, both directly and indirectly. But central banks cannot deliver solvency. They cannot underpin household incomes or insure businesses against this collapse in demand. As borrowers and spenders of last resort, governments can and must do so.

Long-term government debt is so cheap that they need feel no fear of doing so, either: Germany, Japan, France and the UK are now able to borrow for 30 years at a nominal rate of less than 1 per cent, Canada at 1.3 per cent and the US at 1.4 per cent.

This, then, is a time-limited crisis, with economic and health consequences that governments must manage. Domestically, the bare minimum is generous sick pay and unemployment insurance, including to freelance workers, for the period of the crisis. If this is too difficult, governments can just send everybody a cheque.

Line chart of 30-year government bond yields(%) showing Except for Italy, long-term borrowing costs have plummeted

Yet even this will not be enough if the costs of mass bankruptcy and a depression are to be avoided. Emmanuel Saez and Gabriel Zucman of Berkeley argue that: “The most direct way to provide . . . insurance is to have the government act as a buyer of last resort. If the government fully replaces the demand that evaporates, each business can keep paying its workers and maintain its capital stock, as if it was operating . . . as usual.” Anatole Kaletsky of Gavekal has recommended a similar response.

Providing such relief will not create moral hazard. Being helped through a once-in-a-century pandemic will hardly encourage egregious irresponsibility. If businesses have borrowed too much, they will still go bankrupt, in the end.

This plan is far better than loans and loan guarantees, as proposed by the German government.

Businesses will take up loans only to ensure their survival through the crisis, not necessarily to pay their workers. Moreover, loans will have to be repaid, creating a burden when the pandemic ends. In this proposed programme, however, payments can be made conditional on keeping workers. The programme will also end naturally, with the pandemic itself. Governments can then impose additional taxes to recoup their outlays.

A graphic with no description

Maintaining incomes and minimising the long-term costs of collapsing businesses are essential.

In addition, within the eurozone it will be essential to help governments whose ability to borrow is limited. Globally, vulnerable emerging countries will also need help managing the health and economic crises. It will be vital, too, to roll back the zero-sum nationalism of today’s policies, which will make it difficult to rebuild a co-operative and healthy global order.

This too shall pass. But it will not do so tomorrow.

The pandemic risks creating a depression. Salus rei publicae suprema lex (the safety of the republic is the supreme law).

In war, governments spend freely.

Now, too, they must mobilise their resources to prevent a disaster.

Think big. Act now. Together.

India is facing twin economic and political crises

The growth slowdown has been dramatic, while politics takes an aggressively illiberal turn

Martin Wolf

James ferguson web

India is undergoing another transformation. The India I first visited, in the 1970s, was impressively democratic — with the exception of the period known as the Emergency imposed by then prime minister Indira Gandhi between 1975 and 1977. But its economy grew too slowly.

After the balance of payments crisis of 1991, India introduced radical reforms.

Over the next two decades its economy became faster-growing, while the political system remained robustly democratic. After the global financial crisis, however, growth slowed.

India’s politics is also now moving towards an aggressively illiberal form of majoritarianism.

These twin changes are not for the better.

Chart showing that the sharp post-crisis slowdown of  India's engines of economic growth. Annual average growth (%), 2002-11 and 2012-18.

Arvind Subramanian, a former chief economic adviser, has co-authored a paper on the post-crisis slowdown. It notes that every important indicator — investment, credit, profits, tax revenue, industrial output, exports and imports — has weakened sharply since the financial crisis. Yet overall economic growth has supposedly risen.

This contradiction persuaded him to challenge the reliability of official estimates of economic growth. His conclusion was that the overestimate of growth between 2011 and 2016 averaged about 2.5 percentage points annually, which would lower average growth to somewhere around 4.5 per cent. If true, this has been really poor.

Chart showing Two of the drivers of India’s growth have shut down. Annual % growth of exports (real) and Investment (real)

Alas, there is worse. The economy has been slowing even more dramatically in the recent past, even on the official statistics. These show that growth of gross domestic product slowed to just 4.5 per cent, year on year, in the third quarter of last year. Growth may now turn around. But the slowdown has been dramatic, comparable even to what happened in the crisis of the early 1990s.

So what explains the weak growth after 2008 and the sharper slowdown in the recent past?

First, unsustainable expansion of exports and credit-fuelled domestic investment exaggerated India’s pre-crisis growth rate. Second, despite the post-crisis emergence of severe balance-sheet-problems in financial and non-financial corporate sectors, government spending, falling oil prices and buoyant lending from non-bank financial companies sustained growth.

Finally, credit from these last institutions collapsed in 2019. Consumption then joined other sources of demand — notably investment and exports — in weakening sharply. Today, argues Mr Subramanian, a vicious spiral is at work: high interest rates, weak economic growth and poor profitability are worsening debt burdens and so aggravating the problems of financial and non-financial corporations.

Chart showing India's current slowdown looks similar to the one in 1991. Annual % change

The government’s response seems to be to deny the evidence of a slowdown. A discussion at the ministry of finance last week suggested that the reaction is the sort of managerialism I remember from my work on India for the World Bank in the 1970s: protectionism, higher government investment, lending targets for banks and direct assistance to exports. It is impossible to believe that such actions will resolve the deep weaknesses behind recent growth failures.

Good economic policy is hard. As the Indian economy becomes more complex and advanced it has become even harder. It requires reliable data, world-class expertise, independent advice and open debate. Instead, the best advisers have mostly gone and policymaking has, by all account, been concentrated within the prime minister’s office. Everybody else is expected to show loyalty, above all.

Rahul Bajaj, a well-known Indian businessman, has even accused the government of “creating an environment of fear”. In the short time I was there last week, I found many agree with him, if only privately.

Chart showing profits in India have collapsed, which makes it hard for companies to service their debts. Corporate profits as a % of GDP, 2002 -18.

It is essential for India’s future that growth be raised back above 7 per cent and that this growth be both employment-generating and environmentally friendly. This is a huge challenge.

It will demand cleaning up the bad debt, raising savings and investment, improving international competitiveness, in a more difficult external environment, and bringing about reforms in agriculture, education, energy and a host of other important areas.

Chart showing The interest/growth pincer in India. Rate of interest minus the rate of nominal GDP growth (percentage points).  Private versus government, 2003-19.

The current government does at the least have the mandate it needs to revitalise the economy and so opportunities for better lives for all. That mandate is also due to Prime Minister Narendra Modi’s indubitable political talents. But knowing how to use such a mandate is no less vital than being able to win it.

One alternative to the hard road of making good economic policy is making dramatic gestures, such as demonetisation, or botched reforms, such as the introduction of a far-too-complex goods and services tax. An even easier alternative is reliance on identity politics.

Chart showing the sharp post-financial crisis decline in savings and investment in India. % of GDP, total investment versus Gross national savings, 1980 to 2019.

That seems to be the current choice. The crackdown in Kashmir, the explicit discrimination against Muslims in the new Citizenship Amendment Act, the proposed national register of citizens, in a country with notoriously bad documentation, and the apparent intention to deport Muslims who cannot prove their right to stay, do together suggest a transformation of the Indian polity.

So, too, is the free use of labels like “traitor” for those who disagree and “sedition” about those who protest. It is quite clear, surely, that the transformation of India into another “illiberal democracy” is long-intended.

Little wonder US president Donald Trump admires Mr Modi. They play the same game, but Mr Modi’s majority gives him more cards.

India has now come to a watershed. Its powerful government can either focus its efforts on reinvigorating the economy or it can proceed with a transformation of an imperfect liberal democracy into something very different.

It is easy to understand the appeal of this dangerous project. But we must hope that Mr Modi will listen, even now, to the better angels of his nature.

Gold and platinum dive as investors dump liquid assets

Yellow metal tumbles to levels last seen in early December while platinum hits 17-year low

Henry Sanderson

Gold erased its gains for the year on Monday and platinum tumbled by more than a quarter as precious metals were hit by another wave of selling.

Gold traded as low as $1,466 a troy ounce, a level last seen in early December, while platinum fell to a 17-year low amid growing fears about the effects of coronavirus on global growth.

Traders said hedge funds and speculators were selling liquid assets such as gold to cover for losses and margin calls sustained during the largest stock market crash since 1987’s “Black Monday”.

“It’s a case of selling anything,” said Ross Norman, a gold market veteran who used to be a trader for Credit Suisse. “If you’re sitting on a profitable asset you’re going to sell gold to pay for margin requirements. If you have a piggy bank you are going to raid it.”

Gold has also fallen victim to a liquidation of “risk parity” funds, automated investment vehicles that are designed to do well in almost any market environment, according to John Reade, chief market strategist at the World Gold Council. Some of these funds had owned gold in their portfolios.

Gold dropped 9 per cent last week in its worst weekly performance since 1983. The metal has lost $237 from its year high of $1,703 on March 9. It was trading at $1,505 on Monday afternoon.

“The yellow metal is a liquid and broadly held asset, and profit-taking activity and margin calls for other underperforming markets likely prompted the initial sell-off,” said analysts at Citi.

Gold was also dumped during the global financial crisis, as leveraged funds turned to assets they could easily convert to cash. But the selling did not persist and the precious metal eventually rallied 45 per cent from an October 2008 low.

The S&P 500, in contrast, did not bottom until March 2009 and in the intervening period fell 30 per cent.

“It’s not history repeating itself; it's rhyming very closely,” said Will Rhind, chief executive of ETF company GraniteShares. “In a market which is indiscriminately liquidating all assets then gold is not immune to that. There’s a first wave of selling which includes gold because it’s one of the highest-quality assets in the portfolio.”

Investors said central banks’ efforts to combat the impact of coronavirus should reduce volatility in markets and drive money back into gold, once the dust settles.

“With financial markets in turmoil, economic activity collapsing and policymakers implementing the largest injection of stimulus since the global financial crisis, there is significant potential for a recovery of gold and gold equities in the coming weeks and months,” said Baker Steel Capital Managers.

But traders said precious metals with a stronger link to industrial demand were likely to fare less well. Platinum, which is used in catalytic converters and jewellery, fell to $558 per ounce on Monday, down as much as 26 per cent. Silver was down 12 per cent at $12.96 an ounce.


Why active bond investors can beat the index when active equity investors can’t

Benchmark blues

Imagine a world in which the stockmarket has only two constituents: Gurgle, a firm that has risen quickly, and Genial Motors, a mature company. Both have 100m of shares outstanding, each worth $1.

That gives the market a value of $200m. Further imagine that there are two investors of equal size in the market. Both own the same no-cost index fund. Each has wealth of $100m, split between Gurgle and Genial stock.

After a year Gurgle triples in value to $3 a share, while Genial stays at $1. The market has doubled to $400m. Three-quarters of its value is in Gurgle stock. Both investors still hold 50m shares of each firm. Their total holdings are now worth $200m each: $150m-worth of Gurgle; $50m of Genial.

They have shared in the market’s surge. This is a quality of passive investment in an index weighted by value. If some stocks soar in price, you share proportionately in their success.

But say our investors were active rather than passive, with one holding 100m shares of Gurgle and the other 100m of Genial. The Gurgle investor triples his wealth; the Genial investor’s wealth is unchanged. Simple maths mean that if one active investor beats the index, another must be beaten by it.

And since active equity managers have higher fees than passive ones, active investing is on average a losing game in real life. Few beat the index consistently. But there is a twist. This does not hold for active bond investors. Most beat the index. There is a kink in the logic of index investing that active bond investors are able to exploit.

In an idealised version of passive investing, the universe of securities remains unchanged from start to finish. But in the real world the index changes from time to time. New firms come to the market via initial public offerings (ipos). Existing firms may issue more stock or retire some. A few are taken private.

And a benchmark like the s&p 500 is not the whole market, but the largest listed firms in it. An index fund must occasionally buy stocks that gain enough mass to qualify for the index and sell stocks that fall out of it. So it is not entirely passive. Index funds must trade—and active investors can trade ahead of them.

In practice, the turnover in stocks within equity indices is not large enough to handicap the passive funds against active managers. ipos are increasingly rare. Traffic in and out of indices is light.

Bonds are different. A share is a perpetual security, but bonds have finite lives. Most of them are quite short: the average maturity of a Treasury bond is six years. So there is a lot of movement in and out of a bond index. An index fund has to trade a lot just to match the index.

There is simply more scope in bond markets for winning investors to find willing losers to bet against. A lot of institutional investors are constrained in what kind of bonds they are allowed (or need) to hold.

They may be barred from holding corporate bonds or bonds that are not rated investment grade. Or they may need to hold bonds of certain maturities for regulatory reasons.

The managers of foreign reserves, for instance, prize liquidity, so hold mostly short-term bonds. Banks face capital charges on corporate bonds, so prefer to hold government bonds. Insurance companies have long-lived promises to policyholders to live up to. That creates a particular thirst for long-dated bonds. In all, there are a lot of bond-buyers with goals other than beating the index from one year to the next.

An analysis* by Jamil Baz, Helen Guo, Ravi Mattu and James Moore of pimco, a giant bond-fund manager, put the proportion of bonds held by such “non-economic” players at around half. Active managers can win by holding maturities that are less in demand, by tilting towards corporate bonds in the index, or by making off-index bets on junk bonds—in short by doing all the things constrained bond-buyers cannot, or will not, do.

A tragic flaw of bond indices is that they reward profligacy. Big issuers of bonds have a bigger weight. So high-debt Italy looms larger in global bond benchmarks than thrifty Germany. In equity indices there is some relationship of weight in the index to economic success—or at least to investor enthusiasm.

Gurgle-like shares enter the index and make up more of its heft; Genial Motors-like shares diminish in weight, until eventually they slip out. Smart active investors can trade ahead of such entries and exits. But it is slim pickings. With bonds, there are more opportunities for active investors to win.

* “Bonds are different” (April 2017)

A Radical Way Out of the EU Budget Maze

It can be tempting to treat European budgetary discussions as a fairly inconsequential distributional game. But with the EU's role increasingly focused on the provision of public goods, in accordance with its values and priorities, this would be a mistake.

Jean Pisani-Ferry

pisaniferry107_PHotoAltoFrederic CirouGetty Images_eurocashhands

PARIS – In 2003, I co-authored a report on the future of the European Union – the Sapir report – in which we observed that the expenditures, revenues, and procedures of the EU budget were all inconsistent with the Union’s objectives. We therefore advocated a radical restructuring of what had become a “historical relic.” Seventeen years later, little has changed.

Two years ago, when negotiations on the budget for 2021-2027 started, I pointed out that the outcome would reveal what the EU is really up to, but that after high-drama bluffing, bullying, blackmail, and betrayal, such negotiations usually result in minimal changes. And here we are: we have had bluffing, bullying, blackmail, and betrayal, not least on the occasion of the inconclusive EU summit of February 20-21, and Europe appears to be headed for minimal changes.

Such an outcome would be dreadful. True, the EU’s budget is not what usually defines it. Europe’s integration has proceeded by establishing a legal system, common institutions, a single market and currency, and joint policies for competition, trade, and climate, rather than through joint spending programs.

The lion’s share of its budget goes to transfers to poorer regions and farmers, which may or may not be useful but do not characterize what today’s Europe is about. It is therefore tempting to treat the EU’s budgetary discussion as a fairly inconsequential distributional game: Europe’s pork barrel.

But that would be wrong. Europe’s defining issue is no longer integration through trade and mobility, or even the strengthening of the euro. As I argued in a recent report with Clemens Fuest of CESifo Munich, the EU’s role is increasingly the provision of public goods at European rather than national level, in accordance with its values and priorities.

Concretely, the defining issue for the EU is whether to act forcefully in fields like climate-change mitigation, digital sovereignty, research and development in transformative projects, development cooperation, migration policy, foreign policy, and defense. In such fields, the question is not whether Spain will gain more than Poland, or whether Dutch citizens will end up paying more than French, but whether there is added value in joint policies.

As matters stand, however, the EU is starting from an absurdly distorted approach to public goods. Some member states are interested only in what is in it for them, while others consider only what it may cost them, and still others care only about collateral damage to their cherished policies. What Europe loses in the process is an opportunity to get serious about its stated priorities and to confront the urgency of joint action.

A fundamental principle of public economics is that efficiency and distribution issues should be separated to the extent possible. Whether a policy delivers value and how its benefits are distributed are both important issues, but they must be distinguished. Separation can never be absolute, because the provision of public goods has distributional consequences: an increase in defense spending, for example, benefits weapons-producing regions. But this only reinforces the point: no one wants security policy to be decided by the arms lobby.

The EU budget negotiation mechanism should be designed to give member states an incentive to aim both at collective efficiency and cross-country equity, but not to make one the hostage of the other.

At present however, Poland fights for the regional development funds and France for the Common Agricultural Policy, regardless of these programs’ intrinsic value, because they benefit from them. By the same token, the “frugal four”(Austria, Denmark, the Netherlands, and Sweden) have committed to resisting any meaningful increase in the budget, irrespective of what is done with the money. The result is deadlock.

The way out of the impasse is to choose a negotiation procedure that addresses efficiency and distribution separately. To the great dismay of devoted federalists, who (rightly) claim that the very notion of net budgetary balance is economic nonsense, negotiations nonetheless end up deciding how much each member state will pay and receive over the seven-year period covered by the budget.

If contributions are too high or benefits too low, a “rebate” is agreed on, which ensures that the net balance is at the desired level. But since no one is very proud of this sort of murky horse-trading, it is left for the last, late-night or early morning discussion. As shown by Zsolt Darvas of Bruegel, the result is muddled and its complexity defies imagination.

To break the deadlock, Charles Michel, the president of the European Council, should propose to turn the table and start afresh with the setting of each country’s net balance. It would be agreed that Poland, because it is poorer, would receive €X billion more each year than what it is paying into the budget; Germany, because it is richer, would pay Y billion more; and so on.

With properly defined net balances set in stone, no state would have an interest to fight for a policy whose only value is that it benefits from it, because any additional net benefit (or cost) would be automatically offset through a lump-sum transfer. This would shift attention to the policies’ intrinsic value rather than their distributional effects.

True, the debate over the overall size of the EU budget would remain. There would still be a row between partisans of higher spending and advocates of frugality. But this is a necessary debate that should not be eschewed. Those who think that there is value in European public goods would have to convince their partners – and also pay their fair share. The difference, not a minor one, is that they would argue on the basis of added value and efficiency, not direct pecuniary interests.

After another failed negotiation, Michel tweeted on February 21 that, “as my grandmother used to say, in order to succeed you have to try.” European leaders would be wise to follow his grandmother’s advice.

Jean Pisani-Ferry, a senior fellow at Brussels-based think tank Bruegel and a senior non-resident fellow at the Peterson Institute for International Economics, holds the Tommaso Padoa-Schioppa chair at the European University Institute.

The Real Reason for the Shocking New Developments in the War on Cash 
by Jeff Thomas

International Man: Australia has proposed a law that provides a $25,000 fine and two years in jail for those who make cash transactions of $10,000 or more. If passed, the Currency (Restrictions on the Use of Cash) Bill could be implemented in 2020.

Do you see this legislation as Orwellian?

Jeff Thomas: Oh, yes, very much so. The claim by the Australian government’s Black Economy Taskforce is that the law will help stamp out tax evasion, money laundering and other crimes.

What we’ll be seeing is a plethora of laws popping up in all the countries that were a part of the post-war prosperity boom – the US, Canada, Japan, Australia, Europe and others. All those jurisdictions dove headlong into the debt pit that the US created after 1971. All of them are now facing an economic crisis as a result.

Consequently, all of them will be creating capital controls. My belief is that each will host several of these laws, and the others will all adopt them. Each law will be justified as protection against money laundering, terrorism, tax evasion, a rising black market or a combination of those scare tactic focal points.

As such, the populace of each country will welcome them, not understanding that the real purpose is to have the banks determine how much you’re allowed to spend.

By having each country put forth a portion of the laws, then having all the others copy them, they’ll hope to make the laws appear to be less draconian. After all, how bad could they be, if all these countries support them?

Many of these laws will be based on the assumption that cash will be eliminated and all transactions must be undertaken by the banks. Banks will also be authorised to examine what you’re spending the money on. At first the oversight would relate to large expenditures, but later, it would be smaller expenditures, that, together, make up larger amounts.

The outcome would be that all outlays would be suspect and could be refused by the bank.

Those depositors who had a history of transactions having been in question would find that all transactions would be monitored in future (as though they weren’t already).

International Man: How can people combat the laws that are coming?

Jeff Thomas: Anyone who lives in any of the countries that are most seriously at risk still has time, prior to the passage of the laws, to liquidate his holdings in those countries. Then he may move the proceeds to a jurisdiction that’s likely to be safer.

If you own a home, sell it now and rent it back from the new owners. That way, you get to remain in the house you like, but the value of your house would have been taken out of the country. That gives you a nest egg elsewhere, in addition to making it easier to walk away from the house after things begin unravelling.

In a crisis, your true net worth consists of the amount of wealth that you have already succeeded in expatriating. So, you liquidate all assets and get the proceeds safely out. If things don’t go so badly, the money can always be repatriated, but if things do go badly, you will have kept your family from becoming casualties.

International Man: Is a cashless society the only way for governments and central banks to continue to wield their power through debt-based paper currency?

Jeff Thomas: No, there’s a host of means which they can employ. In my belief, they’ll use the "shotgun" method – coming at people with a variety of approaches at the same time. That would make it more likely that when people seek loopholes in the system, those loopholes will already be closed and people resign themselves to their fate.

In normal times, they’d be likely to drag the process out in order to be less obvious, but they’re running out of time. The house of cards hasn’t collapsed, but it’s shaking and they’ll want to entrap your wealth as much as possible as quickly as possible.

International Man: The trend toward eliminating cash completely is accelerating. In a cashless society, every transaction can be tracked and centrally controlled.

What does this mean for privacy and freedom?

Jeff Thomas: It means three things. First, it means that they can keep tabs on all your transactions.

Your financial privacy is gone.

Second, it means that in future, transactions can be refused if they’re "questionable." Maybe your trip to Panama has been deemed unjustified by the powers that be. Or your transfer to a bank in Singapore has been deemed "invalid." In this way, they’ll be able to not only monitor your transactions, but limit your monetary freedom. Those who repeatedly operate outside of the accepted norm may well go onto watch lists, where they increasingly must seek permission to make transactions.

At first, this won’t be as simple as an "allowed/refused" programme. It will be more polite.

You’ll receive a notice that says, "For policy reasons, we have been unable to complete this transaction. Please provide additional documentation as to the purpose of the transaction for our records." They’ll bury you in requests for documentation. You’ll accept the idea that you must provide them with information, and very soon, you’ll become accustomed to pleading with your bank to use your own money as you see fit.

Third, because they have a record of all your transactions, your government can change the method of taxation from an annual voluntary tax payment to a direct debit. I believe that they would soon announce that they’ll be performing direct debits quarterly or even monthly "for your benefit." Their claim will be that they’re relieving you of the hardship of the annual big hit and replacing it with a series of smaller ones.

You’ll then see a series of debits on your bank statements that are intentionally confusing. You won’t be able to figure out their method for determining the debit amounts, although it will, over time, become apparent that they’re taking more and more.

International Man: What happens once negative interest rates are incurred on deposits?

Jeff Thomas: Well, once you have no choice but to entrust all your transactions to your bank, negative interest rates will be implemented. After that, they’ll rise, again and again. My guess is that you’ll see rates on your bank statement such as 2.371% one month, followed by 2.592% the following month. It will seem very technical and you’ll come to think of it as being like the stock market, going up and down each month "as necessary." But it will be a scam. It will quite simply be the theft of your money on deposit.

International Man: What should people be doing to combat this trend?

Jeff Thomas: Well, first off, I’d expect that this will begin in the US, EU, Canada, etc., and then spread outward. There are those jurisdictions like Switzerland, the Channel Islands, etc., that are more geared to providing favourable services to their clients than the large powers do.

They’ll hold out at first, but once the majority of the world is on board with this scam, they’ll jump on board also. After all, it’s a license to skin you each month. What bank is going to pass that opportunity up? So, in the end, it will go global.

International Man: Do you see any hope for either derailing this system or opting out of it?

Jeff Thomas: As long as the current economic system remains as it is, no. The only escape is to either get out of cash, or move to a country that’s likely to continue to use cash. And the best that will do will be to buy you a bit more time.

Ultimately, this will succeed up until the day comes when there’s a collapse in the system itself.

Some people will try to escape through the use of cryptos. But if cryptos become the one and only loophole, we can be sure that they will be either taken over or outlawed. There’s zero chance that the powers that be will allow for this massive wealth grab to be thwarted by those who deal in cryptos.

I should mention that, at this point, I don’t have any particular vision in mind as to how this might be done, but the Achilles heel of cryptos is that they are exchanged for goods and services at some point.

It will be at that point that a red flag is raised and the trader is exposed and prosecuted for "economic terrorism," or whatever trumped-up term is created at the time.

Cryptos just may be the greatest economic invention of the twenty-first century, and that’s just why they can’t be allowed to go mainstream. All on their own, they can defeat the banks’ most profitable money-maker and that can’t be allowed to happen.

Editor’s Note: Negative interest rates are spreading like wildfire around the world. Investors have no choice but to look for other places as stores of value.

That’s why many smart investors are running towards gold. It’s also why the big buyers, like China and Russia, are accumulating as much gold as possible.

Here’s the bottom line…

Negative interest rates and the devaluation of currencies will hurt a lot of people, particularly savers and retirees. But they will also give rocket fuel to the coming bull market in precious metals.