An Ominous Warning From Japan — Central Bankers Are Losing Control

By Zach Scheidt, Income Editor for Agora Financial

If you haven’t opened up your recent copy of the “Tokyo Times”, you probably don’t know of an unusual phenomena taking place across Japan…

I am not talking about a cartoon or the latest robotic invention, but rather an economic indicator that is revealing the central banks of the world are losing their power.

You are probably aware that Japan’s economy has been slumping for the past two decades (the “lost decades” as they say), and I am sure you have heard that the Bank of Japan recently introduced a negative interest rate policy (NIRP) across the country.

But here’s something you may not know: according to the news out of Tokyo, Japanese hardware stores have sold out of home safes — the kind you use to store gold or valuables. Not only have they sold out of safes, but there is also a month long backorder for anyone who wishes to purchase one.

This is a big story. Remember, central banks across the globe have gone into uncharted territory in the past few years. First it was lower interest rates. Next it was Quantitative Easing. Now, with negative interest rates hitting the shores of Japan, we’re starting to see the unintended ramifications of “weird” central bank policies. Indeed, what we’re seeing in Japan has deep implications for central bankers. Let’s take a look….

To start the story from the beginning, people began purchasing safes when Japan imposed their negative interest rate policy less than a month ago. In theory, negative rates are supposed to prompt investors to take their money out of a bank account and put it to work. Maybe they’ll buy a new Honda? Maybe they’ll invest in the Nikkei? Either way with cash out of the banks central bankers were hoping to spark more “economic growth” as they call it.

However, with a huge backorder on safes, it potentially means that the Japanese people are planning on hoarding their money. This is bad news for local banks and central bankers! The people are doing the exact opposite of what the central banks want. Looking ahead, this hoarding mentality undermines the entire idea behind negative interest rates and renders them ineffective.

Negative interest rate policy is the new battlefield in the war on savers. But unlike previous battles, the central bankers are NOT on solid footing, here. It all comes down to control…

“‘Control’ is the crux of the matter” says navy veteran turned economist Jim Grant. “Command and control is the operating method of post-2008 monetary policy. To tighten control is the open ambition of the central bankers and their civilian apologists.”

But if control is what the bankers want, they’re quickly losing it in Japan. The Japanese citizens, in the form of “sold out” safes, have learned how to fight back. That’s an ominous sign for central bankers.

So if you’ve ever wondered what happens when central banks completely lose control – you’re in luck, because we’re about to find out!

And this story is by no means limited to Japan. The entire global economy is shifting towards the use of negative interest rates.

According to Bloomberg, a full 29% of the world’s rich nation sovereign debt yields “less than nothing.” (That’s code for “losing money for the privilege of saving.”) In total, there is now $7 trillion in wealth that governments are collecting reverse interest on, effectively taxing savers for putting money aside.

So the NIRP story we’re seeing unfold will likely happen on a global scale.

Today, instead of playing “wait and see” as this monetary kabuki theatre plays out in Japan, allow me to put the three financial degrees I have hanging on my wall to work, and give you a forecast. Because frankly, it’s only a matter of time before NIRP or something like it hits the shores in the U.S.

Here’s how I see this NIRP situation playing out…

First up, this whole situation borders on insane. I’m not sure what the central banks were smoking when they cooked this idea up, but it must have been some strong stuff. Negative interest rates will NOT work anymore than close to zero interest rates (besides the additional home safe purchases.) In fact, if what we’re seeing in Japan is any indication, NIRP may actually drive cash out of banks and into personal, at-home saving.

Plus, the entire idea of NIRP just doesn’t make much sense. If NIRP continues to exist and grow, does that mean lenders will soon PAY you to take out a loan? That’s just a silly concept – one that won’t last.

Indeed, in the realm of monetary tricks, I think the central banks are shooting blanks, here.

Now don’t get me wrong. These crooks have other tricks up their sleeves. If central banks don’t get their way at first, they’ll try, try again. With the inability to juice the economy with NIRP, it won’t be long before we see more easing and outright money printing. Helicopter money is still a real possibility.

So what can you do to prepare?

Well, as much as I hate saying it, with NIRP you’ve GOT to consider holding cash.

I’m not talking about keeping cash in a checking or savings account. I’m talking about cold-hard cash that you store in a safe place. Quoting Jim Grant again,

“If people hold physical cash — which, unlike a bank account, is not directly affected by negative rates — central banks have less control.”

Like the Japanese, you can literally take control out of the hands of the government by stuffing Benjamin Franklins into a coffee can and burying them in your back yard. I’m not saying it’s a great idea. But at least you’re not paying the government or a bank to hold your money.

If you aren’t comfortable holding cash, gold is another great store of value that has the ability to rise over time.

In fact, in a time of negative interest rates, the value of gold would almost certainly rise as savers look for other ways to store their assets. Historically speaking, when interest rates go down, the value of gold goes up.

A better choice to store your wealth in a time of negative interest rates, as well as to earn a passive income stream, is to invest in high quality dividend paying stocks. These stocks will give you a decent return on your money while banks and cash yield no return.

However, we’ve got to assume the market will be choppy during a NIRP era, so I would recommend only investing in the most stable and financially sound companies.

High dividends might be beneficial to an investor in the short term, but long term it puts a financial strain on a company and reduces the likelihood of a company paying out dividends in the future. Companies like Apple (NASDAQ:AAPL) and Walmart (NYSE:WMT) are good examples of financially sound companies that pay out a dividend without risking too much cash to please investors.

So while the world banks experiment with negative interest rates, be prepared to protect your wealth if they ever make it to US shores.

Here’s to growing your income,

Zach Scheidt
Income Editor for Agora Financial

P.S. Have you heard about this new way to generate monthly income? U.S. seniors can now earn income piggybacking “Canadian Social Security” Without living, working or even visiting Canada…

Thousands of Americans are now earning up to $4,700 in monthly investment income by piggybacking “Canadian Social Security.” A new website shows you how… Click here to discover it now.