03/28/2015 - Financial Repression is causing Banknotes to become an Attractive Investment – This could cause a run on the Banking System
In his latest investment letter, Tim Price observes how the financial world is bifurcated into 2 camps – savers & speculators .. “All the forces of the world’s central banks have been devoted to shafting the former and encouraging the latter. The process ends badly. When Danish borrowers are paid to borrow by their banks and Danish savers are penalised for keeping money in the bank, something has gone gravely wrong with the financial system. Something is rotten, and not just in Denmark.” .. Price also references Russell Napier who thinks that physical cash – the banknote – is now becoming an increasingly attractive investment, but warns any significant move towards this “investment” will create a run on the banking system: “This has not happened. Yet. However, with the vast bulk of ECB purchases of assets still to come, the move to negative nominal interest rates has just begun. At some stage a shift to banknotes will begin and the limits to monetary policy will become much clearer. The spluttering torch of reflation will have to be passed to governments, and extreme government measures, such as outlawing cash holdings, are already under discussion. Investors should look to the imposition of a Tobin tax on capital inflows in Sweden, Switzerland or Denmark as a key indicator that central bank action will have to be bolstered by direct government intervention in markets.” .. we are in the era of financial repression.
