“Floodgates Are Open” – German Banks Start Charging Negative Rates To Retail Savers

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It has been over 7 years since the European Central Bank’s key deposit facility rate was positive, and just a few weeks ago it was lowered to a record low of -50bps.

Source: Bloomberg

And during that time, European bank stocks have suffered greatly…

Source: Bloomberg

As Cornelius Riese, co-CEO of Frankfurt-based DZ Bank A.G. (Germany’s second-largest by assets), observed, negative rates indeed “have a huge impact on banks.” Riese ventured to offer some gentle criticism of Draghi & Co.’s grand policy experiment:

“Maybe at the end of the story, in three to five years, we will notice it was a historical mistake.”

Well, it appears we are about to reach the vinegar strokes of that ‘historical mistake’, as Bloomberg reports, German banks are breaking the last taboo: Charging retail clients for their savings starting with very first euro in the their accounts.

While many banks have been passing on negative rates to clients for some time, they have typically only done so for deposits of 100,000 euros ($111,000) or more. That is changing, with one small lender, Volksbank Raiffeisenbank Fuerstenfeldbruck, a regional bank close to Munich, planning to impose a rate of minus 0.5% to all savings in certain new accounts.

Another bank, Kreissparkasse Stendal, in the east of the country, has a similar policy for clients who have no other relationship with the bank; and a third, Frankfurter Volksbank, one of the country’s largest cooperative lenders, is considering going even further and charging some new customers 0.55% for all their deposits is considering an even higher charge.

“The floodgates are open,” said Friedrich Heinemann, who heads the department on Corporate Taxation and Public Finance at the ZEW economic research institute in Mannheim.

“We will soon see a chain reaction. Banks that do not follow with negative interest rates would be flooded with liquidity.”

It appears that European banks are coming around to the fact – and preparing for it – that negative rates are here to stay (especially under Lagarde who has already opined that there is nothing wrong with negative rates).

Bank CEOs across Europe have expressed their anger at the ECB’s policy over the last few months.

The ECB’s imposition of negative interest rates have created an “absurd situation” in which banks don’t want to hold deposits, rages UBS CEO Sergio Ermotti, arguing that this policy is hurting social systems and savings rates.

Oswald Gruebel, who served as Credit Suisse CEO from 2004 to 2007 and as UBS Group AG’s top executive from 2009 to 2011, has slammed ECB policy in an interview with Swiss newspaper NZZ am Sonntag.

“Negative interest rates are crazy. That means money is not worth anything anymore,” Gruebel exclaimed.

“As long as we have negative interest rates, the financial industry will continue to shrink.”

And finally, Deutsche Bank CEO Christian Sewing warned that more monetary easing by the ECB, as widely expected next week, will have “grave side effects” for a region that has already lived with negative interest rates for half a decade.

“In the long run, negative rates ruin the financial system.”

The German savings rate was around 10% in 2017, almost twice the euro-area average, but one wonders what will happen now that even mom-and-pop will have to pay to leave their spare cash in ‘safe-keeping’. Will deposit levels tumble in favor of the mattress? Or, as some have suggested, gold will get a bid as a costless way of storing wealth.

Source: ZeroHedge

The Student Loan Bubble – Gambling With Your Future

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(SchiffGold) Have you heard? The Democrats are going to fix the student loan mess! They’ve brought up the issue in almost every  Democratic Party presidential debate. All we need is a good government program and we can easily solve this $1.64 trillion problem.

Never mind that government programs caused the problem in the first place.

The student loan bubble continues to inflate. Student loan balances jumped by $32.9 billion in the third quarter this year, pushing total outstanding student loan debt to a new record. Student loan balances have grown by 5.1% year-on-year.

Over the last decade, student loan debt has grown by 120%.  Student loan balances now equal to 7.6% of GDP. That’s up from 5.1% in 2009. This despite the fact that college enrollment dropped by 7% between 2010 and 2017, with enrollment projected to remain flat.

In a nutshell, we have fewer students borrowing more money to finance their educations.

Before the government got involved, college wasn’t all that expensive. It was government policy that made it unaffordable. And not only did it manage to dramatically drive up the cost of a college education, but it also succeeded in destroying the value of that degree. Peter Schiff summed it up perfectly:

Before the government tried to solve this ‘problem,’ it really didn’t exist.”

Peter isn’t just spouting rhetoric. Actual studies have shown the influx of government-backed student loan money into the university system is directly linked to the surging cost of a college education.

Millions of Americans carrying this massive debt burden is a big enough problem in-and-of-itself. But it becomes an even more significant issue when you realize the American taxpayer is on the hook for most of this debt. Education Secretary Betsy Devos admitted that the spiraling level of student debt has “very real implications for our economy and our future.”

The student loan program is not only burying students in debt, it is also burying taxpayers and it’s stealing from future generations.”

This is yet another bubble created by government. Despite the campaign rhetoric coming out of the Democratic Party presidential primary debates, it seems highly unlikely Congress will do what is necessary to address the growing student loan bubble. And the Democrats’ solution seems to be to simply erase the debt – as if you can just make more than $1 trillion vanish without serious implications.

Like all bubbles, this one will eventually pop.

The bottom line is that the student debt bubble will ultimately impact US markets and average Americans.

Source: ZeroHedge

India In “Very Deep Crisis,” Witnessing “Death Of Demand,” Warns Former Indian FM

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Former Indian Finance Minister Yashwant Sinha said India’s economy is in a “very deep crisis,” witnessing “death of demand,” and the government is “befooling people” with its economic distortions of how growth is around the corner, reported India Today. 

“No matter what the powers that be say, the fact is that we are in a very deep crisis,” warned Sinha. 

India’s GDP has been rapidly slowing since peaking in 2016. Official data shows Q3 growth slumped to 4.5%, the lowest since 1Q13. 

Sinha was speaking to an audience at the Times Litfest 2019 conference, located at Habitat World Center in Delhi, India, on Sunday.

He warned that President Narendra Modi’s government is attempting to deceive everyone about how growth is coming in the next quarter or the quarter after but cautioned there’s only a crisis ahead. 

“They (the government) are trying to fool the people by saying the next quarter will be better…This type of crisis takes a long time like three to four or even five years (to subside). It cannot be resolved at the drop of a hat or by wielding a magic stick,” he said.

He said the economy is experiencing what is called the “death of demand,” and the epicenter of it is the agriculture and rural sector.

“There is no demand in the economy, and that is the starting point of the crisis. They (government of the day) are least bothered about what is happening to our farmers, people living in rural areas, now that is where the death of demand started. The demand first dried up in agriculture and rural sector, then it dried up in the informal or unorganized sector, and ultimately it traveled to the corporate sector,” he said.

Sinha said he’s been warning the government of the crisis that is coming down the pipe.

“In fact, this was something I had done after already warning them (people in the government) personally through letters, personal meetings… it is only when the party’s doors were closed on me that I had to start speaking publicly,” he added.

Though there’s no recession in India at the moment, the warning signs are showing up. Private consumption has plunged, both public and private investments have fallen, exports have dropped in the past quarter, the economy has been decelerating for several years, and there’s zero evidence that the economy has bottomed out. 

Source: ZeroHedge

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Bank Crisis Hits India: “Bank Stops Functioning, People Crying Outside Bank Branches”

China Braces For “Unprecedented” Default Of The Massive State-Owned Enterprise, Tewoo Group

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Something is seriously starting to break in China’s financial system.

Smog is seen over the city against sky during a haze day in Tianjin, China (Stringer Network)

Three days after we described the self-destructive doom loop that is tearing apart China’s smaller banks, where a second bank run took place in just two weeks – an unprecedented event for a country where until earlier this year not a single bank was allowed to fail publicly and has now had no less than five bank high profile nationalizations/bailouts/runs so far this year – the Chinese bond market is bracing itself for an unprecedented shock: a major, Fortune 500 Chinese commodity trader is poised to become the biggest and highest profile state-owned enterprise to default in the dollar bond market in over two decades.

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Zombie NYC Developers Resort To Inventory Loans To Stay Afloat During Housing Slump

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New York City’s housing market has been swamped with a historic mismatch involving a flood of luxury inventory and a shortage of buyers. 

Manhattan is facing one of the worst slumps since 2011, forcing developers to take out low-interest inventory loans, collateralized by unsold condos to stay afloat. 

These loans are lifelines for struggling developers and a boom for companies such as Silverstein Properties Inc., who is expected to double its inventory loan book to more than $1 billion in 2020, reported Bloomberg.

Silverstein’s inventory loan book is growing at an exponential rate as a housing bust across Manhattan gains momentum. 

Michael May, CEO of Silverstein, said inventory loan growth among developers is the fastest in Gramercy, Tribeca, and Midtown East. These areas have also been hit hard in the housing slump. 

“You’re seeing some projects that are completed that have just had very, very slow sales,” May said. “Given the amount of condo developers seeking debt, if we open the floodgates, we could probably load $1 billion of that product on within the next 60 days.”

Developers have been pulling inventory loans to avoid slashing listing prices that would spark a firesale and lead to further downside in the housing market.

“Our goal is not to lend to projects that fail: We’re in a position where if a project has a problem, we believe that we could execute the business plan, and we could finish the construction,” May said. “We think that there’s still demand for units that are priced well, but in many cases, the owners of these projects have not adjusted their expectations to where the price would sell in the market yet.”

Silverstein has completed $500 million in financing year-to-date. Inventory loans are expected to be a large portion of the firm’s book in 2020, as there’s no sign the Manhattan real estate market will see an upswing then, and developers will need cheap financing to weather the storm.

As a result, the rise of zombie developers across Manhattan is inevitable. Thank You Federal Reserve! 

Source: ZeroHedge

NJ To Become Wasteland: 44% Of Residents Plan To Flee State

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Thanks to the highest property taxes in the nation and an unsustainable cost of living, 44% of New Jersey residents plan to leave the state in the ‘no so distant future,’ according to a recent survey from the Garden State Initiative (GSI) and Fairleigh Dickenson University School of Public & Global Affairs.

Committing to a more solid time frame, 28% say they are planning to leave within five years, and 39% say they will do so over the next decade, according to Insider NJ.

Unsurprisingly, Property Taxes and the overall Cost of Living were cited as the main drivers. The results also debunk two issues frequently cited in anecdotal accounts of out migration, weather and public transportation, as they ranked 8th and 10th respectively, out of 11 factors offered.

The desire to leave the Garden State was reflected most strongly among young residents (18-29) with almost 40% anticipating leaving the state within the next five years. At the other end of the spectrum, a third (33%) of those nearing retirement (50-64) plan to leave within the next five years. –Insider NJ

“These results should alarm every elected official and policymaker in New Jersey, said GSI’s president, former Chris Christie Chief of Staff Regina Egea. GSI focuses on providing “research-based answers to fiscal and economic issues” facing the state.

“We have a crisis of confidence in the ability of our leaders to address property taxes and the cost of living whether at the start of their career, in prime earning years, or re-positioning for retirement, New Jersey residents see greener pastures in other states.  This crisis presents a profound challenge to our state as we are faced with a generation of young residents looking elsewhere to build their careers, establish families and make investments like homeownership.”

After taxes and a high cost of living, government corruption and concerns about crime and drugs concerned citizens the most. Insider notes that there were no significant differences in responses across income levels.

Source: Garden State Initiative | ZeroHedge

150 Years Of Bank Credit Expansion Is Near Its End

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The legal formalization of the creation of bank credit commenced with England’s 1844 Bank Charter Act. It has led to a regular cycle of expansion and collapse of outstanding bank credit.

Erroneously attributed to business, the origin of the boom and bust cycle is found in bank credit. Monetary policy evolved with attempts to control the cycle with added intervention, leading to the abandonment of sound money.

Today, we face infinite monetary inflation as a final solution to 150 years of monetary failures. The coming systemic and monetary collapse will probably mark the end of cycles of bank credit expansion as we know it, and the final collapse of fiat currencies.

This article is based on a speech I gave on Monday to the Ludwig von Mises Institute Europe in Brussels.

Introduction

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