The ultimate Ninja loan

German newspaper Der Spiegel reported yesterday that the Bavarian Banking Association has recommended that its member banks start stockpiling PHYSICAL CASH. 

My view on the article :

Stockpiling cash decreases purchasing which implodes the economy.

People also start hoarding (more) cash.

The barter system rises – and the tax take shrinks to the point where income does not equal expenditure.

So pension funds are raided, healthcare privatised, roads tolled and education options reduced.

Last week’s news on Sweden descending to third world living conditions within 15 years looks like the template for most EU countries.

Perhaps the 60’s hippies had it right – Drop out and become self sufficient.

Printing more physical cash causes rampant inflation (Zimbabwe and many other historical examples abound. Even Germany tried it once)

The other possible reason for encouraging banks to hold cash could well be an expected run on the banks (Cyprus’ haircut coming to a bank near you?)’

The refugees are certainly not depositing any money, nor adding GDP – Just leeching, so there’s nothing positive happening.

Banks are in serious strife with nobody wanting to borrow more and the new pool of potential borrowers reliant upon social security – Does not bode well. Perhaps the Government will encourage refugees to buy houses (Missed opportunity there Detroit!), then underwrite the loans – provides work for builders, willing stooges in the middle and a happy bank claiming ‘Growth’.

The ultimate Ninja (No income, no job) loan!


German newspaper Der Spiegel reported yesterday that the Bavarian Banking Association has recommended that its member banks start stockpiling PHYSICAL CASH.

Europe, of course, has been battling with negative interest rates for quite some time. What this means is that commercial banks are being charged interest for holding wholesale deposits at the European Central Bank.

In order to generate artificial economic growth, the ECB wants banks to make as many loans as possible, no matter how stupid or idiotic.

They believe that economic growth is simply a function of loans. The more money that’s loaned out, the more the economy will grow.

This is the sort of theory that works really well in an economic textbook. But it doesn’t work so well in a history textbook.

Cheap money encourages risky behavior. It gives banks an incentive to give ‘no money down’ loans to homeless people with no employment history.

It creates bubbles (like the housing bubble from 10 years ago), and ultimately, financial panics (like the banking crisis from 8 years ago).

Banks are supposed to be conservative, responsible managers of other people’s money.

When central bank policies penalize that practice, bad things tend to happen.

Traditionally when a commercial bank in Europe wants to play it safe with its customers’ funds, they would hold excess reserves on deposit with the European Central Bank.

In the past, they might even have been paid interest on those excess reserves as an extra incentive to be conservative.

Now it’s the exact opposite. If a bank holds excess reserves on deposit at the ECB to ensure that they have a greater margin of safety, they must now pay 0.3% to the ECB.

That’s what it means to have negative interest rates. And for the bank, this eats into their profits, especially when they have tens of billions in excess reserves.

Talk about being between a rock and a hard place.

On one hand, banks stand to lose a ton of money in negative interest. On the other hand, they put their customers’ deposits at risk if they don’t hold extra reserves.

Well, the Bavarian Banking Association has had enough of this financial dictatorship.

Their new recommendation is for all member banks to ditch the ECB and instead start keeping their excess reserves in physical cash, stored in their own bank vaults.

This is officially an all-out revolution of the financial system where banks are now actively rebelling against the central bank.

(What’s even more amazing is that this concept of traditional banking– holding physical cash in a bank vault– is now considered revolutionary and radical.)

There’s just one teensy tiny problem: there simply is not enough physical cash in the entire financial system to support even a tiny fraction of the demand.

Total bank deposits exceed trillions of euros. Physical cash constitutes just a small percentage of that sum.

So if German banks do start hoarding physical currency, there won’t be any left in the financial system.

This will force the ECB to choose between two options:

1) Support this rebellion and authorize the issuance of more physical cash; or

2) Impose capital controls.

Given that just two weeks ago the President of the ECB spoke about the possibility of banning some higher denomination cash notes, it’s not hard to figure out what’s going to happen next.


Until tomorrow,

Simon Black