Negative Rates as a Precursor to Death of Banking

• When interest rates go negative, depositors will not earn interest and will have the incentive to flee to hard assets (like physical gold and silver). If you have US$100M, would you pay the bank 1%/year (ie. US$1M/year) to keep it in the bank? Most people would much rather spend the US$1M on something tangible. Negative interest rates are therefore inflationary, as money bids up hard assets. Carried to the logical end: it spells the collapse of the currency system.
  –
• There is no money to be made for the banks in a negative interest rates environment. Would a bank lend US$100M at -1%/year to anyone? The bank is paying the lender US$1M/year to borrow US$100M. For every loan made, the banks will lose money. Eventually, they will go bust. The rational thing to do is to contract the loans portfolio and not make new loans.
  –
• Since, you can make money just by borrowing money from the banks at negative interest rates, there is really no incentive to take risk and invest in business. Everyone would just borrow as much money as possible from the banks, earning interests and delay payment as long as possible as they are making money. Since banks cannot make money via loans, they will not survive. There is no economic or financial reason for them to exist any more.
  –
• The implications, in a prolonged negative interest rates environment, are:
  –
  * The economy will grind to a halt.
  * The banking system will collapse.
  * The currency system will collapse as people flee cash into hard assets ie. hyperinflation.
  * Debtors are rewarded while savers are penalized. 
  * Working hard is penalized as people realize they can survive, make money just by borrowing money from banks at negative interest rates.
  –
• A prolonged negative interest rates environment spells: economic, financial and currency collapse.

end