Today, I read an interesting article “The cash crisis begins as Chase to start charging 1% fee on bank deposits starting May 1“, where Chase bank is now going to ask its wealthy depositors to pay for the privilege of depositing cash. Less than a year ago, I authored an article “Negative interest rates of central banks could burst debt bubble like a fire cracker?” where I mentioned that the when ECB goes into negative interest rates, it would shrink consumer credit in European economy.
Although the negative interest rates permitted Europe to delay important macroeconomic reforms in its economy to eliminate its trade and budget deficits, these negative rates have not increased consumer purchasing power of Europeans. Also, With poor consumer demand, the depositors of cash in European banks seem to have preferred stuffing money underneath mattresses and earn no interest on that money instead of paying interest on that money. This is logical from the point of European bank customers as there is poor consumer demand and hence there would be poor Return on Investments (RoI) on any of their investments into the economy.
Hence, Although ECB expected negative interest rates to spur circulation of currency in economy, that did not materialize the goals but instead today there could be a parallel economy developing in Europe with the help of money that has been stuffed underneath mattresses. By having negative interest rates, ECB has not helped anybody ( not even the vested interests ) by preventing creation of high paying jobs in European economy as European MNCs have continued their free trade which result in trade deficits and austerity policies have been adopted to impose a regressive tax structure which are adding to their budget deficits and also resulting in an increased poverty.
When banks in US like Chase and other banks start charging money from their wealthy customers with the hope that either Chase will earn money or the money would get invested into economy, Chase is foolish in hoping these plans would materialize as that money will not get invested into the US economy as the consumer demand is already low to give any good RoI. Secondly, these policies would result in creation of parallel economy in US as well where the lending of money would be in cash or the customers would prefer to stuff excess cash underneath their mattress to avoid paying interest rates. Additionally, How long can US continue delaying the important macroeconomic reforms? The National debt due to trade and budget deficits is already $18 trillion which is unsustainable.
The solution to this crisis is to Revamp the US Financial industry so as to instill confidence in its currency and increase circulation of currency to have a multiplying effect. That would need major reforms which have to be comprehensive. Many such reforms have been covered in chapter 12 “On the National Financial Matters” of my first book “Mass Capitalism: A Blueprint for Economic Revival“. These reforms would result in economic solidarity, an increase in trade and commerce, more investment, more employment, an improvement in the position of foreign revenue for the United States generating a good RoI.