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Euro-zone Negative Interest Rates, Ready to Pay the Bank to Hold Your Money?

Interest-Rates / ECB Interest Rates Jun 06, 2014 - 10:25 AM GMT

By: Chris_Vermeulen

Interest-Rates

The six members of the European Central Bank (ECB) Executive Board and the 16 governors of the euro area central banks vote on where to set the rate. We watch interest rate changes closely as short term interest rates are the primary factor in currency valuation.


A higher than expected rate is positive for the EUR, while a lower than expected rate is negative for the EUR. Today (Thursday June 5th) we expected a rate cut. The cut was not as much as analysts expected which is bullish for the short term, but the rate is still declining and nearing zero, or even worse, negative territory.

A negative interest rate may sound crazy or impossible, but it’s already happening in Denmark.

Europe is already in a deflationary state and central banks are doing everything they can to bring about inflation by cutting rates and devaluing the euro.

This will cause a ripple through multiple asset classes and will drastically alter the outcome of individuals worldwide.

Just imagine if you had to pay a bank to hold your money and you do not earn any interest but rather pay interest.

People who have been saving their entire lives will get hit the hardest. Retired folks will stop earning money and start paying for all the money they hold held at banks.

Individuals will go more into debt because money will be extremely cheap to borrow.

Price of assets like equities, real-estate, discretionary goods will rise because the cheap money everyone is borrowing will be used to buy more stuff. While all this happens everyone takes on more dept. It is a brutal spiral leading to increase debt levels, inflation and eventually bankruptcy.

If the euro dollar starts to decline at a quicker pace the US dollar will likely rally. A strong dollar could affect the commodities market including gold, silver and the European stock markets.

Today’s rate cut led to a pop in the euro, but that is likely to be short lived. I hope this sheds some light on the markets and helps in your trading.

Chris Vermeulen

Join my email list FREE and get my next article which I will show you about a major opportunity in bonds and a rate spike – www.GoldAndOilGuy.com

Chris Vermeulen is Founder of the popular trading site TheGoldAndOilGuy.com.  There he shares his highly successful, low-risk trading method.  For 7 years Chris has been a leader in teaching others to skillfully trade in gold, oil, and silver in both bull and bear markets.  Subscribers to his service depend on Chris' uniquely consistent investment opportunities that carry exceptionally low risk and high return.

This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Chris Vermeulen Archive

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