Low and negative interest rates are at least partly to blame for an awful first quarter for the six largest US banks. Those banks – JPMorgan Chase, Bank of America, Goldman Sachs, Wells Fargo, Citigroup and Morgan Stanley – saw collective revenues fall 9% in the first quarter. They still raked in $98 billion, which is nice work if you can get it. But it was the biggest fall in revenues in five years, according to the Financial Times.
The more worrying trend is what appears to be a structural decline in bank profitability. The same six banks reported an aggregate 25% decline in net income to $18 billion. It’s a tough life, being a bank in a world where technology is driving down costs and increasing choices for consumers. Trading desk profits are harder to come by in a market driven by quantitative easing. And if central banks proceed with their plan for digital legal tender currencies to replace cash, they effectively remove commercial banks as the institutions that create money in the economic system.
On that last note, a surprising twist in the tail this week from Germany’s Bundesbank. Economic forecaster Martin Armstrong reports that Carl-Ludwig Thiele, a member of the Bundesbank’s board, said that a ban on cash is “out of line with freedom,” at an event in Berlin. That’s exactly the point, if you’re a central bank that wants to exert micro-economic control over how people save and spend.
Thiele’s two main arguments
Isn’t it interesting that it’s the Germans defending sound money and cash as freedom? According to Armstrong, Thiele made two main arguments:
- Every citizen has the right, with his money, to proceed as he wants. If action is taken that impacts the rights to freedom of the citizen, it must be well-grounded. And so the question arises: how does a cash limit restrict crime in other countries? Thiele said he was not aware of any support where a cash limit, such as Italy or France, prevents crime. Crime should be correspondingly lower than in countries with no upper limit on cash, but that is simply not the case.
- The arguments that are made against cash and cash payments are unconvincing. He went on to argue that cash protects the privacy of the population. That benefit is not a reason to twist it into a benefit for criminals while ignoring the majority of honest citizens. The right to informational self-determination and respect for private life is a valuable asset that should not be watered down or abandoned. “Cash is coined liberty” – this modified Dostoevsky quote has not lost any of its validity.
As I’ve said before, the British drive to either reform the European Union or get out of it could accelerate the breakup of the EU, not of the UK. The prime minister didn’t make a big push to actually change the EU, thinking, apparently, a token effort would do the trick. But now, the pieces on the geopolitical board are in motion. Don’t expect the Germans to go down the gurgler with a trashed currency backed by unaccountable elites with a superstate political agenda.
Category: Central Banks