Anti-Value: Europe’s Rape of Savers, by Robert Gore

According to Bloomberg, $1.9 trillion worth of Euro-area bonds are trading at negative yields (“Euro-Area Negative-Yield Bond Universe Expands to $1.9 Trillion,” bloomberg.com). Purchasers of negative-yield bonds receive less money that what they put up; they are paying the issuer for the privilege of lending to it. Like some of the more bizarre aspects of quantum physics, negative interest rates will probably lead to not intuitively obvious, perhaps mind-bending, economic effects. On an easier to grasp level, they also represent yet another monstrous undermining of the ethical foundation of capitalism, and may come to symbolize the inflection point of Europe’s descent into an unrecognizable, dystopian hell of its own making.

When cave people first saved seeds rather than eating them, planted and later harvested them, they inaugurated not just agriculture, but capitalism. Seeds are capital—an excess of production over consumption that can be used for future production—and planting them implicitly incorporates the fundamental premises that make civilization possible. Planters have the self-restraint not to consume all that they have, and the foresight to make provision for the future. They are free enough from the threat of violence to believe that they will be around for the harvest and that the fruits of their labors will not be stolen from them. It is not surprising that early religions were based on planting and the harvest: the cycle leads not just to sustenance, but to an increase in wealth that enables learning, commerce, production of non-essential and luxury goods and services, the arts, and government. Civilization rests on the pillars of saving, investment, and production.

Negative interest rates are like a seed that develops into a weed, destroying part or all of the planter’s crop. No planter would knowingly plant such a seed. In modern finance, there is a theoretical possibility that creditors in a free market would accept negative interest rates if they were assured that rising real value of money (from the rising productivity of the economy) meant that a unit of money repaid would buy more than a unit of money originally lent. Europe is not within field goal range (or free kick range, because they play soccer) of being a free market; negative interest rates are the result of central bank intervention. Europe’s creditors have no assurance their loans will be repaid by euros with more purchasing power. Indeed, it is the stated goal of the European Central Bank to increase inflation and depreciate the euro. Those who consume less than they produce, to then be faced with the prospect of investing at negative rates, are being penalized for their virtue.

Honest savers flee such an arrangement, preferring to keep their savings in cash at zero interest (not surprisingly, there are proposals from thieves masquerading as economists to eliminate cash). Those who flock to it are debtors availing themselves of ultra-low or negative rates (getting paid to borrow—it’s almost as good as Midas’s touch) and speculators, who have been told by the ECB that it will buy their bonds, regardless of price. With out-of-thin-air money, the prices the central bank will pay for bonds—some issued by governments which already have one foot in the insolvency grave—virtually guarantee it losses. Negative sovereign debt interest rates have dragged down the curve for non-sovereign debt issuers as well, and opportunistic corporate borrowers are shoveling as much as they can into the market (Warren Buffet’s Berkshire Hathaway is issuing its first eurobonds).

Speculation and debt are not essential for economic progress; savings are. Whatever the noble intent behind the European Union—if there was one—it has evolved into a bureaucratic monster that stifles and kills rather than promotes markets and production. Generating savings in Europe should be an easy matter. The continent has a well-educated, potentially productive population and world-class companies, and its common market, even as encumbered as it has become, is roughly the same size as the US market. Under the US defense umbrella, European nations spend much less than the US on defense, although they have devoted that saving to expansion of the welfare state rather than investment. It’s tempting to invoke a cliché and say that by assaulting saving, Europe is shooting itself in the foot, but that’s not correct. It’s shooting itself in the head. Destroying saving, the cradle of Western civilization is destroying itself as we now know it, leaving Eurocrats, fat cats, out-of-work youth, out-of-luck pensioners, crazies, lazies, grifters, drifters, dopers, mopers, latte-heads, pâté-heads, crooks, schnooks, hookers, and incoming Islamic hordes to one day scavenge the corpse.

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