THE STATE VS THE FINANCIAL WORLD
Since the global dominance of neoliberalism started four decades ago, we have seen the tendency of central banks to reduce interest rates on deposits up to negative levels.This has been most evident in the cases of Japan and Europe.So the question arises: what is the purpose of these negative rates?
When a central bank reduced its deposit rates to negative levels it encourages private banks to take greater risks, providing positive rates instead of taking their deposits to the 'central bank'.Savers are also induced to spend more money or buy risky assets - such as stocks - instead of keeping their money in savings accounts.Another objective, less common, is to use this mechanism as a factor of control over the exchange rate.
Considering that the Fed was to use negative rates as a solution to the current stagnation of the economy, this means that the world'smost important monetary authoritywould generate negative effects throughout the world, such as seen in Switzerland, Sweden and Denmark in 2015 . In the eurozone, the European Central Bank began the operation with negative rates in 2014, so that borrowing costs in Germany were reduced from 2.73% to 2.04% and in France from 2.22% to 1.73%, without obtaining any important improvement in their economies.Such low rates affect European banks with profitability problems and a credit market that failstomove forward. So this phenomenon of negative credit rates could lead to a meltdown of the global financial system.
The facts indicate that the financial sector has dominated economic policy in the last four decades, in which the regulatory system of all operations related to the financial and banking system was dismantled.So that in recent decades the main objectives of fiscal policy were just the same as those of the financial capital.And this fiscal policy had aspriorityto generate a primary surplus to cover the payment of financial charges.Also the objectives related to economic and social development were subordinated to the needs of financial capital.
Meanwhile, macroeconomic policy was fighting inflation, so that monetary policy always maintained an interest rate able to contain aggregate demand and curb the rise in consumer prices. And as for the banks and their functions to create currency, macroeconomic policy maintained a passive stance and radically reduced all regulations of the banking and financial system.
The traditional economic theory oftheWest always considered that the central bank imposed reserve levels necessary to ensure the operation of private banking.But in fact, the ability of banks to create moneyoutof thin air always kept central banks on the defensive.And instead of the IMF dictating the required reserve levels for the banks, it was the private banking activity that imposed the creation of reserves needed to maintain levels of economic activity required for the different nations of the world.
Right now, several important countriesinthe world have introduced negative interest rates and the trend could continue if the US recovery is not achieved.But the question now istoknow where that trend will get to in a global scenario. According to analysts at JP Morgan, the central banks of Japan and the UK could take their negative rates to -2.7% and -3.45% levels, while Eurozone rates could reach -4.5% next March while the Fed could impose a rate of -1.3%.
Thiswould greatly affect the benefit of banks and would be the first action of political authority on the profitability of the private banking sector. Although not all the financial capital is affected by negative interest rates, much of the banking system will suffer a direct hit.The reason is that the reference rates from the central bank have always been a basis for determining profitability in secondary markets. Besides negative rates, some pension funds and insurance companies have already been affected in the short term.
Although the main objective of negative rates is to fight deflation, they may end up eroding the exchange rate and stability of the banking and financial sector in such a way that is unknown.But the fact is that right now thereisa fierce struggle between the State and the financial world whose outcome is unknown.
Addendum: This struggle between the State and the financial and banking institutions is not exclusive to Western nations, but it happens in all nations and societiesaroundthe world.However itis logical that the triumph of State will be more feasible in those countries where the government is supported by autarkic and dictatorial models where thereisno freedom of expression or different understandings of cultural, social and political myths that permeate the life of all citizens.
Clearly indebted states with their tax problems, as is the case with the vast majority of Western countries, will have a situation where the State may not emerge victorious in this fight where the immediate future of the new world order will be defined.