by Mish

Most of the disagreements involved “safekeeping”. Let’s take a look at one such comment along with my reply.

In response to Negative Interest Rates: Can They Ever Occur Naturally? What is the “Natural Rate”? Reader Thomas commented ….

I rarely disagree, but here I am. Safekeeping is an important function. Storage costs (for silver, not so much gold or fiat) can also be important. Bitcoin would be more expensive if bitcoin safekeeping and storage weren’t problematic. If bitgold proves itself over time, it may put a floor on interest rates. GLD would, if not for rehypothecation, various frauds on commodity accounts, etc. Of course if interest rates go negative enough, people will find cheaper ways to secure their wealth.

Email Exchange With Acting Man

Pater Tenebrarum at the Acting Man blog responded to my article with this Email thought …

If the natural rate were to fall to zero or into negative territory, we would all cease to consume altogether – all our activities would become future-oriented. In other words, we’d starve to death. So it is literally impossible for the natural rate to become negative, as long as time passes for us, i.e., as long as there is a “sooner” and a “later”.

I pinged back “Some confuse negative interest rates with storage fees. There is a legitimate role of paying a safe-keeping fee. But nothing is being kept safely. And there are already checking fees, statement fees, ATM fees, etc.”


Pater pinged back “Exactly, the storage fee analogy is not applicable in this case! It would only be applicable if the bank is 100% reserved, which almost no bank is. You are quite correct that the perverse move of the other gross market rate components into negative territory is a function of the fiat money system and what it enables the authorities to do.”

Both Pater and I would welcome 100% reserves and reasonable safekeeping fees. But let’s not confuse that with negative time preference.

Not Natural

As long as we are discussing what’s natural and what’s not, here’s a ping from Sitka founder Brian McAuley.

There is nothing natural about a purely fiat currency that can be inflated at will by a central bank. There will undoubtedly be a number of “unnatural” elements of that system that become visible over time, and negative interest rates may be one of them.
For most of human history, we used tangible things as a medium of exchange that were hard to replicate on demand, or at least took a lot of work to replicate or find: silver, gold, beaver pelts, even cigarettes in prison. Negative interest rates were impossible.
What we have now is just the latest modern innovation in finance, which not only enabled the inflation of a credit bubble over the past 40 years, but has also created the perceived need for negative interest rates to just keep the whole thing from collapsing. Incredible.

In absence of central bank or government manipulation of fiat monetary systems, it is impossible for interest rates or time preferences to be negative.

Don’t confuse negative interest rates in a fiat world with safekeeping fees in a 100% reserve system.

Mike “Mish” Shedlock

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