We ran across a rather odd, yet rivetingly important story this past week that didn’t really seem to be picked up by mainstream media (surprise, surprise). It made us wonder if we have now officially entered the late innings of a game that’s bound to end badly for all of us.
As a rather unusual side effect of negative interest rate policy (NIRP) at least one Dutch household for now will be receiving, rather than paying, a mortgage payment from their bank!
In a ruling announced on April 4, 2016, the Netherlands’ consumer financial products watchdog, Kifid, said it had sided with the unnamed holders of the variable interest rate mortgage, who brought the case against their mortgage lender Achmea NV.
The mortgage was denominated in Swiss francs, with a variable rate set at 0.7 per cent above Swiss Libor, a benchmark rate. When Swiss Libor fell below minus-one per cent in January 2015, the bank should have then paid the mortgage holders around 0.3 per cent interest, Kifid indicated in their ruling.
Instead, Achmea had told the customer early last year that they would simply not be charged any interest on their mortgage loan. The watchdog ordered Achmea to pay the customers back retroactively for the missed interest, travel and legal costs.
Australian financial commentator Alan Kohler said it best in response to the ruling (we speculate there will be more) and ruling and the crazy concept of NIRP in general;
“We may well look back ruefully on negative interest rate policy, or NIRP, from our post-apocalyptic dirt-floor humpies as one the greatest idiocies of the 20th and 21st centuries, up there with America’s sack and dump of Iraq in 2003 and 2011, the repeal of the Glass Steagall act and the Maastricht Treaty in Europe. Unless a miracle happens and the European and Japanese economic cadavers suddenly sit up and rub their eyes, central banks will eventually have to give up and admit defeat. The hope will be that not too much damage has been inflicted. But that is central banking for you, in the era of leverage: take from the savers and give to the borrowers in the hope that they will ‘do something’. Not so far, they’re not … they’re just punting it on real estate.”
NIRP for all intent and purposes appears to be so wrong, for so many reasons. It really makes us feel thankful (for now) for that whopping 0.5% interest we are being awarded on our “high interest” savings account.
While the current day “enlightened class” expound upon us the importance of our our moral responsibility to pursue social license and sustainability for everything environmental for the benefit of future generations, they sure fail miserably in maintaining the same guiding principles when it comes to economic policy. Rather duplicitous behavior we must say.
As a collection agency with offices in Edmonton, Calgary and the GTA we are watching with keen interest the unfolding of events with respect to these phenomenon and their impact (or lack thereof) on Canadian credit markets.