Das Capital: Trust in banks wanes as savers find other ways to protect their money

The ultra-rich are switching to real assets – gold, commodities, farm land

All systems – social, cultural, spiritual, economic and financial – rely on trust. Policy makers are now systematically undermining trust in institutions, turning to financial repression in attempting to deal with the economic crisis.

Current government policies focus on low interest rates, with returns artificially set below the true inflation rate. Where interest rates are near zero, governments print money, manipulating the amount rather than the price of money.

These measures reduce borrowing costs allowing borrowers to maintain high levels of debt. Rates below that of inflation help reduce the value of the debt, effectively decreasing the amount that must be paid back in economic terms. The policy subsidises borrowers at the expense of savers.

These policies debase currencies, undermining money’s function as a mechanism of exchange and a store of value. Once an unquestioned store of wealth, investors in government bonds are now threatened by the risk of sovereign defaults or destruction of purchasing power.

Jim Grant of Grant’s Weekly Interest Rate Observer, noted that where once government bonds offered risk-free return, now they offer “return-free risk”.

Low rates reduce the income of savers, including retirees. They undermine compulsory retirement saving schemes, designed to ensure a secure, post-work life.

Some nations have used regulations and political pressure to force banks and investors to adopt patriotic balance sheets. This entails institutions purchasing government bonds and prioritising lending to domestic borrowers.

More aggressive financial repression is also evident. In the restructuring of Greek debt, retrospective legislation was used to deliberately prefer official creditors including the European Central Bank, allowing them to avoid losses at the expense of other creditors. Unsurprisingly, investors are now reluctant to finance some governments, fearing adverse future changes to their legal status.

Governments have seized private savings or have directed it into approved investments.

The European Central Bank, which oversees the 17-nation eurozone, has implemented programmes that indirectly may entail “monetary financing”; that is, central-bank funding of governments which is prohibited under European Union treaties. As Jens Weidmann, president of the German central bank, the Bundesbank, warned in November 2011: “I cannot see how you can ensure the stability of a monetary union by violating its legal provisions”.

The crisis revealed numerous instances of financial institutions placing their own interest before that of clients and exploiting customers for egregious profits.

In the lead up to the crisis, finance executives received high salaries and bonuses, based on dubious, often manipulated profits. Even in the aftermath of the crisis after governments were forced to support ailing banks, bankers’ voracious desire for large bonuses has continued. The inability or unwillingness of governments to rein in the industry remains a point of contention.

To preserve the value of their savings, savers are reversing the historic trend to “the abstraction of property through paper currency”. The ultra-rich are switching to real assets – gold, commodities, farm land, fine arts and other collectibles.

The rising lack of trust in banks and global finance has led to growing interest in alternative paper money, such as the Bavarian Chiemgauer, England’s Lewes Pound or the Berkshares programme in Massachusetts. Interest in digital currencies such as Bitcoin, also reflects, in part, increased concern about the monetary system. Irrespective of whether these alternative currencies succeed, they are testament to a growing distrust of governments and the financial system, representing a challenge to the authority and apparatus of states.

In the US, on Bank Transfer Day, an online phenomenon launched by an unhappy Bank of America client, customers withdrew money from traditional banks transferring it to not-for-profit credit unions owned by members. The growth of peer-to-peer lending which facilitates the matching of savers and borrowers for small consumer loans also evidences this trend. Examples include firms such as Prospect and Lending Club in America as well as the UK start-up Funding Circle.

Loss of trust even extends to dealings between central banks. In early 2013, the Bundesbank announced that it would move around 674 tonnes of its holding gold bullion from foreign central banks (the Federal Reserve Bank of New York and the Bank of France in Paris) to Frankfurt. While Bundesbank officials stressed there was no question of “mistrust”, Bill Gross, a founder of investment firm Pimco, tweeted the obvious inference: “Central banks don’t trust each other?” 

Reviled and mistrusted, money  and banks are  losing legitimacy.

Life and Style
The new Windows 10 Start Menu
tech
News
More than 90 years of car history are coming to an end with the abolition of the paper car-tax disc
newsThis and other facts you never knew about the paper circle - completely obsolete today
Arts and Entertainment
There has been a boom in ticket sales for female comics, according to an industry survey
comedyFirst national survey reveals Britain’s comedic tastes
Arts and Entertainment
Hilary North's 'How My Life Has Changed', 2001
books(and not a Buzzfeed article in sight)
PROMOTED VIDEO
Arts and Entertainment
Mystery man: Ben Affleck and Rosamund Pike in '‘Gone Girl'
films... by the director David Fincher
News
Kim Jong Un gives field guidance during his inspection of the Korean People's Army (KPA) Naval Unit 167
newsSouth Korean reports suggest rumours of a coup were unfounded
News
people'I’d rather have Fred and Rose West quote my characters on childcare'
News
ebooksAn unforgettable anthology of contemporary reportage
Travel
Bruce Chatwin's novel 'On the Black Hill' was set at The Vision Farm
travelOne of the finest one-day walks you could hope for - in Britain
Arts and Entertainment
Gay and OK: a scene from 'Pride'
filmsUS film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
News
people
Life and Style
Magic roundabouts: the gyratory system that has excited enthusiasts in Swindon
motoringJust who are the Roundabout Appreciation Society?
Arts and Entertainment
You could be in the Glastonbury crowd next summer if you follow our tips for bagging tickets this week
music
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Trust Accountant - Kent

NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

Law Costs

Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

Day In a Page

Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

The children orphaned by Ebola...

... then rejected by surviving relatives over fear of infection
Pride: Are censors pandering to homophobia?

Are censors pandering to homophobia?

US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
The magic of roundabouts

Lords of the rings

Just who are the Roundabout Appreciation Society?
Why do we like making lists?

Notes to self: Why do we like making lists?

Well it was good enough for Ancient Egyptians and Picasso...
Hong Kong protests: A good time to open a new restaurant?

A good time to open a new restaurant in Hong Kong?

As pro-democracy demonstrators hold firm, chef Rowley Leigh, who's in the city to open a new restaurant, says you couldn't hope to meet a nicer bunch
Paris Fashion Week: Karl Lagerfeld leads a feminist riot on 'Boulevard Chanel'

Paris Fashion Week

Lagerfeld leads a feminist riot on 'Boulevard Chanel'
Bruce Chatwin's Wales: One of the finest one-day walks in Britain

Simon Calder discovers Bruce Chatwin's Wales

One of the finest one-day walks you could hope for - in Britain
10 best children's nightwear

10 best children's nightwear

Make sure the kids stay cosy on cooler autumn nights in this selection of pjs, onesies and nighties
Manchester City vs Roma: Five things we learnt from City’s draw at the Etihad

Manchester City vs Roma

Five things we learnt from City’s Champions League draw at the Etihad
Martin Hardy: Mike Ashley must act now and end the Alan Pardew reign

Trouble on the Tyne

Ashley must act now and end Pardew's reign at Newcastle, says Martin Hardy
Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

Isis an hour away from Baghdad -

and with no sign of Iraq army being able to make a successful counter-attack
Turner Prize 2014 is frustratingly timid

Turner Prize 2014 is frustratingly timid

The exhibition nods to rich and potentially brilliant ideas, but steps back
Last chance to see: Half the world’s animals have disappeared over the last 40 years

Last chance to see...

The Earth’s animal wildlife population has halved in 40 years
So here's why teenagers are always grumpy - and it's not what you think

Truth behind teens' grumpiness

Early school hours mess with their biological clocks
Why can no one stop hackers putting celebrities' private photos online?

Hacked photos: the third wave

Why can no one stop hackers putting celebrities' private photos online?