Bet You Didn’t Think the Rule of 72 Worked Like This

If you read Fridays Money Morning, youll know about a disturbing speech given by the Bank of Englands chief economist, Andrew Haldane.

Heres the key quote from the speech:

One interesting solution, then, would be to maintain the principle of a government-backed currency, however have it issued in an digital rather than paper form. This could preserve the social convention of a state-issued unit of accounts and medium of exchange, albeit with currency right now held in digital rather than physical wallets. But it would allow unfavorable interest rates to be levied upon currency easily and quickly, so relaxing the ZLB restriction.

Its a cold and wordy statement in the central bank official.

The last sentence really made our mouth drop.

But theres even more to it compared to that

Were sure you know what Mr Haldane means by negative interest rates.

If not, its quite simple. When you have money in the bank, youll generate interest. Until a few years ago, you could earn between 4C7% interest.

Today, youre fortunate if you can get a rate that starts with a two.

If a positive interest rate means that you earn interest on your savings, were sure you know what this means to have negative interest rates. Thats correct, rather than the bank paying you interest, the bank would deduct interest from your savings.

How lengthy to halve your money

A 2% positive interest rate on $10,000 would earn a person $200. That would leave you with $10,200.

A 2% negative rate of interest on $10,000 would cost a person $200. That would leave you with $9,800.

Got which? Right now, central bankers are looking for more ways to take money out of your pocket in order to give it to government authorities, vested interests, and monetary elites.

Interestingly, if youve heard of the Rule associated with 72, you should know that it works with unfavorable interest rates too. The Guideline of 72 is simple. This shows you how long it takes in order to double your money with a constant interest rate.

You take 72 after which divide it by the interest rate.

If the interest rate is 6%, it will take you 12 years to double your money. 72 divided by six is actually 12. Easy.

If the interest rate is 2%, it will take you 36 years to dual your money. 72 divided by two is 36. Simple.

But when it comes to negative interest rates, youre not working out how long it will take to double your money. You need to know how long it will take to halve your money. In this case, the formula is the same.

You take 72 and then divide this by the negative interest rate.

So, when the negative interest rate is -3%, it will lead you 24 years to cut in half your money. 72 divided through -3 is 24. (Its actually -24, but we can ignore the minus sign.)

If the negative interest rate is actually -2%, it will take you 36 years in order to halve your money. 72 divided by -2 is 36 in this instance.

If the negative interest rate is actually -5%, it will take you just over 14 many years to halve your money. Seventy two divided by -5 is Fourteen.4.

You get the drift.

This isnt nearly super, its about all your savings

The challenge with most mainstream Keynesian economists is that they spend so much time knee deep in statistics, spreadsheets, and numbers, that they forget what economics is all about.

Economics isnt theory. As the Austrian School economists say, economics is all about human motion and interaction. But popular economists dont see that.

They see the economy as something to fine-tune through shifting interest rates, printing money, and raising or cutting taxes. Its all about the numbers.

For 6 years, weve written about the Australian governments plans to grab private prosperity. We warned about it captured in the Exodus Initiative report.

But this just isnt about governments taking private super savings.

The truth is that many people already pay for items electronically. It wouldnt take a lot to make electronic payments the only form of legal tender. The government could outlaw financial institution notes and coins, using the ruse of counter-terrorism or the war on drugs as a way to justify it.

Then, the government would just decide which banks it would allow to hold this electronic currency. Once the government did that, it could outlaw all competing forms of electronic currency say goodbye to Bitcoin for a start.

Whenever we talk about this kind of thing, folks always state that its far-fetched. They say were part of the tinfoil hat brigade. Hey, thats fine with us. Were not interested in convincing everyone. We just want to tell as many people as possible, and then leave it up to them to decide.

If you think Andrew Haldanes plans for unfavorable interest rates and electronic foreign currencies could never happen, go about your business. If however, you think theres a chance it could happen, we suggest you read the Exodus Initiative and start placing some of the ideas into motion.

You can find out how to get hold of a copy here.

Cheers,

Kris