It’s time to dig into the Fortune & Freedom reader mailbag today. Your demands for a virtual conference on escaping financial repression have been heard, loud and clear, by the way.
And so, for today, let’s look into the damage done by financial repression in the form of low interest rates, what happened when one reader attempted to buy cryptocurrencies to escape financial repression, and more…
I reckon that I have lost around eighty thousand pounds since interest rates were slashed. I saved for my retirement but am left subsidising my state pension by taking from my investment that returns next to nothing. I guess millions of savers have suffered by subsidising low mortgage rates.
J.H.’s email reveals something crucial about low interest rates which is often overlooked. They are a transfer of wealth, not a creator of it. They transfer wealth from savers to borrowers.
The idea behind (very) low rates is to stimulate borrowing and thereby the economy. But all this really does is transfer consumption from the future into the present – because savings are future consumption. And the act of borrowing brings forward consumption from the future, which must be repaid with savings. That’s why so much of the current “innovation” in consumer finance is called “buy now, pay later”.
The trouble is that all this borrowing eventually shows up as lower GDP in the future, when the bill comes due. And then a new cycle of even lower interest rates to spur borrowing begins again. Until, eventually, debt is all maxed out and we get a crisis. That may well occur when interest rates reach absurdly low levels, as they have now.
What central bankers see as stimulus is really just about transferring wealth from savers and investors to borrowers and spenders. That means, in other words, from the future into the present.
Your title Fortune and Freedom describes exactly why people should not blindly trust any promises made by politicians, fund managers of financial institutions. I trust the views expressed in Southbank Investment newsletters such as yours, because it is balanced and not biased and gives the reader the plain facts to allow a rational decision to be made.
What amazes me is that the status quo within the financial world in general has been allowed to continue for so long. Following the end of World War 2, institutions were, in the main, honest and not greedy in trying to pull the wool over one’s eyes and generally did everything they could to give the best advice, whether it was for savings, mortgages or investments (remember the man from the Pru). Many of these door representatives were members of the armed forces and acted ethically in their relationships with the public. This was the same for the local bank manager or even shopkeepers.
However, it all went wrong from the Sixties onwards. Company attitudes suddenly changed towards their employees, loyalty got thrown out of the window, new schemes suddenly appeared shrouded with jargon no one could understand,
ministers resorted to obfuscation and there was a general slide downwards in attitudes between people, and education standards were being downgraded.
The hard lesson to learn in life is that nobody owes you a living. There is no money tree and the only way to survive is to get a job and work for a living. The world is a jungle and the poor and deserving individuals are left to fend for themselves. A few will get lucky, either through family connections or have a special gift, but the majority have to accept their lot and do their best to survive. Inevitably, some are driven to crime or even commit suicide.
My parents used to tell me that their years through the good and bad times were much better than my generation, and I am now thinking like them in regard to the next generation. I believe It will take a seismic event to alter the course of history, and will surely come sometime in the future. What form it will take is anyone’s guess, but life will feel and look a great deal different but hopefully, all the past problems and difficulties will be erased, and a better world will evolve, unrecognizable and possibly enhanced through today’s innovations, Bitcoin, IT, Robotics, Quantum Computers, 5G and G*, Internet of Things, Green Energy, Interconnectivity. The list is endless. To quote Aldous Huxley, it will indeed be a Brave New World!
I’m more worried about the realisation that nobody owes you a retirement either. That is in spite what has been promised, by politicians. All generations are in for a surprise.
This story from J.B. below reveals the war underway between legacy banking and cryptocurrencies:
I hope this finds you well.
I appreciate you’re pushed for time, so will do my best to keep this brief.
Firstly, I wanted to thank you and your colleagues for producing well-written and interesting articles. I am enjoying my subscription with Southbank!
The reason I make contact is to share a recent experience with my bank, which I have found rather frustrating and baffling. It resonates well with your articles “Are you feeling financially repressed?”, “When money became meaningless” and “Why dump your gold in Tokyo Bay?”, amongst others.
A quick introduction – I am very much a “little fish” in trading and wish to diversify my portfolio into crypto. Again, articles from Southbank have given me confidence to ‘dip a toe’.
I have used the exchange […] to make some very small initial investments (£[…] or so) and wished to increase the amount of risk-capital I invest. However, what I have found is that my Bank appears to be holding my money hostage and not permitting me to transfer funds to crypto exchanges!
It starts with the transaction being declined by the bank… Apparently for “safety reasons”:
To keep your money safe and secure, we have rejected your payment of £XXXX to your selected cryptocurrency provider. Funds have not left your account and future payments may also face the same restrictions. You can find out more information on why we have rejected your payment here:
I find this odd, given I have already consented by ticking countless checkboxes whilst arranging the payment. And in particular that relating to the risk of crypto. [The bank] kindly provided a support link, so I thought I’d have a look to see how to circumvent the payment issue.
The first article reads:
Why won’t [the bank] allow me to purchase cryptocurrecy?
We know that customers investing their money in cryptocurrency has become extremely popular. However, we are also aware of the increasing risks posed by fraudsters exploiting this trend to dupe customers out of millions of pounds per month. In addition, there have been recent regulatory warnings and announcements regarding the risks associated with cryptocurrency, particularly the lack of consumer protection.
As such, we have decided to take proportionate action to keep our customers safe and secure. This doesn’t mean that we block cryptocurrency payments altogether but we will restrict payments to cryptocurrency exchanges that present the highest risk of financial harm.
Although you may have made payments to cryptocurrency exchanges previously, we continuously monitor fraud patterns and trends, adjusting our restrictions to keep you, and your money, safe and secure.
Ok, fair enough – the bank is very kindly “keeping one safe”… What about another FAQ?
Why has my Payment for a cryptocurrency purchase been stopped?
In the past few months, there has been a large increase in the number of UK Banking customers becoming the victims of cryptocurrency scams.
If you’re making a payment to a cryptocurrency exchange where a high volume of scams has been reported to us, your payment may be declined. We are doing this as a preventative measure. The bank wants to keep you, and your money, safe and secure. If you choose to make a payment that we didn’t stop, and it turns out to be a scam, we will not be able to refund any money you chose to send.
Yet again, crypto is inherently Evil and I shouldn’t be doing it. But, again, the bank is surely looking out for my best interests. That’s very kind of them!
Well, maybe it’s the case of the £[…] I tried to transfer being too large?!
If I make a lesser payment amount will my payment still be stopped?
Due to the increasing risks posed by fraudsters exploiting cryptocurrency we will continue to block any value of payment to merchants/exchanges where we see a disproportionate amount of fraud being committed in order to protect you.
Oh right… That’s interesting. So it’s not the size of the transaction, it’s where the transaction is going?! Urm…
I think I’d like to contact someone to try and sort this out. I’ve done my research and want to use my money for an investment after all!
I would like to make a complaint
If you are unhappy that your payment to a cryptocurrency merchant has been declined and wish to make a complaint, details of how to do this are available on our complaints page (opens in a new window).
However, it is important to note that this will not change the outcome of the declined payment as this has been done in accordance with bank policy.
You have to be joking?! I can make a complaint but it’s “bank policy” to refuse me access to my own money?! 😊
Despite being infuriating that the bank has a policy to stop customers withdrawing funds, I’m a little concerned where this leaves me from a legal standpoint. I have raised an invoice with the exchange and if I cannot pay the invoice as the bank is “protecting” me (clearly from my own stupidity!) who is responsible for that contract not being fulfilled? I suspect that falls on my shoulders for being an idiot watching fiat-savings devalue! Oh dear! Silly me!
Anyway Nick, sorry for taking your time, but I wanted to share this experience as I cannot believe that a (UK) bank would behave this way! Usually I’m an optimist, but recent events have left me rather cynical – clearly I’ve been reading too many of your articles 😉. I’d be very curious to know if any of your other readers have identified similar patterns with their own banks. Or, at the very least if there’s any way of understanding the policies they refer to… As someone who is trusting the bank to hold their money, I’d be grateful for some more transparency!
Thank you for your time.
PS: I enjoy your “history lesson” e-mails, please keep them going. We have a lot to learn from the past (although it’s not a prediction of future performance! 😊).
The interesting thing here is that it demonstrates the need and purpose of cryptocurrencies in the first place. Their transactions can’t be prevented like this. There are no centralised institutions to do it. Transfers are peer to peer.
Of course, the exchanges between cryptocurrencies and government money can be interfered with. But within cryptocurrencies, it is supposedly not possible.
I interviewed my long-time mentor Greg Canavan about all this recently. He’s a sound money advocate and value investor who had a lightbulb moment on cryptocurrencies. Find out why here.
Editor, Fortune & Freedom