Whether Europe’s Bank Rate Cuts are a Good or Bad Thing

Mario Draghi

The European Central Bank, under Italian banker Mario Draghi (pictured), cut its bank deposit rate below zero in an effort to “avert the dangerous threat of deflation” and to spur the “sluggish” euro-zone economy.

European monetary policy gradually has shifted toward more and more inflation. It started off with a hard-core resistance to inflation under a Dutch president of the European central bank, then made way for a Frenchman, and now an Italian has taken over.

The idea is to encourage bankers to start making loans instead of depositing their funds with the central bank. In the United States, the Federal Reserve actually pays interest on bank deposits. Not surprisingly, U.S. banks are not lending to small business like they used to.

Stocks in Europe and around the globe (especially emerging markets) rallied on the news, and subscribers to my trading services are profiting with new positions in India and Greece.

Is deflation really a “bugabear?” According to the standard view, “Deflation cuts into business profits, raises real debt burdens and discourages consumer purchases, hampering investments and jobs. The strong euro has not helped because it has damped inflation by lowering import prices, while also making Europe’s exports more expensive in foreign markets.”

Yet there have been times of robust growth in the midst of deflation — look at the United States in the 1890s, the 1920s and the 1950s. Deflation does not necessarily hurt business profits if costs are falling, too.

My fear is that the never-ending low-interest rate strategy by the Federal Reserve and the European Central Bank will create an artificial boom and more asset bubbles that will end badly. Only time will tell.

Top investment managers and advisers will debate in full the implications of these permanent low-interest rates at this year’s FreedomFest. Join Peter Schiff, Alex Green, Adrian Day, Joel Stern and yours truly in our “All Star Prediction Panel” July 10; just visit www.freedomfest.com.

Exclusive  Euro Gains on Dollar While U.S. Markets Rest

You Blew It! Could Walmart’s Walton Family Buy Seattle?

The Huffington Post last week ran a creative story, “Walmart’s Founding Family Could Literally Buy Every Home in Seattle.”

According to the reporter, “Walmart’s founding family could afford to buy every home in Seattle. Literally. The Walton family’s combined wealth of $154.8 billion is enough to purchase all 241,450 homes in the Emerald City, which are worth a total of $111.5 billion, according to an analysis published Thursday by real estate brokerage firm Redfin.”

Or the Waltons could buy every house in Dallas at $109.4 billion, Washington, D.C. at $109.2 billion or Miami at $92.8 billion.

The reporter went on to say that Bill Gates’s $78.4 billion could buy all of Boston and Warren Buffett’s $65.8 billion could buy Charlotte, N.C. In addition, Google co-founder Larry Page’s $30.8 billion could buy Boca Raton, Fla. and the Koch brothers’ $78.1 billion could buy Atlanta.

“In this fictional real estate investment, the 30 billionaires on our list, with a combined fortune of $582 billion, could afford to own a staggering 6 percent of the total U.S. home equity,” Nela Richardson, Redfin’s chief economist, said in a statement.

But there’s a fatal flaw in this creative story. It is dead wrong. None of these billionaires could come even close to “literally” buying up all the houses in any of these cities.

The reason? Supply and demand. The current prices of houses (or any other product) in Seattle, Boston, Miami or anywhere else is based on a small marginal number of homes for sale at any one time.

Exclusive  U.S. Investors Scurrying for the Exit?

If the Walton family suddenly started buying up every home in the Seattle area, prices would skyrocket. Instead of selling for an average price of $200,000, homes suddenly would be going for $300,000 or $500,000 and would keep increasing as word spread that the Waltons were coming.

In fact, the idea that Bill Gates is actually worth $78 billion is a fiction. Imagine if he tried to sell all of his Microsoft stock. The price of the shares would plummet. The only way he could get his money out is if he sold gradually over a long period of time.

Always remember this: all prices are determined by marginal buying and selling. If the margins change, watch out.

In case you missed it, I encourage you to read my e-letter column from last week about real solutions to healthcare, poverty and unemployment to be presented at FreedomFest. I also invite you to comment in the space provided below.

Like This Article?
Now Get Mark's FREE Special Report:
3 Dividend Plays with Sky-High Returns

This newly-released report by a top-20 living economist details three investments that are your best bets for income and appreciation for the rest of the year and beyond.

Get Access to the Report, 100% FREE

previous article

If you do wish to invest in China’s potential growth, one way to dip your toe in those waters is through the iShares China Large-Cap ETF (FXI).


Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen publishes 4 different investment newsletter advisories, including the award-winning Forecasts & Strategies, which has beaten the market over the last 15 years.

Product Details

  • Forecasts & Strategies
  • Skousen High Income Alert
  • Fast Money Alert
  • Five Star Trader
About Mark Skousen

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays. Bryan's four newsletter and trading services include:

Product Details

  • Cash Machine
  • Premium Income (exclusively for subscribers of Cash Machine)
  • Quick Income Trader
  • Instant Income Trader
About Bryan Perry

Nicholas Vardy

A Stanford and Harvard Law graduate, Nicholas Vardy scours over 40 different global markets every day to uncover new profit opportunities for subscribers. His 3 advisories and trading services include:

Product Details

  • The Alpha Investor Letter
  • Bull Market Alert
  • Alpha Algorithm
About Nicholas Vardy

Doug Fabian

A 30-year Wall Street veteran and famed market timer, Doug Fabian is one the nation's foremost experts on ETFs (Exchange Traded Funds). His two ETF-focused advisories include:

Product Details

  • Successful ETF Investing
  • ETF Trader's Edge
About Doug Fabian

Bob Carlson

In Bob's monthly newsletter, Retirement Watch, he provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details



Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research. Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

Product Details