NORTH VERSUS SOUTH

It never changes, north versus south.

San Franciscans look down their long PC noses at their southern neighbor, Los Angeles. In the European Union it's always been the snooty north against the less well-off south. Brussels versus Greece could draw a fair-sized UFC crowd. In fact, maybe that's is what's needed and will eventually come about. There's a nearly global north-south water struggle many are unaware of going on also.

In Magic Mario Draghi's stumbling, bumbling attempt to right the rudderless Good Ship European Union, the southerners will once again feel the squeeze is on. Banks there are already hurting to use a kinder, more gentle depiction. Negative interest rates will simply pour more water on the heads of the already drowning.

Banks make much of their money on the spread in interest rates, no different in its way than carry trades in currencies. Borrow money at a lower rate in one currency and invest it at a higher rate in another currency, hoping the spreads remains steady as it goes.

A narrower spread hurts depositors but it may even hurt banks more. And that's what those southern European banks need, more pain and more "we told you so" And then there's the almost ignored problem of fixed versus variable mortgage rates. In the north their mostly fixed, in the south variable.

This can have a big impact on mortgage rates as banks with variables on their books yield less income the lower rates float. Since margin rules or covenants on these loans can't be changed, the squeeze gets tighter. As noted in one scribe today, at least one southern bank there is now paying its mortgage holders for the privilege of holding their mortgages.

It's game in America seemingly growing more popular by the moment as banks pony up funds to the
Fed for holding their reserves. Just the obverse is true with fixed rate mortgages. Banks holding them worry about rising rates.They also don't like a lot of inflation. Up to a point zero rates are a lenders paradise; you're constantly paying them back with an appreciating currency. Inflation favors the borrower.

What much of this is about is unintended consequences bureaucrats and regulators never seem to see before they dictate our futures. As public confidence in these institutions that in essence are answerable to no one fades, disgruntlement will grow. It's a healthy disgruntlement, not what MSM shills would have you believe.

Nearly all change has an element of disgruntlement to it. Appreciation for personal and local sovereignty will also grow. And like any good spellbinding mystery the outcome become clear. China's elite know and fear this the most. They are not alone.

You're on your own.