Swedes are saving more than ever in their newly created (voluntary) cashless environment. That was not supposed to be how it works. They should be saving less and spending more because the banks are charging them interest. That is the goal of negative interest rates, to force people to spend more so that inflation will bump off zero.

But here is the flaw in that reasoning. The fees the banks charge retail customers are like a tax. They make the Swedes feel poorer in their accounts, not richer. So the Swedes do what I predicted. They save more to make up for the shortfall. They still don't want to hide money under the mattress, risking the loss of all of it to theft!

The illogical reasoning that people will spend more when you take their money away from them must have been created by people who have plenty of spare money. No one else would entertain this absurd reasoning except for economists and bankers!

A tax is a tax, no matter if it comes from the government or if it is imposed by the banks. Bankers better be very afraid that people will simply not want to spend money when they are being taxed more. Savings have exploded in the USA, even while main street has suffered. You can see that by the chart:

Now, it is possible that once negative rates become large, like over 5 percent, that people will look for alternative means of storing value. They will seek out gold, or perhaps antiques, or art, or coins, or most likely bond funds. But knowing that the populace is getting steadily poorer will not, in my opinion, make for a stronger business climate. And if people sense a weak business climate they save money.

So, making the populace poorer will not make them spend. People spend less when they feel poorer, not more. I cannot understand how this is lost on New Keynesians like Krugman and Roubini and others. The slide toward negative interest rates is an untested and dangerous model.

But even JP Morgan is calling for a deep venture into negative rates well below zero. The economists at JP Morgan say that banks will not hoard cash, even if it makes economic sense to do so. Negative .5 percent is the real zero lower bound according to the bank of England. But JP Morgan says that the Fed could go as low as -1.3 percent here in the US, that Britain could drop down to -2.5 percent, and that the euro zone could drop as low as -4.5 percent with Japan dropping to -3.45 percent.

Of course, those negative rates may have to be passed on to retail accounts, in which case rates could go lower than even JP Morgan recommends.

Jim Edwards of Business Insider has pointed out that Swedes have more than doubled the amount they have deposited into banks this year over last year. As Jim has noted, Statistics Sweden has pointed out:

Households continued to save in bank accounts and deposits minus withdrawals amounted to SEK 24 billion. Net deposits during the first three quarters of the year were SEK 100 billion. This can be compared to SEK 42 billion during the corresponding period last year.

Jim is puzzled by the behavior, but I am not at all. Sweden is a cold weather nation. People make good wages and seek convenience. Also, they must be confident they can overcome the tax, with, you guessed it, more savings!

Jim points out that as other assets grow for Swedes, they are actually feeling richer. It will be interesting to see what happens when the housing bubble crashes. Will Swedes then feel poor and save even more or will they hide their money under the mattress, forcing the powers that be to abolish cash?

I don't see the later happening at all. People are at work all day, and they don't want a lot of cash left in unsafe places. Greedy banks are better for savers than no banks. And, of course, when rates go negative far enough, depositors could be permanently trapped, as banks banish cash altogether.

As for Americans, well, many of us pay bills online. We don't want to spend the time or money to drive to the stores to pay the bills. Much of the US has cold winters, when the price of going out could be too high. Until negative rates become simply abusive, we may tolerate some fees.

But it could be the accumulation of fees and taxes that set Americans against negative rates. If gasoline prices rage upwards and utility prices rage upwards, and other prices go out of control, how much patience with Americans have with the negative rate regime? It is one thing to voluntarily take a small interest fee for convenience. It is quite another to be forced into it.

Massive bank fees with forced savings due to cashlessness may cause a serious revolt of some kind. That is the experiment in human nature that we think could be played out not so long in the future. How Americans react to the totalitarianism of forced savings could be a game breaker.