Negative Rates and Cash Bans: The Chaos Continues at Jackson Hole
Negative rates should be integral part of central bank policy options … Central banks should make negative interest rates a fully integrated part of monetary policy in order to respond effectively to future recessions, according to an academic paper presented on Friday to some of the world’s top central bankers. “It is only a matter of time before another cyclical downturn calls for aggressive negative nominal interest rate policy actions,” concludes Marvin Goodfriend, a professor of economics at Carnegie Mellon University and a former policy adviser at the Richmond Federal Reserve bank. – Reuters
The Federal Reserve meeting at Jackson Hole has been covered by the mainstream media in ways that gave the impression that policy discussions were a kind of theoretical exercise.
Papers were presented on such issues as negative interest rates (see excerpt above) that emphasized an academic context. The idea that comes across is that those involved were earnestly striving to combat US economic dysfunction and current unnaturally low interest rates.
The larger issue here is one that we didn’t find written about: the assumption of the inherent right of policymakers to do what is “necessary” to make the US economy “healthier.”
The debate is certainly cast in theoretical terms but the results will inevitably involve the use of force.
The assumption is that involved in the “monetary debate” will come to a reasoned conclusion that society as a whole will be impelled to adopt. Those who do not wish to adopt such a solution – and who actively resist – may be prosecuted or jailed.
A few days ago, in a lead-up to the conference, the Wall Street Journal published a longish editorial by Dr. Kenneth Rogoff, the Thomas D. Cabot Professor of Public Policy at Harvard University.
Rogoff was also the former chief economist of the International Monetary Fund and the article was taken from an upcoming book, “The Curse of Cash,” to be published in September by Princeton University Press.
Here’s an excerpt:
Money fuels corruption, terrorism, tax evasion and illegal immigration—so the U.S. should get rid of the $100 bill and other large notes … When I tell people that I have been doing research on why the government should drastically scale back the circulation of cash—paper currency—the most common initial reaction is bewilderment. Why should anyone care about such a mundane topic?
But paper currency lies at the heart of some of today’s most intractable public-finance and monetary problems. Getting rid of most of it—that is, moving to a society where cash is used less frequently and mainly for small transactions—could be a big help.
There is little debate among law-enforcement agencies that paper currency, especially large notes such as the U.S. $100 bill, facilitates crime: racketeering, extortion, money laundering, drug and human trafficking, the corruption of public officials, not to mention terrorism
The necessity for this sort argument has to do with the inevitable results of the imposition of negative interest rates. Cash will have to become more difficult to obtain and use because people won’t want to pay banks for placing cash in savings accounts. They might instead wish to hold cash at home so they don’t have to pay a fee.
As stated, the larger issue here is one of compulsion – and its presentation within an academic context. The Wall Street Journal editorial, for instance, is part of a book that will shortly be issued. The discussion of negative interest rates in Jackson Hole was accompanied by a white paper produced by a professor of economics.
The underlying reality is that these astonishingly comprehensive solutions don’t provide a choice. Even negative interest can be seen not as a monetary/policy response but as a kind of tax. An article by Christopher J. Waller (here) characterizes low rates as nothing more than a disguised money grab:
Negative Interest Rates: A Tax in Sheep’s Clothing … A negative interest rate is just a tax on the banks’ reserves. The tax has to be borne by someone: The banks can choose not to pass it on and just have lower after-tax profits. This will depress the share price of banks and weaken their balance sheets by having lower equity values.
This is true – and is an outcome of the way the Fed works. Imposing rates via monopoly authority always constitutes a tax, though this is not something regularly discussed when it comes to Fed “policy.”
Generally speaking, mainstream media coverage wants to present monetary discussions in ways that emphasize its theoretical aspects. But the bottom line is that what’s being discussed is not going to end up as suggestions. Whatever is decided on will have the force of law.
And if we look beyond “theory” to reality, the outcome of these kinds of discussions is invariably bad. Central bank monetary mayhem is everywhere you look. The West – the world, really – is locked into a quasi-depression as a result of a century of failing policies and monetary manipulation.
In the US, Janet Yellen wants to pretend that a “recovery” is ongoing. But if so, it one that does without some 90 million potential workers who choose not to participate – either because they cannot or because they wish to participate outside of the formal economy.
We recently posted an article entitled “Is the Fed Being Torn Down in Order to Create a New, Powerful Global Entity?” (here). When one examines the behavior of the Fed, and of central banks generally, it’s hard to conclude that their real mission is the one presented to us.
Step back far enough to contemplate a century’s worth of results and the reality is clear: Central banks are supposed to destroy the economies they supposedly serve. Ironically, the destruction then provides the opportunity for them to expand.
Giving a small group of individuals the power to decide on the value and volume of money is a ludicrous concept from any standpoint. But he problem is abetted by the mainstream narrative that never discusses the underlying lack of logic.
And so we observe Jackson Hole, which is presented to us as a conclave of elite thinking but which is actually nothing more than high-brow propaganda for a system that has already failed and – as compensation for its failings – now contemplates even more radical “solutions” that will give rise to even worse problems.
Conclusion: The mechanism of central banking is purposeful ruin. The end-result of this ruin is global governance. In the short-term this goal is disguised by an academic patina. But the long-term goal, an increasingly apparent one, is a brutal restructuring of the lives of seven billion people to benefit a handful of elite controllers.