Ken Rogoff is a chaired Harvard economics professor, a one-time chief economist at the International Monetary Fund and (to boot) a chess grandmaster. He laid out his case against cash in a Saturday essay in this newspaper two weeks ago. By abolishing large-denomination bills, he said there, the government could strike a blow against sin and perfect the Federal Reserve’s control of interest rates. …
An ideologue in the thrall of a theory. Keynesian economic was considered crackpot by all economists before the 1930s — how can you make the economy better off merely by creating more of the medium of exchange and giving it those in political favor? It will encourage more goods and services to be produced, but only for a little while…
In a deep recession, Mr. Rogoff proposes, the Fed ought not to stop cutting rates when it comes to zero. It should plunge right ahead, to minus 1%, minus 2%, minus 3% and so forth. At one negative rate or another, the theory goes, despoiled bank depositors will stop saving and start spending. According to the worldview of the people who constitute what Mr. Rogoff fraternally calls the “policy community” (who elected them?), the spending will buttress “aggregate demand,” thus restore prosperity. …
The state will keep taking your money away unless you spend it. Rogoff and the state know better than you, and will force you to their will.
This is a big can of worms that the author has pried open. He assumes, first and foremost, that falling prices are a calamity. It is not such a calamity that many Americans don’t spend most of the weekend seeking them out. Still, the policy community wants nothing to do with them.
Negative rates? … Today’s negative bond yields, he says, are the first in at least 5,000 years.
A positive integer would almost seem inherent in the idea of interest. When most of us want something, we want it now. And if we don’t have the money to buy it now, we borrow. …
Interest rates are prices. They impart information. They tell a business person whether or not to undertake a certain capital investment. They measure financial risk. They translate the value of future cash flows into present-day dollars. Manipulate those prices — as central banks the world over compulsively do — and you distort information, therefore perception and judgment.
The ultra-low rates of recent years have distorted judgment in a bullish fashion.
Faulty theory in the service of state ideology. It’s happened before.
A reader remarks:
James Grant critical review of Rogoff’s book is good. But Grant does not seem to know the German background and the theory of “Freigeld”. The Frei Geld (free money) theory also meant that the State should own all land, as otherwise people could make rents from owning land. The Nazi Party was the first party who took those ideas in its party program, in 1923.
As we now can see how the central banks can print electronic money and buy bonds and stocks, why not also buy land ?
This is the way to a socialist dictatorship, with the use of electronic money creation. A slow central bank bureaucratic power grab — confiscation with use of IT, without a violent revolution in the style of Lenin.