I Need a New Word for Stupid

The move to destroy cash feeds into the economic commissars’ fantasy that they can better control the economy. Policymakers in Washington, Tokyo and the EU think the reason that their economies are stagnant is that ornery people aren’t spending and investing the way they should. How to make these benighted, recalcitrant beings do what they’re supposed to do? The latest nostrum from our overlords is negative interest rates. If people have to pay fees to store their money, as they do to put their stuff in storage facilities, then, by golly, they might be more inclined to spend it. To inhibit cash hoarding–when Japan announced it was imposing negative interest rates, the sale of safes soared–the authorities will want to do away with large notes.

We kid you not. The highly credentialed author of a paper advocating the prohibition of large currency denominations declared, “Introducing negative interest rates would create a powerful incentive to hold deposits in cash, most likely in higher denominations. Eliminating high-denomination notes, so that saving in cash was more inconvenient, would mitigate this problem.”

http://www.forbes.com/sites/steveforbes/2016/03/01/the-great-cash-grab/#5c28efdd6dc4

What Caused the Crisis? NOT Stable Money

"No economic crisis was ever caused by stable money. When you finally decide that's what you want, gold is your answer."

http://www.forbes.com/sites/nathanlewis/2012/10/14/let-it-be-known-that-
no-financial-crisis-was-ever-caused-by-stable-money/2/

Gold v. The Fed

During his lecture, Chairman Bernake said many things about "the gold standard" as if there was only one possible kind of gold standard, the one that existed after World War I. Many of his assertions were true, as far as they went. However, in focusing on the shortcomings of one monetary regime, he diverted attention from the big picture. Only an automatic, market-based monetary control system can support rapid, stable, crisis-free economic growth in an economy as complex as America's. If it were possible for Fed experts using their discretion to achieve this, we would not have the problems that we have today.  http://www.realclearmarkets.com/articles/2012/03/27/ben_bernankes_shocking_gold_standard_ignorance_99586.html

I think the premise - if The Fed was good enough to manipulate an economy the benefit of all, it would have been done by now - if valid.  How possible or good it would be to go back to a gold standard isn't something I would pretend to know, but frankly - how could it be worse than having one group of mortals do it?  Do they really know what one would need to know to "run" an economy?  Sounds like Fatal Conceit to me.

Or as the author put it:
It is simply not possible for a group of experts, with discretionary power and no rules, to manage, "money" effectively. If anyone had doubts, the Fed has conclusively proved this point over the past 40 years.

What sounds like massive folly is to keep betting the welfare on so many on the President's ability to pick a Fed Chairman - why's that different than roulette?

Founding Fathers Crazy Like Perry

And most, if not quite all, of the Founders virulently attacked the same darn thing as did Mr. Perry: funny money.  Those who wrote and championed the Constitution and the statesmen of young America detested the idea of funny money like Federal Reserve Notes. Real money was, exclusively, gold and silver.  They, like Perry, considered their era’s “quantitative easing” both immoral and economically toxic.
Paine:  “As to the assumed authority of any assembly in making paper money, or paper of any kind, a legal tender, or in other language, a compulsive payment, it is a most presumptuous attempt at arbitrary power. There can be no such power in a republican government: the people have no freedom — and property no security — where this practice can be acted: and the committee who shall bring in a report for this purpose, or the member who moves for it, and he who seconds it merits impeachment, and sooner or later may expect it.”  “… and the punishment of a member who should move for such a law ought to be death.”
Washington:  “We are fast verging to anarchy and confusion! … They are determined to annihilate all debts public and private, and have Agrarian Laws, which are easily effected by the means of unfunded paper money which shall be a tender in all cases whatever.”
Jefferson: “Paper money is liable to be abused, has been, is, and forever will be abused, in every country in which it is permitted.”
Madison: “The extension of the prohibition [of paper money] must give pleasure to every citizen, in proportion to his love of justice and his knowledge of the true springs of public prosperity.”

http://www.forbes.com/sites/ralphbenko/2011/08/22/the-constitutional-populist-realignment-of-2012/

Classic - Kinsley

The question remains: If the deficit doesn't matter, why have any taxes at all? And if there is some point at which the deficit does start to matter, and become dangerous, when is that point if $1.6 trillion isn't it?
http://www.latimes.com/news/opinion/commentary/la-oe-kinsley-sp-20110426,0,7244720.column

Inflation, Debt, Wealth - McArdle

McArdle writes:

And I cannot disagree too strongly with the notion that the US can't default because we can always print money.  It isn't even technically true--Zimbabwe eventually ran out of hard currency to buy the ink it needed to print the money to sustain its hyperinflation.

 

Moreover, the dismissive way that Galbraith treats this problem looks only at the stock of debt, not the flow of funds.  Inflation is only a good way to get out of your debts if you aren't planning to borrow any more money.  Otherwise, investors simply recover their losses--and then some--by requiring higher interest rates on all your new borrowing.  "All your new borrowing" eventually includes all of the money you borrowed before, because unless you're running a surplus, you're going to have to roll over every penny of that old debt into new loans as it matures.

Inflation was a good way to ease the burden of our World War II borrowing--once the war was over.  But it is not a good way to ease the burden of an increasingly expensive entitlement program that shows no signs of winding down.

 

You can pull all sorts of tricks to force bondholders to eat some losses on the money they lent you--but you can't pull them over and over.  America was able to wriggle its way out of a substantial portion of its WWII debts in large part because it was otherwise pretty fiscally sound.

Debt held by the public is in the range of $9 trillion, or about 64% of GDP.  The average maturity of our public debt holdings is under 5 years, meaning that roughly half of our debt will have to be rolled over within that time frame.  You can see how short-lived our ability to inflate away our debt would be--and how quickly the budget could be severely compromised by higher interest costs, even if we are using our "means of production" to the hilt.  

 

You can argue that a small amount of inflation is preferable to the alternatives, distributing the pain very broadly in order to avoid the intense dislocations of a sudden shock.  I might even agree with someone who argued this. But small amounts of inflation are not going to rid us of $10 trillion in debt.  And the pain of large amounts of inflation is extremely painful--arguably, more so, not less so, than technical default.

Indeed, in large amounts, inflation is just default by another name.  And it retains many of the problems of default.  Either way, we'll be forced to suddenly slam on the brakes of our deficit finance--either because no one will lend to us, or because the higher interest rates they demand will make such borrowing impractical.  (Just look at Ireland).  

Inflation, Debt, Wealth - Kinsley

Kinsley on inflation impacts on debt and wealth:
Here's an easy prediction: Soon, many of the people who have been talking about how the return of high inflation is terribly unlikely will start talking instead about how a bit of inflation is harmless or even healthy for the economy. In fact, it's already started. This is from a news article in the New York Times: "[T]he purchases [of debt by the Federal Reserve Board] have improved economic conditions, all but erasing fears of deflation…. Inflation, which is beneficial in moderation, has climbed closer to healthy levels since the Fed started buying bonds."

Why are people talking this way? Here's the missing explanation: Inflation reduces the value of debt. If poorer people are on balance borrowers and wealthier people are on balance lenders, inflation can help to reduce one of our most serious economic problems, which is the increase in income and wealth inequality. More important, inflation is the only conceivable easy way we can pay down the national debt to a manageable size, or at least slow its growth.

This is how it works: The debt ceiling we're about to crash through is $14.3 trillion. But even as we borrow more (about $1.6 trillion this year), inflation erodes the value of what we already owe. At an inflation rate of 2.7%, $14.3trillion will be worth about $13.9trillion in today's dollars a year from now. That's nearly $400billion wiped away from the national debt without fuss, without debate and seemingly without cost or pain. A quarter of the deficit. And that's with inflation at record lows. If inflation were 5%, it would wipe out $715 billion; at 10%, nearly the entire projected annual increase in the national debt, even at its current record high of $1.6 trillion.

Of course, it would also wipe out people's savings at the same rapid clip. Anyone who lived through the inflation of 1979-81 knows that there are noxious social effects as well. To say that inflation, at 2.7%, has "climbed closer to healthy levels" is insane.