Citi Economist Says It Might Be Time to Abolish Cash [Zech 5]

YaLibnan ^ | 4/17/2015 | Staff

[Jan_Sobieski]

The world's central banks have a problem. When economic conditions worsen, they react by reducing interest rates in order to stimulate the economy. But, as has happened across the world in recent years, there comes a point where those central banks run out of room to cut — they can bring interest rates to zero, but reducing them further below that is fraught with problems, the biggest of which is cash in the economy.

In a new piece, Citi's Willem Buiter looks at this problem, which is known as the effective lower bound (ELB) on nominal interest rates. Fundamentally, the ELB problem comes down to cash. According to Buiter, the ELB only exists at all due to the existence of cash, which is a bearer instrument that pays zero nominal rates. Why have your money on deposit at a negative rate that reduces your wealth when you can have it in cash and suffer no reduction?

Cash therefore gives people an easy and effective way of avoiding negative nominal rates. Buiter's note suggests three ways to address this problem:

1. Abolish currency.

2. Tax currency.

3. Remove the fixed exchange rate between currency and central bank reserves/deposits.

...

[yefragetuwrabrumuy]

It used to be diagnostic for a person being evaluated by a psychiatrist to determine their mental health, if the person would tell the psychiatrist what he *really* thought, without hesitation or evasion, it was a good indicator that he indeed was mentally ill.

Of course, what he really thought was likely bizarre, irrational, or so fantastic that it could not be believed. To the point where it could not pass the common sense “sniff test”.

I mention this because the same rule applies to economists.

That is, living in their white towers, imagining endless economic theories, they often reach laughable conclusions that they cannot see are laughable. Often they are simplified as well to the point where any sane person would say that their ideas are ridiculous.

“Abolishing cash” is one of these farcical notions. It typically means that it is time for them to retire and start a turkey farm.

[Jan_Sobieski]

Based on my knowledge of the Bible and prophesy, I believe this is going to happen...am I crazy?

[yefragetuwrabrumuy]

You might need to reassess the idea based on some simple concepts.

1) Anything in abundance can be “money”. Optimally it is something smaller than commodities of trade, and when recognized as such by those involved in a trade, it represents a ‘token’ of exchange.

2) This is why socialists want to ration *everything*. Because *anything* that exists in abundance and is wanted can be used as money, which can strip the socialists of control.

3) The Bible is very clear that its references to money means “the coin of Caesar”. So yes, indeed, such money is of, by, and for Caesar, even if it is widely used, and can be taken away by Caesar, or even eliminated, if Caesar wants. (And this economist is suggesting).

4) In economics, “Gresham’s law” is known as an “Iron Rule of Economics”, simply put, it is that “bad money pushes out good money.” If there are two competing types of money, the lesser valued money will be used and the more valuable money saved.

So say the government declares that all greenbacks must go electronic by a given date. This means that at first, everybody wants to spend their money as fast as possible. But after that date, *any* alternative currency becomes much more valuable than electronic money.

Anything in abundance.

[cherokee1]

Oh, there’s a FOURTH way: Quit burying federal debt in the Federal Reserve and put that debt out to bid on the open market. Interest rates will get back to normal overnight and people might be able to make a few bucks off their bank deposits. I sold off all my E bonds back in the 90’s when this whole thing started sliding. This guys theory is another way of saying that US cash might not be worth much for long. 18 trillion in debt is liable to kill it.

[Axenolith]

If this monetary system lasts “2 or 3 generations” past where we are right now, it’ll be a first for an unbacked system in about 2000 years...

IMO, the only reason it’s squeezed out a decade or so beyond the average failure of a currency after losing all backing is solely due to the fact that the majority of what is being generated is continuously siphoned off into a vast quantity of arcane computer managed financial instruments and stock trades. As soon as any quantity of people involved in those feels it’s time to pull those dollars out into the real world, s*** is gonna get weird.

[Axenolith]

Excess money with expiration dates is going to go into things nanny G doesn’t want it in like ammo, storable food, land, metal, etc...

[Colinsky]

money with expiration dates.

I read in a book called THE YEAR 1000 that England issued coins with expiration dates; on the expiration day you could turn in 5 now-worthless coins and get 4 coins back.

[BfloGuy]

And yet people can’t understand when I tell them the Federal Reserve and its unlimited printing of unbacked currency and debt creation is the foundation of Progressive government.

I run into that here all the time. They've lived their entire lives with a central bank and are convinced there would be no economic growth without inflation and government-set interest rates.