Citibank Economist Touts the Virtue of Negative Interest Rates

[J. D. Stembal]

Willem Buiter at Citibank is cooking up another ghastly idea for the Federal Reserve to move to strictly digital currency and abolish cash currencies.

 

http://www.marketwatch.com/story/why-central-banks-should-embrace-negative-interest-rates-and-get-rid-of-currency-2015-04-13?siteid=yhoof2

 

He said that there are only three constituencies left for cash. The elderly and the poor depend on cash and can be helped, he said. Criminals also depend on cash because it is anonymous. The third complaints will come from libertarians who “should take one for the team,” he said.

 

Save the elderly poor; fuck criminals and Libertarians!

[Lingum]

This is some really heavy handed propaganda.

• Implying there are no drawbacks to strictly digital currency
• Implying there are no benefits to cash over digital currency
• Claiming digital currency will help the poor and elderly
• Implying libertarians arbitrarily root for cash, similar to football fans rooting for a football team, instead of a principle at play
• Implying we're all on the same team, which further implies digital currency is "the common good"

And in the article, he talks about how negative interest rates will discourage saving, but never explains why saving should be discouraged in the first place. Nothing new there.

 

I wonder, do economists just cite each others' opinions? That's what it seems like every time I read an article with or by an economist. They never justify their extraordinary assumptions. The people I know that have studied economics, never make arguments or cite research, but rather tell me which prestigious economist was a proponent of a theory or which successful businessmen believe it. This is also how the media propagate misinformation. They have policies that stories need to be corroborated, but consider what they're told by government figures as already corroborated. In other words, they don't corroborate political propaganda, but rather propagate it. That's how the media is only a mouthpiece for status quo.

 

Sorry for the increasingly off-topic rant.

[J. D. Stembal]

I've been noticing lately out of service ATMs, meaning they are empty of currency. What this means is that more people are holding cash, which must be accepted at stores and businesses. The financial system has taken notice of this public trend, and are currently casting dispersions against people who desire to hold cash. An all digital currency attached to your identity would totally eliminate the threat of a bank run. It would also make currency confiscation effortless. This is a win-win scenario for governments and banking institutions.

 

Of course, this topic does not even begin to explain how paper currency is not backed by any store of value, but the typical person has no desire to learn this. They know that they don't trust the financial system, and stores have to accept their dollars. What they can't see is that the currency they have is more and more rapidly losing purchasing power, which manifests as higher prices in the stores.

 

Mike Maloney's Hidden Secrets of Money Series is enjoyable to watch and easy to understand. It was published in 2013. The first episode has 1.1 million views, and the last episode has 327 thousand. Episode four is the most widely viewed with 3.3 million hits, and explains what G. Edward Griffin calls the Mandrake Mechanism. As a comparison, Peter Schiff's videos fall into the 30,000 to 60,000 range.

 

A couple of Taylor Swift's music videos have three-quarters of a billion views.

 

 

Apparently, poon trumps precious metals. This relative lack of views should accurately demonstrate the level of economic literacy in the world today.

 

[GRosado]

And in the article, he talks about how negative interest rates will discourage saving, but never explains why saving should be discouraged in the first place. Nothing new there.

 

They want to discourage saving in order to stimulate consumption spending too increase aggregate demand & grow the economy but with cash it's impossible to stop people from hoarding.

[J. D. Stembal]

They want to discourage saving in order to stimulate consumption spending too increase aggregate demand & grow the economy but with cash it's impossible to stop people from hoarding.

 

Keynesian spotted!

 

With cash, all you need to do is devalue the currency as has happened nearly completely in the past 102 years in the U.S. In this span of time the purchasing power of U.S. Dollar has declined by at least 96%.

 

http://www.comparegoldandsilverprices.com/dollar-devaluation-since-1913/

 

Check this out: http://www.shtfplan.com/headline-news/report-jp-morgan-chase-prepares-for-crisis-by-stockpiling-silver-an-exceptionally-large-amount_04242015

 

J. P Morgan Chase purchases 8.3 million ounces of silver in the past two weeks at Comex while changing its policy on accepting cash, and prohibiting it from being stored in safe deposit boxes.

 

 

 

Meanwhile, JP Morgan Chase has made another very curious move as well. It is being reported that the bank is “restricting the use of cash” in some markets, and has even gone so far as to “prohibit the storage of cash in safe deposit boxes”…

 

What is a surprise is how little notice the rollout of Chase’s new policy has received.  As of March, Chase began restricting the use of cash in selected markets, including  Greater Cleveland.  The new policy restricts borrowers from using cash to make payments on credit cards, mortgages, equity lines, and auto loans.  Chase even goes as far as to prohibit the storage of cash in its safe deposit boxes .  In a letter to its customers dated April 1, 2015 pertaining to its “Updated Safe Deposit Box Lease Agreement,”  one of the highlighted items reads:  “You agree not to store any cash or coins other than those found to have a collectible value.”  Whether or not this pertains to gold and silver coins with no numismatic value is not explained.

[GRosado]

Keynesian spotted!

 

With cash, all you need to do is devalue the currency as has happened nearly completely in the past 102 years in the U.S. In this span of time the purchasing power of U.S. Dollar has declined by at least 96%.

 

http://www.comparegoldandsilverprices.com/dollar-devaluation-since-1913/

 

Check this out: http://www.shtfplan.com/headline-news/report-jp-morgan-chase-prepares-for-crisis-by-stockpiling-silver-an-exceptionally-large-amount_04242015

 

J. P Morgan Chase purchases 8.3 million ounces of silver in the past two weeks at Comex while changing its policy on accepting cash, and prohibiting it from being stored in safe deposit boxes.

What the hell? So for answering someone's question as to what the article said I'm a Keynesian? If I'm a Keynesian then you're a fool & that's a straw man. Also can you tell me what a Keynesian is? Who are the real Keynesians? Have you read the General Theory? Just because you don't like something doesn't mean you label it Keynesian what kind of way to argue a point is that?

 

Now onto your statement.

 

What are you responding to exactly? Are you saying devaluing a currency leads to increased aggregate demand? Or are you saying it will lead to people not hoarding? What is the point you're making.

 

I will not speak on Chase's policy because that has no relevance to my statement.

[GRosado]

So for answering someone's question I am suddenly a Keynesian smh...

If I'm a Keynesian then you're a fool, is that really how you argue a point? you simply call something you don't like or don't understand Keynesian? Let me ask you since you seem so knowledgeable about Keynesians, what is Keynesianism? Who are the real Keynesians? Have you read the General Theory? What does it say? If you don't know anything about Keynesianism except for what is written on its wiki page then you shouldn't speak to it at all because then you will be creating strawmen left & right like you did with me.

Now on to your statement.

Devalue the currency in relation to what? Boosting Aggregate Demand or discouraging hoarding?

I wont speak on Chase's policy because I don't work for them nor am I an apologist for them but I will say as a private company I don't see anything wrong with them changing their policy voluntarily.

 

Also I would like to add that I am an Austrian with sympathies to Neoclassical, New Institutional/Public Choice & Post-Keynesianism

Edited May 2, 2015 by GRosado

[Lingum]

I'm curious. What's the difference between saving and hoarding? In my understanding, it's a loaded term, like describing a voluntary and mutually beneficial relationship as exploitation.

[GRosado]

I'm curious. What's the difference between saving and hoarding? In my understanding, it's a loaded term, like describing a voluntary and mutually beneficial relationship as exploitation.

For simplicity let's say saving can be broken down into two categories, Investment Saving & Hoarding Saving. Investment Saving is holding money at an institution where it will be loaned out to businesses such as a bank or credit union while hoarding saving is holding where it can't be lent such as in a mattress or in a persons drywall lol. It seems to me to be a negatively loaded term but who knows if actual economists mean it like such. This is essentially related to the Keynesian Paradox of Thrift problem if you would like to read up on that.

[J. D. Stembal]

For simplicity let's say saving can be broken down into two categories, Investment Saving & Hoarding Saving. Investment Saving is holding money at an institution where it will be loaned out to businesses such as a bank or credit union while hoarding saving is holding where it can't be lent such as in a mattress or in a persons drywall lol. It seems to me to be a negatively loaded term but who knows if actual economists mean it like such. This is essentially related to the Keynesian Paradox of Thrift problem if you would like to read up on that.

 

The investor is receiving compensation for allowing access to his funds in the institution. Generally, the less liquid the investment vehicle, the more interest it earns. It's not money, by the way. It's fiat currency. Money has inherent value in itself, and little green pieces of paper do not have much inherent value. Perhaps we could fold origami animals with the children when it is no longer good for buying anything.

 

http://www.ebay.com/sch/i.html?_nkw=dollar%20origami

 

Stashing cash is still saving, but you are foregoing the interest you could have earned elsewhere for the assurance that the money will be there tomorrow. An all digital currency with negative interest rates is a terrible idea, because no one in their right mind would ever save for anything in that paradigm.

 

What is paradoxical about being thrifty? If I want to buy butter, I can pay $5.39 for it at one store, or I can get it for $3.69 at another store down the street a bit. Guess which place I buy the butter?

[GRosado]

The investor is receiving compensation for allowing access to his funds in the institution. Generally, the less liquid the investment vehicle, the more interest it earns. It's not money, by the way. It's fiat currency. Money has inherent value in itself, and little green pieces of paper do not have much inherent value. Perhaps we could fold origami animals with the children when it is no longer good for buying anything.

 

http://www.ebay.com/sch/i.html?_nkw=dollar%20origami

 

Stashing cash is still saving, but you are foregoing the interest you could have earned elsewhere for the assurance that the money will be there tomorrow. An all digital currency with negative interest rates is a terrible idea, because no one in their right mind would ever save for anything in that paradigm.

 

What is paradoxical about being thrifty? If I want to buy butter, I can pay $5.39 for it at one store, or I can get it for $3.69 at another store down the street a bit. Guess which place I buy the butter?

Actually fiat is a type of money just one that is manipulable by governments. As to your statement on value being intrinsic I would read this http://fee.org/freeman/detail/the-fallacy-of-intrinsic-value. Value is Subjective

 

But that money isn't being used to produce anything it is an idle resource. It is a terrible idea but the whole point isn't that it be likeable they want something to manipulate in order to direct the economy with more power.

 

You don't know what the paradox of thrift is. You're mischarachterising it. http://en.m.wikipedia.org/wiki/Paradox_of_thrift

[J. D. Stembal]

Actually fiat is a type of money just one that is manipulable by governments. As to your statement on value being intrinsic I would read this http://fee.org/freeman/detail/the-fallacy-of-intrinsic-value. Value is Subjective

 

But that money isn't being used to produce anything it is an idle resource. It is a terrible idea but the whole point isn't that it be likeable they want something to manipulate in order to direct the economy with more power.

 

You don't know what the paradox of thrift is. You're mischarachterising it. http://en.m.wikipedia.org/wiki/Paradox_of_thrift

 

I never said that the assessed value of goods was not subjective. You are creating a strawman. I said fiat currency has no value in itself, thus no intrinsic value. The fee.org link is broken.

 

Who cares if having idle resources does not produce anything? By saving, you are foregoing the current use of those resources for the future use of those resources.

 

I was asking you what is paradoxical about thrift. You whipped it out at the end of a reply as if it was an important point. I didn't see the connection.

 

A Mike Maloney video from three weeks ago...

 

[GRosado]

I never said that the assessed value of goods was not subjective. You are creating a strawman. I said fiat currency has no value in itself, thus no intrinsic value. The fee.org link is broken.

 

Who cares if having idle resources does not produce anything? By saving, you are foregoing the current use of those resources for the future use of those resources.

 

I was asking you what is paradoxical about thrift. You whipped it out at the end of a reply as if it was an important point. I didn't see the connection.

Here is the link again, read it & you will see why your statement is wrong.

 

http://fee.org/freeman/detail/the-fallacy-of-intrinsic-value

 

Should I even respond to a statement that nonsensical idk. Yes that's very true it is called time preference but it also fundamentally addresses how interest arises which doesn't accrue on money that is hoarded.

 

How can I answer your question if you don't have an understanding of what the Paradox of Thrift is especially when it is reflected in your question? That is why I linked you to the wiki page so you can read what it's about. The topic has shifted to hoarding & it is related to the Keynesian Paradox of Thrift but it seems you don't comprehend that. It puzzles me how it seems you know so little about economics but you have probably comfortably made statements of opinion disguising them as fact especially when it comes to your understanding of other schools of thought. The Austrian school doesn't have all the answers to every occurrence in reality & yes they are wrong in some areas (gasp...) so acting dogmatic isn't going to help anything but further stain the image of such a rich tradition in other words don't be an internet Austrian be open minded & look to the facts/empirical evidence. Keynesians do get some things right but I think they get more things wrong same with the Neoclassical & the New Classicals are cultish lol.

[GRosado]

I never said that the assessed value of goods was not subjective. You are creating a strawman. I said fiat currency has no value in itself, thus no intrinsic value. The fee.org link is broken.

 

Who cares if having idle resources does not produce anything? By saving, you are foregoing the current use of those resources for the future use of those resources.

 

I was asking you what is paradoxical about thrift. You whipped it out at the end of a reply as if it was an important point. I didn't see the connection.

Here is the link again, read it & you will see why your statement is wrong.

 

http://fee.org/freeman/detail/the-fallacy-of-intrinsic-value

 

Should I even respond to a statement that nonsensical idk. Yes that's very true it is called time preference but it also fundamentally addresses how interest arises which doesn't accrue on money that is hoarded.

 

How can I answer your question if you don't have an understanding of what the Paradox of Thrift is especially when it is reflected in your question? That is why I linked you to the wiki page so you can read what it's about. The topic has shifted to hoarding & it is related to the Keynesian Paradox of Thrift but it seems you don't comprehend that. It puzzles me how it seems you know so little about economics but you have probably comfortably made statements of opinion disguising them as fact especially when it comes to your understanding of other schools of thought. The Austrian school doesn't have all the answers to every occurrence in reality & yes they are wrong in some areas (gasp...) so acting dogmatic isn't going to help anything but further stain the image of such a rich tradition in other words don't be an internet Austrian be open minded & look to the facts/empirical evidence. Keynesians do get some things right but I think they get more things wrong same with the Neoclassical & the New Classicals are cultish lol.

[J. D. Stembal]

Here is the link again, read it & you will see why your statement is wrong.

 

http://fee.org/freeman/detail/the-fallacy-of-intrinsic-value

 

Thank you for the link. It appears to support my statement that money, i.e. gold and silver have inherent or natural value, based on their physical properties. Fiat currency has no intrinsic or natural quality that gives it value, yet it functions as a means of exchange for the moment.

 

 

It is highly durable, easily divisible, transportable, and most of all, it is scarce. Money must be all of these, to one degree or another, if it is to function as a means of ex­change. It is vital that we get our categories straight in our minds: it is not value that is intrinsic to gold, but only the physical prop­erties that are valued by acting men. Gold’s physical properties are the product of nature; its value is the product of acting men.

 

 

Should I even respond to a statement that nonsensical idk. Yes that's very true it is called time preference but it also fundamentally addresses how interest arises which doesn't accrue on money that is hoarded.

 

Is that a question or a response?

 

Again, why should anyone care if no interest is being made on hoarded cash, or any other asset? What if I own a boat and it just sits in the marina unused 99% of the time? Is that also a hoarded asset? I'm not leasing it out to tourists, thus making it productive. Is there something wrong with this behavior? If I have a spare room, am I hoarding it if I don't rent it out on AirBnB? I'm missing out on some money, to be sure, but I have the ability to use the asset any time I wish.

 

 

How can I answer your question if you don't have an understanding of what the Paradox of Thrift is especially when it is reflected in your question? That is why I linked you to the wiki page so you can read what it's about. The topic has shifted to hoarding & it is related to the Keynesian Paradox of Thrift but it seems you don't comprehend that. It puzzles me how it seems you know so little about economics but you have probably comfortably made statements of opinion disguising them as fact especially when it comes to your understanding of other schools of thought. The Austrian school doesn't have all the answers to every occurrence in reality & yes they are wrong in some areas (gasp...) so acting dogmatic isn't going to help anything but further stain the image of such a rich tradition in other words don't be an internet Austrian be open minded & look to the facts/empirical evidence. Keynesians do get some things right but I think they get more things wrong same with the Neoclassical & the New Classicals are cultish lol.

 

You brought up the Keynesian paradox, Mr. Rosado. Why don't you explain why it's relevant to the thread instead of trying to label me as ignorant, close-minded, and dogmatic? I don't see how it is relevant to the thread or any statement I have made, but you seem to insist it is while simultaneously attempting to shame me for it. Please, explain it to me in your own words.

[GRosado]

Thank you for the link. It appears to support my statement that money, i.e. gold and silver have inherent or natural value, based on their physical properties. Fiat currency has none of these qualities.

 

 

 

 

Is that a question or a response? Again, why should anyone care if no interest is being made on hoarded cash, or any other asset for that matter. What if you own a boat and it just sits in the marina 99% of the time? Is that also a hoarded asset? You aren't renting it, thus making it productive. What is wrong with this behavior?

 

 

 

You brought up the Keynesian paradox, Mr. Rosado. Why don't you explain why it's relevant to the thread instead of trying to label me as ignorant, or dogmatic? I don't see how it is relevant to the thread or any statement I have made, but you seem to insist it is while simultaneously attempting to shame me for it. Please, explain it to me in your own words instead of insulting me.

Did you even read it?

 

"Value: Historic vs. Intrinsic

There is a basic confusion here. The confusion rests on a mixing up of two very different proposi­tions: (1) gold and silver are his­torically valuable; and (2) gold and silver have intrinsic value. The first proposition is indisputably correct; in fact, there are few eco­nomic or historical statements that could be said to be more absolute. Professor Mises has built his whole theory of money on the fact that gold and silver (especially gold) were first valued because of properties other than their mone­tary function: brilliance, malle­ability, social prestige, and so forth. It was precisely because people valued these metals so highly that they were to become instruments of trade, i.e., money. Since they are so readily market­able, more so than other goods, they can become money."

 

It was a rhetorical question, it was in regards to your statement of why does it matter if it isn't being used productively & laying idle & it's obvious that it shouldn't be made idle because it will increase productivity therefore leading to economic growth or in the case of money be lent to accomplish the aforementioned. In regards to collecting interest if someone prefers not to collect interest then it's their choice it's foolish though there is obviously a net benefit to storing it at a depository institution.

 

Forget it I gave you the page to read it but it seems you don't want to read it so I won't discuss the Paradox of Thrift any further. I would like to point out that I never responded to you talking about the Paradox of Thrift I responded to the other poster & I said that it's related to Hoarding. It isn't my intent to shame you or insult your intelligence however I will not withdraw calling you dogmatic because when you start off a response with "Keynesian Spotted" towards me when I wasn't even talking to you it already let's me know that you're an internet Austrian someone who tows the Mises Institute line proclaiming Keynesianism is nonsense when not even knowing what Keynesianism is. I have encountered many internet Austrians do I have experience.