Bush’s former economic advisor, Professor Mankiw, has a solution to the economic mess he and his stupid friends created: negative interest rates! Who would have thought of that little trick? Well, nearly everyone running the Federal Reserve since 1971, that’s who! He also has another goofy magician trick: to have a lottery that chooses a number randomly and then presto-chango! All US currency with that number as the last digit is DESTROYED! I shudder to think what this will cause!
This man, we must remember, is teaching our dear youth all about economics. If this is so, he should be stripped of his chair and tossed into the nearest rubbish heap.
So why shouldn’t the Fed just keep cutting interest rates? Why not lower the target interest rate to, say, negative 3 percent?
Most of my life, interest rates have been negative. That is, if you put your money into a regular ‘savings’ account, it shrinks in value, faster or slower depending on how drunk the President is and how craven the Federal Reserve chief is, namely, is he a drinking buddy of the President?
Volcker is the only Fed chief who ran interest rates greater than inflation. He had to do this since we were rapidly entering hyperinflation. It worked. But since 1981, interest rates have been hundreds of basis points below the real rate of inflation. This is disguised by the Fed changing how it calculates inflation so the true rate is hidden. This is pure dishonesty.
Thanks to this, the average income has not kept up with inflation. Thanks to the cheap lending via this trick, people got to buy more and more but are sliding deeper and deeper into debt.
At that interest rate, you could borrow and spend $100 and repay $97 next year. This opportunity would surely generate more borrowing and aggregate demand.
During the last 25 years, US borrowing has shot through the roof. Our economy is now 70% consumer spending and about 90% of that is via cheap lending courtesy of the Fed running interest rates well below the real rate of inflation.
The problem with negative interest rates, however, is quickly apparent: nobody would lend on those terms. Rather than giving your money to a borrower who promises a negative return, it would be better to stick the cash in your mattress. Because holding money promises a return of exactly zero, lenders cannot offer less.
You doofus. The zero rate is the BEST we can hope for! What we have is a -3 to a -10 interest rate. This is why, since Reagan, the US savings rate which was over 10% for the previous 75+ years plummeted to BELOW ZERO. ZIRP is killing savings!
Unless, that is, we figure out a way to make holding money less attractive.
What is this idiot? A pirate? A highway robber? A terrorist? Hell, we are sending our navy to Africa to fight pirates! They should land some SEAL sharp shooters at the campus where this pirate is hiding out, corrupting our youth!
At one of my recent Harvard seminars, a graduate student proposed a clever scheme to do exactly that. (I will let the student remain anonymous. In case he ever wants to pursue a career as a central banker, having his name associated with this idea probably won’t help.)
Don’t want Navy SEALs catching him, eh?
Imagine that the Fed were to announce that, a year from today, it would pick a digit from zero to 9 out of a hat. All currency with a serial number ending in that digit would no longer be legal tender. Suddenly, the expected return to holding currency would become negative 10 percent.
See? Highway robbery. This clown wants to hand out dollars to the Chinese and then make them go ‘poof’. Well, the Chinese might retaliate. We don’t want to see what this might be. I assure everyone, the Chinese will not take kindly to this suggestion, and how about OPEC? We buy lots of oil from them. What if we pay with vanishing ink dollars? YIKES.
That move would free the Fed to cut interest rates below zero. People would be delighted to lend money at negative 3 percent, since losing 3 percent is better than losing 10.
See how psychopaths think? Did the professor tell this student to hand over ten dollars and then gave him back only seven? HAHAHA. The student would scream, eh? Or worse, the professor KEEPS the entire $10 and then tells the student, if he gets it back, he has to pay credit card rates for PERPETUITY. Of 30% to the professor. HAHAHA. A lesson this child will never forget.
Of course, some people might decide that at those rates, they would rather spend the money — for example, by buying a new car. But because expanding aggregate demand is precisely the goal of the interest rate cut, such an incentive isn’t a flaw — it’s a benefit.
If anyone is thinking of making our negative interest rate worse, well, the Gold Bugs will be in Hog Heaven! Congratulations, guys! You will be billionaires. Hope it isn’t a billion Zimbabwe dollars! Indeed, buying gold and then selling it for yuan will be most profitable since the dollar will cease to be of any interest to anyone doing business overseas.
The idea of making money earn a negative return is not entirely new. In the late 19th century, the German economist Silvio Gesell argued for a tax on holding money. He was concerned that during times of financial stress, people hoard money rather than lend it. John Maynard Keynes approvingly cited the idea of a carrying tax on money. With banks now holding substantial excess reserves, Gesell’s concern about cash hoarding suddenly seems very modern.
People hoard cash when banks cease paying them for holding it and using it for lending! The banks need CAPITAL. Whenever any nation goes into ‘no capital lending’ all savers run for the hills since they are ripped off, if they share their money with these crooks.
If all of this seems too outlandish, there is a more prosaic way of obtaining negative interest rates: through inflation. HAHAHA….right! And always, the Fed does exactly this! Over and over and over again, nearly all my long life, they did this. Suppose that, looking ahead, the Fed commits itself to producing significant inflation. Which is about 99% of the time. In this case, while nominal interest rates could remain at zero, real interest rates — interest rates measured in purchasing power — could become negative. If people were confident that they could repay their zero-interest loans in devalued dollars, they would have significant incentive to borrow and spend.
This, in a nutshell, describes our economy for the last half a century.
Having the central bank embrace inflation would shock economists —WHAT THE HELL??? Far from shocked, most ‘economists’ WANT this! —and Fed watchers who view price stability as the foremost goal of monetary policy. Since 1914, this is the storyline the international banking gnomes gave us for creating the Fed. This has been decisively shown to be utter rot. But there are worse things than inflation. True: WWIII is worse. And guess what? We have them today. A little more inflation might be preferable to rising unemployment or a series of fiscal measures that pile on debt bequeathed to future generations.
So, running things so there is no CAPITAL in the system won’t cause rampant Zimbabwean inflation???? What the hell? HAHAHA. Already, since 1971, we have piled a mountain of debt on our unborn. So much for loving fetuses.
Ben S. Bernanke, the Fed chairman, is the perfect person to make this commitment to higher inflation. HAHAHA. Helicopter Bernie to the rescue! Mr. Bernanke has long been an advocate of inflation targeting. He certainly ain’t no William Tell. The kid with the inflation apple on his head will be shot between the eyes. In the past, advocates of inflation targeting have stressed the need to keep inflation from getting out of hand.When these gnomes run into the Cave of Wealth and Death, they always assure us, they are not going in there to have sex with the Goddess of Infinity, oh no, certainly not that, they are going in to kill the Goddess of Zero. But in the current environment, the goal could be to produce enough inflation to ensure that the real interest rate is sufficiently negative.
The idea of negative interest rates may strike some people as absurd,—no, criminal—-the concoction of some impractical theorist—no, pirate–. Perhaps it is. But remember this: Early mathematicians thought that the idea of negative numbers was absurd. Today, these numbers are commonplace. Even children can be taught that some problems (such as 2x + 6 = 0) have no solution unless you are ready to invoke negative numbers.
As I point out in my videos and stories here, zero was invented by guys seeking to reach Nirvana which is TOTAL DEATH. So they won’t be reborn.
Maybe some economic problems require the same trick.
This is an example of ‘smarts’ via our professorial community of Ivory Tower Juvenile Delinquents. These are the fools teaching our youth the wrong lessons. This is criminal and the people who are running around, telling children that debt is good and savings are evil should be arrested for practicing the dark arts of pickpockets and second story thieves.
Credit cards are pure usury. And should be heavily regulated. But then, credit will stop flowing to the masses who are deep in debt due to falling further and further behind real inflation. They have long given up, trying to save anything. They are now on a long slide to hell thanks to easy credit which rapidly runs from zero to over 30% APR. And this is a death trap. And should be shut down and everyone should be even with or ahead of REAL inflation. And this has to be honestly calculated.
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