Now economists want to steal your wealth

Keeping your hard-earned wealth is hard. The state wants most of it in taxes. A couple of weeks ago I explained how socialists use randomness to steal your wealth. Now economists want to use a cashless society to take it. 

Many of the world’s top economists want to get rid of paper currency and force all of us to use electronic banking. One of the top mainstream economists, Kenneth Rogoff, has written a manifesto for them in his 2016 book, The Curse of Cash. Rogoff is the Thomas D. Cabot Professor of Public Policy at Harvard and former chief economist of the International Monetary Fund. Many economists around the world have subscribed to his manifesto. Here are Rogoff’s main reasons for wanting a cashless society:

The real issues involve the ability to use monetary policy to (1) stabilize the economy, (2) issue credit in response to financial crises (act as lender of last resort), and (3) be able to inflate the price level in an emergency where it is necessary to engage in partial default (in real terms) on government debt. To achieve these ends effectively, it is extremely helpful for the government to control the unit of account and the currency to which most private contracts are indexed. 

How long can low rates last?

The charging of interest on loans is one of the most hated and worst understood concepts in human history. Aristotle claimed that money cannot beget money because it is dead, so charging interest on loans is immoral. Moses’ law forbid Israelis to charge interest on loans to the poor, but the Church interpreted that prohibition according to Aristotle’s economics and made charging interest on loans one of the worst sins that Christians can commit. Aristotle’s writings had almost equal weight with the Bible in many matters until Copernicus and Galileo trashed his astronomy.

But kings, nobility and popes needed to borrow money occasionally in order to keep up their conspicuous consumption, so Jews were allowed to commit the sin of usury. That gave Christians an excuse to persecute them regularly.

The church didn’t reform its economics until the 17th century when theologians from the University of Salamanca abandoned Aristotle for common sense. A letter from John Calvin to a friend on the topic may have helped. Calvin wrote that interest on loans was no different from charging rent on land, which everyone could understand.

Recently, an investing newsletter increased the confusion over interest rates for its readers. It claimed that interest rates have fallen naturally from roughly 50% in 5000 BC. “Fast-forward a bit and we see the Greeks expanded the credit system. In 600 B.C., they paid rates of around 16% in a quickly modernizing monetary system. By 100 B.C., though, a typical loan came with a rate of just 8%. And then things got interesting...”

The Damage that NIRP does

Bloomberg carried a story a few weeks ago on Denmark, which has been “blessed” with a negative interest rate policy (NIRP) longer than any other developed nation. The authors asserted that the horror stories about low interest rates with which economists have typically frightened us for decades haven’t come true in the Scandinavian country, so economics must be wrong.

Of course, the Bloomberg journalists have forgotten the primary caveat of economic reasoning – ceteris paribus, or all other things being equal. The horror of money printing, such as the disaster that nearly destroyed Germany in the early 1920s, caused hyperinflation and a plummeting exchange rate. Those haven’t afflicted Denmark, or any other major country, yet, because everything hasn’t remained ceteris or paribus.

When every nation reduces rates in concert, it has no impact on exchange rates. And it may not cause much inflation. The idea that it must cause price inflation or economics is wrong comes from a blockheaded view of the quantity theory of money. Again, ceteris paribus applies. Printing money (or technically credit expansion via low interest rates) will cause price inflation if nothing else in the economy changes. But money printing doesn’t work mechanically. Japan should know. The Bank of Japan has desperately tried to create inflation through money printing for the past 30 years.

Fed shuffles from ZIRP to NIRP

Inflation is fading; the economies of Asia, South America and Europe are collapsing; the people have tasked the central banks with fixing all things economic. Yet, reports by Fed economists show that the recent rounds of money printing through QE and low interest rates for six haven’t had the intended effect. They have certainly failed in Japan and the Big EZ (Euro Zone). What can they do to turn the world’s economies around? The answer from mainstream economists at the world’s central banks is more of the same. But if continuing to do the same thing while expecting different results is a sign of insanity?