19 ms·

Citi Economist Says It Might Be Time to Abolish Cash

20 points by randomname2 12y ago

hackercurious 12y ago
Sweden is currently the most cash free country on earth. "Welcome to Sweden - the most cash-free society on the planet" http://www.theguardian.com/world/2014/nov/11/welcome-sweden-electronic-money-not-so-funny http://www.theguardian.com/world/2014/nov/11/welcome-sweden-...
stephenr 12y ago
Breaking news: An employee of a giant multi national bank, is suggesting we stop using a form of payment that works without any involvement from a bank. More at 11.
- anentropic 12y ago
  exactly... one important property of cash is it is printed debt-free by the state, which can profit from the seigniorage this is the story of latter half of 20th Century, rise of credit cards and electronic transfers displacing cash in UK, 1946, fully 46% of the money supply was printed debt-free by the state (with the profit added to govt bottom line), now it is a pitiful 2-3% with a corresponding explosion in debt money http://www.positivemoney.org/2011/10/debt-free-money/ http://www.positivemoney.org/2011/10/debt-free-money/
  - nhaehnle 12y ago
    > one important property of cash is it is printed debt-free by the state, which can profit from the seigniorage This is actually not true in current typical monetary systems. There may be exceptions, but the typical setup is that the central bank prints physical money solely as a reaction to demand by banks (who need it to stock their ATMs). From an asset point of view it is an entirely neutral operation that is irrelevant to the state's fiscal position. In some countries (including the US), coins are minted by the treasury and then sold to the central bank for distribution. In those countries, the state does profit from seignorage - but only of coins, so it tends to be irrelevant in practice (modulo the occasional amusing trillion dollar platinum coin debate).
  - pif 12y ago
    Well, another fundamental property of cash is that it is anonymous, and this can be seen as wrong on many levels.
  - zhte415 12y ago
    If money is either 'debt money' or 'non debt money' then a relative decrease in one would imply a relative increase in the other. The linked article is full of apples and oranges. 'debt free cash' from the article's seeming definition is M0. While 'non debt free cash' appears to imply M2 (or M4). They're not opposites, but products of each other. Cash simply passes around the economy much faster, instead of sitting under the mattress or in the draw of the accountant for the best part of a week before wages are paid, it sits in an ATM, efficiently on-demand for who needs it when they need it. The velocity of money (how fast it moves from one person's hand to another) has simply increased, substantially, due to technological improvements. Money * Velocity of Money = Read Economic Production * Inflation Rate The above is always true (which is why money supply is a good predictor of nominal growth (and on the assumption economic growth changes slowly, inflation, which can vary more, but that takes a qualitative judgment), as it is more accurately and in a more timely manner. 'Debt money', or M2, is more better compared to M2L, the corresponding side of the monetary balance sheet (balance sheets also being an identity: Assets = Liabilities + Capital). And M2 is a much more realistic of the concept of 'money' as it includes deposits and other short term bank liabilities. So compare that to M2L, not M0 to M2, apples to oranges, as M2 is a product of M0 and M0 velocity. Edit: The referenced article mentioned sterling. For similar definitions of money for the Euro or Dollar substitute M2 for M1, and M4 for M3.
- watmough 12y ago
  The article doesn't spell it out, although it should be obvious, "negative interest rates" means "charging you to hold your own money".
  - nine_k 12y ago
    Charging to hold your own money makes all the sense if an institution actually holds your money. E.g. you pay a certain amount to store a brick of gold in a safe. The problem is that current banks are not banks in the 18th century sense, that is, not institutions that just hold your money safe, ready to return it on your demand. Instead, they invest this money, giving it to other people in the form of loans. This is the problem with "fractional reserve banking" and "bank runs": the banks don't have your money, they've given it to other people for some interest. For some time, this scheme worked relatively nicely, and you could get some interest accruing on your savings account. But obviously the system is not very stable: if a major investment crisis happens, your savings may be lost (what savings? they were investments!). Not all people are quite comfortable with this, but we have little choice.
dimitar 12y ago
http://blog.supplysideliberal.com/post/62693219358/how-and-why-to-eliminate-the-zero-lower-bound-a http://blog.supplysideliberal.com/post/62693219358/how-and-w... - Miles Kimball has also written extensively about that. There is a huge amount of links on the topic there!
sqrt17 12y ago
I don't see at all why nominal interest rates have to be superior to the interest that people get through other assets (including cash). The real problem is that the base of the reserve requirements are based on demand deposits, which means that customer-centric banks are subject to reserve requirements while investment banks and (e.g.) bitcoin-based deposits are not. Which makes sense to some extent, because customer-centric banks are expected to have some cash on hand, but not to the extent that they would be the (only) ones who suffer from lower nominal interest rates. Alternatives would be, e.g.: a value tax on all investments (don't see how that could be unpopular) devaluing the currency, by printing more money
- fredkbloggs 12y ago
  > devaluing the currency, by printing more money What does this actually mean? "Printing money" in modern central banking doesn't really exist; all "money" has to be created by someone borrowing it. Reducing lending rates and reserve requirements are intended to stimulate that. If they don't, central bankers resort to monetising government debt in order to increase the money supply; i.e., they rely on the government to borrow the money into existence (QE). If there is limited political will to increase the size of the public debt, that doesn't work either. Of course, increasing the size of the money supply isn't effective at all if the money created is low- or zero-velocity. The one thing no one has actually tried is breaking the link between debt and money, literally printing cash and dumping it out of helicopters (or perhaps more practically, simply adding a fixed amount to every deposit account) with no corresponding increase in debt. That would in fact be "printing money", but such an action does not appear to have been seriously contemplated by any central bank. It would probably be quite effective at increasing velocity, since it would put found money in the hands of large numbers of people who otherwise have no surplus. But we should also note that it is essentially the opposite of negative nominal interest rates (especially if paired with the abolition of cash), which take money out of circulation and add it to reserves. Given the large number of people with no surplus money today, every dollar taken from any of them reduces aggregate demand by one dollar, while adding that dollar to reserves contributes almost nothing to demand. It's pushing on a string, but this time with leverage! It's hard to believe that well-educated economists fall into these mental traps, but they do, all the time.
brothermouzone 12y ago
It might be time to nationalize every bank that received a "bailout" from taxpayers. Too Big To Fail means Too Big To Exist. Where's Teddy Roosevelt when you need him.
- allendoerfer 12y ago
  Didn't they receive the bailout in form of an investment by the government, effectively nationalizing parts of them?
  - aet 12y ago
    They received loans, which they have paid back. https://projects.propublica.org/bailout/ https://projects.propublica.org/bailout/
    - allendoerfer 12y ago
      In Germany and Spain Hypo Real Estate and Bankia indeed were nationalized due to the crisis. In the US AIG, which is on that list, was nationalized [0]. I thought the others were as well. [0]: http://en.wikipedia.org/wiki/American_International_Group#Liquidity_crisis_and_government_bailout http://en.wikipedia.org/wiki/American_International_Group#Li...
- sacado2 12y ago
  This was downvoted while there was an interesting point made. Suppressing cash means you no longer own your money. You only own credit lines to a private institution that can fail (and that charges you money when it doesn't). This is a stronger change than it seems. If some deposit banks are public, at least you can have your money labeled as government debt (which it already is when you hold banknotes).
smoorman1024 12y ago
Even if you abolish cash there are still other ways to avoid negative interest rates with cash substitutes. If negative interest rates go too high then people would use their money to buy houses, gold, non perishable goods, anything that stores value. This is the main problem I see with economists thinking that abolishing cash is the way to implement widespread negative interest rates.
- donatj 12y ago
  Can someone explain why some economists would see negative interest as a positive?
  - sunir 12y ago
    If you destroy cash the idea is to motivate people to invest their cash to get the economy moving. Punish the cash hoarders. Quantitative easing has not resulted in increasing credit, and therefore the velocity of cash in the economy. If you make it painful to keep cash in one place they hope it is like a game of hot potato and the economy will move again. The countering strategy is that there is nothing to invest in so it is better to create alternates to cash to preserve value
  - ni-hil 12y ago
    Because it would push people to spend money and not hold on to it, therefore it would increase consumption which induce economic growth?
  - fredkbloggs 12y ago
    The theory is that negative (real or nominal) interest rates serve as a continuation of the general purpose of lowering interest rates. That is, they encourage borrowing and spending, both increasing the size of the money supply and especially its velocity. The net effect is supposed to be increased economic activity and higher nominal prices for goods and services. The essential premise is that negative deposit rates encourage people to spend money by in effect confiscating it if they do not. It's not obvious that negative nominal rates are any more effective at this than the negative real rates that have been imposed in much of the world for the last 7 years. Perhaps someone could point us at research on that particular topic, if any has been done. There are a number of problems with this. Some of them have been mentioned in passing in other comments, and most of them boil down to the disconnect between economic models of humans and real humans. Among other discrepancies, real humans have finite life spans and therefore a limited tolerance for variance; as such, under less than total economic security they generally refuse to dispense with saving if it's an option for them, even if the expected value of spending their savings is greater than not. So the real effect of progressively lower interest rates on monetary velocity diminishes as rates decline. A similar effect limits the ability of lower rates to increase the size of the money supply; people convinced that capital cannot be usefully employed in the present economic environment are unlikely to borrow regardless of how low rates are. A stagnant, highly unequal distribution of capital also limits the effects of lower rates, since the only people likely to be able to take advantage of them already have plenty of capital available to invest. Of course, the money supply side of this is somewhat less relevant, since no one is (yet) proposing negative lending rates, only negative deposit rates. However, negative deposit rates can actually shrink the supply of money, because the "confiscated" money ends up at the central bank where it would simply add to an already-gigantic pool of reserves that could be lent, but haven't been for the above reasons. That is, the money would essentially be removed from circulation and destroyed, potentially offsetting or even dominating any increase in velocity. You can learn more about the relationships among these quantities by looking up "modern central banking theory" and basic macroeconomic theory in general.
stegosaurus 12y ago
This article is utterly hilarious. It's like a banquet of doublespeak. Remove cash from me and I will barter. I refuse to allow the bank to edge in on everything I do. I want to pay my friend for painting my wall? I do it. I don't ask the bank, I don't deal with 'money laundering' nonsense, I don't pay PayPal fees... I just do it. Take that ability away and I'll start using gold or silver. Your move... 'Change is resisted'. Really? ... really? Yes, if you plan to change my facial structure via the mechanism of stamping with a boot I will resist that.
- sspiff 12y ago
  If there is no state-backed or state-issued currency, some other currency will fill the void. I wouldn't be hopeful about it being fair and not dominated by a handful of large players (like banks) though.
- sjcsjc 12y ago
  For those not familiar with the novel to which stegosaurus is referring (doublespeak, boot stamping) - http://en.wikiquote.org/wiki/Nineteen_Eighty-Four http://en.wikiquote.org/wiki/Nineteen_Eighty-Four Actually, I think it was newspeak and doublethink, but no matter.
  - gjm11 12y ago
    It was, but I think "double-talk" is in the mix too. (OED: meaning 1 is "Deliberately unintelligible speech; speech that is a mixture of real and invented words; gibberish" and meaning 2 is "Verbal expression intended to be, or which may be, construed in more than one sense; deliberately ambiguous or imprecise language; used esp. of political language that is subject to arbitrary national or party interpretation". Meaning 1 is pre-1984, meaning 2 maybe not. Oh, and OED actually knows of "double-speak" too, with the same meaning as "double-talk" #2. I suspect stegosaurus wasn't explicitly intending a 1984 reference when s/he mentioned "doublespeak".)
    - stegosaurus 12y ago
      The reference is essentially to Orwell's general idea of euphemism in political language. The use of flowering prose where simple words would do, in order to misdirect. See 'Politics and the English Language'; just as relevant today as it ever was; 'racism'/'fascism'/etc as generic conversation enders for example. Apologies for the mix up!
netcan 12y ago
This guys must be trying to win over public support. How could statements like this be any less than wildly popular. "Cash therefore gives people an easy and effective way of avoiding negative nominal rates…(and therefore must go)" I think he might be more likely to win support for the more popular position that banks should be abolished.
jokoon 12y ago
If you nationalize banks, maybe. And even if you do, meh.
higherpurpose 12y ago
Is he suggesting we use Zerocash instead? http://zerocash-project.org/ http://zerocash-project.org/
csense 12y ago
I see the credit card companies are trying to take a page out of the health insurance industry's book: Get legislation mandating everyone use our product, so we can make lots of money... There is a "theorem" of startups, which states that any business plan which depends on getting Congress to do something is a bad plan. But if the business plan is proposed by someone like Citi, who's big enough to actually influence legislation, it's a little scary...
phkahler 12y ago
>> Yes, Buiter's solution to cash's ability to allow people to avoid negative deposit rates is to abolish cash altogether. In other words he thinks banks should be able to confiscate peoples money at will.
skywhopper 12y ago
... or we could utilize government borrowing or central bank money creation to soak up the temporary excess capacity in the economy and encourage a more reasonable level of inflation (say, 4-5% for a few years). The extra spending would mean more workers with jobs, and the extra inflation would mean that existing debt loads would shrink, and those would represent positive feedback loops that would get the world economy growing again. Eliminating cash in order to allow for deflationary policy only invites a death spiral of growing real debt loads. Wage stickiness and a century of economic policies that assume inflation would mire us in an even worse situation for decades to come. This is a perfect example of theoretical thinking. The zero-lower-bound is annoying to someone who wants to construct a perfect mathematical model of the economy. But in the real world, the ZLB is a real barrier, both psychologically and in terms of its impact on existing debt loads. Unless existing debt rated in inflationary terms is either forgiven, refinanced, or paid off as part of this plan, this is a great way to speed up the path to utter financial ruin for the middle class.
chrismcb 12y ago
Is the point of negative interest rates to remove money from the system? Is it any different than printing more money? Or is it simply to encourage people to spend more often?

20 points by randomname2 12y ago

Sweden is currently the most cash free country on earth. "Welcome to Sweden - the most cash-free society on the planet" http://www.theguardian.com/world/2014/nov/11/welcome-sweden-electronic-money-not-so-funny http://www.theguardian.com/world/2014/nov/11/welcome-sweden-...

stephenr 12y ago

Breaking news: An employee of a giant multi national bank, is suggesting we stop using a form of payment that works without any involvement from a bank. More at 11.

anentropic 12y ago
exactly... one important property of cash is it is printed debt-free by the state, which can profit from the seigniorage this is the story of latter half of 20th Century, rise of credit cards and electronic transfers displacing cash in UK, 1946, fully 46% of the money supply was printed debt-free by the state (with the profit added to govt bottom line), now it is a pitiful 2-3% with a corresponding explosion in debt money http://www.positivemoney.org/2011/10/debt-free-money/ http://www.positivemoney.org/2011/10/debt-free-money/
- nhaehnle 12y ago
  > one important property of cash is it is printed debt-free by the state, which can profit from the seigniorage This is actually not true in current typical monetary systems. There may be exceptions, but the typical setup is that the central bank prints physical money solely as a reaction to demand by banks (who need it to stock their ATMs). From an asset point of view it is an entirely neutral operation that is irrelevant to the state's fiscal position. In some countries (including the US), coins are minted by the treasury and then sold to the central bank for distribution. In those countries, the state does profit from seignorage - but only of coins, so it tends to be irrelevant in practice (modulo the occasional amusing trillion dollar platinum coin debate).
- pif 12y ago
  Well, another fundamental property of cash is that it is anonymous, and this can be seen as wrong on many levels.
- zhte415 12y ago
  If money is either 'debt money' or 'non debt money' then a relative decrease in one would imply a relative increase in the other. The linked article is full of apples and oranges. 'debt free cash' from the article's seeming definition is M0. While 'non debt free cash' appears to imply M2 (or M4). They're not opposites, but products of each other. Cash simply passes around the economy much faster, instead of sitting under the mattress or in the draw of the accountant for the best part of a week before wages are paid, it sits in an ATM, efficiently on-demand for who needs it when they need it. The velocity of money (how fast it moves from one person's hand to another) has simply increased, substantially, due to technological improvements. Money * Velocity of Money = Read Economic Production * Inflation Rate The above is always true (which is why money supply is a good predictor of nominal growth (and on the assumption economic growth changes slowly, inflation, which can vary more, but that takes a qualitative judgment), as it is more accurately and in a more timely manner. 'Debt money', or M2, is more better compared to M2L, the corresponding side of the monetary balance sheet (balance sheets also being an identity: Assets = Liabilities + Capital). And M2 is a much more realistic of the concept of 'money' as it includes deposits and other short term bank liabilities. So compare that to M2L, not M0 to M2, apples to oranges, as M2 is a product of M0 and M0 velocity. Edit: The referenced article mentioned sterling. For similar definitions of money for the Euro or Dollar substitute M2 for M1, and M4 for M3.
watmough 12y ago
The article doesn't spell it out, although it should be obvious, "negative interest rates" means "charging you to hold your own money".
- nine_k 12y ago
  Charging to hold your own money makes all the sense if an institution actually holds your money. E.g. you pay a certain amount to store a brick of gold in a safe. The problem is that current banks are not banks in the 18th century sense, that is, not institutions that just hold your money safe, ready to return it on your demand. Instead, they invest this money, giving it to other people in the form of loans. This is the problem with "fractional reserve banking" and "bank runs": the banks don't have your money, they've given it to other people for some interest. For some time, this scheme worked relatively nicely, and you could get some interest accruing on your savings account. But obviously the system is not very stable: if a major investment crisis happens, your savings may be lost (what savings? they were investments!). Not all people are quite comfortable with this, but we have little choice.

dimitar 12y ago

http://blog.supplysideliberal.com/post/62693219358/how-and-why-to-eliminate-the-zero-lower-bound-a http://blog.supplysideliberal.com/post/62693219358/how-and-w... - Miles Kimball has also written extensively about that. There is a huge amount of links on the topic there!

sqrt17 12y ago

I don't see at all why nominal interest rates have to be superior to the interest that people get through other assets (including cash). The real problem is that the base of the reserve requirements are based on demand deposits, which means that customer-centric banks are subject to reserve requirements while investment banks and (e.g.) bitcoin-based deposits are not. Which makes sense to some extent, because customer-centric banks are expected to have some cash on hand, but not to the extent that they would be the (only) ones who suffer from lower nominal interest rates. Alternatives would be, e.g.: a value tax on all investments (don't see how that could be unpopular) devaluing the currency, by printing more money

fredkbloggs 12y ago
> devaluing the currency, by printing more money What does this actually mean? "Printing money" in modern central banking doesn't really exist; all "money" has to be created by someone borrowing it. Reducing lending rates and reserve requirements are intended to stimulate that. If they don't, central bankers resort to monetising government debt in order to increase the money supply; i.e., they rely on the government to borrow the money into existence (QE). If there is limited political will to increase the size of the public debt, that doesn't work either. Of course, increasing the size of the money supply isn't effective at all if the money created is low- or zero-velocity. The one thing no one has actually tried is breaking the link between debt and money, literally printing cash and dumping it out of helicopters (or perhaps more practically, simply adding a fixed amount to every deposit account) with no corresponding increase in debt. That would in fact be "printing money", but such an action does not appear to have been seriously contemplated by any central bank. It would probably be quite effective at increasing velocity, since it would put found money in the hands of large numbers of people who otherwise have no surplus. But we should also note that it is essentially the opposite of negative nominal interest rates (especially if paired with the abolition of cash), which take money out of circulation and add it to reserves. Given the large number of people with no surplus money today, every dollar taken from any of them reduces aggregate demand by one dollar, while adding that dollar to reserves contributes almost nothing to demand. It's pushing on a string, but this time with leverage! It's hard to believe that well-educated economists fall into these mental traps, but they do, all the time.

brothermouzone 12y ago

It might be time to nationalize every bank that received a "bailout" from taxpayers. Too Big To Fail means Too Big To Exist. Where's Teddy Roosevelt when you need him.

allendoerfer 12y ago
Didn't they receive the bailout in form of an investment by the government, effectively nationalizing parts of them?
- aet 12y ago
  They received loans, which they have paid back. https://projects.propublica.org/bailout/ https://projects.propublica.org/bailout/
  - allendoerfer 12y ago
    In Germany and Spain Hypo Real Estate and Bankia indeed were nationalized due to the crisis. In the US AIG, which is on that list, was nationalized [0]. I thought the others were as well. [0]: http://en.wikipedia.org/wiki/American_International_Group#Liquidity_crisis_and_government_bailout http://en.wikipedia.org/wiki/American_International_Group#Li...
sacado2 12y ago
This was downvoted while there was an interesting point made. Suppressing cash means you no longer own your money. You only own credit lines to a private institution that can fail (and that charges you money when it doesn't). This is a stronger change than it seems. If some deposit banks are public, at least you can have your money labeled as government debt (which it already is when you hold banknotes).

smoorman1024 12y ago

Even if you abolish cash there are still other ways to avoid negative interest rates with cash substitutes. If negative interest rates go too high then people would use their money to buy houses, gold, non perishable goods, anything that stores value. This is the main problem I see with economists thinking that abolishing cash is the way to implement widespread negative interest rates.

donatj 12y ago
Can someone explain why some economists would see negative interest as a positive?
- sunir 12y ago
  If you destroy cash the idea is to motivate people to invest their cash to get the economy moving. Punish the cash hoarders. Quantitative easing has not resulted in increasing credit, and therefore the velocity of cash in the economy. If you make it painful to keep cash in one place they hope it is like a game of hot potato and the economy will move again. The countering strategy is that there is nothing to invest in so it is better to create alternates to cash to preserve value
- ni-hil 12y ago
  Because it would push people to spend money and not hold on to it, therefore it would increase consumption which induce economic growth?
- fredkbloggs 12y ago
  The theory is that negative (real or nominal) interest rates serve as a continuation of the general purpose of lowering interest rates. That is, they encourage borrowing and spending, both increasing the size of the money supply and especially its velocity. The net effect is supposed to be increased economic activity and higher nominal prices for goods and services. The essential premise is that negative deposit rates encourage people to spend money by in effect confiscating it if they do not. It's not obvious that negative nominal rates are any more effective at this than the negative real rates that have been imposed in much of the world for the last 7 years. Perhaps someone could point us at research on that particular topic, if any has been done. There are a number of problems with this. Some of them have been mentioned in passing in other comments, and most of them boil down to the disconnect between economic models of humans and real humans. Among other discrepancies, real humans have finite life spans and therefore a limited tolerance for variance; as such, under less than total economic security they generally refuse to dispense with saving if it's an option for them, even if the expected value of spending their savings is greater than not. So the real effect of progressively lower interest rates on monetary velocity diminishes as rates decline. A similar effect limits the ability of lower rates to increase the size of the money supply; people convinced that capital cannot be usefully employed in the present economic environment are unlikely to borrow regardless of how low rates are. A stagnant, highly unequal distribution of capital also limits the effects of lower rates, since the only people likely to be able to take advantage of them already have plenty of capital available to invest. Of course, the money supply side of this is somewhat less relevant, since no one is (yet) proposing negative lending rates, only negative deposit rates. However, negative deposit rates can actually shrink the supply of money, because the "confiscated" money ends up at the central bank where it would simply add to an already-gigantic pool of reserves that could be lent, but haven't been for the above reasons. That is, the money would essentially be removed from circulation and destroyed, potentially offsetting or even dominating any increase in velocity. You can learn more about the relationships among these quantities by looking up "modern central banking theory" and basic macroeconomic theory in general.

stegosaurus 12y ago

This article is utterly hilarious. It's like a banquet of doublespeak. Remove cash from me and I will barter. I refuse to allow the bank to edge in on everything I do. I want to pay my friend for painting my wall? I do it. I don't ask the bank, I don't deal with 'money laundering' nonsense, I don't pay PayPal fees... I just do it. Take that ability away and I'll start using gold or silver. Your move... 'Change is resisted'. Really? ... really? Yes, if you plan to change my facial structure via the mechanism of stamping with a boot I will resist that.

sspiff 12y ago
If there is no state-backed or state-issued currency, some other currency will fill the void. I wouldn't be hopeful about it being fair and not dominated by a handful of large players (like banks) though.
sjcsjc 12y ago
For those not familiar with the novel to which stegosaurus is referring (doublespeak, boot stamping) - http://en.wikiquote.org/wiki/Nineteen_Eighty-Four http://en.wikiquote.org/wiki/Nineteen_Eighty-Four Actually, I think it was newspeak and doublethink, but no matter.
- gjm11 12y ago
  It was, but I think "double-talk" is in the mix too. (OED: meaning 1 is "Deliberately unintelligible speech; speech that is a mixture of real and invented words; gibberish" and meaning 2 is "Verbal expression intended to be, or which may be, construed in more than one sense; deliberately ambiguous or imprecise language; used esp. of political language that is subject to arbitrary national or party interpretation". Meaning 1 is pre-1984, meaning 2 maybe not. Oh, and OED actually knows of "double-speak" too, with the same meaning as "double-talk" #2. I suspect stegosaurus wasn't explicitly intending a 1984 reference when s/he mentioned "doublespeak".)
  - stegosaurus 12y ago
    The reference is essentially to Orwell's general idea of euphemism in political language. The use of flowering prose where simple words would do, in order to misdirect. See 'Politics and the English Language'; just as relevant today as it ever was; 'racism'/'fascism'/etc as generic conversation enders for example. Apologies for the mix up!

netcan 12y ago

This guys must be trying to win over public support. How could statements like this be any less than wildly popular. "Cash therefore gives people an easy and effective way of avoiding negative nominal rates…(and therefore must go)" I think he might be more likely to win support for the more popular position that banks should be abolished.

jokoon 12y ago

If you nationalize banks, maybe. And even if you do, meh.

higherpurpose 12y ago

Is he suggesting we use Zerocash instead? http://zerocash-project.org/ http://zerocash-project.org/

csense 12y ago

I see the credit card companies are trying to take a page out of the health insurance industry's book: Get legislation mandating everyone use our product, so we can make lots of money... There is a "theorem" of startups, which states that any business plan which depends on getting Congress to do something is a bad plan. But if the business plan is proposed by someone like Citi, who's big enough to actually influence legislation, it's a little scary...

phkahler 12y ago

>> Yes, Buiter's solution to cash's ability to allow people to avoid negative deposit rates is to abolish cash altogether. In other words he thinks banks should be able to confiscate peoples money at will.

skywhopper 12y ago

... or we could utilize government borrowing or central bank money creation to soak up the temporary excess capacity in the economy and encourage a more reasonable level of inflation (say, 4-5% for a few years). The extra spending would mean more workers with jobs, and the extra inflation would mean that existing debt loads would shrink, and those would represent positive feedback loops that would get the world economy growing again. Eliminating cash in order to allow for deflationary policy only invites a death spiral of growing real debt loads. Wage stickiness and a century of economic policies that assume inflation would mire us in an even worse situation for decades to come. This is a perfect example of theoretical thinking. The zero-lower-bound is annoying to someone who wants to construct a perfect mathematical model of the economy. But in the real world, the ZLB is a real barrier, both psychologically and in terms of its impact on existing debt loads. Unless existing debt rated in inflationary terms is either forgiven, refinanced, or paid off as part of this plan, this is a great way to speed up the path to utter financial ruin for the middle class.

chrismcb 12y ago

Is the point of negative interest rates to remove money from the system? Is it any different than printing more money? Or is it simply to encourage people to spend more often?