Stories
Slash Boxes
Comments

SoylentNews is people

posted by cmn32480 on Tuesday September 06 2016, @01:19PM   Printer-friendly
from the everything-electronic dept.

Bloomberg reports:

If you believe that government meddling in financial markets was responsible for the last recession and the lackluster recovery, you might be right. But probably not in the way you think.

Imagine what would happen in a free market if everyone suddenly decided that future economic growth would be very slow. The price of safe assets such as U.S. government bonds -- assets that pay off even in a low-growth environment -- would rise sharply. As a result, the real (inflation-adjusted) interest rate, which always moves opposite to the price of safe assets, would fall. In principle, if the demand for safe assets was strong enough, the real interest rate could go deep into negative territory.

Yet two government mechanisms prevent real interest rates from getting too negative. The first is cash: As long as people can hold currency, which loses its value only at the rate of inflation, they won't buy safe assets that yield even less. The second is the central bank's promise to keep the inflation rate low and stable -- at about 2 percent in most developed nations. As a result, people have little reason to hold any asset that yields less than negative 2 percent (perhaps negative 3 percent, considering that cash is bulky and hard to store).

In other words, governments -- by issuing cash and managing inflation -- put a floor on how low interest rates can go and how high asset prices can rise. That's hardly a free market.

[...] The right answer is to abolish currency and move completely to electronic cash, an idea suggested at various times by Marvin Goodfriend of Carnegie-Mellon University, Miles Kimball of the University of Colorado and Andrew Haldane of the Bank of England. Because electronic cash can have any yield, interest rates would be able go as far into negative territory as the market required.

[...] If cash were abolished, I would support the adoption of two complementary measures. First, instead of targeting a positive inflation rate, central banks could target true price stability by aiming to keep the level of prices constant over time. (To be clear, this would be disastrous unless cash were eliminated first.)

Second, currency does provide a service beyond being a store of value and a medium of exchange: It's anonymous and thus ensures the privacy of transactions. In its absence, governments would have to allow the private sector to offer alternatives with the same attractive features.

We've endured a deep recession and a miserable recovery because the government, through its provision of currency, interferes with the proper functioning of financial markets. Why not ensure that doesn't happen again?

Narayana Kocherlakota is a Bloomberg View columnist. He is a professor of economics at the University of Rochester and was president of the Federal Reserve Bank of Minneapolis from 2009 to 2015.


Original Submission

 
This discussion has been archived. No new comments can be posted.
Display Options Threshold/Breakthrough Mark All as Read Mark All as Unread
The Fine Print: The following comments are owned by whoever posted them. We are not responsible for them in any way.
  • (Score: 3, Interesting) by TheGratefulNet on Tuesday September 06 2016, @08:57PM

    by TheGratefulNet (659) on Tuesday September 06 2016, @08:57PM (#398284)

    I agree - the elites are trying their best to ensure we are all slaves and have no bargain power in ANYTHING.

    the hatred of those 'haves' from the 'have nots' is really running deep, right now, and I feel that, myself (been out of work since march and still no job prospects. if I can't find something soon, I'm going to be in serious shit. and the elites LOVE THAT since it gives them power over me and I have little say in the matter).

    look rich fucks: once I hit bottom, I would care less what happens. make me a terrorist - go ahead. make us all like that. you'll then find out why its so important to throw a bone to the middle class (ie, the new poor class) so that they don't rise up with a 'got nothing to lose, fuck it all!' attitude.

    never before in my life have I felt this way. and I fully understand being pushed to the limit where you just say 'fuck it'.

    I'm educated, skilled, experienced. and jobless for months. this is a failure of the western system, no doubt about it. if a guy like me can't stay employed and pay bills we have FAILED as a country and civ.

    not kidding. I can see myself being pennyless and wanting to strike back at anyone who is not like me.

    I dread that situation. but its there in the distance, visible to me. not happy about this 'new economy'. not at all.

    --
    "It is now safe to switch off your computer."
    Starting Score:    1  point
    Moderation   +1  
       Interesting=1, Total=1
    Extra 'Interesting' Modifier   0  
    Karma-Bonus Modifier   +1  

    Total Score:   3  
  • (Score: 2) by art guerrilla on Wednesday September 07 2016, @11:10AM

    by art guerrilla (3082) on Wednesday September 07 2016, @11:10AM (#398643)

    why, son, have you ever considered the Army as a career move ? ? ?
    THAT is yet another reason why the economy is KEPT SHITTY for us 99%: stupid morlocks have to be herded to go and fight the wars of Empire...
    95%+ of the people in the armed forces aren't there because they want to spread peace and democracy to Lower Pipelinestan, no, it is because THEY CAN'T GET A FUCKING JOB...
    which is EXACTLY why Empire likes to keep us unemployed and desperate: you will do ANYTHING for Empire, including murdering brown people half the world away who ain't done shit to us...

  • (Score: 2) by Webweasel on Wednesday September 07 2016, @02:49PM

    by Webweasel (567) on Wednesday September 07 2016, @02:49PM (#398713) Homepage Journal

    I get the feeling when my kids hit uni, I'm gonna buy a sniper rifle and start hunting money cunts.

    George Soros is first on my list.

    --
    Priyom.org Number stations, Russian Military radio. "You are a bad, bad man. Do you have any other virtues?"-Runaway1956