“We Are At A Point Where The Encroachment Of Government Power Has Historically Resulted In Rebellion”

Sunday, August 28, 2016
By Paul Martin

by Tyler Durden
Aug 28, 2016

Overnight, one of our favorite hedge fund commentators, (ex) IceFarm Capital’s Michael Green, was gruesomely entertained by Ken Rogoff’s WSJ Op-Ed, pushing for a ban on $20, $50 and $100 bills, to which he – just like us – has some less than kind words.

Unlike our bemused conclusion about the idiocy of Rogoff’s latest pitch to do away with cash (something we predicted would happen years ago as banning cash is a necessary, if not sufficient, condition for NIRP to work), Green provides the following thought experiment to demonstrate just how ridiculous economic prescriptions have become:

“Ken wants even more powerful monetary policy ability to pursue negative rates – because they are doing such a bang up job in Japan and Europe – or at least they would be if it weren’t for that pesky reality of cash. Like many Keynesian proposals, however, this ridiculous love affair is predicated on a very simple concept – lower interest rates equals more borrowing and therefore economic growth. A simple thought experiment suffices to prove this fallacy. Imagine the government sets a -100% rate to “stimulate” growth. Almost immediately, all economic activity would cease. Payments would go unaccepted, checks would be refused, loanable funds would evaporate. Yes, there would be an initial burst of economic activity as “savers” fled from currency, but move to the second economic period… what happens next? Do banks lend money? They would like to… but who would take the electronic deposit that needed to be spent immediately with no one willing to accept it? It’s an absurd scenario, but it illustrates the primary issue with negative rates – under a negative rate scenario, the only participant receiving more cash over time is the government. The private sector slowly collapses as we are seeing in Japan and Europe in real time.

The Rest…HERE

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