David Stockman’s contra corner has many interesting posts in favour of free market policies in place of the centralised planning of neoliberalism. This one criticises increasing the power of central banks by abolishing cash. The Mises Institute and the Austrian school of economics in general are for a free market. While I am myself in favour of ordoliberalism, as long as the world remind blind to their insights I am worried about the growing centralisation of power of the big banks. The EU’s European Central Bank is parade example of this policy at its most extreme worst.
My only misgiving about the Austrian School is that I see no practical policies to curtail the central banks of modern society. A search for Central bank on Mises threw up many examples of discussions around this issue and I spent a whole morning reading up on Mises’ view but could not find a discussion of practical policy suggestions. I found none, but am still looking.
The problem is that QE has not produced the spending spree of ordinary people that might lift the economy out of the doldrums. So if ordinary voters will not consume more they must be forced to do so by the abolition of cash!
Apparently “for our own good”, we are dangerously close to fascism and Big Government.
I am going to enable comments on this post, in the hope that it won’t produce too much work to administer. If it does, I will have to rethink.
It’s official: the world has gone central-planner crazy.
Monetary policy, whether in the form of “conventional” methods such as the micromanagement of policy rates or so-called “unconventional” measures such as QE, has proven utterly ineffective when it comes to both “smoothing out” the business cycle and reigniting economic growth in the wake of severe downturns. If anything, recent history has shown the exact opposite to be true. That is, the Fed helped to engineer the housing bubble and has now succeeded in inflating a similar bubble in stocks and fixed income. Meanwhile, the Japanese experience with QE has plunged the country into what we have affectionately dubbed “The Kuroda Zone”, wherein the Bank of Japan has cornered both the stock and bond markets while failing to promote wage growth or meaningfully raise inflation expectations. In China, the People’s Bank of China has taken to cutting policy rates at the first sign of weakness in the stock market, helping to sustain what will perhaps go down in history as the second coming of the tulip bulb mania, while the ECB has taken the insane step of adopting a trillion euro bond buying program while simultaneously demanding fiscal discipline, meaning the central bank’s bond monetization efforts are set against a backdrop of meager supply.
In sum, the collective actions of the world’s most influential central banks have done wonders when it comes to inflating asset bubbles but have done very little to revive robust economic growth. In fact, far from smoothing out the business cycle and resuscitating DM demand, post-crisis monetary policy has actually had the exact opposite effect: it has set the stage for an even more spectacular collapse while simultaneously creating a worldwide deflationary supply glut.
At this stage, a sane person might be tempted to call it a day on the monetary experiments, especially considering that at this point, the limits have been reached. That is, there are literally no more assets to buy and rates have hit the effective lower bound where rational actors will eschew bank deposits in favor of the mattress. But not so fast, say folks like Citi’s Willem Buiter and economist Ken Rogoff: the world could always ban cash because if you eliminate physical currency and force people to use a debit card linked to a government controlled bank account for all transactions, you can effectively centrally plan everything. Consumers not spending? No problem. Just tax their excess account balance. Economy overheating? Again, no problem. Raise the interest paid on account holdings to encourage people to stop spending. So with Citi, Harvard, and Denmark all onboard, we bring you the latest call for a cashless society, this time from German economist and member of the German Council Of Economic Experts Peter Bofinger.
Via Spiegel (Google translated):
Coins and bills are obsolete and only reduce the influence of central banks. This position represents the economy Peter Bofinger. The federal government should stand up for the abolition of cash, he calls in the mirror…
The economy Peter Bofinger campaigns for the abolition of cash. “With today’s technical possibilities coins and notes are in fact an anachronism,” Bofinger told SPIEGEL.
If these away, the markets for undeclared work and drugs could be dried out. In addition, it would have the central banks easier to enforce its monetary policy.The teaching in Würzburg economics professor called on the federal government to promote at the international level for the abolition of cash. “That would certainly be a good topic for the agenda of the G-7 summit in Elmau,” he said. (Click here to read the full interview in the new mirror .)
Even the former US Treasury Secretary Larry Summers and economist pleaded for an end to the already cash . Likewise, the US economist Kenneth Rogoff . He also argued that the interest rates of central banks have less clout when banks or consumer credit rather than hoard cash.
Critics warn, however , such debates would only distract from the real problems of the current monetary policy.
Yes, the “real problems” with current monetary policy. Like the fact that by design it can’t possibly work (but it can and will push stocks to unprecedented highs). Paging Mr. Weidmann, your countrymen are going Keynesian crazy