Miles Kimball's Sneaky Way of Destroying Cash. The Importance of Zero.

This article was first published by me on Talkmarkets:

Before I get into the importance of zero at the end of this article, I have to talk about Miles Kimball. Miles Kimball has a really sneaky way of destroying cash. The economics professor at University of Michigan has called for paper money to be valued at a discount to digital money. Of course, that will drive paper money out of existence, as people will do as many transactions as they can digitally, as unwitting pawns in the central banks' movement towards totalitarianism.

Miles is somewhat important in economic and central banking circles. He has written many articles on Quartz, and couches his quest for a digital money standard in moral terms. He says this debasing of physical cash will create honest money, and be a moral way to do things. It just proves that you cannot trust an economist with morality. Miles made this astonishing statement:

What the opponents of primacy for electronic money fail to realize is that making electronic money the economic yardstick is the key to eliminating inflation and finally having honest money.The European Central Bank, the Fed, and even the Bank of Japan increasingly talk about an inflation rate like 2% as their long-run target. Why have a 2% long-run target for inflation rather than zero—no inflation at all? Most things are better with inflation at zero than at 2%. The most important benefit of zero inflation is that anything but zero inflation is inherently confusing and deceptive for anyone but the handful of true masters at mentally correcting for inflation. Eliminating inflation is first and foremost a victory for understanding, and a victory for truth.
His seemingly strong argument is, that you could eliminate inflation if you devalued cash along with negative interest rate , or even more than digital money. But surely, your paper or coins in cash would feel an immediate inflationary shock. And what about the moral need for cash. Poor people and travelers need cash. Why should their cash be worth less than your digital money, as it becomes a regressive tax on the poor? 

And, besides, there are potential glitches in the electronic system. Systems crash. People are put in danger. What about the moral issues there, Miles?

We already have Larry Summers advocating the death of the $100 bill. That is sneaky as well, as Summers never mentioned NIRP as a reason. Now the masses see that it must be done away with to fight crime, which is not Summers' real reason for eliminating it. He wants to eliminate cash piece by piece.

So, while Miles is not afraid to tell people about diminishing the value of cash compared to digital money, he says he is eliminating inflation and implying that the cash will be around for the poor. But it won't be. And inflation won't be eliminated for paper money.

I am sick and tired of what appears to be a scam in the making. People will be scammed out of paper money thinking they are doing the right thing, not understanding either the real basis for this demise of cash nor the efforts to reduce cash in order to eliminate it later!

Surely the leaders and thinkers in this nation can do better than this. Shame on you people who seek to destroy real money. Comparing those who want to keep physical cash to those who wanted the gold standard is not fair and is an attack on reason.  

This is a rule, if you diminish cash you will ultimately eliminate it. That is why people need to start using more cash, or it will surely disappear, to the peril of society.   

Now, it isn't like Miles Kimball has nothing to offer. He worried back in 2014 that interest on junk bonds was not much higher than on treasuries, and that that meant something was wrong. Well, turns out something was wrong, and the junk bonds were revealed as risky and mispriced, when the price of oil crashed.

But when Kimball calls Larry Summers brilliant, that becomes an unholy marriage made in New Keynesian hell, as both are calling for the end of cash and severely negative rates, IMO.

Whatever people say about Scott Sumner, at least he believes that Market Monetarism does not need the elimination of cash in order for a central bank to stimulate the economy. While Scott would say that MM is not completely fair, as asset purchases could hurt people on fixed income, at least he prefers that to the elimination of physical cash, which seems to him and most rational people, to be as immoral as it gets.

While Sumner would say elimination of cash is bad on libertarian grounds (although he can't really be a libertarian due to his desire to stimulate the economy), I say it is bad on moral grounds and on economic grounds. If you take away the zero lower bound, which is physical cash, which is always worth more than negative interest rates, there will simply be no stopping the descent into negative rates.   

In other words, the importance of zero means that you could experience dire consequences if you eliminate zero. There would be nothing to stop central bankers from imposing 5 percent negative interest rates, then 10 percent negative interest rates, then 20 percent negative interest rates. Where would it stop?

The New Keynesians like Kimball and Larry Summers, (who has thought about Scott Sumner's market monetarism but really is an NK), have to explain where the descent to negative would stop. But they would likely be sneaky about it like they are now. So, let's just keep the zero lower bound, paper and coin cash, and forget about it.

So, you want to constrain the madness of  NK economists? Then you better keep the zero, or people will likely save even more to make up for the tax of forced bank accounts with negative rates imposed upon them, or they will look around for other things to use as money, or turn to barter. You think the economy is slow now, I suggest we don't want to find out how slow it could get then.


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