Take cash away, however, or make the cost of hoarding high enough, and central banks would be free to drive rates as deep into negative territory as they needed in a severe recession. People could still hoard small bills, but the costs would likely be prohibitive for any realistic negative interest rate. If necessary, central banks could also slap temporary fees on any large withdrawals and deposits of paper currency.
Yes, of course. People will take it meekly and not protest. Or, Ken Rogoff will send in the troops.
Others worry that negative rates will push banks, if not the entire financial sector, to engage in reckless risk-taking, which is threat enough with interest rates at zero. But if a strong dose of negative rates can power an economy out of a downturn, it could bring inflation and interest rates back to positive levels relatively quickly, arguably reducing vulnerability to bubbles rather than increasing it.
Yes, that is easy. Negative rates suggest that all is well and the only thing that stands in the way of negative rates spurring more investment, employment and output is this sinister little thing called cash.
Stupid and sinister arguments about ‘sinister’ cash by Kenneth Rogoff of Harvard University, here.
There was a colourful answer to him some fifteen years ago by Charles Goodhart and his co-authors (ht: Izabella Kaminska – source)
Realclearmarkets.com has written a lovely PUT-DOWN of Ken Rogoff. It is worth a read.
As Rogoff put it, “In principle, cutting interest rates below zero ought to stimulate consumption and investment in the same way as normal monetary policy by encouraging borrowing.” Rogoff is apparently unfamiliar with Japan’s failure to stimulate consumption and investment through the Bank of Japan’s various stabs at price control at the zero rate. Also apparently lost on Rogoff is that for every borrower there must be a saver first. Wouldn’t zero rates cause fewer people to save? If rent controls below the market rate lead to apartment scarcity, wouldn’t interest rates at zero lead to credit scarcity?…
… To Rogoff, seemingly any infringement on our individual rights is ok so long as it empowers government.
Rogoff’s latest commentary brings to mind the old ad against drunk driving: “friends don’t let friends drive drunk.” So true. Rogoff’s friends and colleagues would reveal grand compassion if they applied this to Rogoff. Friends, and most certainly economists, don’t let Kenneth Rogoff go public with his “observations.” It’s not fair to Rogoff’s good reputation (his book with Carmen Reinhart was pretty informative at times), and certainly not fair to the reputation of his profession.
Yes, I too am ‘worried’ about the damage to Rogoff’ reputation. More worryingly, his brain could be infected by the ‘hubris’ virus.