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Archive for the ‘Easy money’ Category

In this interview yesterday, I noted that there are “external” risks to the economy, most notably the spillover effect of a potential economic implosion in China or a fiscal crisis in Italy.

But many of the risks are homegrown, such as Trump’s self-destructive protectionism and the Federal Reserve’s easy money.

Regarding trade, Trump is hurting himself as well as the economy. He simply doesn’t understand that trade is good for prosperity and that trade deficits are largely irrelevant.

Regarding monetary policy, I obviously don’t blame Trump for the Fed’s easy money policy during the Obama years, though I wish that he wouldn’t bash the central bank and instead displayed Reagan’s fortitude about accepting the need to unwind such mistakes.

The interview wasn’t that long, but I had a chance to pontificate on additional topics.

The bottom line is that Trump has a very mixed record on the economy. But I fear the good policies are becoming less important and the bad policies are becoming more prominent.

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I periodically explain that you generally don’t get a recession by hiking taxes, adding red tape, or increasing the burden of government spending. Those policies are misguided, to be sure, but they mostly erode the economy’s long-run potential growth.

If you want to assign blame for economic downturns, the first place to look is monetary policy.

When central banks use monetary policy to keep interest rates low (“Keynesian monetary policy,” but also known as “easy money” or “quantitative easing”), that can cause economy-wide distortions, particularly because capital gets misallocated.

And this often leads to a recession when this “malinvestment” gets liquidated.

I’ve made this point in several recent interviews, and I had a chance to make the same point yesterday.

By the way, doesn’t the other guest have amazing wisdom and insight?

But let’s not digress.

Back to the main topic, I’m not the only one who is worried about easy money.

Desmond Lachman of the American Enterprise Institute is similarly concerned.

Never before have the world’s major central banks kept interest rates so low for so long as they have done over the past decade. More importantly yet, never before have these banks increased their balance sheets on anything like the scale that they have done since 2008 by their aggressive bond-buying programmes. Indeed, since 2008, the size of the combined balances sheet of the Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England has increased by a mind-boggling US$10tn. …in recent years, if anything central bank monetary policy might have been overly aggressive. By causing global asset price inflation as well as the serious mispricing and misallocation of global credit, the seeds might have been sown for another Lehman-style economic and financial market crisis down the road. …the all too likely possibility that, by having overburdened monetary policy with the task of stabilizing output, advanced country governments might very well have set us up for the next global boom-bust economic cycle.

If you want the other side of the issue, the Economist is more sympathetic to monetary intervention.

And if you want a very learned explanation of the downsides of easy money, I shared some very astute observations from a British central banker back in 2015.

The bottom line is that easy money – sooner or later – backfires.

By the way, here’s a clip from earlier in the interview. Other than admitting that economists are lousy forecasters, I also warned that the economy is probably being hurt by Trump’s protectionism and his failure to control the growth of spending.

P.S. The “war on cash” in many nations is partly driven by those who want the option of easy money.

P.P.S. I worry that politicians sometimes choose to forgo good reforms because they hope easy money can at least temporarily goose the economy.

P.P.P.S. Easy money is also a tool for “financial repression,” which occurs when governments surreptitiously confiscate money from savers.

P.P.P.P.S. Maybe it’s time to reconsider central banks?

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I often discuss the importance of long-run growth and I pontificate endlessly about the policies that will produce better economic performance.

But what about short-term fluctuations? Where are we in the so-called business cycle? I don’t think economists are good at forecasting the ups and downs of the economy, but I did mention the factors that might contribute to a downturn in this interview with Dana Loesch.

Dana isn’t the only one interested in this topic.

The New York Times opined today about the state of the economy.

…the American economy has a lot more power…, and it’s making a lot of noise. …While Mr. Trump praised himself effusively…the stock market seemed unimpressed. …That’s because if you look down the line, there are few clear reasons to be so enthusiastic.

I suspect the editors at the NYT are somewhat motivated by a desire to make Trump look bad, but I don’t necessarily disagree with some of their analysis.

Though I think they are wrong on tax policy, which is the best thing that’s happened since Trump took office.

…the initial jolt of the Republicans’ $1.5 trillion tax cuts, mostly for corporations and the wealthy, is wearing off. Corporations have bought back $437 billion of their own shares, which leaves them that much less to invest in new production, or wages.

By the way, there’s nothing wrong with stock buybacks. It’s a way for companies to return profits to shareholders. And those shareholders generally then reinvest the money, so the NYT screwed up on that bit of analysis.

But they raise a very legitimate issue when looking at the impact of monetary policy.

Then there’s the flattening yield curve, which the St. Louis Federal Reserve’s president, James Bullard, warns could invert late this year if current conditions persist. That means short-term rates, such as those for two-year Treasury bonds, run higher than long-term rates, like the 10-year bond, a sign of pessimism that is a well-known red flag.

Though I would add that we wouldn’t be in the position of having to raise rates if the Fed hadn’t pushed rates artificially low in the first place (the same mistake they made last decade, by the way).

In other words, the best way of avoiding “tight money” is to not engage in periods of “easy money.”

The NYT editorial also looks at consumer spending, which is fine if the goal is to see whether retailers are happy. But if the issue is whether the economy is doing well, it’s much more important to see whether personal income is rising or falling.

Consumers were in a spending mood this spring, an attitude that won’t necessarily continue. …A recent Reuters analysis found that the bottom 60 percent of income-earners have been fueling their spending, and thus the economy’s, by using their savings or credit cards. They almost have to, because wage growth is expanding at a disappointing 2.7 percent annual clip.

I fully agree with this excerpt about trade. Assuming he wants to run for reelection, Trump is being very foolish to push for more protectionism.

…consider the administration’s effort to apply the sledgehammer to the economy’s toes via a trade war and ensuing tariffs on imported steel and aluminum, among other products. …Not only have the tariffs contributed to $1 billion in higher costs for General Motors, they are now contributing to rising prices of everything from Cokes to vacuum cleaners as companies pass along those costs to consumers.

Last but not least, I don’t necessarily agree that expansion have to end. After all, the economy is largely capable of self-correcting.

But a “business cycle” is probably inevitable so long as government has so much power to intervene.

None of these issues by themselves will put the brakes on an economy that is powering along with a 3.9 percent unemployment rate. But the friction is building. …economic expansions — and this one is in its 10th year — eventually run out of gas. …Mr. President, while you like to take credit for positive economic trends that are well beyond your control, you will own the downside, too.

For what it’s worth, I think misguided monetary policy usually deserves blame for short-run economic instability.

I mentioned in the interview that the central bank is trying to “normalize” interest rates. I hope the Fed is successful, though I worry that financial markets (and housing markets) have become dependent on easy money and will take a hit.

I’ll close by pointing out that the pundit class is focusing on whether the economy is growing faster under Trump than it grew under Obama.

I don’t care about that contest. I’m much more interested in whether we can get the kind of free market-driven prosperity we enjoyed under Ronald Reagan or Bill Clinton.

We didn’t get that growth during the Obama years.

And given Trump’s schizophrenic approach to policy, I don’t have high hopes we’ll average 3 percent-plus growth during his tenure.

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During the Obama years, I used data from the Minneapolis Federal Reserve to explain that the economic recovery was rather weak. And when people responded by pointing to a reasonably strong stock market, I expressed concern that easy-money policies might be creating an artificial boom.

Now that Trump’s in the White House, some policies are changing. On the plus side, we got some better-than-expected tax reform. Moreover, the onslaught of red tape from the Obama years has abated, and we’re even seeing some modest moves to reduce regulation.

But there’s also been bad news. Trump’s bad protectionist rhetoric is now turning into bad policy. And his track record on spending is very discouraging.

What’s hard to pin down, though, is the impact of monetary policy. The Federal Reserve apparently is in the process of slowly unwinding the artificially low interest rates that were part of its easy-money approach. Is this too little, too late? Is it just right? What’s the net effect?

Since economists are lousy forecasters, I don’t pretend to know the answer, but I think we should worry about the legacy impact of all the easy money, which is the point I made in this clip from a recent interview.

James Pethokoukis from the American Enterprise Institute has similar concerns.

Here’s some of what he recently wrote on the topic.

…this supposed “boom” looks more like same-old, same-old. First quarter GDP, for instance, was just revised down two ticks to 2% and monthly job growth is a bit weaker than under President Obama’s final few years. …What’s more, pretty much every recession for a century has been accompanied by some magnitude of explicit Fed tightening. And, of course, the Fed is now well into a tightening cycle. …Another complicating factor is the Trump trade policy, which seems to be a market suppressant right now, if not yet a significant economic one.

Those are all good points, though we still don’t know the answer.

I’ll close with two observations.

  • First, our main concern should be boosting the economy’s long-run growth rate, and that’s why we need lower tax rates, less government spending, open trade, and less red tape. As I’ve noted already, Trump has a mixed track record.
  • Second, a short-run concern is whether the Federal Reserve’s easy-money policy in recent years has created a bubble that is poised to burst. If it does, Trump will take the blame simply because he happens to be in the White House.

And that second issue gives me an excuse to re-emphasize that Keynesian monetary policy is just as foolish as Keynesian fiscal policy. You may enjoy a “sugar high” for a period of time, but eventually there’s a painful reckoning.

P.S. For what it’s worth, we’d have more growth and stability if policymakers learned from the “Austrian School” of economics.

P.P.S. Moreover, it’s a good idea to be skeptical about the Federal Reserve.

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When I was younger, folks in the policy community joked that BusinessWeek was the “anti-business business weekly” because its coverage of the economy was just as stale and predictably left wing as what you would find in the pages of Time or Newsweek.

Well, perhaps it’s time for The Economist to be known as the “anti-economics economic weekly.”

Writing about the stagnation that is infecting western nations, the magazine beclowns itself by regurgitating stale 1960s-style Keynesianism. The article is worthy of a fisking (i.e., a “point-by-point debunking of lies and/or idiocies”), starting with the assertion that central banks saved the world at the end of last decade.

During the financial crisis the Federal Reserve and other central banks were hailed for their actions: by slashing rates and printing money to buy bonds, they stopped a shock from becoming a depression.

I’m certainly open to the argument that the downturn would have been far worse if the banking system hadn’t been recapitalized (even if it should have happened using the “FDIC-resolution approach” rather than via corrupt bailouts), but that’s a completely separate issue from whether Keynesian monetary policy was either desirable or successful.

Regarding the latter question, just look around the world. The Fed has followed an easy-money policy. Has that resulted in a robust recovery for America? The European Central Bank (ECB) has followed the same policy. Has that worked? And the Bank of Japan (BoJ) has done the same thing. Does anyone view Japan’s economy as a success?

At least the article acknowledges that there are some skeptics of the current approach.

The central bankers say that ultra-loose monetary policy remains essential to prop up still-weak economies and hit their inflation targets. …But a growing chorus of critics frets about the effects of the low-rate world—a topsy-turvy place where savers are charged a fee, where the yields on a large fraction of rich-world government debt come with a minus sign, and where central banks matter more than markets in deciding how capital is allocated.

The Economist, as you might expect, expresses sympathy for the position of the central bankers.

In most of the rich world inflation is below the official target. Indeed, in some ways central banks have not been bold enough. Only now, for example, has the BoJ explicitly pledged to overshoot its 2% inflation target. The Fed still seems anxious to push up rates as soon as it can.

The preceding passage is predicated on the assumption that there is a mechanistic tradeoff between inflation and unemployment (the so-called Phillips Curve), one of the core concepts of Keynesian economics. According to adherents, all-wise central bankers can push inflation up if they want lower unemployment and push inflation down if they want to cool the economy.

This idea has been debunked by real world events because inflation and unemployment simultaneously rose during the 1970s (supposedly impossible according the Keynesians) and simultaneously fell during the 1980s (also a theoretical impossibility according to advocates of the Phillips Curve).

But real-world evidence apparently can be ignored if it contradicts the left’s favorite theories.

That being said, we can set aside the issue of Keynesian monetary policy because the main thrust of the article is an embrace of Keynesian fiscal policy.

…it is time to move beyond a reliance on central banks. …economies need succour now. The most urgent priority is to enlist fiscal policy. The main tool for fighting recessions has to shift from central banks to governments.

As an aside, the passage about shifting recession fighting “from central banks to governments” is rather bizarre since the Fed, the ECB, and the BoJ are all government entities. Either the reporter or the editor should have rewritten that sentence so that it concluded with “shift from central banks to fiscal policy” or something like that.

In any event, The Economist has a strange perspective on this issue. It wants Keynesian fiscal policy, yet it worries about politicians using that approach to permanently expand government. And it is not impressed by the fixation on “shovel-ready” infrastructure spending.

The task today is to find a form of fiscal policy that can revive the economy in the bad times without entrenching government in the good. …infrastructure spending is not the best way to prop up weak demand. …fiscal policy must mimic the best features of modern-day monetary policy, whereby independent central banks can act immediately to loosen or tighten as circumstances require.

So The Economist endorses what it refers to as “small-government Keynesianism,” though that’s simply its way of saying that additional spending increases (and gimmicky tax cuts) should occur automatically.

…there are ways to make fiscal policy less politicised and more responsive. …more automaticity is needed, binding some spending to changes in the economic cycle. The duration and generosity of unemployment benefits could be linked to the overall joblessness rate in the economy, for example.

In the language of Keynesians, such policies are known as “automatic stabilizers,” and there already are lots of so-called means-tested programs that operate this way. When people lose their jobs, government spending on unemployment benefits automatically increases. During a weak economy, there also are automatic spending increases for programs such as Food Stamps and Medicaid.

I guess The Economist simply wants more programs that work this way, or perhaps bigger handouts for existing programs. And the magazine views this approach as “small-government Keynesianism” because the spending increases theoretically evaporate as the economy starts growing and fewer people are automatically entitled to receive benefits from the various programs.

Regardless, whoever wrote the article seems convinced that such programs help boost the economy.

When the next downturn comes, this kind of fiscal ammunition will be desperately needed. Only a small share of public spending needs to be affected for fiscal policy to be an effective recession-fighting weapon.

My reaction, for what it’s worth, is to wonder why the article doesn’t include any evidence to bolster the claim that more government spending is and “effective” way of ending recessions and boosting growth. Though I suspect the author of the article didn’t include any evidence because it’s impossible to identify any success stories for Keynesian economics.

  • Did Keynesian spending boost the economy under Hoover? No.
  • Did Keynesian spending boost the economy under Roosevelt? No.
  • Has Keynesian spending worked in Japan at any point over the past twenty-five years? No.
  • Did Keynesian spending boost the economy under Obama? No.

Indeed, Keynesian spending has an unparalleled track record of failure in the real world. Though advocates of Keynesianism have a ready-built excuse. All the above failures only occurred because the spending increases were inadequate.

But what do expect from the “perpetual motion machine” of Keynesian economics, a theory that is only successful if you assume it is successful?

I’m not surprised that politicians gravitate to this idea. After all, it tells them that their vice  of wasteful overspending is actually a virtue.

But it’s quite disappointing that journalists at an allegedly economics-oriented magazine blithely accept this strange theory.

P.S. My second-favorite story about Keynesian economics involves the sequester, which big spenders claimed would cripple the economy, yet that’s when we got the only semi-decent growth of the Obama era.

P.P.S. My favorite story about Keynesianism is when Paul Krugman was caught trying to blame a 2008 recession in Estonia on spending cuts that occurred in 2009.

P.P.P.S. Here’s my video explaining Keynesian economics.

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Remember Bill Murray’s Groundhog Day, the 1993 comedy classic about a weatherman who experiences the same day over and over again?

Well, the same thing is happening in Japan. But instead of a person waking up and reliving the same day, we get politicians pursuing the same failed Keynesian stimulus policies over and over again.

The entire country has become a parody of Keynesian economics. Yet the politicians make Obama seem like a fiscal conservative by comparison. They keep doubling down on the same approach, regardless of all previous failures.

The Wall Street Journal reports on the details of the latest Keynesian binge.

Japan’s cabinet approved a government stimulus package that includes ¥7.5 trillion ($73 billion) in new spending, in the latest effort by Prime Minister Shinzo Abe to jump-start the nation’s sluggish economy. The spending program, which has a total value of ¥28 trillion over several years, represents…an attempt to breathe new life into the Japanese economy… The government will pump money into infrastructure projects… The government will provide cash handouts of ¥15,000, or about $147, each to 22 million low-income people… Other items in the package included interest-free loans for infrastructure projects…and new hotels for foreign tourists.

As already noted, this is just the latest in a long line of failed stimulus schemes.

The WSJ story includes this chart showing what’s happened just since 2008.

And if you go back farther in time, you’ll see that the Japanese version of Groundhog Day has been playing since the early 1990s.

Here’s a list, taken from a presentation at the IMF, of so-called stimulus plans adopted by various Japanese governments between 1992-2008.

And here’s my contribution to the discussion. I went to the IMF’s World Economic Outlook database and downloaded the numbers on government borrowing, government debt, and per-capita GDP growth.

I wanted to see how much deficit spending there was and what the impact was on debt and the economy. As you can see, red ink skyrocketed while the private economy stagnated.

Though we shouldn’t be surprised. Keynesian economics didn’t work for Hoover and Roosevelt, or Bush and Obama, so why expect it to work in another country.

By the way, I can’t resist making a comment on this excerpt from a CNBC report on Japan’s new stimulus scheme.

Abe ordered his government last month to craft a stimulus plan to revive an economy dogged by weak consumption, despite three years of his “Abenomics” mix of extremely accommodative monetary policy, flexible spending and structural reform promises.

In the interest of accuracy, the reporter should have replaced “despite” with “because of.”

In addition to lots of misguided Keynesian fiscal policy, there’s been a radical form of Keynesian monetary policy from the Bank of Japan.

Here are some passages from a very sobering Bloomberg report about the central bank’s burgeoning ownership of private companies.

Already a top-five owner of 81 companies in Japan’s Nikkei 225 Stock Average, the BOJ is on course to become the No. 1 shareholder in 55 of those firms by the end of next year…. BOJ Governor Haruhiko Kuroda almost doubled his annual ETF buying target last month, adding to an unprecedented campaign to revitalize Japan’s stagnant economy. …opponents say the central bank is artificially inflating equity valuations and undercutting efforts to make public companies more efficient. …the monetary authority’s outsized presence will make some shares harder to buy and sell, a phenomenon that led to convulsions in Japan’s government bond market this year. …the BOJ doesn’t acquire individual shares directly, it’s the ultimate buyer of stakes purchased through ETFs. …investors worry that BOJ purchases could give a free ride to poorly-run firms and crowd out shareholders who would otherwise push for better corporate governance.

Wow. I don’t pretend to be an expert on monetary economics, but I can’t image that there will be a happy ending to this story.

Just in case you’re not sufficiently depressed about Japan’s economic outlook, keep in mind that the nation also is entering a demographic crisis, as reported by the L.A. Times.

All across Japan, aging villages such as Hara-izumi have been quietly hollowing out for years… Japan’s population crested around 2010 with 128 million people and has since lost about 900,000 residents, last year’s census confirmed. Now, the country has begun a white-knuckle ride in which it will shed about one-third of its population — 40 million people — by 2060, experts predict. In 30 years, 39% of Japan’s population will be 65 or older.

The effects already are being felt, and this is merely the beginning of the demographic wave.

Police and firefighters are grappling with the safety hazards of a growing number of vacant buildings. Transportation authorities are discussing which roads and bus lines are worth maintaining and cutting those they can no longer justify. …Each year, the nation is shuttering 500 schools. …In Hara-izumi, …The village’s population has become so sparse that wild bears, boars and deer are roaming the streets with increasing frequency.

Needless to say (but I’ll say it anyhow), even modest-sized welfare states eventually collapse when you wind up with too few workers trying to support an ever-growing number of recipients.

Now maybe you can understand why I’ve referred to Japan as a basket case.

P.S. You hopefully won’t be surprised to learn that Japanese politicians are getting plenty of bad advice from the fiscal pyromaniacs at the IMF and OECD.

P.P.S. Maybe I’m just stereotyping, but I’ve always assumed the Japanese were sensible people, even if they have a bloated and wasteful government. But when you look at that nation’s contribution to the stupidest-regulation contest and the country’s entry in the government-incompetence contest, I wonder whether the Japanese have some as-yet-undiscovered genetic link to Greece?

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Although it doesn’t get nearly as much attention as it warrants, one of the greatest threats to liberty and prosperity is the potential curtailment and elimination of cash.

As I’ve previously noted, there are two reasons why statists don’t like cash and instead would prefer all of us to use digital money (under their rules, of course, not something outside their control like bitcoin).

First, tax collectors can’t easily monitor all cash transactions, so they want a system that would allow them to track and tax every possible penny of our income and purchases.

Second, Keynesian central planners would like to force us to spend more money by imposing negative interest rates (i.e., taxes) on our savings, but that can’t be done if people can hold cash.

To provide some background, a report in the Wall Street Journal looks at both government incentives to get rid of high-value bills and to abolish currency altogether.

Some economists and bankers are demanding a ban on large denomination bills as one way to fight the organized criminals and terrorists who mainly use these notes. But the desire to ditch big bills is also being fueled from unexpected quarter: central bank’s use of negative interest rates. …if a central bank drives interest rates into negative territory, it’ll struggle to manage with physical cash. When a bank balance starts being eaten away by a sub-zero interest rate, cash starts to look inviting. That’s a particular problem for an economy that issues high-denomination banknotes like the eurozone, because it’s easier for a citizen to withdraw and hoard any money they have got in the bank.

Now let’s take a closer look at what folks on the left are saying to the public. In general, they don’t talk about taxing our savings with government-imposed negative interest rates. Instead, they make it seem like their goal is to fight crime.

Larry Summers, a former Obama Administration official, writes in the Washington Post that this is the reason governments should agree on a global pact to eliminate high-denomination notes.

…analysis is totally convincing on the linkage between high denomination notes and crime. …technology is obviating whatever need there may ever have been for high denomination notes in legal commerce. …The €500 is almost six times as valuable as the $100. Some actors in Europe, notably the European Commission, have shown sympathy for the idea and European Central Bank chief Mario Draghi has shown interest as well.  If Europe moved, pressure could likely be brought on others, notably Switzerland. …Even better than unilateral measures in Europe would be a global agreement to stop issuing notes worth more than say $50 or $100.  Such an agreement would be as significant as anything else the G7 or G20 has done in years. …a global agreement to stop issuing high denomination notes would also show that the global financial groupings can stand up against “big money” and for the interests of ordinary citizens.

Summers cites a working paper by Peter Sands of the Kennedy School, so let’s look at that argument for why governments should get rid of all large-denomination currencies.

Illegal money flows pose a massive challenge to all societies, rich and poor. Tax evasion undercuts the financing of public services and distorts the economy. Financial crime fuels and facilitates criminal activities from drug trafficking and human smuggling to theft and fraud. Corruption corrodes public institutions and warps decision-making. Terrorist finance sustains organisations that spread death and fear. The scale of such illicit money flows is staggering. …Our proposal is to eliminate high denomination, high value currency notes, such as the €500 note, the $100 bill, the CHF1,000 note and the £50 note. …Without being able to use high denomination notes, those engaged in illicit activities – the “bad guys” of our title – would face higher costs and greater risks of detection. Eliminating high denomination notes would disrupt their “business models”.

Are these compelling arguments? Should law-abiding citizens be forced to give up cash in hopes of making life harder for crooks? In other words, should we trade liberty for security?

From a moral and philosophical perspective, the answer is no. Our Founders would be rolling in their graves at the mere thought.

But let’s address this issue solely from a practical, utilitarian perspective.

The first thing to understand is that the bad guys won’t really be impacted. The head the The American Anti-Corruption Institute, L. Burke Files, explains to the Financial Times why restricting cash is pointless and misguided.

Peter Sands…has claimed that removal of high-denomination bank notes will deter crime. This is nonsense. After more than 25 years of investigating fraudsters and now corrupt persons in more than 90 countries, I can tell you that only in the extreme minority of cases was cash ever used — even in corruption cases. A vast majority of the funds moved involved bank wires, or the purchase and sale of valuable items such as art, antiquities, vessels or jewellery. …Removal of high denomination bank notes is a fruitless gesture akin to curing the common cold by forbidding use of the term “cold”.

In other words, our statist friends are being disingenuous. They’re trying to exploit the populace’s desire for crime fighting as a means of achieving a policy that actually is designed for other purposes.

The good news, is that they still have a long way to go before achieving their goals. Notwithstanding agitation to get rid of “Benjamins” in the United States, that doesn’t appear to be an immediate threat. Additionally, according to SwissInfo, is that the Swiss government has little interest in getting rid of the CHF1,000 note.

The European police agency Europol, EU finance ministers and now the European Central Bank, have recently made noises about pulling the €500 note, which has been described as the “currency of choice” for criminals. …But Switzerland has no plans to follow suit. “The CHF1,000 note remains a useful tool for payment transactions and for storing value,” Swiss National Bank spokesman Walter Meier told swissinfo.ch.

This resistance is good news, and not just because we want to control rapacious government in North America and Europe.

A column for Yahoo mentions the important value of large-denomination dollars and euros in less developed nations.

Cash also has the added benefit of providing emergency reserves for people “with unstable exchange rates, repressive governments, capital controls or a history of banking collapses,” as the Financial Times noted.

Amen. Indeed, this is one of the reasons why I like bitcoin. People need options to protect themselves from the consequences of bad government policy, regardless of where they live.

By the way, if you’ll allow me a slight diversion, Bill Poole of the University of Delaware (and also a Cato Fellow) adds a very important point in a Wall Street Journal column. He warns that a fixation on monetary policy is misguided, not only because we don’t want reckless easy-money policy, but also because we don’t want our attention diverted from the reforms that actually could boost economic performance.

Negative central-bank interest rates will not create growth any more than the Federal Reserve’s near-zero interest rates did in the U.S. And it will divert attention from the structural problems that have plagued growth here, as well as in Europe and Japan, and how these problems can be solved. …Where central banks can help is by identifying the structural impediments to growth and recommending a way forward. …It is terribly important that advocates of limited government understand what is at stake. …calls for a return to near-zero or even negative interest rates…will do little in the short run to boost growth, but it will dig the federal government into a deeper fiscal hole, further damaging long-run prospects. It needs to be repeated: Monetary policy today has little to offer to raise growth in the developed world.

Let’s close by returning to the core issue of whether it is wise to allow government the sweeping powers that would accompany the elimination of physical currency.

Here are excerpts from four superb articles on the topic.

First, writing for The American Thinker, Mike Konrad argues that eliminating cash will empower government and reduce liberty.

Governments will rise to the occasion and soon will be making cash illegal.  People will be forced to put their money in banks or the market, thus rescuing the central governments and the central banks that are incestuously intertwined with them. …cash is probably the last arena of personal autonomy left. …It has power that the government cannot control; and that is why it has to go. Of course, governments will not tell us the real reasons.  …We will be told it is for our own “good,” however one defines that. …What won’t be reported will be that hacking will shoot up.  Bank fraud will skyrocket. …Going cashless may ironically streamline drug smuggling since suitcases of money weigh too much. …The real purpose of a cashless society will be total control: Absolute Total Control. The real victims will be the public who will be forced to put all their wealth in a centralized system backed up by the good faith and credit of their respective governments.  Their life savings will be eaten away yearly with negative rates. …The end result will be the loss of all autonomy.  This will be the darkest of all tyrannies.  From cradle to grave one will not only be tracked in location, but on purchases.  Liberty will be non-existent. However, it will be sold to us as expedient simplicity itself, freeing us from crime: Fascism with a friendly face.

Second, the invaluable Allister Heath of the U.K.-based Telegraph warns that the desire for Keynesian monetary policy is creating a slippery slope that eventually will give governments an excuse to try to completely banish cash.

…the fact that interest rates of -0.5pc or so are manageable doesn’t mean that interest rates of -4pc would be. At some point, the cost of holding cash in a bank account would become prohibitive: savers would eventually rediscover the virtues of stuffed mattresses (or buying equities, or housing, or anything with less of a negative rate). The problem is that this will embolden those officials who wish to abolish cash altogether, and switch entirely to electronic and digital money. If savers were forced to keep their money in the bank, the argument goes, then they would be forced to put up with even huge negative rates. …But abolishing cash wouldn’t actually work, and would come with terrible side-effects. For a start, people would begin to treat highly negative interest rates as a form of confiscatory taxation: they would be very angry indeed, especially if rates were significantly more negative than inflation. …Criminals who wished to evade tax or engage in illegal activities would still be able to bypass the system: they would start using foreign currencies, precious metals or other commodities as a means of exchange and store of value… The last thing we now need is harebrained schemes to abolish cash. It wouldn’t work, and the public rightly wouldn’t tolerate it.

The Wall Street Journal has opined on the issue as well.

…we shouldn’t be surprised that politicians and central bankers are now waging a war on cash. That’s right, policy makers in Europe and the U.S. want to make it harder for the hoi polloi to hold actual currency. …the European Central Bank would like to ban €500 notes. …Limits on cash transactions have been spreading in Europe… Italy has made it illegal to pay cash for anything worth more than €1,000 ($1,116), while France cut its limit to €1,000 from €3,000 last year. British merchants accepting more than €15,000 in cash per transaction must first register with the tax authorities. …Germany’s Deputy Finance Minister Michael Meister recently proposed a €5,000 cap on cash transactions. …The enemies of cash claim that only crooks and cranks need large-denomination bills. They want large transactions to be made electronically so government can follow them. Yet…Criminals will find a way, large bills or not. The real reason the war on cash is gearing up now is political: Politicians and central bankers fear that holders of currency could undermine their brave new monetary world of negative interest rates. …Negative rates are a tax on deposits with banks, with the goal of prodding depositors to remove their cash and spend it… But that goal will be undermined if citizens hoard cash. …So, presto, ban cash. …If the benighted peasants won’t spend on their own, well, make it that much harder for them to save money even in their own mattresses. All of which ignores the virtues of cash for law-abiding citizens. Cash allows legitimate transactions to be executed quickly, without either party paying fees to a bank or credit-card processor. Cash also lets millions of low-income people participate in the economy without maintaining a bank account, the costs of which are mounting as post-2008 regulations drop the ax on fee-free retail banking. While there’s always a risk of being mugged on the way to the store, digital transactions are subject to hacking and computer theft. …the reason gray markets exist is because high taxes and regulatory costs drive otherwise honest businesses off the books. Politicians may want to think twice about cracking down on the cash economy in a way that might destroy businesses and add millions to the jobless rolls. …it’s hard to avoid the conclusion that the politicians want to bar cash as one more infringement on economic liberty. They may go after the big bills now, but does anyone think they’d stop there? …Beware politicians trying to limit the ways you can conduct private economic business. It never turns out well.

Last, but not least, Glenn Reynolds, a law professor at the University of Tennessee, explores the downsides of banning cash in a column for USA Today.

…we need to restore the $500 and $1000 bills. And the reason is that people like Larry Summers have done a horrible job. …What is a $100 bill worth now, compared to 1969? According to the U.S. Inflation Calculator online, a $100 bill today has the equivalent purchasing power of $15.49 in 1969 dollars. …And although inflation isn’t running very high at the moment, this trend will only continue. If the next few decades are like the last few, paper money in current denominations will become basically useless. …to our ruling class this isn’t a bug, but a feature. Governments want to get rid of cash… But at a time when, almost no matter where you look in the world, the parts of it controlled by the experts and technocrats (like Larry Summers) seem to be doing badly, it seems reasonable to ask: Why give them still more control over the economy? What reason is there to think that they’ll use that control fairly, or even competently? Their track record isn’t very impressive. Cash has a lot of virtues. One of them is that it allows people to engage in voluntary transactions without the knowledge or permission of anyone else. Governments call this suspicious, but the rest of us call it something else: Freedom.

Amen. Glenn nails it.

Banning cash is a scheme concocted by politicians and bureaucrats who already have demonstrated that they are incapable of competently administering the bloated public sector that already exists.

The idea that they should be given added power to extract more of our money and manipulate our spending is absurd. Laughably absurd if you read Mark Steyn.

P.S. I actually wouldn’t mind getting rid of the government’s physical currency, but only if the result was a system that actually enhanced liberty and prosperity. Unfortunately, I don’t expect that to happen in the near future.

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