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Citibank's Global Chief Economist Willem Buiter is another in a line of economic idiots (sorry, but no other word is more accurate) who call for abolishing cash and taxing deposits.
Bloomberg author Lorcan Roche Kelly fell for Buiter's nonsense hook line and sinker in Citi Economist Says It Might Be Time to Abolish Cash.
Buiter proposes that interest rates should have been -6% during the crisis. Kelly is enough of a fool to say "It seems Buiter is correct".
On May 28, 2014, economist Kenneth Rogoff proclaimed to the Financial Times, Paper money is unfit for a world of high crime and low inflation.
While I would agree with the notion that fiat paper is unfit, thus requiring a return to the gold standard, that is not exactly what Rogoff had in mind.
Buiter Calls for Helicopter Drop
Buiter carried the idea even further, and actually did so in advance of Rogoff.
On May 9, 2012, Buiter Central Banks Need To Drop Money From Helicopters, And Perhaps ABOLISH CURRENCY COMPLETELY.
Negative Interest Rates
I have discussed the stupidity of negative interest rates several times recently. The natural rate of interest can never be negative.
For discussion, please see Stupidity of Negative Interest Rates Expands to Spain; Deflation Shock Thesis.
Also see Thrown Under the Bus: Another Look at the Self-Serving Launch of Ben Bernanke's Blog and the Brookings Institute's Pandering Role.
Pater Tenebrarum's article Ben Bernanke’s Apologia for the Fed is a third discussion on the absurdity of negative rates.
Idiotic Ideas Breed Idiotic Solutions
To explain Buiter's solution, one only need look at his economically illiterate notions that consumer price deflation is a bad thing and something needs to be done about it.
I repeat my Challenge to Keynesians "Prove Rising Prices Provide an Overall Economic Benefit".
Consumer Price Deflation NOT Damaging
Even the BIS has concluded that routine consumer price deflation is no threat. For details, please see Historical Perspective on CPI Deflations: How Damaging are They?
In the link at the top, Buiter lists reasons we need to do away with cash, then allegedly knocks them down. As is often the case with economic insanity, a Bloomberg lap dog sucks up total nonsense as if it was candy.
Why We Are In This Mess
We are in this mess precisely because the Fed had done nearly everything these idiots have dreamed up. The results were a dotcom bust, housing bubble, and now an asset bubble everyone but economic idiots can see.
Bad Ideas Never Go away
It's time for a recap of my Law of Bad Ideas.
- Law of Bad Ideas: Bad ideas don't go away until they have been tried and failed multiple times, and generally not even then.
- Corollary Number One: Left alone, bad ideas get worse over time.
- Corollary Number Two: The overwhelming desire to implement bad ideas leads to compromises guaranteed to make things worse.
- Corollary Three: Those in positions of political power not only have the worst ideas, they also have the means to see those ideas are implemented.
- Corollary Four: The worse the idea, the more likely it is to be embraced by academia and political opportunists.
- Corollary Five: No politically acceptable idea is so bad it cannot be made worse.
- Corollary Six: Bad ideas lead to more bad ideas to fix problems caused by previous bad ideas.
Corollaries 3-6 are from Democrat Sponsored "Income Inequality"; Law of Bad Ideas, Yet Again.
And speaking of income inequality, those who live day-to-day on cash (the poor), are those who would be most hurt by Buiter's asinine idea.
I was surprised to learn no one had formulated a "Law of Bad Ideas" so I claimed it on February 14, 2014.
Don't expect Buiter's idea to go away. Instead, expect it to be embraced by academia even though such ideas are precisely what is behind the very income inequality the Fed and academia are enraged over.
Mike "Mish" Shedlock