Matthew
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I wouldn't put anything past these goons.
All I can say is, if you have physical silver/gold you won't have to worry -- 10% of it won't disappear every year. The value of your savings will be steady, or it might even grow. But it certainly won't "atrophe" as they describe our cash doing in this hypothetical scenario.
Fed Should Use Negative Interest Rates to Force Savers to Spend Their Money
April 21st, 2009
Via: New York Times:
In many ways today, the Fed is in uncharted waters.
So why shouldn’t the Fed just keep cutting interest rates? Why not lower the target interest rate to, say, negative 3 percent?
At that interest rate, you could borrow and spend $100 and repay $97 next year. This opportunity would surely generate more borrowing and aggregate demand.
The problem with negative interest rates, however, is quickly apparent: nobody would lend on those terms. Rather than giving your money to a borrower who promises a negative return, it would be better to stick the cash in your mattress. Because holding money promises a return of exactly zero, lenders cannot offer less.
Unless, that is, we figure out a way to make holding money less attractive.
At one of my recent Harvard seminars, a graduate student proposed a clever scheme to do exactly that. (I will let the student remain anonymous. In case he ever wants to pursue a career as a central banker, having his name associated with this idea probably won’t help.)
Imagine that the Fed were to announce that, a year from today, it would pick a digit from zero to 9 out of a hat. All currency with a serial number ending in that digit would no longer be legal tender. Suddenly, the expected return to holding currency would become negative 10 percent.
That move would free the Fed to cut interest rates below zero. People would be delighted to lend money at negative 3 percent, since losing 3 percent is better than losing 10.
Of course, some people might decide that at those rates, they would rather spend the money — for example, by buying a new car. But because expanding aggregate demand is precisely the goal of the interest rate cut, such an incentive isn’t a flaw—it’s a benefit.
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Matthew
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| Posted Apr 21, 2009, 6:37 pm |
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