A new way to debase the dollar...

[halcyon]

You're all going to love this idea:

It May Be Time for the Fed to Go Negative

http://www.nytimes.com/2009/04/19/bu...view.html?_r=1

"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."

To think where we have come...

[Chomsky]

Re: A new way to debase the dollar...

If all of this seems too outlandish, there is a more prosaic way of obtaining negative interest rates: through inflation. Suppose that, looking ahead, the Fed commits itself to producing significant inflation. In this case, while nominal interest rates could remain at zero, real interest rates — interest rates measured in purchasing power — could become negative. If people were confident that they could repay their zero-interest loans in devalued dollars, they would have significant incentive to borrow and spend.

Having the central bank embrace inflation would shock economists and Fed watchers who view price stability as the foremost goal of monetary policy. But there are worse things than inflation. And guess what? We have them today. A little more inflation might be preferable to rising unemployment or a series of fiscal measures that pile on debt bequeathed to future generations.

Wow, never heard these ideas before...

[pwcmba]

Re: A new way to debase the dollar...

I will borrow all they want to lend me at negative rates and invest in precious metals!

The Dallas fed studied negative rates years ago - effectively a tax on holding money:

http://www.scribd.com/doc/11042316/D...t-Rate-Economy

[rshimada]

Re: A new way to debase the dollar...

http://www.nytimes.com/2009/04/19/bu...view.html?_r=1

"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...

Apparently the author of the article isn't aware that the amount of US currency in circulation is about $900 billion http://research.stlouisfed.org/fred2/series/WCURCIR and a majority of it is held outside of the US http://www.newyorkfed.org/aboutthefed/fedpoint/fed01.htm.

More mainstream media dribble. Oh, the article claims the author "is a professor of economics at Harvard. He was an adviser to President George W. Bush." Enough said?

[metalman]

Re: A new way to debase the dollar...

Wow, never heard these ideas before...

imagine our surprise. nytimes... if you like your news two years old. if not...

The most daring suggestion for escaping the zero-interest-rate trap is one that eliminates the zero lower bound altogether. How can this be done? As noted in the first part of the presentation, the zero bound on interest rates exists because money pays a sure nominal interest rate of zero. No one would be willing to hold any asset that pays a negative nominal rate, as long as zero-interest money is available as a store of value.

The strategy for eliminating the zero bound, therefore, is to make money pay a negative nominal interest rate, by imposing some type of ‘carry tax’ on currency and deposits.

It’s easy to envision such a system with regard to deposits at the Federal Reserve or transactions deposits at banks; for the most part, the technology to implement such a system is already in place. A tax or fee on Reserve deposits of 1% per month, for example, would mean that those deposits, in effect, pay a nominal interest rate of roughly minus 12%.

The technological difficulty lies mainly in imposing such a tax on currency. In the 1930s, Irving Fisher of Yale University, one of the greatest American economists, proposed such a system, in which currency had to be periodically ‘stamped’, for a fee, in order to retain its status as legal tender. The stamp fee could be calibrated to generate any negative nominal interest rate that the central bank desired. While the technology available for implementing such a system is more sophisticated today than in Fisher’s time, enforcement still seems a mammoth problem, involving physical modifications to currency and some means of tracking the length of time each piece spends in circulation.

Given the technological hurdles involved in its implementation, a carry tax on money may not be feasible as a response to any events that might transpire in the next year, though it certainly merits study as a possible response to events that might transpire in the next decade. This is particularly the case if achieving and maintaining price stability makes bumping up against the zero interest rate bound a more frequent event.

won't every nation on earth have to do this at the same time? else why hold a time stamped currency if there is even one non time stamped currency? besides gold, that is...

[metalman]

Re: A new way to debase the dollar...

the article claims the author "is a professor of economics at Harvard. He was an adviser to President George W. Bush." Enough said?

translation... he's #1 an insider and #2 a scumbag.

[gwynedd1]

Re: A new way to debase the dollar...

Silvio Giselle was correct. Currency should be subject to depreciation like every other asset. Who ever holds representative capital should not be able to win a game of economic chicken. However making currency perishable is not making more of it. There is a big difference between a depreciating currency that discourages hoarding and causing inflation. Depreciating by inflation creates a wealth transfer whereas a stamp script is at the desecration of the one who holds it.

[pwcmba]

Re: A new way to debase the dollar...

http://en.wikipedia.org/wiki/Money

At that point, I don't think the currency holds up to one of the definitions of money - "a store of value"

[pwcmba]

Re: A new way to debase the dollar...

Similarly, one should not be able to game the system by leveraging up by borrowing and buying assets at inflated prices with the implicit guarentee of a bailout when the "assets" no longer increase and begin to decrease in price!

[jtabeb]

Re: A new way to debase the dollar...

You're all going to love this idea:

It May Be Time for the Fed to Go Negative

http://www.nytimes.com/2009/04/19/bu...view.html?_r=1



To think where we have come...

"Don't cry for me Argentina, the truth is I've only begun to fleece you..."

[seanm123]

Re: A new way to debase the dollar...

The Onion chimes in.

http://www.theonion.com/content/vide...urce=a-section

[Chomsky]

Re: A new way to debase the dollar...

translation... he's #1 an insider and #2 a scumbag.

I.e., a bullhorn par excellence.

Nicholas Gregory "Greg" Mankiw (pronounced /mæŋˈkjuː/) (born February 3, 1958) is an American macroeconomist. From 2003 to 2005, Mankiw was the chairman of President Bush's Council of Economic Advisors. His publications are ranked as the 22nd most influential of the over 18,000 economists registered with RePEc.

http://en.wikipedia.org/wiki/Mankiw

[rjwjr]

Re: A new way to debase the dollar...

"John Maynard Keynes approvingly cited the idea of a carrying tax on money."

Oh crap, this is likely to get the politico's attention. Just the type of confirmation they need for blind implementation.

[*T*]

Re: A new way to debase the dollar...

You're all going to love this idea:

It May Be Time for the Fed to Go Negative

http://www.nytimes.com/2009/04/19/bu...view.html?_r=1



To think where we have come...

People will just hold cash (notes).

[gwynedd1]

Re: A new way to debase the dollar...

People will just hold cash (notes).

Hi T,

That is why Worgl used stamp script(inspired by Silvio Giselle) . Its perishable. Instead of the Fed lowering rates what should be done is to issue perishable currency which would cause short term inflation without a long term debasement of the currency. Something like a modest 5% tax rebate in such a beast would certainly be better than a 0% Fed rate and buying up bad credit in both the short or long term.