The Corner

“Legal, Tax, Institutional Changes”

Ken Rogoff, an economics professor at Harvard (and previously an economist at the IMF and at the Board of Governors of the Federal Reserve System) is  annoyed by those primitives who object to the abomination that is a negative interest rate policy.


[C]ritics of negative interest rates are “ignorant” in their analysis of the unprecedented measures forced on central banks across the world over the past years, according to U.S. economist Kenneth Rogoff.

It’s impossible to analyze the effects of the “early experiment” with negative rates because central banks were left to themselves amid a global fiscal retrenchment, Rogoff, a professor at Harvard University, said Wednesday in an interview after speaking at the Skagen Funds annual conference in Oslo….

Policy makers from Stockholm to Zurich and Tokyo have come under fire for cutting rates below zero as they grappled with near non-existent inflation and anemic growth in the wake of the global financial crisis. Critics at mainly commercial banks have argued they are endangering financial stability by stoking consumer borrowing, reducing the ability of lenders to make money and putting future pensions at risk.

It’s not too great for savers either….


Those questioning the efficacy of the policy got more rhetorical ammunition this week when a report showed inflation in Denmark, where rates have been negative for almost half a decade, was the lowest in 63 years in 2016.

According to Rogoff, it’s impossible to draw any conclusions because the efforts to restore growth and inflation have been one-sided. But done “correctly” it can restore “complete control over inflation expectations,” he said.

“To do it correctly, you have to make legal, tax, institutional changes,” he said. “And second, you need to be able to do whatever it takes.” Unlike current efforts, a successful implementation of negative rate policies would “involve the whole government.”

This would be the same  Ken Rogoff about whom I wrote a post in September after the appearance of his book “The Curse of Cash”, a book, as it title might suggest, on the wickedness of, well, cash. As Rogoff has indicated, the book contains “a plan that involves very gradually phasing out large notes, while leaving small notes ($10 and below) in circulation indefinitely…”

$10 bills! How kind. And, of course, inflation will erode the value of that $10 soon enough.

Cash, of course, gets in the way of negative interest rates.

In a the course of a review of Mr. Rogoff’s book, James Grant of Grant’s Interest Rate Observer explained:

What would you do if your bank docked you, say, 3% a year for the privilege of holding your money? Why, you might convert your deposit into $100 bills, rent a safe deposit box and count yourself a shrewd investor. Hence the shooting war against currency. If the author has his way, there will be no more Benjamin Franklins, only Hamiltons, Lincolns and George Washingtons. Ideally, says Mr. Rogoff, many of today’s banknotes will take the future form of clunky, base-metal coins “to make it even more difficult to carry large quantities of currency.”

It’s plenty difficult enough now. Federal statute makes greenbacks in five- and even four-figure sums virtually non-negotiable. Just try to buy a car with a briefcase full of “legal tender.” Or try to deposit those tens of thousands of green dollar bills in the bank. The branch manager would likely file a Suspicious Activity Report. This intelligence would reside with the Treasury’s Financial Crimes Enforcement Network, as mandated by the Bank Secrecy Act of 1970. The government seems to hate cash as much as the fashion-forward economists do.

Keep Grant’s words in mind and then scroll back to Rogoff’s comment that “legal, tax, [and] institutional changes” are needed to make negative interest rates  work in the way that he believes they should.

And then this:

[Y]ou need to be able to do whatever it takes.

It’s not hard to see where, given the chance, this is all going….