Of course, the government can eliminate high-denomination bills (as Larry Summers wants to do with the $100 bill) or even make it illegal to hold cash, so that NIRP can be implemented successfully.
There is a larger discussion here about economic freedom and privacy and anonymity, but I’ll save that for another time.
Like I said, the authorities are finding it difficult to implement negative rates (the Swiss are hoarding CHF1,000 notes to avoid -0.75% interest rates), so people are quite openly speculating about the possibility of OMT—outright monetary transactions.
That’s when central banks print money—and put it in your bank account. Everyone’s bank account.
There was an article in the UK Telegraph about it here. I suggest you read it and then pick up here where you left off.
So like I said, we have lost our minds. We’ve gone cuckoo for Cocoa Puffs. Seriously. If it were 1996 and I told you we were considering just handing out free money in 2016, you would have taken a swing at me. But here we are, talking about it.
There are a couple of reasons why this absolute lunacy is being considered a serious possibility:
Central banks and governments can no longer tolerate a recession. It used to be, you get a downturn in the economy, you tough it out, and it will come back eventually. I graduated high school in 1992. Right at the end of the recession. People called it the “jobless recovery” and said youngsters wouldn’t be able to get jobs. They did, eventually. The free market has a way of doing that.
We’ve gone far, far to the left politically in the last 30 years.
Keynesianism and interventionist policy have become very much in vogue. Hard to believe that Hayek and Friedman once won Nobel Prizes, back when neoliberal economics was in fashion.
There are worries about political instability in the case of a downturn, but I’d argue that we are getting political instability in the upturn, because of monetary policy.
Groupthink. Get any unaccountable committee together, and they will come up with stupid ideas.
If you asked a second-grader what would happen if you suddenly printed money and put it in people’s bank accounts, they would be able to give you the correct answer: Prices are going up. Duh. Yet a bunch of PhDs think it’s a brilliant idea.
Don’t let a bunch of PhDs ever run anything. Ever. Let alone the global economy.
So yes, I predict that this is going to happen. I think it is going to happen in Japan first, then elsewhere. Will it happen in the United States? I think it would take a lot. We still have a Fed that is reasonably hawkish on inflation. I’m sure Evans and maybe Rosengren would think it were a good idea, but I’d say the FOMC is far from having consensus on this particular issue.