Two government mechanisms prevent real interest rates from getting too negative. The first is cash: As long as people can hold currency, which loses its value only at the rate of inflation, they won’t buy safe assets that yield even less. The second is the central bank’s promise to keep the inflation rate low and stable — at about 2 percent in most developed nations. As a result, people have little reason to hold any asset that yields less than negative 2 percent (perhaps negative 3 percent, considering that cash is bulky and hard to store).
In other words, governments — by issuing cash and managing inflation — put a floor on how low interest rates can go and how high asset prices can rise. That’s hardly a free market.
What’s the fix for this problem? John Williams, president of the Federal Reserve Bank of San Francisco, has offered some ideas, such as increasing inflation targets — but these are partial work-arounds at best.
The right answer is to abolish currency and move completely to electronic cash.
Possibly the most idiotic article I’ve ever read.
See also The Sinister Side of a Cashless Society (via email from Lynn Z.).
Electronic cash would allow government to be so much more efficient. Just imagine how much easier it would be to find people who were trying to cheat on their taxes by not reporting their tips. And bribes would be easy to catch. And armed robbery of banks would cease to exist. It would be wonderful, right? Isn’t that what everyone wants, a more efficient government? Who could possibly object?
Oh, yeah. Now I remember. It fails The Jews in the Attic Test.—Joe]