Ken Rogoff’s Government Debt Default Plan
Ken Rogoff is by all accounts a brilliant man. The Harvard professor and former IMF chief economist is a chess grandmaster. His thesis committee included current Fed vice-chair Stanley Fischer. But like many survivors of Ivy League hoop jumping, the poor fellow appears to have emerged punch drunk.
That’s the only conclusion to be drawn from Rogoff’s new book, The Curse of Cash , which, in effect, proposes a ban on paper currency.
It’s terrifying piece of work, for several reasons.
First, the cashless society, which Rogoff proposes in order to make it easier for the US government to confiscate private wealth, in effect, amounts to an admission that Washington can’t pay back its debts.
Second, the fact that Rogoff uses the fight against “terrorism” and “crime” arguments in selling his proposals to the public – justifications which he as a mathematician should know are farcical – suggest that his arguments hide another agenda.
Third, and most important, is the fact that not only would banning cash not achieve Rogoff’s objectives – it could cause irreparable harm to the dollar’s role in the American economy and as a reserve currency.
Let’s look at these arguments one at a time.
Enforced negative rates ARE debt defaults
Rogoff’s “cashless society” is an elegant solution to a key problem bedeviling the Federal Reserve: with interest rates at the zero bound, the US central bank has no ammunition left to fight the next recession – because if cuts rates below zero, savers will withdraw their cash and put it under their mattresses.
“In principle, cutting interest rates below zero ought to stimulate consumption and investment in the same way as normal monetary policy,” Rogoff writes. “Unfortunately, the existence of cash gums up the works.”
That argument is spurious at best.
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