Over the weekend, in response to Japan's stunning NIRP announcement, we predicted that two things would emerge: calls for the banning of cash, along the lines of previous invocations by "serious economists" such as these:
- Norway's Biggest Bank Demands Cash Ban
- Bank Of England Economist Calls For Cash Ban, Urges Negative Rates
- Citigroup's Gold "Expert" Demands A Cash Ban
- Leading German Keynesian Economist Calls For Cash Ban
... and comparable calls urging NIRP in the US, because as is by now well-known, a global NIRP regime effectively implies the prohibition of cash as it provides an immediate loophole to the punitive nature of negative interest rates.
Sure enough, just hours after we made these forecasts, Bloomberg's editors released an Op-Ed urging an end to cash and an invocation to "Bring on the Cashless Future." And, just as expected, less than 24 hours later, the first call begging for the Fed to "go negative on interest rates" hit earlier today when none other than everyone's favorite "virtual portfolio manager", Ron Insana (recall "I Only Manage A Virtual Portfolio Which I Took To Cash Last Thursday") wrote a CNBC op-ed laying out why, at least one "manager" of virtual money believes that "the Fed must go negative on interest rates."
Here are the amusing highlights:
This has been, throughout monetary history, an extremely rare phenomenon, but it is becoming increasingly commonplace, as the world fights both recession and deflation simultaneously.
* * *
Fed policy, for many reasons, some justifiable, some not, is now grossly out of step with the monetary policies of the world's other major central banks. Put more simply, the Fed is tightening (or normalizing), while the rest of the world is easing.
That sets up a scenario in which there are but a few potential outcomes, none very promising.
First, the Fed continues to raise rates, weakening an already decelerating a U.S. and global economy. That pushes the dollar higher, commodity prices lower, weakens U.S. exports, and cuts into the profits of U.S. multi-national corporations, exacerbating a profit recession in corporate America. Such continued intransigence on the part of the Fed, ignoring the accelerating weakness of nearly all of our major trading partners, would materially raise the risk of recession here at home, and exacerbate the one abroad.
Virtually all of the world's major countries except China and Mexico are in recession, whether led by a contraction in manufacturing, or by the bust in commodities.
Second, the Fed may simply choose to hold off on raising rates until there is more clarity on the outlook for the global economy.
But even the simple act of doing nothing, as other central banks ease further, would strain foreign exchange values, accelerate capital outflows from countries whose currencies are plunging against the dollar, and rapidly increase the debt servicing costs of those countries - like Russia, China and other emerging markets, which have heavy dollar-denominated debt loads.
In other words, if global monetary policies continue to diverge dramatically, there will likely be unintended consequences that lead to a rupture in world markets, strained by wildly fluctuating currency values, a further crash in commodity prices and a rush of capital out of the world's weakest economies.
Unintended central planning consequences leading to a rupture in world markets? That is unacceptable.
As for Insana's conclusion:
"The Fed should, given recent events, simply admit its error of pre-emptively raising rates before both its employment and inflation mandates had been met, and reduce the Federal Funds rate back to zero, pending further improvements in the economy. Certainly, the Federal Reserve risks its credibility by admitting an error, but that is a far better outcome than risking recession by not doing so. While I am hopeful the Fed will halt the rate hikes for the foreseeable future, I am less optimistic the Fed will fully reverse course."
We doubt we are the only ones who find it amusing when Ron Insana discusses "credibility." That said, of course the Fed will not only halt its rate hike, but ultimately go NIRP as we have said all along. However, it will take far more serious "established economists", those whose credibility will also be tarnished by admission that the so-called recovery of the past 7 years never actually was, demanding for Yellen to do that than merey CNBC op-ed columnists who are simply worried about the virtual value of their virtual investments.
In the meantime, we can't help but be amused by the "arguments" laid out by the same army of groupthink penguins who for years were jumping at the opportunity to explain who the world is recovering and how the global economy is growing while mocking those who told the truth, only to do a dramatic U-Turn, and now urgently explain to anyone who cares to listen that they were actually wrong all along.