When Harvard Economics professor and wannbe Fed Chairman Lawrence Summers speaks, it’s usually a good idea to pay him heed. Mind you, not because pearls of wisdom fall from his lips as manna from heaven, but because what he says carries weight. He is among the very elite of the intellectual and financial elite. A true master of the universe, if you will. And if Summers writes in the Washington Post that he wants to grab your cash, you’d best be paying attention. Because if he’s saying it in the mainstream media, you can take it to the bank (bad pun intended) that the rest of the elite is thinking along those same lines.
Of course, he wasn’t so crude as to suggest he was just going to take your money. People of his ilk never do. They’re far too genteel for such talk. No, what they do is make the case for some small, seemingly innocuous move. The sort of thing that, not only seems downright reasonable, but actually appears to be the very essence of patriotism and upright thinking. I’m speaking here of Summers’ recent call to “kill the $100 bill.”
Now why would this economics professor think that killing a perfectly good Federal Reserve Note is so important that he would take the time to write a newspaper column on the subject? The better to fight crime and terrorism, he tells us. Besides, he adds, we don’t need that silly old $100 bill anyway.
Citing Peter Sands, a senior fellow at Harvard’s Mossavar Rahmani Center for Business and Government, whose recent paper on the subject of banning large denomination bills was the inspiration for his article, Summers writes,
The fact that – as Sands points out – in certain circles the 500 euro note is known as the “Bin Laden” confirms the arguments against it.
Cash, you see, means terrorism. But it’s not just terrorism that we can stop by banning large bills. Crime of the more ordinary sort can be reduced as well. Summers continues,
I confess to not being surprised that resistance within the ECB [European Central Bank, the issuer of the euro] is coming out of Luxembourg, with its long and unsavory tradition of giving comfort to tax evaders, money launderers, and other proponents of bank secrecy…
So, banning the big bills helps us catch crooks too. And on top of that, “technology is obviating whatever need there may ever have been for high denomination notes in legal commerce.”
If we take Summers’ at his word, there simply is no legitimate reason for large denomination notes to even exist at all. And if you think otherwise, you must be a terrorist or tax evader. And you wouldn’t want people to think that about you, now would you?
What Summers Left Out
Summers’ case has a certain ring of truth to it, at least for those who aren’t paying attention to the what’s going on around them in the world of finance. But if we consider the current precarious state of the financial system, a more plausible explanation for the rash of recent calls (see here, here and here, for example) to ban large notes becomes apparent: the bankers want to rob your savings account with negative interest rates, and banning large, and eventually perhaps even small, denomination banknotes is a helpful and even necessary tool for making this happen.
Negative interest rates? Who ever heard of such a thing? Well, until recently, no one outside of a few cloistered academics. But now whole nations are learning the meaning of Negative Interest Rate Policy (NIRP). You probably have some old fashioned idea about saving money. You know, the notion that you put money in a bank and the bank would pay you interest on it. How 19th century of you! In today’s brave new world, not only do you not get interest, you actually have to pay the banks for lending them you hard earned capital. Such a deal!
Several first world countries have instituted NIRP, among them Sweden, Japan, Denmark and Switzerland all have instituted NIRP. To my knowledge, NIRP is applied only to large institutions at this time. For example, the Bank of Japan, that country’s central bank, now charges its member banks a fee on the deposits they keep with it. This is in lieu of paying them interest as was its previous policy.
But even though negative interest rates on not yet being charged to individual depositor’s bank accounts, many people, and rightly so in my estimation, are concerned that this will occur. According to an article on Zero Hedge, the Japanese people are so concerned about negative interest rates that safes have been selling out. It seems that rather than leave their cash in the banks where it could be charged a fee, the Japanese are simply opting to take cash out and put it, so to speak, under the mattress.
This really is the reductio ad absurdum of Keynesian crackpottery. You see, John Maynard Keynes had this thing about savings, he didn’t like it. Savings to him was like kryptonite of Superman, deadly. The consumers propensity to save, especially when the economy tanked, was the very worst thing for the economy. In his view, the more people saved, the worse the depression would get. He called this notion the paradox of thrift. Keynes argued that when the economy was in a downward spiral, you needed to spend your way out of the depression, not save your way out. Saving money in an economic downturn just made the depression more depressing. So Keynes had this bright idea that in an economic downturn, it was the job of the government to find ways to stimulate demand. Government spending was one option. If private citizens lacked the patriotism to take on a sufficient debt load to jump start the economy, the government was there ready to help do it for them. Inflation was another Keynesian trick. Just devalue the currency and people will spend it like a hot potato before it loses even more of its value.
But for all Keynes evil genius, I’m not sure even he ever called for negative interest rates as a way to stimulate spending. But this is the aim of the neo-Keynesian central bankers who are working overtime to make NIRP a household word.
But, you see, there’s one problem with this scheme. People can, as have the Swiss and now the Japanese, take their cash out of the banks and store it at home in large bills. In Switzerland, for example, demand for $100 franc notes increased by 17% in response to the Swiss National Bank’s move to introduce NIRP in that country.
And this brings us back to Lawrence Summers and his crowd. For a moment, put yourself in the place of a central banker. I know, it’s not a pleasant thought, but go with it for just a moment. If you wanted to introduce NIRP but people were taking their money out of the banks to avoid it, what would you do? It’s easy. You’d just band cash. Or at least the sort of large bills people would use to insulate themselves from the predations of the bankers. Bills such as the 500 euro note or the $100 bill.
This may sound a little farfetched. Perhaps a bit conspiratorial. But as proof that this is the sort of thinking circulating in elite circles, consider what is being reported out of the most recent meeting of the masters of the universe held in Davos Switzerland. A fellow from Morgan Stanley who was in attendance there had this to say,
One of the most surprising comments this year came from a closed session on fintech where I sat next to someone in policy circles who argued that we should move quickly to a cashless economy so that we could introduce negative rates well below 1% – as they were concerned that Larry Summers’ secular stagnation was indeed playing out and we would be stuck with negative rates for a decade in Europe. They felt below (1.5%) depositors would start to hoard notes, leading to yet further complexities for monetary policy.
So, this is what’s really going on in the minds of the global elite. Negative interest rates well below 1% are coming to a savings account near you.
And to think, the good Dr. Summers wants you to believe banning cash is just all about fighting crime and terrorists. Whom does he think he’s kidding?
