Friday, September 23, 2016

Curses and blessings quite often come hand in hand

I will keep here my reflections on the subject in Kenneth Rogoff’s book “The Curse of Cash”. (For full disclosure I have yet not found the time to read it in its entirety)

In my comments I will often also refer to Professor Rogoff’s blog.

Kenneth Rogoff writes: “But for all the advantages of cash, we have to recognize that the current system is badly off kilter. A lot of central banks and finance ministries know it, as do justice departments and tax authorities.”

I fully agree, 100%, but do “We the People know it? There are reasonable and unreasonable doubts out there. And I am not 100% sure among which of those mine could best qualify.

Should not abolishing larger anonymous practical ways of storing wealth have to be subject to something like a referendum? I have no idea?

Yes cash might cause some local tax evasion, but does anyone really believe that big tax evaders keep their fortunes in cash like some seem to say? I just know that the word “cash” is open to all types of confusions (that are sometimes exploited)

Cash in hand, if devalued, looses its value equally for all. Non-cash can be devalued discriminatorily. Do we want our grandchildren to be subject to such great Big Brother power? As a Venezuelan, not me for sure!

Cash, as can oil, can indeed be a curse. But does that mean that we in Venezuela should stop extracting oil? I don’t think so.

And how would the elimination of for instance $100 bills, that might represent about one trillion dollars take place? I have no clue.

Would it not just dramatically increase the value of other assets? Not much, it seems like peanuts when compared to what is done with Quantitative Easing.

Do I want cash to assist drug trafficking? Of course not, don’t be silly.

Rogoff writes: “but most world holdings of dollars are in the underground economy (crime and tax evasion). I am not sure. First of all because I do not agree that all underground economy must be either illegal or bad. Then because I think criminals have many alternatives of how moving cash into something else. Moreover, much cash might make even many hardened criminals nervous.

Thursday, September 22, 2016

Low interest rates, by inspiring laziness, sometimes also act as a determent to economic activity

I just want to add a factor that I feel has been ignored in all the ongoing debate on how low or even negative interest rates can stimulate economic activity.

During my life as a financial and strategic consultant, I have often seen how the pressure of the interest-costs-clock on projects, have really inspired these to get going, to execute fast. In other words, low interest rates can also inspire laziness.

What a great deal! Take loan at negative interest rates... do nothing... stay in bed... repay... and profit!