Friday, October 14, 2016

Will Eliminating Cash Save The Economy?
Free market economist Frank Shostak thinks central bankers are considering abolishing cash to enhance their ability to use negative interest rates to stimulate the economy ..  "The view that very low interest rates can revive economic growth is based on a belief that low interest rates cause economic growth. The interest rate is just an indicator as it were. In an unhampered market economy it mirrors individuals’ time preferences. Any policy that stifles interest rates in fact falsifies the signals coming from individuals to producers thereby setting in motion a misallocation of real wealth. This in turn weakens the process of wealth generation and the ability of businesses to grow their business and hence the economy as a whole. Furthermore, economic growth cannot be boosted by means of low interest rates, which it is held is going to boost the demand for goods and services. The increase in the production of final goods and services, which is what economic growth is all about, cannot be lifted by demand as such but by means of the enhancement of the infrastructure that enables lifting the production of goods and services. If low interest rates were the solution for robust economic growth why has the near zero rates in major economies failed so far in this endeavor? Furthermore why would interest rates at minus 5 percent revive economic growth? Why not minus 10 percent or perhaps minus 20 percent? Note that the abolition of cash implies the removal of money and hence the destruction of the division of labor and the market economy. It is likely that rather than promoting economic growth, abolishing cash to permit the central banks to lower interest rates into deeper negative territory will lead to the destruction of the market economy and promote massive economic impoverishment."
LINK HERE to the essay

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