Potential nominee to become a Fed governor wants to abolish cash and institute negative interest rates during next crisis
While President Trump prepares to fill numerous more positions at the central bank beyond those of Fed Chairman and Vice-Chairman, one of his potential nominees for a seat as a Fed Governor is an interesting anomaly.Â First Marvin Goodfriend would be a departure from the last eight to seventeen years of Fed intervention in the markets outside of a full blown crisis, but on the other hand if a crisis should occur, then his recommendations would be extraordinarily draconian.
Ie… abolish cash and paper money so that negative interest rates could be imposed on lending and savings.
A former economic adviser in the administration of President Ronald Reagan and research director of the Richmond Federal Reserve Bank from 1993 to 2005, Goodfriend is arguably the most conservative of Trumpâ€™s Fed appointments yet. He has been critical of some recent Fed practices including the purchase of mortgage backed securities.
He has also argued that the central bank should invite more oversight from elected officials, including getting a congressional sign off on its 2 percent inflation target and more discussion of how its policy decisions line up with a â€śreference rule.â€ť Those ideas are likely to find favor among conservatives on Capitol Hill who feel the Fed has accumulated too much influence.
We are less concerned about Goodfriend getting trigger happy for rate rises if inflation hits 2.2% or 2.5% than we are about his remedies to deal with the next financial crisis. Goodfriend is a big advocate of negative interest rates (which even the Bank of Japan is now backing away from) and, far worse, abolishing paper currency. AsÂ BloombergÂ explains.
Economist Marvin Goodfriend doesnâ€™t like the green paper rectangles in your wallet, which are formally known as â€śFederal Reserve notesâ€ťâ€¦Goodfriend may take the opportunity to pursue his academic interest in abolishingâ€”or at least demotingâ€”paper money.
Goodfriend is concerned that the existence of cash makes it harder for the Fed to lower interest rates below zero. In the next crisis, he says, the Fed might want to push interest rates into negative territory to prod people to stop sitting on their money and do something with it, such as consumption or investment, that would get growth going again. –Â Zerohedge
It is in large part that the the failures of Congress to do their duty in legislating fiscal policy that has allowed the Federal Reserve to go above and beyond their original mandates to nowÂ be manipulating nearly every aspect of the economy.Â In fact their sole lawful mandates only include hedging inflation concerns, aiding in stimulating full employment, and functioning as a lender of last resort for the banks.Â And sadly, during the 2008 Financial Crisis they couldn’t even accomplish the latter as it took the taxpayers nearly $1 trillion to enact a bank bailout.
The fact of the matter is that most artificial booms and deep recessionary busts can be directly attributed to the policies imposed by the central banks.Â And while on occasion extraordinary measures do need to be implemented to save a financial system from both inside and outside forces, use of these extreme measures in everyday activities are what led us to the 2008 crisis, and will once again lead us to another sometime in the near future.
Kenneth Schortgen JrÂ isÂ a writer forÂ The Daily Economist,Â Secretsofthefed.com,Â Roguemoney.net, andÂ Viral Liberty, and hostsÂ the popularÂ youtube podcastÂ on Mondays, Wednesdays and Fridays.Â Ken can alsoÂ be heard Wednesday afternoons giving an weekly economic report on theÂ Angel Clark radio show.