12/7/2017 Cometh The Hour, Cometh An Insane Cash-Hating Fed Governor - Nobody's "Goodfriend"

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Home > Cometh The Hour, Cometh An Insane Cash-Hating Fed Governor - Nobody's "Goodfriend"

Cometh The Hour, Cometh An Insane Cash-

Hating Fed Governor - Nobody's "Goodfriend"
By Tyler Durden
Created 12/06/2017 - 21:35

[1]
by Tyler Durden [1]
Dec 6, 2017 9:35 PM
[2] [3]

Marvin Goodfriend is not a Fed governor yet, but its likely asking far too much to expect US
lawmakers to block President Trumps nomination.

Unfortunately for the American citizenry, Goodfriend (not) has all the establishment
credentials which will likely see the nomination rubber-stamped: economic advisor to the
White House (1984-5), director of research at the Federal Reserve Bank of Richmond (1993-2005)
when he regularly attended meetings of the Federal Open Market Committee", and currently
Professor of Economics at Carnegie Mellon University. Watching the mainstream medias response
to Goodfriends nomination gave us a wry smile, as he is being portrayed as conservative. This was
Reuters [4] commenting on the news last week...

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 Trumps 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 reference rule.
Those ideas are likely to find favor among conservatives on Capitol Hill who feel the
Fed has accumulated too much influence.

Although some of Goodfriends views, which hes no doubt enthusiastic about implementing, would
be disastrous, Reuters argues (our emphasis).
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Perhaps most significantly, he will bring recognized academic credentials to a

Fed board that is losing Yellen, a recognized expert on labor markets, and in
October lost Vice Chair Stanley Fischer, one of the intellectual forces behind
modern central banking.

While we've seen the carnage that academic credentials can cause, we wouldnt disagree
that he looks (fairly) harmless.

[5]

One reason that Goodfriend is seen as conservative is that he is in favour of rules-based policy
and would be less inclined than the likes of Janet Yellen to let inflation run hotter than the 2%
target before putting the breaks on. Another reason is that Goodfriend has been critical of the
Feds QE policy. However, thats not because he is conservative, rather because he is in
favour of far more radical measures.

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. As Bloomberg [6] explains.

Economist Marvin Goodfriend doesnt like the green paper rectangles in your
wallet, which are formally known as Federal Reserve notesGoodfriend
may take the opportunity to pursue his academic interest in abolishingor at
least demotingpaper 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.
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But today, the Fed would not be able to push interest rates on checking or savings
accounts very far below zero because as soon as it did, people would simply
withdraw cash from the banks and store it in the mattress or a vault. The European
Central Bank and Swiss National Bank have managed to push rates only slightly
negative.

Its clear from reading between the lines that although central bankers are not engaging in a
public discussion, the architects of the boom-bust cycles are considering their policy
options for the next crisisthe one where their latest credit/asset bubble bursts in horrendous
fashion. Its also clear that the preferred solution is negative interest rates and either abolishing
paper currency or taxing it in line with a depreciating digital currency standard. For example, the
IMF published a paper Breaking Through the Zero Lower Bound in October 2015, which explained
how easy it would be to implement for any determined central banker.

There has been much discussion about eliminating the zero lower bound by
eliminating paper currency. But such a radical and difficult approach as eliminating
paper currency is not necessary. Much as during the Great Depressionwhen
countries were able to revive their economies by going off the gold standardall
that is needed to empower monetary policy to cut interest rates as much as needed
for economic stimulus now is to change from a paper standard to an electronic
money standard, and to be willing to have paper currency go away from par. This
paper develops the idea further and shows how such a mechanism can be
implemented in a minimalist way by using a time-varying paper currency deposit fee
between private banks and the central bank. This allows the central bank to create a
crawling-peg exchange rate between paper currency and electronic money;

As we said, cometh the hour

Bloomberg notes that Goodfriend was invited to present his ideas at last years Jackson Hole get
together.

Trumps nominee hasnt tried to hush-hush his views on this controversial topic. Far
from it. Goodfriend presented a paper on it in 2016 in Jackson Hole, Wyo., at a
high-profile annual conclave of central bankers. His title: The Case for
Unencumbering Interest Rate Policy at the Zero Bound.

To make it less convenient for people to hoard cash, he says in the paper, the
government could phase out high-denomination bills or charge banks and the public
whenever paper money is paid out or received. But even those steps might not be

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12/7/2017 Cometh The Hour, Cometh An Insane Cash-Hating Fed Governor - Nobody's "Goodfriend"

enough to suppress the use of cash, Goodfriend surmises. So he weighs three

stronger measures.

Sadly, we disagree with Bloomberg that Goodfriends views on abolishing cash will be an issue in
his confirmation hearings. However, we are pleased to see that highlighted several voices which are
sounding the alarm (even though it will be futile).

Goodfriends dislike for cash could become an issue in his confirmation

hearings, which are not yet scheduled. Senators could soon be getting an
earful from constituents who fear that taking away paper money is a step
toward socialism or totalitarianism.

Those voices are already being heard. Is Marvin Goodfriend the Worst Fed
Nominee of All Time? asks a Dec. 1 post on the website of the Mises Institute, a
think tank for the Austrian school of economics. An earlier Mises post in which
Goodfriends name was first raised said, Given his radical views on monetary
policy, its not hyperbole to suggest that Goodfriends nomination would represent a
genuine danger to the economic wellbeing of every American citizenor at least
those outside of the financial services industry.

Its not just the Mises people who want to hang onto paper money. Cash Means
Freedom, Which Is Why So Many Officials Hate It was the headline on a post
by the libertarian Reason Institute last year. Last year, in the Wall Street Journal,
financial commentator James Grant attacked a book called The Curse of Cash by
Harvards Kenneth Rogoff, writing, The author wants the government to control
your money. Its as simple as that.

In the meantime, other like-minded people to Goodfriend are lining up to support him, like author of
The Curse of Cash, Kenneth Rogoff. Bloomberg asked Rogoff for his view on Goodfriends
nomination. This was the predictable response.

Thank goodness there will be someone at the Fed with the foresight to
realize that world needs to start thinking about how central banks can best
deal with the inevitable next deep financial crisis. And negative interest rate
policy is the best idea out there by a wide margin; hopefully we wont need it
anytime soon. Still, I believe that within a decade, all the worlds major central
banks and treasuries are likely to have taken the simple steps necessary to create
the foundations for effective negative interest rate policy in deep recessions or
financial crises.

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Forgive us if we think its all a little too obvious where this is going, and has been, since we
emerged from the last crisis. When the bubble burst in 2000, the Fed needed to cut the policy rate
to 1% to reflate a new bubble. When that bubble burst in 2008, conventional monetary policy was
insufficient to reflate the current bubble and unconventional ZIRP/QE policies had to be added to
the mix. When the current bubble bursts conventional unconventional monetary policy will be
insufficient to reflate the next bubble.

You can probably sense our skepticism that Goodfriends likely appointment as a Fed
governor is happenstance.

Austrian School of Economics Bank of Japan Bank of Japan Business Carnegie Mellon
University Central bank Central Banks Economy European Central Bank European
Central Bank Federal Open Market Committee Federal Reserve Federal Reserve Bank
Federal Reserve Bank Federal Reserve System Gold standard Great Depression
Harvard Inflation Interest rate International Monetary Fund Janet Yellen Japan
Macroeconomics Marvin Goodfriend Mises Institute Mises Institute Monetary Policy
Monetary policy Money Mortgage Backed Securities Nomination Reason Institute
Reuters Swiss National Bank Swiss National Bank Totalitarianism US Federal Reserve
Wall Street Journal White House White House Zero lower bound

Source URL: http://www.zerohedge.com/news/2017-12-06/cometh-hour-cometh-insane-cash-hating-fed-governor-

nobodys-goodfriend

Links:
[1] http://www.zerohedge.com/users/tyler-durden
[2] http://www.zerohedge.com/printmail/608655
[3] http://www.zerohedge.com/print/608655
[4] https://uk.reuters.com/article/us-usa-fed-goodfriend/trump-nominates-marvin-goodfriend-for-fed-governor-post-
idUKKBN1DT3K1
[5] http://www.zerohedge.com/sites/default/files/images/user235761/imageroot/2017/11/22/bad.png
[6] https://www.bloomberg.com/news/articles/2017-12-05/trump-s-latest-pick-for-the-fed-is-no-fan-of-paper-money

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