sábado, mayo 02, 2015

VACACIONES MAYO 2015 / GRL

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VACACIONES MAYO 2015


Jueves 30 de Abril del 2014

Queridos amigos,

Les escribo estas líneas con motivo de mi próximo viaje que me tendrá ausente de la oficina y de nuestras lecturas cotidianas, desde el lunes 4 hasta el miércoles 20 de Mayo próximo.

Durante estos días no tendré acceso regular al Internet ni a mis correos.

Lamentablemente, en los últimos meses la situación internacional se ha seguido complicando tanto social, económica, financiera y geopolíticamente, de acuerdo a lo previsto en mi carta de Setiembre pasado y las anteriores, a pesar de todas las declaraciones y anuncios en contrario por parte de las autoridades de los bancos centrales y los representantes de los gobiernos.  

En realidad no podía ser de otra manera, si tenemos en cuenta que no se ha hecho nada en los últimos años para reparar los profundos desequilibrios estructurales en los fundamentos de la economía global, sino que mas bien, por el contrario, se ha seguido "maquillando" por parte de los bancos centrales la insostenible situación económica y financiera global, profundizando los desequilibrios y la inestabilidad vía el constante crecimiento de las deudas, aumentando las ineficiencias y dilatando el necesario ajuste. El crecimiento estructural de la economía global es cada vez mas frágil, dudoso e insostenible.

Hasta la crisis del 2000 y luego de la del 2008, ahora así llamada la Gran Recesión, la demanda global había sido “subvencionada” por un sistema financiero manipulado e intervenido, creando una demanda y una economía global ficticia, una recuperación así llamada "subprime", liderada por la FED mediante un crecimiento desproporcionado de las deudas, imposible de auto-sustentarse en un crecimiento de la economía real en el largo plazo. 

Deuda, deuda y mas deuda, parece ser el mantra de la FED.

Desde entonces, la FED y el resto los bancos centrales de todos los países más importantes del mundo se han negado y se siguen negando a reconocer esta realidad, aceptando el inicio de un ajuste inevitable y estructural, regresando a un nivel real de la economía global de alguna manera manejable. Aun siguen abocados al esfuerzo de una gran represión financiera, manipulando e inflando irresponsablemente los mercados financieros vía una política monetaria de emisiones inorgánicas de papel moneda sin respaldo y muy bajas tasas de interés.

Las deudas de consumidores, empresas y gobiernos, eran y son insostenibles.

Por ello creemos que los bancos centrales no aumentarán de "motu propio" las tasas de interés de manera importante a corto plazo, salvo que este aumento provenga final y sorpresivamente de una crisis generada por la desaparición de la confianza de los inversionistas globales en los mercados financieros.

Inmediatamente sus deudas se volverían obviamente impagables y la crisis que tanto han tratado de evitar reconocer, sobrevendría inevitable.

Solo para mencionar al país con la economía mas importante, la deuda de los Estados Unidos de Norteamerica ha crecido por encima de los 18 trillones de dólares, a mas del 100% de su PBI. Y si incluimos las deudas contingentes internas, como el Seguro Social y los Fondos de Pensiones, algunos analistas calculan que la deuda norteamericana podría llegar a sumar entre los 80 a 120 trillones de dólares, es decir, entre 5 a 7 veces el producto bruto anual.

Para un análisis detallado del desarrollo de esta problemática y la verdadera situación actual, ver los artículos del blog, aquí, aquí y aquí.

Esta situación se ha seguido agravando en los últimos años y es insostenible en el mediano y largo plazo.  (ver articulo)

Para evitarlo, es que los bancos centrales han tenido que esforzarse en mantener ficticiamente una apariencia de normalidad en el "statu quo", inyectando cantidades innombrables de papel moneda sin respaldo a los mercados financieros y reducido las tasas de interés a niveles nunca vistos por largo tiempo, desde que la historia económica recuerda. (QE1, QE2, QE3, Q4, Abenomics, China, etc….)

Todo ello nos hace presumir que todo ello se lleva a cabo por el fundamentado temor a perder el control del esquema Ponzi mundial, que es lo que son ahora la economía global y los mercados financieros, y por ende se derrumbe el castillo de naipes enfrentando de golpe un ajuste económico enorme y hasta la posibilidad de una revolución social incontenible, guerras, etc.

¿Porqué un ahorrista o un inversionista estaría dispuesto a depositar su dinero en un banco o comprar un bono de un gobierno, que no solamente no le paga ningún interés sino que más bien ahora le cobra por mantener su deposito, o si se lo paga, es un interés muy reducido y hasta negativo?

Ello sucede solo cuando el ahorrista y/o el inversionista esperan una deflación en la economía, i.e. que los precios mañana serán mas bajos que los de hoy, la que sería mayor que el costo de ese depósito, y/o una ganancia potencial en el fortalecimiento de esa moneda, es decir, en ambos casos, a pesar de todo, un aumento del poder adquisitivo de sus inversiones. Y también, cuando además, existe una enorme aversión al riesgo en los mercados financieros "tradicionales". Solo así se puede justificar racionalmente esta realidad por un ahorrista o inversionista que desea mantener su poder de compra, sin tener que enfrentar riesgos desconocidos e incalculables, pero claramente presumibles en los mercados financieros globales. (ver articulo)

El hecho es que el esfuerzo de política monetaria intervencionista llevada a cabo por la mayoría de los bancos centrales del mundo, en los últimos 15 años, más intensa y desproporcionadamente desde los últimos siete años, además, ha producido la transferencia más importante de riqueza que se recuerda en la historia, de manos de los pensionistas y los ahorristas, hacia las clases privilegiadas. 

Mas importante todavía, se ha distorsionado y manipulado fundamentalmente las reglas de la economía del libre mercado con consecuencias funestas y aun impredecibles en el mediano y largo plazo para los consumidores e inversionistas del mundo, incrementando la alocación  ineficiente de los recursos de inversión, además de multiplicar el costo de la inevitable implosión de los mercados financieros, tanto de las acciones, como de los bonos y otros instrumentos de inversión financiera.

Todo esto para no mencionar a los derivados financieros, estimados por algunos analistas en mas de 1 cuadrillón de dólares (1000 trillones de dólares),  que se ciernen como una espada de Damocles, sobre todo el sistema financiero y económico internacional.

Recientemente el FMI ha advertido de la posibilidad que la economía global esta entrando a un periodo de "stagnación" y a una probable nueva recesión, con las consecuencias que ello implicaría. (ver articulo)

El reconocido economista y analista Ricardo Lago hace recientemente en un diario local un excelente resumen de la ultima reunión del FMI y el Banco Mundial en Washington, sus conclusiones e implicancias. (ver articulo

Obviamente estos organismos no pueden decirnos toda la verdad. Ello sería propiciar ellos mismos el adelanto inevitable del descalabro global, el caos y el ajuste sin anestesia, con resultados imprevisibles. 

La pregunta de fondo es ¿hasta cuando se podrá o podrán mantener esta realidad bizarra?
Y eso nadie lo puede responder con seguridad. La confianza de los inversionistas en los mercados financieros es la verdadera incógnita.

¿Existen aun los inversionistas? 

Observan algunos críticos y analistas que los pequeños y medianos inversionistas se han retirado del mercado y todo el movimiento que observamos en los índices, es solo en volúmenes reducidos. Piensan que ello se debe solo a la actuación de unos cuantos brokers y/o "high frequency traders"de los grandes bancos globales que se siguen "alimentando" de las manipulaciones y ventajas, coordinadas y producidas por los bancos centrales.

Hace alrededor de 100 años el asesinato del archiduque Francisco Fernando y su esposa Sofía Chotek en Sarajevo fue el detonante de la primera guerra mundial. Y nadie pensó en ese momento que ese acontecimiento, aparentemente sin importancia global, traería la primera guerra mundial.

Por ello ahora tenemos que preguntarnos seriamente, ¿cuál de todos los potenciales "cisnes negros", conocidos o no, que hoy se ciernen sobre la economía global ,y que son muchos, económicos, sociales y geopolíticos, podrían ser el detonante de la nueva catástrofe?

Solo la historia nos responderá a esta crucial pregunta. No hay cuerda para mucho. Y evidentemente, toda situación que es insostenible, finalmente se caerá.

Tenemos que insistir mas que nunca que la experiencia y la prudencia, el análisis y la inteligencia, la vigilancia y la paciencia, son los socios más importantes en las decisiones de políticas y estrategias de inversión a corto y mediano plazo.

En un cambio importante de ciclos como en el que pensamos que estamos envueltos hoy día, y en el que mas allá de lo circunstancial, el pasado y el futuro se bifurcan y se oponen,  los riesgos para los inversionistas son profundos. (ver articulo)

Con estas  anotaciones y advertencias que espero les sean de utilidad, me despido de Uds. con un cordial abrazo hasta el regreso a mis actividades, Dios mediante, a inicios de la semana del lunes 23 de Mayo próximo, cuando estaré nuevamente a su gentil disposición.

Gonzalo

PD. Algunos días durante mis vacaciones en la medida de lo posible y excepcionalmente publicaré artículos en el blog que podrán leer entrando directamente y/o subscribiéndose al blog:  www.gonzaloraffoinfonews.com

The End Is Near, Part 1: The 'War On Cash'.

By: John Rubino
 
Monday, April 27, 2015
 
 
As the saying goes, you can know a person by the quality of his or her enemies. This is also true of societies, where moral evolution can be traced by simply listing the things on which they declare war. Not so long ago, for instance, the world's good guys -- the US, Europe's democracies and a few others -- fought existential battles against fascism and communism. Then they went after poverty and discrimination. They were, at least in terms of their ideals, on the side of personal freedom and opportunity and against institutionalized control.
 
But then came the war on drugs, in which the US imprisoned millions of non-violent people guilty only of voluntary transaction. Not long after that we declared war on "terror," using the enemies created by our own incompetent foreign policy as an excuse for a vast expansion of surveillance and police militarization.
 
And now, seemingly out of nowhere, comes a new enemy: cash. Around the world, governments and banks are making it harder to save and transact with paper and coin. The ultimate goal seems to be the elimination of private tools of commerce, in favor of transparent (to governments and banks) plastic, checks and online payment systems. The following excerpts are from longer articles that should be read in their entirety:
The Death of Cash 
(Bloomberg) - Could negative interest rates create an existential crisis for money itself? 
JPMorgan Chase recently sent a letter to some of its large depositors telling them it didn't want their stinking money anymore. Well, not in those words. The bank coined a euphemism: Beginning on May 1, it said, it will charge certain customers a "balance sheet utilization fee" of 1 percent a year on deposits in excess of the money they need for their operations. That amounts to a negative interest rate on deposits.  
The targeted customers--mostly other financial institutions--are already snatching their money out of the bank. Which is exactly what Chief Executive Officer Jamie Dimon wants. The goal is to shed $100 billion in deposits, and he's about 20 percent of the way there so far. 
Pause for a second and marvel at how strange this is. Banks have always paid interest to depositors. We've entered a new era of surplus in which banks--some, anyway--are deigning to accept money only if customers are willing to pay for the privilege. Nick Bunker, a policy analyst at the Washington Center for Equitable Growth, was so dazzled by interest rates' falling into negative territory that he headlined his analysis after a Doors song, Break on Through (to the Other Side). 
Now comes the interesting part. There are signs of an innovation war over negative interest rates. There's a surge of creativity around ways to drive interest rates deeper into negative territory, possibly by abolishing cash or making it depreciable.  
And there's a countersurge around how to prevent rates from going more deeply negative, by making cash even more central and useful than it is now. As this new world takes shape, cash becomes pivotal. 
The idea of abolishing or even constraining physical bank notes is anathema to a lot of people. If there's one thing that militias and Tea Partiers hate more than "fiat money" that's not backed by gold, it's fiat money that exists only in electronic form, where it can be easily tracked and controlled by the government. "The anonymity of paper money is liberating," says Stephen Cecchetti, a professor at Brandeis International Business School and former economic adviser to the Bank for International Settlements in Basel, Switzerland. "The bottom line is, you have to decide how you want to run your society." 
As long as paper money is available as an alternative for customers who want to withdraw their deposits, there's a limit to how low central banks can push rates. At some point it becomes cost-effective to rent a warehouse for your billions in cash and hire armed guards to protect it. We may be seeing glimmerings of that in Switzerland, which has a 1,000 Swiss franc note ($1,040) that's useful for large transactions. The number of the big bills in circulation usually peaks at yearend and then shrinks about 6 percent in the first two months of the new year, but this year, with negative rates a reality, the number instead rose 1 percent through February, according to data released on April 21. 
Bank notes, as an alternate storehouse of value, are a constraint on central banks' power. "We view this constraint as undesirable," Citigroup Global Chief Economist Willem Buiter and a colleague, economist Ebrahim Rahbari, wrote in an April 8 research piece. They laid out three ways that central banks could foil cash hoarders: One, abolish paper money. Two, tax paper money. Three, sever the link between paper money and central bank reserves. 
Abolishing paper money and forcing people to use electronic accounts could free central banks to lower interest rates as much as they feel necessary while crimping the underground economy, Buiter and Rahbari write: "In our view, the net benefit to society from giving up the anonymity of currency holdings is likely to be positive (including for tax compliance)." Taxing cash, an idea that goes back to German economist Silvio Gesell in 1916, is probably unworkable, the economists conclude: You'd have to stamp bills to show tax had been paid on them. The third idea involves declaring that all wages and prices are set in terms of the official reserve currency--and that paper money is a depreciating asset, almost like a weak foreign currency. That approach, the Citi economists write, "is both practical and likely to be effective." Last year, Harvard University economist Kenneth Rogoff wrote a paper favoring exploration of "a more proactive strategy for phasing out the use of paper currency." 
Pushing back against the cash-abolition camp is a group of people who want to make cash more convenient, even for large transactions. Cecchetti and co-author Kermit Schoenholtz, of New York University's Stern School of Business, suggest a "cash reserve account" that would keep people from having to pay for things by sending cash in armored trucks. During the day, funds in the account would be payable just like money in a checking account. But every night they'd be swept into cash held in a vault, sparing the money from the negative interest rate that would apply to money in an ordinary checking account. In a way, physical cash would take on a role similar to that played by gold in an earlier era of banking. 
The "War on Cash" Migrates to Switzerland 
(Acting Man's Pater Tenebrarum) - The war on cash is proliferating globally. It appears that the private members of the world's banking cartels are increasingly joining the fun, even if it means trampling on the rights of their customers.
We just come across a small article in the local European press (courtesy of Dan Popescu), in which a Swiss pension fund manager discusses his plight with the SNB's bizarre negative interest rate policy. In Switzerland this policy has long ago led to negative deposit rates at the commercial banks as well. The difference to other jurisdictions is however that negative interest rates have become so pronounced, that it is by now worth it to simply withdraw one's cash and put it into an insured vault. 
Having realized this, said pension fund manager, after calculating that he would save at least 25,000 CHF per year on every CHF 10 m. deposit by putting the cash into a vault, told his bank that he was about to make a rather big withdrawal very soon. After all, as a pension fund manager he has a fiduciary duty to his clients, and if he can save money based on a technicality, he has to do it.  
A Legally Murky Situation - but Collectivism Wins Out 
What happened next is truly stunning. Surely everybody is aware that Switzerland regularly makes it to the top three on the list of countries with the highest degree of economic freedom. At the same time, it has a central bank whose board members are wedded to Keynesian nostrums similar to those of other central banks. This is no wonder, as nowadays, economists are trained in an academic environment that is dripping with the most vicious statism imaginable. As a result, withdrawing one's cash is evidently regarded as "interference with the SNB's monetary policy goals". 
One large Swiss bank recently responded to a pension fund's withdrawal request with a letter stating: "We are sorry, that within the time period specified, no solution corresponding to your expectations could be found." 
Although we all know that fractionally reserved banks literally don't have the money their customers hold in demand deposits, the contract states clearly that customers may withdraw their funds at any time on demand. The maturity of sight deposits is precisely zero. 
  Some thoughts
  • A well-run economy operating without cash would require a trustworthy government. That is, the people who know where we are and what we're buying and selling 24/7 would have to be decent, competent and honest. Otherwise we're giving near-absolute power to folks who might use it for their own enrichment at our expense. Which is of course to state the blindingly obvious. The fact that power both corrupts and attracts the already corrupt means that the more power we hand the government, the further we push it towards absolute evil. A cashless society would pretty much guarantee a dictatorship in a single generation.
  • If a cashless society is a means to the end of total government control of interest rates, i.e., the price of money, then the resulting deeply-negative rates would distort the pricing signals that make capitalism work. The system would devolve into a centrally-planned malinvestment-fest resembling bigger, more chaotic versions of the past century's collectivist experiments, all of which crashed and burned in short order.
  • An environment in which cash is illegal and interest rates are negative would be both insanely good and catastrophically bad for gold. Good because the removal of cash leaves only gold and silver as historically-trusted private stores of value. Terrified capital would pour into bullion, sending its relative price through the roof. But then of course it would become an overt (rather than a covert) target of the same forces that made cash illegal. When "the war on gold" begins, the world as we knew it will have already ended.

Are the Good Times Over?
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Michael J. Boskin
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APR 27, 2015

Amusement park ride balloons


STANFORD – In the 25 years before the Great Recession of 2008-2009, the United States experienced two brief, mild recessions and two strong, long expansions. Globally, incomes grew briskly; inflation abated; and stock markets boomed. Moreover, the recovery from the last major slump, in the early 1980s, brought about a quarter-century of unprecedentedly strong and stable macroeconomic performance. This time, however, the return to growth has been much more difficult.
 
America’s recovery since the Great Recession, has been inconsistent, with growth repeatedly picking up and then sputtering out. In fact, the US has not experienced three consecutive quarters of 3% growth in a decade. Though lower oil prices are helping consumers, this gain is partly offset by less energy investment, and the effects of the stronger dollar will be even larger.
 
The US is not alone. Though most European economies are now growing again, aided by lower oil prices and currency depreciation, the pace of expansion remains anemic. Similarly, Japan’s recovery remains fragile, despite strong efforts by the government. Even the major emerging economies, which were supposed to serve as global growth engines in the years ahead, are struggling: China and India have downshifted, and Brazil and Russia are contracting.
 
When a boom or bust lasts for such a long time, it begins to seem like it will continue indefinitely. Six years after the crisis, some prominent economists are asking whether insufficient investment and/or waning gains from technological innovation have pushed the global economy into a “new normal” of lower growth and slow, if any, gains in living standards.
 
Some economists call this “secular stagnation” – a fancy way of saying that the good times are gone for good. Are they right?
 
Total economic growth amounts to roughly the sum of the growth of work hours (an increase in the number of workers or the amount of hours that they work) and productivity (output per hour of work). If productivity improves by one percentage point in a year, the improvement of living standards over the subsequent generation would be augmented by one-third. Over time, a productivity improvement of even a fraction of a percentage point would be immensely consequential.
 
Productivity can be enhanced by capital investment, technological innovation, and improvements in the knowledge and skills of the labor force, though economists disagree on which has the largest impact. According to my research with Larry Lau, technology has played the largest role boosting productivity in the G-7 economies since World War II.
 
Given this, America’s declining productivity growth – which has averaged just 0.7% annually since 2010 – has led some observers to blame the slowdown on inadequate technological advances. These pessimists, such as the economist Robert Gordon, claim that new innovations are unlikely to improve productivity as fundamentally as electricity, automobiles, and computers did in the last century.
 
Optimists counter that smart phones, Big Data, and expected advances in nanotechnology, robotics, and biosciences are harbingers of a new era of technology-driven productivity improvements. It may be impossible to predict the next “killer app,” they argue, but it will always be developed.
 
Both sides cite Moore’s Law, named for Intel’s co-founder, Gordon Moore, who noticed that the density of transistors on a chip could be doubled every 18 months. The pessimists claim that this is becoming harder and more expensive; the optimists hold that the law will remain valid, with chips moving to three dimensions.
 
Clearly, the trajectory of technological progress is difficult to predict. In fact, the main commercial value of new technology is not always apparent even to the inventor. When Guglielmo Marconi made the first transatlantic wireless transmission over a century ago, he was competing with the telegraph in point-to-point communication; he never envisioned popular mass-broadcast radio. Thomas Edison designed the phonograph to help the blind – and filed a lawsuit to prevent it from being used to play music.
 
Complicating matters further is the fact that the next wave of productivity-enhancing technological developments are likely to occur in sectors such as health care, where their economic impact is difficult to measure. Economists believe that many improvements in health-care quality – such as more effective treatments for cataracts or cardiac disease – are not accurately reflected in real GDP, and are incorrectly reported as price increases. Better measures for these changes are essential for an accurate assessment of economic progress.
 
To be sure, technology-driven growth carries some risks. While old fears that automation and artificial intelligence would cause widespread structural unemployment have never been borne out, technology and globalization have put downward pressure on wages for all but the most skilled workers in the advanced economies. Capital’s share of national income has increased, while labor’s share has fallen. But implementing policies that restrict potentially productivity-enhancing technologies would be a grave mistake.
 
To encourage more robust growth and the associated improvements in living standards, governments should ensure that the private sector has sufficient incentives for innovation, entrepreneurship, and investment in physical and human capital. For example, officials could cut red tape, rein in deficits and debt, enact tax policies conducive to capital formation, reform the education system, and invest in research and development.
 
Of course, no one should expect a return to the pre-crisis boom years, given the demographic pressures that almost all major economies – including China – are facing. But these incentives stand the best chance of continuing the flow of productivity-enhancing technology, from startups to the research divisions of established companies in industries from technology to energy to health care.
 

Read more at http://www.project-syndicate.org/commentary/global-economy-growth-prospects-by-michael-boskin-2015-04#7fbEhqthjB7dEk81.99

sábado, mayo 02, 2015

THE DEATH OF CASH / BLOOMBERG

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The Death of Cash

Could negative interest rates create an existential crisis for money itself?

by Peter Coy

7:00 AM COT
April 23, 2015


Welcome to Less Than Zero
Photo Illustration: 731; Photos: 20th Century Fox/Everett Collection; iStock
 
JPMorgan Chase recently sent a letter to some of its large depositors telling them it didn’t want their stinking money anymore. Well, not in those words. The bank coined a euphemism:
Beginning on May 1, it said, it will charge certain customers a “balance sheet utilization fee” of 1 percent a year on deposits in excess of the money they need for their operations. That amounts to a negative interest rate on deposits. The targeted customers—mostly other financial institutions—are already snatching their money out of the bank. Which is exactly what Chief Executive Officer Jamie Dimon wants. The goal is to shed $100 billion in deposits, and he’s about 20 percent of the way there so far.

Pause for a second and marvel at how strange this is. Banks have always paid interest to depositors. We’ve entered a new era of surplus in which banks—some, anyway—are deigning to accept money only if customers are willing to pay for the privilege. Nick Bunker, a policy analyst at the Washington Center for Equitable Growth, was so dazzled by interest rates’ falling into negative territory that he headlined his analysis after a Doors song, Break on Through (to the Other Side).

In recent months, negative rates have become widespread in Europe’s financial capitals. The European Central Bank, struggling to ignite growth, has a deposit rate of –0.2 percent. The Swiss National Bank, which worries that a rise of the Swiss franc will hurt trade, has a deposit rate of –0.75 percent. On April 21 the cost for banks to borrow from each other in euros (the euro interbank offered rate, or Euribor) tipped negative for the first time. And as of April 17, bonds comprising 31 percent of the value of the Bloomberg Eurozone Sovereign Bond Index—€1.8 trillion ($1.93 trillion) worth—were trading with negative yields. (Although dollar interest rates are higher, JPMorgan Chase’s balance sheet utilization fee fits the pattern: In today’s low-rate world, the only way it can shed deposits in response to new regulations is to go all the way to less than zero.)
It’s not unusual for interest rates to be negative in the sense of being lower than the rate of inflation. If the Federal Reserve pushes interest rates below inflation to stimulate growth, it becomes cheaper to borrow and buy something now than to wait to make the purchase. If you wait, inflation could make prices go up by more than what you owe on the loan. You can also think of it as inflation reducing the effective amount you owe.

What is rarer is for interest rates to go negative on a nominal basis—i.e., even before accounting for inflation. The theory was always that if you tried to impose a negative nominal rate, people would just take their money from the bank and store cash in a private vault or under a mattress to escape the penalty of paying interest on their own money. When the Federal Reserve slashed the federal funds rate in 2008 to combat the worst financial crisis since the Great Depression, it stopped cutting at zero to 0.25 percent, which it assumed to be the absolute floor, the zero lower bound. It turned to buying bonds (“quantitative easing”) to lower long-term rates and give the economy more juice.

Over the past year or so, however, zero has turned out to be a permeable boundary. Several central banks have discovered that depositors will tolerate some rates below zero if withdrawing cash and storing it themselves is costly and inconvenient. Investors will buy bonds with negative yields if they believe rates will fall further, allowing them to sell the bonds at a profit. (Bond prices rise when rates fall.) Global investors are also willing to put money into a nation’s negative-yielding securities if they expect its currency to rise in value.

Now comes the interesting part. There are signs of an innovation war over negative interest rates. There’s a surge of creativity around ways to drive interest rates deeper into negative territory, possibly by abolishing cash or making it depreciable. And there’s a countersurge around how to prevent rates from going more deeply negative, by making cash even more central and useful than it is now. As this new world takes shape, cash becomes pivotal.

The idea of abolishing or even constraining physical bank notes is anathema to a lot of people. If there’s one thing that militias and Tea Partiers hate more than “fiat money” that’s not backed by gold, it’s fiat money that exists only in electronic form, where it can be easily tracked and controlled by the government. “The anonymity of paper money is liberating,” says Stephen Cecchetti, a professor at Brandeis International Business School and former economic adviser to the Bank for International Settlements in Basel, Switzerland. “The bottom line is, you have to decide how you want to run your society.”

As long as paper money is available as an alternative for customers who want to withdraw their deposits, there’s a limit to how low central banks can push rates. At some point it becomes cost-effective to rent a warehouse for your billions in cash and hire armed guards to protect it. We may be seeing glimmerings of that in Switzerland, which has a 1,000 Swiss franc note ($1,040) that’s useful for large transactions. The number of the big bills in circulation usually peaks at yearend and then shrinks about 6 percent in the first two months of the new year, but this year, with negative rates a reality, the number instead rose 1 percent through February, according to data released on April 21.

Bank notes, as an alternate storehouse of value, are a constraint on central banks’ power. “We view this constraint as undesirable,” Citigroup Global Chief Economist Willem Buiter and a colleague, economist Ebrahim Rahbari, wrote in an April 8 research piece. They laid out three ways that central banks could foil cash hoarders: One, abolish paper money. Two, tax paper money. Three, sever the link between paper money and central bank reserves.

Abolishing paper money and forcing people to use electronic accounts could free central banks to lower interest rates as much as they feel necessary while crimping the underground economy, Buiter and Rahbari write: “In our view, the net benefit to society from giving up the anonymity of currency holdings is likely to be positive (including for tax compliance).” Taxing cash, an idea that goes back to German economist Silvio Gesell in 1916, is probably unworkable, the economists conclude: You’d have to stamp bills to show tax had been paid on them. The third idea involves declaring that all wages and prices are set in terms of the official reserve currency—and that paper money is a depreciating asset, almost like a weak foreign currency. That approach, the Citi economists write, “is both practical and likely to be effective.” Last year, Harvard University economist Kenneth Rogoff wrote a paper favoring exploration of “a more proactive strategy for phasing out the use of paper currency.”
 
Pushing back against the cash-abolition camp is a group of people who want to make cash more convenient, even for large transactions. Cecchetti and co-author Kermit Schoenholtz, of New York University’s Stern School of Business, suggest a “cash reserve account” that would keep people from having to pay for things by sending cash in armored trucks. During the day, funds in the account would be payable just like money in a checking account. But every night they’d be swept into cash held in a vault, sparing the money from the negative interest rate that would apply to money in an ordinary checking account. In a way, physical cash would take on a role similar to that played by gold in an earlier era of banking.
 
Like chemotherapy, negative interest rates are a harsh medicine. It’s disorienting when people are paid to borrow and charged to save. “Over time, market disequilibria are dangerous,” G+ Economics Chief Economist Lena Komileva wrote to clients on April 21. Which side of the debate you fall on probably comes down to how much you trust government. On one side, there’s an argument to be made that cash has become what John Maynard Keynes once called gold: a barbarous relic. It thwarts monetary policy and makes life easy for criminals and tax evaders: Seventy-eight percent of the value of American currency is in $100 bills. On the other side, if you’re afraid that central banks are in a war against savers, or that the government will try to control your financial affairs, cash is your best defense. Taking it away “is a prescription for revolution,” Cecchetti says. The longer rates break on through to the other side, the more pressing these questions become.