Are Japan and Switzerland havens for terrorists and drug lords? High-denomination bills are in high demand in both places, a trend that some politicians claim is a sign of nefarious behavior. Yet the two countries boast some of the lowest crime rates in the world. The cash hoarders are ordinary citizens responding rationally to monetary policy.
Cash hoarding is another lesson in the limits of monetary stimulus. Economies stuck in deflation need lower taxes, liberalized labor laws, freer competition and other reforms to promote faster growth. But Keynesian economists and central bankers prefer pump-priming, so they rail instead against cash.
Which is where the fear-mongering about terrorists and gunslingers comes in. “In certain circles the 500 euro note is known as the ‘ Bin Laden,’” former U.S. Treasury Secretary Larry Summers wrote last month in calling for a global ban on notes worth more than $50 or $100.
The current hoarding in Switzerland and Japan thus underscores one of many ways in which cash is a basic tool of economic liberty: It lets people shield themselves from monetary policies that would force their savings into weak economies that can’t attract sufficient spending or investment on their own. These economies need reforms that boost incentives to work and invest, not negative interest rates and cash limits that raid the bank accounts of law-abiding citizens.
PUSHING ON A STRING!
"But Keynesian economists and central bankers prefer pump-priming"
"But we must do SOMETHING... even if it doesn't work."
Edited by Rogerdodger, 04 March 2016 - 09:17 AM.