Do you remember the beach scene from 1968’s “Planet of the Apes”, starring Charlton Heston? He’s riding on horseback along the waves with a beautiful woman at his back, and the whole world is at his feet. He plays astronaut George Taylor, who thinks he’s returned from space to an earthly paradise.
But when Taylor sees the Statue of Liberty buried up to her armpits in seaweed and sand, he realises humanity has committed seppuku. “You did it. You finally really did it,” he says. “You maniacs! You blew it up! Ahh damn you. God damn you all to hell!”
Excuse the language
But I found the sentiment fitting when I learned this morning that the Bank of Japan (BoJ) had lowered its benchmark interest rate to negative territory. It stands at -0.1%. The BoJ’s governor Haruhiko Kuroda made the announcement mid-day. Markets rallied, then fell, then rallied.
The market’s knee-jerk euphoria, then panic, then euphoria, reflects the bank’s own indecision. The vote to lower the rate (but not add to the quantitative easing program) was 5-4. It will go into effect on 16 February. There were some gems from the written announcement. The bank said the move should:
“Enable the bank to pursue additional monetary easing in terms of three dimensions, combining a negative interest rate with quantity and quality… The Bank of Japan will cut the interest rate further into negative territory if judged as necessary.”
To be slightly pedantic, or just confess my confusion, I’m not sure making rates even more negative is a “cut”. The more negative rates go, the bigger the number gets. That doesn’t sound like subtraction. It sounds like addition.
But the point is academic
It shows how confused the academics are who are running the world’s monetary experiments. They believe you can produce growth by manipulating interest rates. It’s the only trick in their bag. And it’s not working well.
The BoJ joins the European Central Bank (ECB) and central banks in Sweden, Switzerland, and Denmark in taking rates negative. It’s all part of the war. So far, negative rates in places like Sweden haven’t induced consumer spending or business investment. If anything, it’s caused people to hoard cash—even though interest rates on savings deposits are minimal (or negative, in real terms).
If you can’t get people to spend cash then the logical next step is to ban it. That’s what the “War on Cash” is all about. Hat tip to Tim Price, who saw all this coming six months ago. If you’re new to the story and want a simple but elegant introduction to its major themes, villains, and heroes, start with Tim’s book.
Category: Central Banks