Case for -2% Rates, Banning Cash? James Grant Blasts Lunatic Proposals

Looking for group think, extrapolation of extreme silliness, linear thinking, and belief in absurd models?

Then look no further than Fed presidents, their advisors, and academia loaded charlatan professors.

Today’s spotlight is on Marvin Goodfriend, a former economist and policy advisor at the Federal Reserve’s Bank of Richmond, and Ken Rogoff, a chaired Harvard economics professor, a one-time chief economist at the International Monetary Fund.

Case for Minus 2% Rates

Goodfriend says the Fed Might Need to Cut Rates to Minus 2 Percent.

The U.S. Federal Reserve might need to cut interest rates to as low as negative 2 percent, far lower than levels other global central banks have tested, a former Fed economist said.

That’s what would likely be needed to engineer a recovery if the U.S. economy were to fall into a recession in the next couple of years, Marvin Goodfriend, who was an economist and policy advisor at the Federal Reserve’s Bank of Richmond from 1993-2005, told CNBC’s “Squawk Box” on Thursday.

Goodfriend, who is currently a professor of economics at Carnegie Mellon University, pointed to data on the eight recessions in the U.S. since 1960.

“In eight of those recessions, the Fed had to push the short rate 2.5 percentage points below the long term rate. Today, the 10-year rate in the U.S. is 1.5 percent,” he noted, saying that would indicate that during the next recession, the Fed would need to cut rates as low as minus 1 percent at a minimum.

“In five of those recessions, the Fed had to push the federal funds rate 3.5 percentage points below the 10-year bond rate,” he said. “So if that happens this time around, we would have to push the federal funds rate to minus 2 percent.”

Linear Thinking Idiocy

Goodfriend extrapolates what the Fed did in the past with what the Fed might need to do in the future. Not once did this mentally-challenge wizard stop to ask:

1. Did the Fed really “need” to do what it did before?
2. Did excessively low rates create any bubbles?
3. Why do we need a Fed in the first place?
4. Who does the Fed serve?
5. Can the economy be managed like a cook following a recipe to bake a cake?
6. Isn’t the fact that the Fed “needed” to do this eight times indicative of a major problem in and of itself?

James Grant Blasts Ken Rogoff in Wall Street Journal Op-Ed