Monday, January 12, 2009

Cash is Trash (or Not)

Below is a quote from a must read piece by Bronte Capital on Monetary Policy in Japan and the US. I'll only add that I'm despite all their best efforts, I'm not sure they'll be able to ignite inflation. This is the central tension in the market right now. Should we be holding onto our cash, or holding it?

The excerpt (read the whole thing):

"You have to convince that cash-is-trash.

How do you do this? Well the first answer is just print money.

And that is what the Bank of Japan (BOJ) did – and what central banks around the world are still doing. And it doesn't work. The reason that it doesn't work is that people are more than happy to hold the money idle in enormous quantity. It yields 3-5% post tax real after all.

Just printing money is not enough. You need a real shock.

The Ben Bernanke suggestion – and he really did suggest this: load up a helicopter and throw it out the window over downtown Tokyo. If that doesn't work continue doing it until you get inflation."