Giving the bank executives big bonuses is like a group of patients on steroid (bailout) for their illness insist to award themselves gold medals because they run (powered by steroid) as fast as other patient.
Tim Geithner should be the Secretary of the Treasury, because he saved Goldman Sachs; Tim Geithner should not be the Secretary of the Treasury, because he saved Goldman Sachs;
Tim Geithner should be the Secretary of the Treasury, because he saved Goldman Sachs under a Republican president; Tim Geithner should not be the Secretary of the Treasury, because he is now serving a Democrat president;
This is a variant expression of a sentiment which is often attributed to Tocqueville or Alexander Fraser Tytler, but the earliest known occurrence is as an unsourced attribution to Tytler in "This is the Hard Core of Freedom" by Elmer T. Peterson in The Daily Oklahoman (9 December 1951): "A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy."
Variant: The American Republic will endure, until politicians realize they can bribe the people with their own money.
Here is my thoughts: I see no difference between negative interest/tax on cash holding and a positive inflation rate. If anyone starts to make cash holding worth less, people will convert their cash into gold/other assets that are better in preserve value which will lead to, well, inflation. The ultimate question is how much inflation will the Fed tolerate at this time. Playing with inflation expectation is a dangerous game since central banks usually spend a lot of effort to anchor inflation. Will the Fed release the beast out of its cage? Will Paul Volker agree with that?
I am an assistant professor of economics at Ohio University, where I teach many economics/finance courses. I use this blog to clear my thoughts on the current economic and political issues.
I received my PhD in Economics from UCSD and I am a CFA charterholder