Doing away with the penny is an excellent symbol of the long-term depreciation of the currency under contemporary central banking regimes. Sixty-five years ago, far less than an average lifespan these days, we had entered the post-World Wars era, and I was five years old. What was a penny then?

At the end of 1947, the US Consumer Price Index was 23.4. Today it is 231. In other words, US currency is worth about 10% of what it was then in purchasing power, so it takes about 10 times as much money to buy the same thing, on average. In other words, a dime now is what a penny was then.

Likewise, $2.50 is what a quarter was, $10 what a dollar was, and $100 dollars what $10 was when I started kindergarten. In 1947, nobody thought they needed a coin worth 1/10 of a cent. That is equivalent to a penny now. So it’s pretty clear that we, like the Canadians, don’t need pennies. Since a dime is what a penny was, we could also dispense with nickels (half a 1947 penny).

Continuous inflation has, over time, a remarkable cumulative effect. We can now look forward knowing that every central bank has perpetual inflation, at a moderate but ever-compounding rate, as its goal. So when my five-year old grandson is my age, what once was a penny will be a dollar, and the US and Canada can then dispense with dimes and quarters.

CNN goes on, “Absent a debt ceiling increase, which would allow for more federal borrowing,” it “doesn’t necessarily mean that Social Security recipients…would get the short end of the stick. But they could.”

Could they? For how could the debt ceiling matter in the least when the celebrated Social Security Trust Fund is said to have enough money in it to cover Social Security payments for another couple of decades, or more?

If CNN is right that the government has to borrow to ensure current Social Security payments as a way to plead for raising the debt ceiling, then it has inadvertently shown that the Trust Fund is a fiction.

If you believe CNN, you can’t believe in the Trust Fund. If you believe in the Trust Fund, you can’t believe CNN.

You could logically believe neither, but you can’t believe both.

Adding to the 35% that dividends are first taxed at the corporate level, the now 20% top personal tax rate on dividends, plus the “Obamacare” dividend surtax of 3.8%, gets a total federal tax of over 50% on dividends (35% + [23.8% x 65%]= 50.5%)—a ridiculous level. Congratulations to the White House and its political allies on creating this investment disincentive.

Increasing double taxation of dividends also increases the tax advantage of debt over equity. Interest on debt of course has zero tax at the corporate level, so at the new top individual ordinary income tax rate of 39.6%, interest has an 11% total tax advantage over dividends. This is exactly what we need—more encouragement for debt and leverage: Didn’t we just try that one?

The right answer would be to eliminate taxation of dividends at the corporate level and then tax them as ordinary income at the personal level. Then interest and dividends would be treated exactly the same, as they should be, and double taxation of dividends eliminated, as it should be. This could be easily accomplished by making cash dividends paid as a tax deduction for corporations. While taking away the onerous double taxation, this would also take away the political argument that the “rich” are paying a favored low tax rate on dividend income.

Maybe next time.

Perhaps it will allow the Pollock One-Page Mortgage Form (“The Basic Facts About Your Mortgage Loan”) which I first proposed in 2007, to be part of this proposed experimental process. The CFPB says it is “continuing to foster new ideas” for “improvements to consumer understanding,” but maybe a five-year old idea could rise again.

Bob’s book is full of information, but in addition, it represents an underlying drama—in fact, a Shakespearean tragedy in five acts: Rise, Power, Hubris, Fall, and Humiliation.

On Power—many people in Washington and in the mortgage business were truly afraid of Fannie Mae and the retribution it meted out to those who crossed it.

On Hubris—Fannie often claimed it was the center of “the best housing finance system in the world” (a belief so instructively ironic in retrospect)—this echoed by former-Senator Dodd’s exclaiming that Fannie was “one of the great success stories of all time”! So it was, until the Fall.

All five acts are very well chronicled in Bob’s book.

But which Shakespearean tragedy is this?

Thinking of the Fear of Fannie—perhaps it is Richard III, with Fannie as the ruthless Richard, brought down finally at Bosworth Field by Henry Paulson, playing Henry VII.

Or—thinking of then-Fannie CEO Dan Mudd pathetically presenting financial plans to a Treasury Department which had already decided upon and was scheduling his fate—is it the great abdication scene, full of pathos, from Richard II?—with Dan Mudd playing the deposed king, handing over the crown to Henry IV, played by James Lockhart.

Maybe—but I think the best Shakespearean analogue is Julius Caesar, with the dictator of mortgage finance cut down in the capital city, with Henry Paulson this time playing Brutus. I am thinking especially of the great scene where Marc Antony addresses the murdered body of Caesar. Here we have Marc Antony played by Bob Hagerty, standing over the fallen Fannie:

“Oh, might Fannie! dost thou lie so low?”

“Why isn’t this essential interest rate index for our own currency based on U.S. financial market transactions instead of a survey in some other country?”

Why indeed? These are great questions from a colleague on Capitol Hill the other day. The explanation for the LIBOR status quo seems to be a combination of historical accident and institutional inertia. But given the deep problems with LIBOR which have become so apparent, there is every reason to find a replacement for LIBOR. That the key interest rate index for our own currency should be based on U.S. markets is certainly an apt idea.

Everyone agrees it would be far better to have an index based on actual transactions in an active, arms-length financing market, where money is really changing hands, rather than the LIBOR process of a survey of opinions of a fairly small number of banks about the interest rates at which each one says it could borrow from other banks, if it were doing so.

Is there an appropriate active domestic market to use for a new index? At least one should be seriously considered for short-term rates: The discount notes of the Federal Home Loan Bank System. These notes represent a very high and homogeneous credit quality, being the joint and several obligations of the 12 Federal Home Loan Banks (FHLBanks). They are issued in frequent transactions in volumes of more than $1 trillion per year, through a large selling group of investment banks to hundreds of investors. They are linked directly to the banking system and to the housing finance system through the 8,000 financial institutions of all sizes which have ready access to short-term borrowing from the FHLBanks at rates based on the yields on FHLBanks discount notes.

The possibility of replacing LIBOR with an index of actual transactions in this transparent, active market for FHLBanks discount notes is one which should be actively studied. We will be organizing an AEI conference during the next two months to consider the idea, as well as any other possible nominations for LIBOR replacements.

How negative can interest rates become? How long can they last? All we can do is stay tuned.

So what is the Congress doing now? It is reducing the pension funding requirements, as part of the compromises in the just-agreed upon Transportation bill. This is known as “funding relief,” and “pension funding stabilization.”

In fact, it demonstrates that politicized funding of defined benefit plans is governed by Wimpy’s Principle of Finance: “I’ll gladly pay you Tuesday for a hamburger today”—as the Wimpy character in old Popeye cartoons always said. Tuesday, where are you?

Thus, the Fed’s numbers get discussed as a loss of wealth. But is that true? It would be true if the “wealth” in 2007 were real. But a lot of the 2007 “wealth” was an illusion—an illusion created by the housing bubble, itself dependent on hopelessly optimistic and doomed mortgage lending. So in fact, the wealth didn’t disappear: it was never really there in the first place. People thought they had it, but they didn’t. The “collapse in house prices” from the bubble highs brought those prices back to reality (and about to their long-term trend—see the chart below).

You can fool yourself by multiplying the current price of houses by the total number of houses Americans own and assuming that constitutes aggregate wealth. If those prices are bubble prices, it most definitely does not. Of course, some clever or lucky individuals will succeed in selling at the bubble highs, but the aggregate bubble prices can never be realized by sale. The attempt to do so, of course, makes them collapse. Nor can they ever be validated by cash flows. Mere current prices, without historical context, may be very deceptive.

So the good news is that real wealth didn’t decline as much as reported. The bad news is that human weakness tempts us to consider bubble prices as “wealth.”

How negative can interest rates get? Nobody knows. But one thing is certain: economists need to scrub from their thinking the notion that interest rates cannot fall below zero and from their vocabulary that interest rates have a so-called “zero-bound.”