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The End Is Near, Part 1: The “War On Cash”

As the saying goes, you can know a person by the quality of his or her enemies. This is also true of societies, where moral evolution can be traced by simply listing the things on which they declare war. Not so long ago, for instance, the world’s good guys — the US, Europe’s democracies and a few others — fought existential battles against fascism and communism. Then they went after poverty and discrimination. They were, at least in terms of their ideals, on the side of personal freedom and opportunity and against institutionalized control.

But then came the war on drugs, in which the US imprisoned millions of non-violent people guilty only of voluntary transaction. Not long after that we declared war on “terror,” using the enemies created by our own incompetent foreign policy as an excuse for a vast expansion of surveillance and police militarization.

And now, seemingly out of nowhere, comes a new enemy: cash. Around the world, governments and banks are making it harder to save and transact with paper and coin. The ultimate goal seems to be the elimination of private tools of commerce, in favor of transparent (to governments and banks) plastic, checks and online payment systems. The following excerpts are from longer articles that should be read in their entirety:

The Death of Cash

(Bloomberg) – Could negative interest rates create an existential crisis for money itself?

JPMorgan Chase recently sent a letter to some of its large depositors telling them it didn’t want their stinking money anymore. Well, not in those words. The bank coined a euphemism: Beginning on May 1, it said, it will charge certain customers a “balance sheet utilization fee” of 1 percent a year on deposits in excess of the money they need for their operations. That amounts to a negative interest rate on deposits. The targeted customers—mostly other financial institutions—are already snatching their money out of the bank. Which is exactly what Chief Executive Officer Jamie Dimon wants. The goal is to shed $100 billion in deposits, and he’s about 20 percent of the way there so far.

Pause for a second and marvel at how strange this is. Banks have always paid interest to depositors. We’ve entered a new era of surplus in which banks—some, anyway—are deigning to accept money only if customers are willing to pay for the privilege. Nick Bunker, a policy analyst at the Washington Center for Equitable Growth, was so dazzled by interest rates’ falling into negative territory that he headlined his analysis after a Doors song, Break on Through (to the Other Side).

Now comes the interesting part. There are signs of an innovation war over negative interest rates. There’s a surge of creativity around ways to drive interest rates deeper into negative territory, possibly by abolishing cash or making it depreciable. And there’s a countersurge around how to prevent rates from going more deeply negative, by making cash even more central and useful than it is now. As this new world takes shape, cash becomes pivotal.

The idea of abolishing or even constraining physical bank notes is anathema to a lot of people. If there’s one thing that militias and Tea Partiers hate more than “fiat money” that’s not backed by gold, it’s fiat money that exists only in electronic form, where it can be easily tracked and controlled by the government. “The anonymity of paper money is liberating,” says Stephen Cecchetti, a professor at Brandeis International Business School and former economic adviser to the Bank for International Settlements in Basel, Switzerland. “The bottom line is, you have to decide how you want to run your society.”

As long as paper money is available as an alternative for customers who want to withdraw their deposits, there’s a limit to how low central banks can push rates. At some point it becomes cost-effective to rent a warehouse for your billions in cash and hire armed guards to protect it. We may be seeing glimmerings of that in Switzerland, which has a 1,000 Swiss franc note ($1,040) that’s useful for large transactions. The number of the big bills in circulation usually peaks at yearend and then shrinks about 6 percent in the first two months of the new year, but this year, with negative rates a reality, the number instead rose 1 percent through February, according to data released on April 21.

Bank notes, as an alternate storehouse of value, are a constraint on central banks’ power. “We view this constraint as undesirable,” Citigroup Global Chief Economist Willem Buiter and a colleague, economist Ebrahim Rahbari, wrote in an April 8 research piece. They laid out three ways that central banks could foil cash hoarders: One, abolish paper money. Two, tax paper money. Three, sever the link between paper money and central bank reserves.

Abolishing paper money and forcing people to use electronic accounts could free central banks to lower interest rates as much as they feel necessary while crimping the underground economy, Buiter and Rahbari write: “In our view, the net benefit to society from giving up the anonymity of currency holdings is likely to be positive (including for tax compliance).” Taxing cash, an idea that goes back to German economist Silvio Gesell in 1916, is probably unworkable, the economists conclude: You’d have to stamp bills to show tax had been paid on them. The third idea involves declaring that all wages and prices are set in terms of the official reserve currency—and that paper money is a depreciating asset, almost like a weak foreign currency. That approach, the Citi economists write, “is both practical and likely to be effective.” Last year, Harvard University economist Kenneth Rogoff wrote a paper favoring exploration of “a more proactive strategy for phasing out the use of paper currency.”

Pushing back against the cash-abolition camp is a group of people who want to make cash more convenient, even for large transactions. Cecchetti and co-author Kermit Schoenholtz, of New York University’s Stern School of Business, suggest a “cash reserve account” that would keep people from having to pay for things by sending cash in armored trucks. During the day, funds in the account would be payable just like money in a checking account. But every night they’d be swept into cash held in a vault, sparing the money from the negative interest rate that would apply to money in an ordinary checking account. In a way, physical cash would take on a role similar to that played by gold in an earlier era of banking.

The “War on Cash” Migrates to Switzerland

(Acting Man’s Pater Tenebrarum) – The war on cash is proliferating globally. It appears that the private members of the world’s banking cartels are increasingly joining the fun, even if it means trampling on the rights of their customers.

We just come across a small article in the local European press (courtesy of Dan Popescu), in which a Swiss pension fund manager discusses his plight with the SNB’s bizarre negative interest rate policy. In Switzerland this policy has long ago led to negative deposit rates at the commercial banks as well. The difference to other jurisdictions is however that negative interest rates have become so pronounced, that it is by now worth it to simply withdraw one’s cash and put it into an insured vault.

Having realized this, said pension fund manager, after calculating that he would save at least 25,000 CHF per year on every CHF 10 m. deposit by putting the cash into a vault, told his bank that he was about to make a rather big withdrawal very soon. After all, as a pension fund manager he has a fiduciary duty to his clients, and if he can save money based on a technicality, he has to do it.

A Legally Murky Situation – but Collectivism Wins Out
What happened next is truly stunning. Surely everybody is aware that Switzerland regularly makes it to the top three on the list of countries with the highest degree of economic freedom. At the same time, it has a central bank whose board members are wedded to Keynesian nostrums similar to those of other central banks. This is no wonder, as nowadays, economists are trained in an academic environment that is dripping with the most vicious statism imaginable. As a result, withdrawing one’s cash is evidently regarded as “interference with the SNB’s monetary policy goals”.

One large Swiss bank recently responded to a pension fund’s withdrawal request with a letter stating: “We are sorry, that within the time period specified, no solution corresponding to your expectations could be found.”

Although we all know that fractionally reserved banks literally don’t have the money their customers hold in demand deposits, the contract states clearly that customers may withdraw their funds at any time on demand. The maturity of sight deposits is precisely zero.

Some thoughts

  • A well-run economy operating without cash would require a trustworthy government. That is, the people who know where we are and what we’re buying and selling 24/7 would have to be decent, competent and honest. Otherwise we’re giving near-absolute power to folks who might use it for their own enrichment at our expense. Which is of course to state the blindingly obvious. The fact that power both corrupts and attracts the already corrupt means that the more power we hand the government, the further we push it towards absolute evil. A cashless society would pretty much guarantee a dictatorship in a single generation.
  • If a cashless society is a means to the end of total government control of interest rates, i.e., the price of money, then the resulting deeply-negative rates would distort the pricing signals that make capitalism work. The system would devolve into a centrally-planned malinvestment-fest resembling bigger, more chaotic versions of the past century’s collectivist experiments, all of which crashed and burned in short order.
  • An environment in which cash is illegal and interest rates are negative would be both insanely good and catastrophically bad for gold. Good because the removal of cash leaves only gold and silver as historically-trusted private stores of value. Terrified capital would pour into bullion, sending its relative price through the roof. But then of course it would become an overt (rather than a covert) target of the same forces that made cash illegal. When “the war on gold” begins, the world as we knew it will have already ended.

33 thoughts on "The End Is Near, Part 1: The “War On Cash”"

  1. A cashless society and turning it over to an untrustworthy government or left to the whims of bankers, et al. Is that not here now? We may be using cash but it is as good as the gubbermint and big money say it is. A 0% interest rate for using my deposits in the local bank — is what? Or negative interest? Isn’t negative interest a dollar bill that is worth less in buying power as a result of trade agreements, printing money, etc. As the the stock market — who wants to volunteer facts that show that the NYSE is not aiding big investors and institutions “taking” money from the value of stocks at the expense of little investors? Where is the little guy “manipulating” the price of a stock as a result of computerized trades? If this is not manipulation, please guide me.

  2. The derivatives are going destroy the banking world first before we nationalize the banks, as FDR did, creating the RFC, Reconstruction Finance Corporation, which worked quite well as a Nationalized Bank. Getting the money to work for the real economy is imperative at this point of too big to fail. QE has been a failure. The banks don’t have enough capital to back up the trillions they have in derivatives which means when one goes they all go. To bad we can’t stop this before we have too.

  3. what no one is asking, is who is going to pay for this massive infrastructure that needs to be created globally for a cashless system. also, how is everyone going to react with the banks collecting 2 to 3 percent on each transaction, along with the governments taking 1 to 5 percent fee. think of the income they will generate

  4. “The war on cash is proliferating globally.” Is it coincidental that Islam is proliferating globally while banking is adopting Sharia law even in the United States?

    It’s already illegal in Louisiana to buy and sell used goods for cash.

    “… digital money doesn’t just offer a more personal touch; it also offers a far more secure payment system, especially with the advent of biometric authentication systems.”

    “As the saying goes: you can create a new password many times (for example, if your accounts get hacked), but you can create your biometrics only once. If they’re compromised, they remain compromised. So a payment system based on them would be really cool.”

    (Really cool for the banks and government, they’ll be able to totally control and bleed us at will).

    The “War on Cash” in 10 Spine-Chilling Quotes | Wolf Street

    http://www.wolfstreet.com/ 2015/ 04/ 25/ don-quijones-war-on-cash-quotes-to-cashless-society/

    This is all connected to a MUCH bigger new reality unfolding, and as prophesized, the sooner you start seeing this the better.

    If you consider the current flooding of Islam (the beast) around the world, in top government positions, concurrent banking increasingly becoming Sharia compliant, it’s all connected and it puts a whole different light on the meaning of this:

    Revelation 13:17 | Read whole chapter | See verse in context And that no man might buy or sell, save he that had the mark, or the name of the beast, or the number of his name.

    Here it is happening:

    Revelation 13:12 | Read whole chapter | See verse in context And he exerciseth all the power of the first beast before him, and causeth the earth and them which dwell therein to worship the first beast, whose deadly wound was healed.
    The “deadly wound” refers to the demise of the last Ottoman empire:

    Turkey As The Antichrist Nation Seven Scriptural Proofs – Turkey …

    http://www.vriendenvanisrael.nl/?p=2155

    Remember this? Just 6 days ago:

    Obama and Erdogan to open new mosque together in Maryland http://www.freerepublic.com/focus/news/3281109/posts

    What were you saying?

    “The fact that power both corrupts and attracts the already corrupt means that the more power we hand the government, the further we push it towards absolute evil. A cashless society would pretty much guarantee a dictatorship in a single generation.”

  5. Yikes…… It looks like the old saying I heard when growing up, “Damned if I do, and Damned if I don’t”. The only thing left the working class is civil war if they want to save the profits from their personal labors.

    Remember my friends, the banking cartels do not give a “S” about you. You are only a machine to them, which they manipulate to bring them more profits. This usurpation will only stop when the elite are forced to stop at gun point, because those who wield power will not give it up willingly without a fight.

    Jade Helm 15 is the obvious point of demarcation. The government has already made their intentions evident, as a scare tactic to try and force you to back off because you are supposedly heading into a fight with a larger and more well armed criminal enterprise. Do remember this though, our government hasn’t won a war in 70 years. There is a reason for that, and it is that reason which is their Achilles Heel. Think about it !!!

  6. TPTB aim to maintain the status quo, that is clear. How the denouement/resolution of the unsustainable direction global finance is taking is not clear. To suggest TPTB have a sinister master plan may be giving them way too much credit, unless that plan includes US martial law.

    They appear to have a suite of “tools” a few of which have a limited shelf life and some are gradually reaching their “use by date” (Sorry for the mixed metaphors). Lets take a look at them:

    – False flags (a renewable resource !)

    – Passive/supportive media ( long term asset, no sunset on this)

    – Education systems that do not encourage critical thinking or divergence. ( long term asset, no sunset on this)

    – Government regulation that protects big business and establishes barriers to entry for smaller/medium businesses. (Long term asset and will only be corrected after denouement)

    – Control of the PM markets through paper shorts. PMs form a way of measuring the destruction of paper currencies and so they are locked down, and will be until an exogenous shock to the PM market occurs. There will be no “short squeeze” and a failure to deliver gold will not spark a mainstream frenzy (Apologies to the tin foil crowd) The prices stackers are waitng for won’t happen until a wider financial/military event occurs.

    – Interest rate policy via CBs. NIRP and ZIRP are gradually causing the erosion of the US capital base through the incentive to savers to move out along the risk/yield curve reducing the yield on more and more risky assets. This systemic decay is occurring beneath the surface, is occurring slowly but certainly. This capital decay (or lack of capital formation) could take the long term to surface as an issue and when it does it will be when there is a reversion to mean or serious correction in several asset classes: bonds, equities, property, EM debt (All at once in a liquidation event ?).

    – Debt growth via NIRP and ZIRP. The growth of global debt means the economic growth rates or inflation rates required to manage the debt are continuing to grow. This has a cumulative effect and imagine the growth rates or inflation rates that will be needed to make debt levels sustainable in the next 10-15 years ? It’s a slowly stretching rubber band that will withstand a lot of pressure before breaking.

    Mauldins “Bang” moment ?

    The FED will only raise interest rates if they believe higher rates will “kick the can” further down the road, and longer than ZNIRP. It’s a purely pragmatic decision, not based on the common good, but on systemic longevity.

    – The “Plunge Protection Team’s” management of the Stock market. It will likely to go to PE’s currently unimaginable before correction because ZNIRP has it’s effect in directing capital flows.

    So, in summary things aren’t right and they’re getting worse, decay is occurring from within as global financial systems enjoy a “Free lunch” that will be paid for by everyone some time in the future.

    The thing is that while readers of forums like this represent a “community” that would welcome a financial reset despite the pain it will cause this reset is unlikely to happen soon because of the gradual nature of the internal decay. TPTB just have too good a grip on key variables in the short/medium term. ( Click on Youtube: economic collapse 2010, economic collapse 2011, economic collapse 2012, economic collapse 2013, economic collapse 2014 and now economic collapse 2015. To see what I mean.

    To paraphrase Hemingway: Economic crisis ? Two ways – gradually then suddenly.

  7. Keep stacking….especially sliver. Small bars (1oz) as these will be the “money” after this crazy crap.

  8. No one discusses how, on a whim, anyone in government with power could ‘turn off’ your electronic cash, and you would be rendered incapable of purchasing food, or taking a subway, or pretty much anything else. Political dissident? Your magic money card stops working. Don’t pay a parking ticket? They reach in and take it by threatening to ‘turn you off’

    Talk about ‘ultimate control’!

  9. I’m going to cut to the chase and say now, instead of in conclusion, that I think a “war on cash” would actually be good for gold. Gold could be declared illegal or taxed by anyone accepting it for payment, etc. but I think it’s greatest value would be it’s true store of wealth, and not a currency for minor transactions. A war on cash is just another battle to the bottom monetarily so the time frame is limited. If one can hold gold throughout the chaos I think it would successfully preserve if not increase one’s purchasing power after the dust settles. The value of real estate and equities and bonds all depend upon counter parties and the stability and enforcement of laws and the integrity of society itself and that is not very likely in desperate times, and “the slate” may well be wiped clean in the aftermath.

    That said, my hope is that people oppose the removal of cash. I think they will. Besides the increasing awareness and knowledge via the “internet reformation” which provides people with a more conscious and rational basis for opposition, there is probably an atavistic one as well. If enough people suspect that cash is being removed I think there will be bank runs to get as much as possible before it’s all gone. I can’t see people ignoring this issue like they have so many others. If “it’s the economy stupid” then that means most people are focused on their financial lives, and disallowing cash would cramp a lot of lifestyles. A lot of people deal in cash. Here in Miami it is very common. Very few people on the dole will accept anything else. Immigrants, especially illegals and ‘tweeners, use cash to hide income so they can claim government entitlements. People with “disabilities” work only for cash, as well as food stamp recipients. I hear this goes on all over.

    That may be one plausible reason that governments want to eliminate the black and grey market economies, so that more taxes can be collected. However, the “official” reason will probably be to fight the drug trade, terrorism and human trafficing, etc. – all stuff that most of us have no experience with (partly because they’re bogus and exaggerated.) It might work, but I doubt it because most people know it would not be good for them personally. The government could also claim that since “you” have nothing to hide, why would you care if there is no cash? I doubt that would work either because few people trust the government these days and once cash is gone there will be no getting it back without a revolution.

  10. They are trying to control us,and covering all their mistakes they made printing fiat money which they know is coming to an end,so any which way they will try to coverup their mistakes as the war on cash.

  11. Last time I traveled abroad I had a stop in Canada and some CHF to change, I’m talking about maybe the equivalent of $ 60. They took my ID and wrote number, name, address, the whole shebang! But where the heck can we go?

  12. You are correct, John. Inflation or deflation isn’t the defining driver for gold. Gold is highly correlated with negative interest rates. People will unhappily hold cash if inflation is a bit higher than the money market rate like right now. But once the banks start charging us to store our cash the mood will change. If they make it hard to even take cash out of our accounts then it will be like ringing a bell.

  13. When I get home stateside I plan on selling a few things and will ask for Silver as payment and see what happens. I think this is where this will lead.

    1. you’ll be reported as a suspicious person/potential domestic terrorist and you will also have a tax headache on your hands.

        1. LOL! Well we have to start some where. One way or another it seems all roads lead back to silver or gold.

          1. not really, there are many proposals for a cashless society, at govt level in Canada, US, India, etc. ApplyPay is already here. Buiter is talking about banning cash altogether.

            just google “cashless society” to get an idea of what awaits after the war on gold, the war on truth, and the war on cash.

            Hayek had a proposal for competing currencies, but that’s the last thing the powers that be will allow since that means giving up their Power over the economic lives of the chattel.

  14. We may as well decriminalize pure alcohol production and use it for legal tender, and if things go bad enough we can drink ourselves to death and burn all the bad things to the ground.

  15. Well, the war is already waging here in Panama, no matter where you go if you use a $100.00 or $50.00 you have to fill out a form (painful) and present your ID. I’m sure it will work it’s way down to a $20.00 and below..

    1. Same thing in the Philippines, the banks want to see a passport and all kind of info. So we just went outside the mall and exchanged it.

    2. I would take my money and spent it elsewhere. I am not planning to fill in forms to buy crap of somebody making money on my purchase.

  16. Thanks John for the update and analysis. Things are moving quite rapidly and few few are paying attention. Thanks for striving to keep those of us who are up to speed!

    Best Regards!

    Stu

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