Why Is Cash Suddenly Evil?

Written By: Tom Hankes  |  Posted: Tuesday, March 22nd, 2016

I think I've read at least fifty articles from various spokespersons hinting that it would be a great idea to eliminate cash, or at least the larger denominations like the $100 bill or, in Europe, the 500 Euro note. A cornered animal is dangerous; in this case the cornered animals are the Federal Reserve and the European Union. They are desperate and the elites they report to are getting nervous about losses - their own. And they want you to bail them out. Retired folks hoping to live off nice bond coupons have been robbed for years. Ultra-low rates lured them into other very dangerous investments like junk bonds, poor annuities, or dividend paying stocks. The Fed has made one policy mistake after another by marching to the dictates of Keynesian economics and then they attempted to correct them with even worse policy mistakes. Soon we'll be seeing their next arsenal of mistakes.

Five years ago in this paper, I wrote about "exchange controls", also known as "capital controls". Capital controls is all about closing off escape routes. I could see an amorphous threat coming, but had no idea how it would emerge. It's now starting to come more into focus, and you won't like it. You see, the have a big problem and they've tasked the Fed with the solution. Financial assets, mostly owned by the elites, are way overpriced but they are almost out of tricks to support the lofty prices - except for one they have yet to try: shrinking the currency in circulation. You, the depositor, are going to save their bacon. If available currency shrinks and you don't want to the bank to charge you negative interest rates, you will be forced to spend your money in the economy or pour into it the most overpriced markets in years. That is, you have to spend using checks, debit or credit cards, or cashier checks but perhaps using a lot less currency. Savings accounts will be discouraged or actually cost money.

The $100 bill represents about 2/3 of all the US currency in circulation. If this bill is eliminated or made illegal, it will be much tougher to get cash and use cash to buy things. Elimination of currency is already happening in Europe. Remember, only a tiny fraction of your bank account is backed by actual currency, so if you decide to cash out, it will be difficult, maybe impossible, even if you are at the front of the line. Your bank doesn't have it, or it will take them days or weeks to get it if a large enough account.

A survey was recently taken in sixteen countries and depositors were asked what they would do if the $500 Euro note was eliminated. 60-80% of depositors said they would withdraw their money. The excuses for eliminating cash are already out there: they are: 1) to fight crime 2) to fight terrorism 3) to reduce the expense of handling cash. I wish somebody would explain to me how this will eliminate crime and terrorism. Think about what elimination of cash could mean in your daily living. What you now purchase with cash will be bought with debit or credit cards, so even more of your privacy is gone. In other words, little or no physical cash means the black market (which really is the free market) is pretty much eliminated. It moves control of your money away from you and to some banking bureaucracy, likely at the Federal level. Worst case, they could potentially limit or control what products you buy, what vendors you use, how much you can spend at any given time, or how much you can withdraw daily/weekly etc. With software they could punish vendors who sell products they don't like by preventing purchases (think gun sellers for example).

After currency is mostly eliminated, then phase II will probably kick in - negative interest rates. It's already happening. Some 500 million people on the globe live in a negative interest rate environment. "NIRP" means you will pay the bank for the privilege of keeping your money there. How insane is that? The details about how this would work are still secret, we just don't know. Something seems really weird here. Either the stock/bond prices remain supported or the banks stay solvent? Can both be achieved? I can't figure it out. But clearly something is in the wind.

I could potentially see the outlawing of private vaults (which is how banking originated in the first place) to store cash as a deterrent to withdrawing cash, maybe imposing limitations on how much cash you can move to overseas investments. The list will grow as elites panic. Limitations exist now to prevent or slow down investor withdrawals from declining bond funds and money market funds. The Fed is implementing their final steps to prop up the fiscal corpse. And of course they are more totalitarian measures.

It would be wise to think this through soon. The choices might be difficult. Minimize your exposure in any way you can.

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