Wednesday, May 20, 2015

The war on cash

I'm sure readers have been aware of the growing number of calls from statist economists and financiers to do away with cash altogether.  In recent weeks, they include the following:

The real reason for the onslaught on cash, of course, is the desire by politicians and financiers to exert greater control over their citizens subjects.  Without cash, we can be forced to use our money as they see fit, or - if we don't - they'll confiscate it, tax it, devalue it, or do anything else they please.  With our money reduced to binary ones and zeroes in a computer system, it'll no longer be "our" money at all - it'll be theirs.  The "shadow economy", almost always run on a cash and/or barter basis, will take a heavy hit and be wiped out in many cases, forcing those currently making a living (no matter how precarious) outside the formal economy to be drawn into the latter, or starve.  It's not about the money - it's about control.  It always is.

The last article I cited above provides some very interesting reading to explain why cash is so unpopular with financiers.  Here's an excerpt.

Cash is a MAJOR problem for the Central Banks.

The reason for this concerns the actual structure of the financial system. As I’ve outlined previously, that structure is as follows:

  1. The total currency (actual cash in the form of bills and coins) in the US financial system is a little over $1.36 trillion.
  2. When you include digital money sitting in short-term accounts and long-term accounts then you’re talking about roughly $10 trillion in “money” in the financial system.
  3. In contrast, the money in the US stock market (equity shares in publicly traded companies) is over $20 trillion in size.
  4. The US bond market  (money that has been lent to corporations, municipal Governments, State Governments, and the Federal Government) is almost twice this at $38 trillion.
  5. Total Credit Market Instruments (mortgages, collateralized debt obligations, junk bonds, commercial paper and other digitally-based “money” that is based on debt) is even larger - $58.7 trillion.
  6. Unregulated over the counter derivatives traded between the big banks and corporations is north of $220 trillion.
When looking over these data points, the first thing that jumps out at the viewer is that the vast bulk of “money” in the system is in the form of digital loans or credit (non-physical debt).

Put another way, actual physical money or cash (as in bills or coins you can hold in your hand) comprises less than 1% of the “money” in the financial system.

As far as the Central Banks are concerned, this is a good thing because if investors/depositors were ever to try and convert even a small portion of this “wealth” into actual physical bills, the system would implode (there simply is not enough actual cash).

. . .

In this scenario, when the 2008 Crisis hit, one of the biggest problems for the Central Banks was to stop investors from fleeing digital wealth for the comfort of physical cash. Indeed, the actual “thing” that almost caused the financial system to collapse was when depositors attempted to pull $500 billion out of money market funds ... When all of this happened, the global Central Banks realized that their worst nightmare could in fact become a reality: that if a significant percentage of investors/ depositors ever tried to convert their “wealth” into cash (particularly physical cash) the whole system would implode.

There's more at the link.  You really should click over and read the whole thing.  It makes the situation very clear.

(BTW:  That $1.36 trillion figure for 'total currency in the US financial system' isn't altogether correct.  AFAIK, that's the amount of US currency estimated to be in circulation worldwide.  A great deal of that is squirreled away under mattresses or in hidden 'stashes' by citizens of other countries whose currencies aren't particularly stable, or accumulated by criminals who can't put it in banks for fear that it'll be confiscated.  This is why you see regular news reports (such as this one) of huge amounts of cash being confiscated from criminal gangs.  I'd guess the amount of cash actually circulating inside the borders of the USA is a lot less than $1.36 trillion . . . but no-one knows for sure.)

I hope we can stop the politicians and banksters from outlawing cash, although I'm not sure whether we'll be successful in the longer term.  Until then, I think it's an excellent idea to keep at least one month's expenditure handy in the form of cash;  two months, if you can afford it.  I also recommend stocking up on assets you'll find useful in a "cash crunch", when cash or credit facilities may not be available to buy what you need and you'll have to revert to barter (i.e. swapping what you have for what you need).  Ammunition and firearms are almost always valuable barter items (and can help to defend what you don't want to barter!).  So are tools, hardware supplies, liquor (particularly in the form of readily-tradeable miniatures), essential necessities such as feminine hygiene items, soap, etc., and other goods.  Gold and silver?  I'm not so sure.  I can't use them for my everyday needs, and it's almost impossible to be sure whether they're real or counterfeit.  I might hold some gold and silver as a store of value, but not primarily as a means of exchange.  YMMV, of course.



HeroHog said...

Louisiana passed a law that forbids many cash transactions!

"With the passage of House Bill 195 into law, the State of Louisiana has banned the use of cash in all transactions involving secondhand goods. State representative Ricky Hardy, a co-author of the bill, claims that the bill targets criminals who traffic in stolen goods. According to Hardy, “It’s a mechanism to be used so the police department has something to go on and have a lead.” The bill prohibits cash transactions by "secondhand dealers," defined to include garage sales, flea markets, resellers of specialty items, and even non-profit resellers like Goodwill. Curiously, it specifically exempts pawnbrokers from the ban. But of course, pawn shops--and not rented stalls at local church flea markets--are notorious as places that criminals frequent to convert stolen goods into quick cash. So what gives? Are the authors of the bill and those who voted for it ignoramuses--or are they deliberately obscuring the real purpose of the bill?"

Jacob Tito said...

I think pre 1965 dimes may become a underground currency in a cashless society. They are of low enough value that it is not really worth counterfeiting them. And there are enough of them around to serve that function at least for a time. As for gold and silver it is possible to test in a variety of ways, my local coin shop has demonstrated several to me.

Timbo said...

What about Bitcoins or something similar?