Tag Archives: war on cash

The War on Cash: Implications for Gold & Silver

Government bureaucrats, central bankers, and Wall Street executives all have reasons for ridding the masses of their cash. It should be no surprise to anyone that they are working together to achieve that goal. But why? The self interest of bureaucrats is one factor, they don?t like privacy. They dream of the day when they can access all your financial information with just a few keystrokes. The knowledge will help them more aggressively tax and regulate.

Central bankers have a different motivation. Their policy of preference is NIRP?.Negative Interest Rate Policy. Bankers in Switzerland, Sweden, Denmark and Japan have already launched NIRP. Their counterparts elsewhere, including the U.S., are planning for it. The plan is to create an environment where customers must either spend their savings or pay their bank interest to hold deposits. For this to work the government must coerce the masses into turning their cash into electronic money. Otherwise everyone will just withdraw their cash over time and literally hide it under their mattresses. When you have to pay a bank say, 1% to access your money, holding physical cash gives you a better return (0% vs. ?1%). Those of you convinced that the Fed is set on higher long term interest rates should note the following: History shows that economic downturns/recessions lead to lower interest rates. With current rates near historic lows it?s not difficult to imagine a negative interest rate scenario. Already, U.S. banks are making it more difficult to withdraw cash. Most banks only keep nominal amounts of cash on hand and then make you jump thru hoops if you attempt to withdraw any quantity of consequence.

Bankers are drooling over the profit potential for all transactions to be done electronically. They stand to rake in processing fees every time you use a card or cell phone for purchases as opposed to using cash. In a cashless society bankers will gain a larger customer base, as the public will no longer have the option of holding currency outside the banking system.

The public needs to remember the true reasons that the powers that be want to eliminate cash from circulation. You can be assured that politicians and bankers won?t be truthful as to their reasons for eliminating cash. Wall Street wants you to focus on the convenience of electronic payments. Bureaucrats are preoccupied with stigmatizing cash as a tool for drug dealers, tax cheats and terrorists.

If the public ultimately loses the ?War on Cash? here are some likely ramifications for precious metals investors. Negative interest rates should drive significant demand for gold and silver. NIRP is a testament to the fact that central bankers will try literally anything to produce inflation. Such a controversial policy should set off alarm bells for anyone who isn?t concerned about inflation, or who may be betting on deflation. If central bankers want inflation, they have the power to create it. As always, inflation fears will drive demand for physical bullion.

While politicians and bureaucrats can theoretically win the ?War on Cash? because they have complete control over the issuance of paper money, they cannot win a war on bullion. Physical bullion is private and ?under the radar?, a nightmare for regulators.

If politicians attempt to tax and regulate precious metals they are likely doomed to fail. Gold confiscation had only marginal success in 1933 when the U.S. population consisted of approximately 85 million obedient patriots. A similar confiscation attempt today in our country of 325 million diverse individuals would likely be a logistical nightmare at best and chaos at worse.

Politicians and their allies in the banking industry aren?t likely to eliminate the masses desire, or ability, to transact privately using barter instruments such as gold and silver bullion. The drive to eliminate cash will inevitably push the public into cash alternatives, most notably precious metals.

The War on Paper Money Part 2: India Recalls 500 and 1000 Rupee Notes

Many loyal customers of Jack Hunt and followers of this blog may recall our article from April of this year titled War on Cash. That article dealt with the potential for the future abolition of currency, both in the United States and abroad.

The speculative nature of that blog has suddenly become far more credible with the recent startling news from India.

India Eliminates High-Value Rupee Notes

Indian Prime Minister Narendra Modi announced a few weeks ago that 500 ($7 USD) and 1000 ($14 USD) rupee banknotes will be withdrawn from circulation, allegedly as part of a crackdown on rampant corruption and counterfeit currency.

As of midnight Tuesday November 1st, the country?s two largest banknotes were no longer considered legal tender after Prime Minister Modi?s surprise announcement just hours before.

Citizens will have 50 days to exchange the old money for new at banks, but only by providing ironclad identification. Individuals who deposit over 250,000 rupees ($3,700) face severe tax penalties starting at a rate 45% of the deposit value.

Impact of Removing High-Value Notes

The impact of such a policy becomes even more significant when one considers that almost 50% of Indians do not hold a bank account and over 80% of Indian transactions are conducted in cash including for large purchases like cars or a homes. It?s not uncommon to Indians to pay over 1-2 Million Rupees for a home in India.

The surprise step is purportedly designed to bring several billion dollars of cash in unaccounted wealth back into the mainstream economy. This move will also, allegedly, hit the finances of Islamic extremists targeting India who are suspected of using fake 1000 rupee notes to fund terrorism.

While abolishing these notes might reduce crime and tax evasion perpetrated by a few, the removal of the high denomination notes restricts economic freedom of all Indians.

Regardless of your country of citizenship, the more one is required to use a bank account the more the banks (and its partner the government) know about where and how depositors spend their money. Ultimately, it?s another form of a government stealing liberty from its citizens.

Could the ECB Kill the 500 Euro Note?

It is also reported that the European Central Bank (ECB) has begun planning the demise of the 500 EURO note, the one banknote which not only makes up 30% of total European circulating currency by value, but also provides the most cost efficient alternative to Europe?s effective money “tax,” better known as NIRP (Negative Interest Rate Policy). The prospects for NIRP to expand worldwide including to the U.S. have also been highlighted in previous blogs at this site.

Former U.S. Treasury Secretary, Fed Chairman wannabe and Harvard alum Lawrence Summers recently wrote a dissertation urging countries around the world to stop issuing high denomination banknotes, allegedly to deter crime and corruption.

Summers was quoted as saying, ?Even better than eliminating the 500 Euro note would be a global agreement to stop issuing notes worth more than, say, $50.? In another recent blog titled ?It?s time to kill the $100 bill,” Secretary Summers made it clear that the elimination of paper money is only in its infancy.

Elimination of Cash a Real Possibility

Not surprisingly, just like in Europe and India, the argument is that eliminating high denomination U.S. currency will somehow eradicate crime. Quoting the former Secretary of the Treasury, ?a moratorium on high denomination notes will make the world a better place.?

If the Fed heeds the advice of Mr. Summers and EU Central Bank president Mario Draghi, or follows the actions of Indian Prime Minister Modi, eliminating all currency may be in our future. Currency is the only paper based alternative store of wealth to a negative interest rate digitalized future that is potentially in store for all of us.

That being said, what would be left as an alternative to a currency (or lack thereof) related to a potential economic collapse? Gold and silver, of course. Precious metals have been the one true tangible currency for thousands of years.