The Greatest Threat To Your Financial Freedom

Includes: UDN, USDU, UUP
by: Jim Mosquera


Is there a War on Cash?

Should we be concerned if there is?

Cash is king.

Last month, I released the third in my series of Escaping Oz books called "An Observer's Reflections." The book is written in short article format. One of the articles dealt with the War On Cash. The public is unaware of this undeclared war and its ramifications. What follows is an excerpt of that article.

"A global agreement to stop issuing high denomination notes would also show that the global financial groupings can stand up against 'big money' and for the interests of ordinary citizens."

— Larry Summers, Harvard professor and former Secretary of the Treasury

Mr. Summers isn't the only person considering cash a relic of the past. There are many commercial establishments where a quick phone swipe settles your bill. Even a credit card is so 2016. Add the prefix "War On" to cash and you'll see what I mean. Whenever we join "War On" to another word, it can often become a perpetual and costly adventure (Drugs, Terror, Poverty, Hunger, you fill in the blank). The War On Cash has its own subtleties since your money is not going to be whisked away by Treasury agents. Your money will still be there, just in another form. Should we care about a War On Cash?

A War On Cash would trap your commercial transactions within the financial system. There would be a record of every single economic transaction. The standard argument for this war is that only racketeers, extortionists, drug dealers, and terrorists deal in cash. Raise your hand if you support those scoundrels. Others argue that eliminating cash would curtail the underground economy and thus promote better tax collection. Underground economies are hard to eliminate - where there's a will, there's a way.

If we eliminated cash, it would be easier for the Wizards to force the economy towards negative interest rates. Why would countries impose negative rates? They'd rather you spend money instead of saving to boost the economy. Countries imposing negative rates have seen depositors withdraw their money, in cash, and store it at home. Home safes sold like hotcakes in Japan when they went to negative rates. Cash wouldn't allow the policymakers to impose negative rates. You might see people with pitchforks in the streets if negative rates came to a bank near you.

Consider another scenario in the possible War on Cash. Hypothetically, the Treasury declares all cash illegal. They allow everyone 60 days to return cash to their bank. They could impose limits on the exchange. How would they handle someone wanting to exchange above the limit? What if you had to prove the cash's origin, or prove you didn't steal it? What if a person had no bank account? The world got a look at these exchanges recently in India. They didn't outlaw cash, instead, they exchanged one paper note for another. It didn't go well. No doubt central banks and governments worldwide took notice.

Seen any stories on hacking lately? Bangladesh suffered a $100 million loss through a hack in the SWIFT check-clearing system. Hackers fleeced an Ecuadorean bank for $12 million. How many people suffer identity theft each year? There must be a fair amount of identity theft occurring since there's a cottage industry built around protecting people from it. Heard about any bank bail-ins? A bail-in is when banks use depositor money to save the bank. Depositors end up with bank equity in exchange for their funds. That equity, of course, is not covered by the FDIC. Not only do you lose your money, you also lose your financial protection. Bail-ins have already occurred in Europe. It's much easier to execute a bail-in when money can't escape the financial system. Those with cash are able to survive these real-world events.

Another facet of this war involves forced payment for commercial transactions. If you made $50,000 per year, the authorities would mandate a certain percentage of your payments occur digitally. Let's suppose that percentage was 10%. That means that over the course of the year, you'd have to prove $5,000 of payments. What about those electing to ignore this rule? They would be subject to a penalty. You might argue that such a low threshold (10%) would be easy to manage. But what if larger payments like rent, utilities, and loans were disqualified? Consumers would spend on unwanted goods and services to avoid penalties. The minimum percentage would be subject to adjustment based on how the local economy performed. Think this can't happen? It's happening in Greece.

Follow me into the future. Cash is illegal. The public uses a spending card, either as standalone plastic, a phone application, or a subcutaneous implant. The system traps all transactions becoming fertile ground for data mining sold to the highest bidder. Every aspect of your personal life is for sale. Talk about target marketing.

Specific businesses receive preferential treatment or conversely, businesses in the authorities' crosshairs could be targeted for reduced spending. Unfavorable political commentary could target someone or some industry for altered spending by the public. Bureaucrats could decide you bought too much beer this week and control your purchases in that manner. These aren't predictions, though the mechanisms for such malfeasance would be in place.

We have the blueprint for this war. The War On Cash will start by convincing the public to eliminate high denomination bills. There will be further appeal when the War on Cash gets linked to the War on ___. If the authorities can also convince the public that cash is unnecessary, cash levels will fall organically. Then, if they penalize the public for not using electronic payment, it'll be a small step before they vanquish cash. Cash could die slowly on its own.

A cashless economy has a sexy ring to it until you consider the risks. Don't forget, those green pieces of paper in your wallet and purse say they are legal tender for all debts public and private. Does that mean in the future, your phone will be legal tender? What role will cryptocurrencies serve (there's another article on this topic)?

"In principle, cutting interest rates below zero ought to stimulate consumption and investment in the same way as normal monetary policy. Unfortunately, the existence of cash gums up the works."

— Ken Rogoff

I'm not drawing any specific conclusions about the US dollar's valuation in the article. That said, much of the world's debt is denominated in dollars so a debt crisis will spur demand for greenbacks. During the next crisis and accompanying economic slowdown, cash will be king, not just in digital form but also the kind you can hold in your hand.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.