What the ‘War on Cash’ Means for You

I just got back from Florida.  It’s a great place — sunny, friendly, and relaxing.

The coffee is terrible, though. I guess I shouldn’t have been surprised. The US isn’t known for its coffee.

The US is better known for its technology. Unlike Australia, free Wi-Fi is everywhere — and it works. Moreover, I didn’t bring any cash for my visit — I didn’t need to. I used my credit card for every purchase, eliminating all the fees and charges I would’ve had to pay swapping Aussie dollars for US dollars.

Of course, it was my decision not to use physical cash. Electronic payment is a fine option to have. However, sometime sooner than you may believe, this may no longer be an option. Electronic transactions will be the only way we are allowed to pay for anything.

Around the world, governments are already well on their way to eliminating cash by force and restricting your freedom of choice.

Gasp! Why would our benevolent leaders possibly do that?

Understanding the war on cash

As you know, the world is at peak debt. That’s one of the underlying reasons behind the ‘war on cash’.

The world has added around US$60 trillion of debt since 2007, pushing the global debt pile to nearly US$230 trillion by December 2014. That’s almost three and a half times the size of the world economy. And that figure takes us only to 2014; we don’t yet have fresh debt tallies from last year…or this year.

There’s probably a reason for that.

The collective balance-sheets of the six most active central banks (the Federal Reserve, Bank of Japan, European Central Bank, Swiss National Bank, Bank of England and People’s Bank of China) have grown from around US$3 trillion in 2002 to more than US$18 trillion today, according to Pimco, a global bond fund group.

The global financial system is more dangerous than any time in history. To think, there’s roughly US$13 trillion of negative yielding bonds world-wide.

I’d like to know who is crazy enough to buy these bonds.

Governments are bankrupt around the world; the central banks are out of ammunition. If history is any guide, governments will soon extend the maturity dates, delay interest payments, or default entirely on their national debts.

Of course, career politicians are doing everything they can to postpone this event.

Aggressively hiking taxes is the number one policy to fund their ever-growing list of social promises. ‘Robbing’ the working class to pay for their mistakes is the only solution they have.

Unfortunately, this tactic — which has failed multiple times throughout history — has a direct correlation to lower economic growth. The less money in your pocket, the less you will spend on things which could stimulate the economy. It’s common sense stuff…you would think.

The war on cash is a fairly new tactic for governments get their hands on more of your money. The mainstream media have supported the war on cash every step of the way — irritating, yet hardly surprising. I’ve read articles lately about how cash is ‘dirty’. Cash is ‘cumbersome’. No one uses it anymore, anyhow, so let’s just get rid of it!

In my view, the mainstream media is little more than a mouthpiece for the government.

And the government wants you to believe that eliminating cash makes sense. That it will be easier for the economy to function. That without paper money, criminals will have to use banks, greatly increasing the chance of detection.

Of course, that’s all smoke and mirrors. Criminals always find a way to exploit the legal system. If the government does succeed in eliminating cash, it’s you and me who will lose our freedoms. Rest assured, the criminal class will find suitable alternatives to barter with. Precious metals come to mind. So do a host of more unsavoury items and services.

Make no mistake, the war on cash is an effort for government to take total control of your money. And it will enable them to track your spending around the world. Forget about slipping the babysitter an extra $20 for staying late. Or tipping the taxi driver on your vacation to Fiji $10 for carrying your bags. The government will want its share.

In the government’s eyes, what is yours is theirs.

Here comes the war on cash

The war on cash is largely flying beneath the radar, yet it is rapidly transforming the world. Physical money is becoming an endangered species. According to Bloomberg on 15 November:

‘India is withdrawing a lot of cash: all its 500-rupee ($7.40) and 1,000-rupee bills, to be precise. People have 50 days to switch the roughly 23.2 billion high-denomination notes in circulation at banks and post offices. It’s part of a move by Prime Minister Narendra Modi to crack down on corruption, unaccounted money and counterfeit currency.  For now, though, the currency crush is producing long lines, public anger and the risk of an economic slowdown.’

Australia is rumoured to be the next country to abandon notes. Will it be the $100 bill?

Our government already argues that no one uses the large denomination anyway. The majority will probably ‘nod and agree’, thinking that the $100 bill is a barbarous relic. This, unfortunately, is just the start folks. Our kids and grandkids will most likely have no understanding of physical money and the freedom we once had to spend it anonymously.

Importantly — for governments — moving to digital currencies means that governments and banks will be interlinked. These institutions will have direct control over the economy and the people who make up that economy.

Free market, anyone? No…I didn’t think so.

Digital money is far easier to manipulate. After all, you’ll have no choice but to have all your money in the bank. There won’t be a way to withdraw it.

In fact, the word ‘withdraw’ will make no sense anymore. Sure, you can transfer your ‘money’ to someone else. But you can never hold onto it again. Never actually have control over the fruits of your hard earned labour. That fruit is now just a bunch of electrons under the control of…you guessed it…the government.

Now I’ve saved the best for last — bail-ins (which is a tax on bank deposits), deposit freezes and negative interest rates. Once all of our money is digital, there can be no runs on the banks. Even if you see the default coming, you won’t be able to remove your money before the bail-in strips you of a chunk of your savings. There won’t be an emergency cash stash in your sock drawer. (That’s not where I keep mine, by the way!)

And remember the US$13 trillion of negative yielding bonds I mentioned earlier? I said you’d have to be crazy to invest in these. Well guess what? Once our physical cash is gone, we’ll all be receiving negative interest.

What, you don’t like that? Do you want to move your funds to another bank? Go ahead. They’re all paying negative rates.

The way I see it, this is more than a slippery slope. Once we go down this path there is no turning back. My colleague and our in-house global strategist, Jim Rickards, has been onto this story for some time. And he has a number of core strategies to protect your assets from the coming wealth grab. You can find out more about that here.


Jason Stevenson,
Resources Analyst

PS: The stock market is already ‘electronic currency’. As cash gets eliminated, I expect to see a tremendous stock bull market. With forced negative interest rates and the prospect of bail-ins, people will want to move their money away from the banking system and into the stock market. If you’re looking for what I believe are the best ways to profit, check out Resource Speculator here.

Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

Money Morning Australia is published by Fat Tail Investment Research, an independent financial publisher based in Melbourne, Australia. As an Australian financial services license holder we are subject to the regulations and laws of Corporations Act and Financial Services Act.

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