The War On Cash: Officially Sanctioned Theft

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

While the benefits to banks and governments of banning physical cash are self-evident, there are downsides to the real economy and to household resilience.

You've probably read that there is a war on cash being waged on various fronts around the world. What exactly does a war on cash mean?
 
It means governments are limiting the use of cash and a variety of official-mouthpiece economists are calling for the outright abolition of cash. Authorities are both restricting the amount of cash that can be withdrawn from banks, and limiting what can be purchased with cash.
 
These limits are broadly called capital controls.
 
The War On Cash: Why Now?
 
Why are governments suddenly acting as if cash money is a bad thing that must be severely limited or eliminated?
 
Before we get to that, let’s distinguish between physical cash—currency and coins in your possession—and digital cash in the bank. The difference is self-evident: cash in hand cannot be confiscated by a “bail-in” (i.e. officially sanctioned theft) in which the government or bank expropriates a percentage of cash deposited in the bank.  Cash in hand cannot be chipped away by negative interest rates or fees like cash held in a bank.
 
Cash in the bank cannot be withdrawn in a financial emergency that shutters the banks, i.e. a bank holiday.
 
When pundits suggest cash is “obsolete,” they mean physical paper money and coins, not cash in a bank. Cash in the bank is perfectly fine with the government and its well-paid yes-men (paging Mr. Rogoff and Mr. Buiter) because this cash can be expropriated by either “bail-ins” or by negative interest rates. 
 
Mr. Buiter, for example, recently opined that the spot of bother in 2008-09 (the Global Financial Meltdown) could have been avoided if banks had only charged a 6% negative interest rate on cash: in effect, taking 6% of the depositor’s cash to force everyone to spend what cash they might have.
 
Both cash in hand and cash in the bank are subject to one favored method of expropriation, inflation. Inflation—the single most cherished goal of every central bank—steals purchasing power from physical cash and digital cash alike. Inflation punishes holders of cash and benefits those with debt, as debt becomes cheaper to service.
 
The beneficial effect of inflation on debt has been in play for decades, so it can’t be the cause of governments’ recent interest in eliminating physical cash.
 
So now we return to the question: Why are governments suddenly declaring war on physical cash, the oldest officially issued form of money?
 
The first reason: physical cash has the potential to evade both taxes as well as officially sanctioned theft via bail-ins and negative interest rates. In short, physical cash is extremely difficult for governments to steal.
 
Some of you may find the word theft harsh or even offensive. But we must differentiate between taxes—which are levied to pay for the state’s programs that in principle benefit all citizens—and bail-ins, i.e. the taking of depositors’ cash to bail out banks that became insolvent through the actions of the banks’ management, not the actions of depositors.
 
Bail-ins are theft, pure and simple.  Since the government enforces the taking, it is officially sanctioned theft, but theft nonetheless.
 
Negative interest rates are another form of officially sanctioned theft.  In a world without the financial repression of zero-interest rates (ZIRP—central banks’ most beloved policy), lenders would charge borrowers enough interest to pay depositors for the use of their cash and earn the lender a profit.
 
If borrowers are paying interest, negative interest rates are theft, pure and simple.
 
Why are governments suddenly so keen to ban physical cash? The answer appears to be that the banks and government authorities are anticipating bail-ins, steeply negative interest rates and hefty fees on cash, and they want to close any opening regular depositors might have to escape these forms of officially sanctioned theft.  The escape from bail-ins and fees on cash deposits is physical cash, and hence the sudden flurry of calls to eliminate cash as a relic of a bygone age—that is, an age when commoners had some way to safeguard their money from bail-ins and bankers’ control.
 
Forcing Those With Cash To Spend Or Gamble Their Cash
 
Negative interest rates (and fees on cash, which are equivalently punitive to savers) raise another question: why are governments suddenly obsessed with forcing owners of cash to either spend it or gamble it in the financial-market casinos?
 
The conventional answer voiced by Mr. Buiter is that recession and credit contraction result from households and enterprises hoarding cash instead of spending it.  The solution to recession is thus to force all those stingy cash hoarders to spend their money.
 
There are three enormous flaws in this thinking.
 
One is that households and businesses have cash to hoard.  The reality is the bottom 90% of households have less income now than they did 15 years ago, which means their spending has declined not from hoarding but from declining income.
 
While Corporate America has basked in the glory of sharply rising profits, small business has not prospered in the same fashion. Indeed, by some measures, small business has been in a 6-year recession.
 
The bottom 90% has less income and faces higher living expenses, so only the top slice of households has any substantial cash.  This top slice may see few safe opportunities to invest their savings, so they choose to keep their savings in cash rather than gamble it in a rigged casino (i.e. the stock market).
 
The second flaw is that hoarding cash is the only rational, prudent response in an era of financial repression and economic insecurity. What central banks are demanding--that we spend every penny of our earnings rather than save some for investments we control or emergencies—is counter to our best interests.
 
This leads to the third flaw: capital -- which begins its life as savings -- is the foundation of capitalism. If you attack savings as a scourge, you are attacking capitalism and upward mobility, for only those who save capital can invest it to build wealth. By attacking cash, the central banks and governments are attacking capital and upward mobility.
 
Those who already own the majority of productive assets are able to borrow essentially unlimited sums at near-zero interest rates, which they can use to buy more productive assets, while everyone else--the bottom 99.5%--is reduced to consumer-serfdom: you are not supposed to accumulate productive capital, you are supposed to spend every penny you earn on interest payments, goods and services.
 
This inversion of capitalism dooms an economy to all the ills we are experiencing in abundance: rising income inequality, reduced opportunities for entrepreneurship, rising debt burdens and a short-term perspective that voids the longer-term planning required to build sustainable productivity and wealth.
 
Physical Cash: Only $1.36 Trillion
 
According to the Federal Reserve, total outstanding physical cash amounts to $1.36 trillion.
 
Given that a substantial amount of this cash is held overseas, physical cash is a tiny part of the domestic economy and the nation’s total assets. For context: the U.S. economy is $17.5 trillion, total financial assets of households and nonprofit organizations total $68 trillion, base money is around $4 trillion, and total money (currency in circulation and demand deposits) is over $10 trillion (source).
 
Given the relatively modest quantity of physical cash, claims that eliminating it will boost the economy ring hollow.
 
Following the principle of cui bono—to whose benefit?--let’s ask: What are the benefits of eliminating physical cash to banks and the government?
 
Benefits To Banks And The Government Of Eliminating Physical Cash
 
The benefits to banks and governments by eliminating cash are self-evident:
  1. Every financial transaction can be taxed
  2. Every financial transaction can be charged a fee
  3. Bank runs are eliminated
In fractional reserve systems such as ours, banks are only required to hold a fraction of their assets in cash.  Thus a bank might only have 1% of its assets in cash. If customers fear the bank might be insolvent, they crowd the bank and demand their deposits in physical cash. The bank quickly runs out of physical cash and closes its doors, further fueling a panic.
 
The federal government began insuring deposits after the Great Depression triggered the collapse of hundreds of banks, and that guarantee limited bank runs, as depositors no longer needed to fear a bank closing would mean their money on deposit was lost.
 
But since people could conceivably sense a disturbance in the Financial Force and decide to turn digital cash into physical cash as a precaution, eliminating physical cash also eliminates the possibility of bank runs, as there will be no form of cash that isn’t controlled by banks.
 
While the benefits to banks and governments of banning physical cash are self-evident, there are downsides to the real economy and to household resilience.
 
In Part 2: What To Do With Your Cash Savings, we'll look at the most influential forces in play in this war, and consider strategies for preserving purchasing power, avoiding bail-ins, fees and other threats to cash savings.
 

Click here to read Part 2 of this report  (free executive summary, enrollment required for full access)

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HonkyShogun's picture
HonkyShogun (not verified) Jun 13, 2015 9:18 PM

Then I'll be about a bartering motherfucker.

Captain Debtcrash's picture
Captain Debtcrash (not verified) HonkyShogun Jun 13, 2015 9:30 PM

They want to ban cash because they have run out of rope.  The zero lower bound is the end of the Keynesian experiment unless they can push rates significantly negative.  Cash prevents this so instead of admitting defeat like any rational person, the Keynesian powers that be just want to change the rules again and ban cash.  Society has forgotten the dangers of the banking system with the death of those who where adults during the great depression.  They understood the freedom physical cash afforded, and used that freedom for much of their lives. 

 

Even if they do ban cash and push rates significantly negative it will only exacerbate the current bubbles and make them super bubbles, explained here.   

NoDebt's picture

That's exactly right.  Banning cash is Keynesian end point desperation.

MonetaryApostate's picture

The system is failing because the system is corrupt, I've been teaching this stuff for years now, and I applaud this well written article, I'm glad someone is playing the guard dog for the sheep, because the foxes are most defnitely going to bail in those banks & inflation is likely going to continue to soar (worldwide)...

 

We are at a unique connundrum, obviously the elite are expecting huge pushback (e.g. Jade Helm), and I'm afraid the worst has yet to surface..

http://galeinnes.blogspot.com/2014/08/seeing-agendas.html

 

All I have left to say is, if you don't want to become a victim America, it's high time you start COLLABORATING....

https://youtu.be/Glny4jSciVI?t=66

Al Gophilia's picture

"Since 1971, the banks don't need your savings." Robert Kyosaki.

Correct, they just need your servility, your labour.

Welcome aboard, now shackle yourself to an oar (job) and start contributing.

Manthong's picture

"Those who already own the majority of productive assets are able to borrow essentially unlimited sums at near-zero interest rates, which they can use to buy more productive assets, while everyone else--the bottom 99.5%--is reduced to consumer-serfdom"

You load sixteen tons, and what do you get
Another day older and deeper in debt
Saint Peter don't you call me 'cause I can't go
I owe my soul to the company store

https://www.youtube.com/watch?v=jIfu2A0ezq0

 

chumbawamba's picture

I like how Charlie tries to play bail-ins off of taxes, as if taxes aren't also legalized theft.  Income tax does not go towards any programs.  Government programs are paid for through other taxes, fees and assessments the citizen slave pays.  Income taxes go to the international banksters for providing you with the means to transact in their banking systems.  You are taxed on your income for your use of Federal Reserve Notes and the Federal Reserve System.

I am Chumbawamba.

the kings whore's picture

Less cash equals deflation.  More bad news for the gold bugs.  King dollar remains on top.

Bananamerican's picture

in '33 gold was "confiscated"

this time the barbarous relic is "cash" itself...

 

Manthong's picture

Astute observation.

Barbarous relic..  that what they also consider liberty to be.

I sense an inflection point coming.

 

Skateboarder's picture

I went to Ikea with the family today. We got coffee and garlic bread after a couple of hours of walking around, just like I remember the last time I went five or six years ago. I wanted to chow on the carrot cupake after - it was damn good commodity baked food, mind you. Cost: $0.99. Fool wouldn't take cash. Only card. For a $1 item. I had a dollar and a dime ready to roll. Fucking A!

Manthong's picture

Another reason they want to ban cash..

I buy as little as possible new and I fix stuff right and left.

The P to P resale market is mostly cash.

They want to kill it as much as possible.

The kids are already in the zone.

They consume new stuff and throw away perfectly good stuff like crazy.

Only the exceptional kids want to fix things.

Save the planet?

A well rounded young adult can:

Read/write English, have some understanding of western civilization fron Aristotle to Adam Smith as well as the the founding of the USA, but also sweat and thread pipe, join wood, wire/stick/gas weld a bit, wire primary electric, de-solder/solder some bad parts out and into a PCB,  write a script for an Arduino and or some C/Python for Rasberry Pi, and go to church occasionally.

But if on a farm, the whole horticulture and animal husbandry thing needs to be added.

 

 

 

imaginalis's picture

The NAR will obtain a housing market exemption from a cash ban.

duo's picture

How will  the cops steal your cash if you don't have any?  Will they ask to see your bank balance, and if it is too high force you to write him a check if the balance is suspiciously high?

Anusocracy's picture

"The War On Cash: Officially Sanctioned Theft"

No different than taxes and all other wealth transfers.

Help Is Not Coming's picture

Taking someone else's property and using it for your own purposes is considered theft unless you have a banking license.

Citxmech's picture

On a side note regarding fixing things - I have noticed that only mildly broken shit seems to be getting sold at such an deep discount nowadays it's just amazing.  I can get stuff that only requires minor repairs for less than scrap value fer Christ's sake.  It's almost like no one either knows how to fix and maintain stuff, or wants to bother. . . 

Craigslist some tools and and a pickup, and you are in business.

dogfish's picture

Kings whore why dont you go lick the dragon ladys pussy.

disabledvet's picture

"You can't turn the Internet off."

You can't turn the comments off either though too.

Interesting that people even listen let alone react.

And of course "the reaction to a COMMENT is always negative."

Which brings up the question "if ZIRP is the answer why have bail ins?"

Sounds like Europe is flat broke to me.

"Too poor to have bailouts so they just steal."

Is anyone lacking in inflation ever?
Hilarious to even ask the question.

So, yeah...I get the point of "where is my return on paper?"

But then people bitch about the stock market? What sense does that make. That is the ultimate arbiter of actual cash via the extension of actual credit...not currency, coin or gold.

Is it the market's fault that Detroit went bankrupt? I don't think so.

Interestingly this has sanction in the law.

Ignatius's picture

There'll come a point where banker suicides -- falling from high windows -- are no longer a mystery as the people won't be giving them a choice.

The move to ban cash is but another variation of the banksters protecting their debt-based franchise.

philipat's picture

And equally explains why Gold has been manipulated and capped. We don't want the plebs to feel that they have ANY way out now do we?

Sudden Debt's picture

They’ll come to a point where negative interest rates will spark MASSIVE inflation.

 

1. When negative rates of 6% become fact, investment booms into assets and commodities will rocket to the moon.

2. Commodities form our base for products and services and those will follow in price

3. They’ll try price controls which will push for a renegade currency outisde the system

And that’s where gold, silver and bitcoin will become ruler and where toilet paper will be a price asset...

 

I hate bitcoin, but I met a guy who’s going on the run to Australia because he’s going to go bankrupt. He’s buying everything he can to sell for peanuts to get as much cash he can get his hands on. And he’s putting it all into bitcoin.

Why? He won’t be able to own a normal bank account and he can onoy take 10k in cash with him to australia. And there’s bitcoin tellers in sydney and that will be his bank account.

So cash isn’t criminal, it’s stuff like bitcoin because nobody controls it.

cash, gold, silver, all have volume. And volume for travelling isn’t good.

 

Tinky's picture

Volume? Gold? Well, yes, technically, but have you ever held a single 100 gram bar in your hand? A few of those don't take up much space – at all.

BooMushroom's picture

A million dollars would fill a 2-liter soda bottle only 3/4 of the way up.

snodgrass's picture

No, this is exactly where they were heading. First ban gold, then cash. Offer people digital credits attached to a card or chip implant (aka cattle) so they can trace everything everyone does, all their income, all their expenses, and turn the chip off at will. They can also go into people's bank accounts and take whatever they want out of it.

HonkyShogun's picture
HonkyShogun (not verified) snodgrass Jun 13, 2015 9:49 PM

And Pelosi will qweef about how Congress must stay exempt for national security reasons. Fucking slime.

El Vaquero's picture

You can talk about legal tender laws, debt backed currency, the petrodollar system, etc... but you'll find that this is something that congress cannot exempt itself from as a practical matter.  Everything that I brought up is why those little rectangula greenr pieces of cotton rag still have value.  Those are not, however, why I will still accept them.  I will still accept them simply because everybody else will.  Make it illegal for the masses to accept them, and they either go deep into the black market, or they lose value.  This affects congress the exact same way that it affects us.  This isn't about effects than be legislated into or out of existance. 

Mike in GA's picture

Power outages happen.  Not even talking EMP, just simple, everyday thunderstorm or ice storm power outages.  Hurricanes are good for multi-day outages.  The electronic system cannot function -people can't buy food or gas - without electricity.  If there aren't enough conveniently-timed outages, targeted insulators and transformers will reduce system reliability enough to keep social pressure roiled.

They cannot ban cash unless and until there's a way around that simple fact.  

 

Sheikh Djibouti's picture

Thus logically you should also keep a fair amount of emergency coin as well: quarters, dollar coins, nickels and dimes.

There is also a distinction between Fed Res notes and Treasury-issued coins, although how important that is as a technicality remains to be seen.

fiftybagger's picture

Nickels are still below cost but not for long.  Bags and bags of them are good for making things very heavy, like safes.....

http://www.coinflation.com/

Citxmech's picture

"Er, those arn't PMs Mr. IRS man. . . They're 'safe ballast'"

Hilarious.

PS  I notice that coinflation only lists nickles to 2014 - have they not minted nickles in 2015, or have they changed the composition?

Bush Baby's picture

They don't need to ban the possession of cash, just make it Illegal Tender, in other words prohibit stores from accepting it.

Then you can use your cash as toilet paper

 

El Vaquero's picture

One of the misunderstood things about the legal tender laws is that they apply only to situations where there already exists a debt.  I can refuse to sell you a pack of gum if all you have is a $100 bill, and as a practical matter, if you owed me $0.25 and all you had was a $100 and I didn't have the change, nobody would expect you to pay me back right then and there. (Note: I would pull that shit on a bank, because it would be expercted that they have change, and they'll charge late fees and disgusting interest on those late fees.)  For transactions where the exchange of the currency happens at the same time as the debt would be created, but you hand over the FRNs right then and there, legal tender laws don't apply, because there is no debt involved.  You have the choice to walk out without the goods, and no debt will have existed.  But if you accept something on credit, i.e  create a situation where you owe somebody something, then legal tender laws apply. 

TheGreatRecovery's picture

Like the Founding Fathers.  When the Empire found out how much they were bartering, it inflicted a host of stamp taxes and such on them, and those taxes led to the Revolution.  Same bankers doing same things now that they did 200 years ago.

ZH Snob's picture

I see the banning of cash as a great motivator for leaving the ussa.  better to take the money (while it is still in my possession) and find someplace in the world where I can live as a free man. 

if the cartel has its way, there will be nowhere to go.  but I don't think they will win, at least not immediately.  there will be pockets of holdouts, people who refuse to be shackled by the collar of financial fascism.

Oscar Mayer's picture

The theft was unofficially sanctioned a long time ago.

Has the term 'Fractional Reserve Banking' lost all meaning?

This is how safe your 'money' is when it is deposited in a U.S. bank; it is stolen by the bank at the moment of deposit (assuming the 'money' existed in the first place) and your account is credited with the amount stolen. This means that the richest amongst us have exactly the same amount of 'money' in their deposit accounts as the poorest amongst us have in theirs, $0.00.

That a bank maintains some 'money' on hand to placate a few requests for the medium, does not negate the fact that all deposit accounts maintain a zero monetary balance. A ledger book entry denoting the amount of 'money' the bank owes to (stole from) the depositor, is not 'money', regardless of your ability to 'spend' that ledger book entry with a debit card. Passing around bank debt from one recipient to another, is not payment for anything. Crediting an account with the amount and actual payment are two different things.

Some people bitch, howl, whine and complain all the time about 'gold' and 'silver' being 'real money' and denounce the 'fiat paper', and they're not even getting or using the 'fiat paper', which is the money as defined by law. Do you know what is not listed in that legal definition of money?  Ledger book entries made by the Fed and the banks denoting the amount of money they owe.

The only reason any government issuing a fiat currency can be in debt is due to the fact that it did not print the payment. This also means that the U.S.G. does not need to 'borrow' or 'tax' to meet any of its obligations. So, stop accounting Fiat Legal Tender, as if it's gold. The whole U.S.G. debt mime, is B.S..

**By the way, I just gave you a description of the actual meaning of 'fractional reserve banking', did you spot it?

There is a difference between Money and Credit.

Franktastic's picture

Right!...and what i can not trade in skill or goods, silver n gold will be your friend.

3Wishes's picture

My Grandmother will in the front lines of the mob baying for blood. 

Stevious's picture

7 years from now illegal bartering will be punishable, not by death, but my SWAT team inspection and search of your home.  (Or in other words, punishable by death).

Remember during the French era (just before the French Revolution) it was punishable by DEATH to simply ask for a price other than in Assignats. (really, look it up)

If I could graph an average citizen's "fear quotient" I think that since the 70's you would see an ever increasing slope to the line.

That cell phones are so ubiquotous makes it possible for ALL transactions even those of a dollar or so to be done electronically.

For the time being, for instance, I have a tenant that I've been having trouble with and who  I would not take a personal check from.

Se he paid cash, about ~$2600.  For the first time in my life I wrote two receipts.  One that I signed to show I received the cash.

The other for him to sign to PROVE that I received the cash legitimately.  At the bank I casually showed and mentioned that it was rent money.  I really don't want to show up an any radar screen.

Travel with more than $1200 I suggest that you take physical copies of the withdrawal receipts AND scan them and put them on the cloud.  Mere mention that "cash receipts are with the money, and scanned images are instantly retreivable will likely leave the cash in your possession.  Or so that's my opinion.

takeaction's picture

You...my friend are an idiot. You take the cash to the bank...Really? You are a good citizen... You sound as though you will go to the FEMA camp as one of the first volunteers for the free "Re-education" training. Good...Luck...Wow.

duo's picture

I'd estimate that a quarter of the rent paid in this country is in cash, especially in poorer areas (non-section 8).

I had a tenant back in the 90's that paid with money orders.  Never missed a payment.  Took good care of the place.  He was from Saudi Arabia, which I thought was cool back then, kind of scary now.  He said he was in the oil businiess.

gatorengineer's picture

If you are talking about to private landlords I would say that number is much much higher probably over 75%.

Zero guest's picture

You can prove it is the same cash you took out of the bank!

Are you going to have the bank list the serial numbers?

JuliaS's picture

Civil forfeiture is never about the source of money. The cops who rob you blind don't care where the cash originated. They don't want proof. They care about how you were going to spend it, and you were obviously going to spend it on drugs, weren't you? Hand it over now! Be a good boy!

Don't want to show up on them radar screens you say? Well, the fee for that is... it's your lucky day! It's the exact amount you've got in your wallet!

Mewa's picture

If they go to negative interest rates it will also drive the price of gold and silver much higher as it will be a sign that banks are unstable and  money velocity non existent. American will finally wake up to their fiat currency destruction. Gold is pure money because it is not based on debt and will be sought out as Gresham's Law kicks into overdrive....

Raise cash now outside the banking system and buy physical gold and silver....Just like Kyle Bass did in Texas.

Usurious's picture
Usurious (not verified) Jun 13, 2015 9:36 PM

go ahead and ban FAKE money......nobody cares....