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Could the Fed Implement a "Carry" Tax on Physical Cash?
The Fed meets this week on Wednesday and Thursday.
Many in the investment world believe the Fed will finally raise interest rates during this meeting.
If it does, this will be the first rate hike since 2006. And it will represent the first time in six years that rates are not effectively at zero.
Will the Fed raise rates or won’t it? Honestly, I don’t know and neither does anyone else.
Back in 2012, the Fed claimed it would start to raise rates when unemployment fell to 6.5%. We hit that target in April 2014.
Here we are a full 17 months later with the unemployment rate at 5.1% and the Fed has yet to raise rates even once.
Indeed, projecting a rate hike at some point in the future, only to hit that point and offer some other excuse to not raise rates has become something of a pattern for the Fed.
Everyone was convinced the Fed would raise rates in April 2015.
It didn’t.
Then everyone became certain a rate hike would come in June 2015.
It didn’t.
It’s now September and less than half of private economists believe a rate hike is coming this week.
Bottomline: no one has a clue when the Fed will raise rates. This includes Fed officials who continue to make various arguments for not raising rates this week.
However, one thing is relatively certain, whenever the Fed does raise rates, the tightening will be short-lived.
With over $555 trillion derivatives trading globally based on interest rates, the Fed cannot normalize rates without triggering a crisis that would make 2008 look like a picnic.
This is not just idle talk either.
Consider that as early as 1998, soon to be chairperson of the Commodity Futures Trading Commission (CFTC), Brooksley Born, approached Alan Greenspan, Bob Rubin, and Larry Summers (the three heads of economic policy) about derivatives.
Born said she thought derivatives should be reined in and regulated because they were getting too out of control. The response from Greenspan and company was that if she pushed for regulation that the market would “implode.”
So Greenspan knew about the derivatives problem in 1998. Bernanke, knows about it as well. This is why he admitted that rates would not normalize anytime during his “lifetime” during a closed-door luncheon with several hedge funds last year.
Janet Yellen is also aware of the derivatives issue. This is why she has continued to refuse to raise rates for months after hitting the Fed’s unemployment “target.”
The fact of the matter is that the Fed has backed itself into a corner. It should have raised rates in 2012 or 2013 so that it would have some dry powder now. Instead, it continued to ease and now it has nothing left in its arsenal.
Well, almost nothing…
More and more outlets have begun to call for imposing a “carry” tax on cash.
The idea here is that since it costs relatively little to store physical cash (the cost of buying a safe), the Fed should be permitted to “tax” physical cash to force cash holders to spend it (put it back into the banking system) or invest it.
The way this would work is that the cash would have some kind of magnetic strip that would record the date that it was withdrawn. Whenever the bill was finally deposited in a bank again, the receiving bank would use this data to deduct a certain percentage of the bill’s value as a “tax” for holding it.
For instance, if the rate was 5% per month and you took out a $100 bill for two months and then deposited it, the receiving bank would only register the bill as being worth $90.25 ($100* 0.95=$95 or the first month, and then $95 *0.95= $90.25 for the second month).
It sounds like absolute insanity, but I can assure you that Central Banks take these sorts of proposals very seriously. QE sounded completely insane back in 1999 and we’ve already seen three rounds of it amounting to over $3 trillion.
No one would have believed the Fed could get away with printing $3 trillion for QE in 1999, but it has happened already. And given that it has failed to boost consumer spending/ economic growth, I wouldn’t at all surprised to see the Fed float one of the other ideas in the coming months.
This is just the start of a much larger strategy of declaring War on Cash.
Indeed, we've uncovered a secret document outlining how the Fed plans to incinerate savings to force investors away from cash and into riskier assets.
We detail this paper and outline three investment strategies you can implement
right now to protect your capital from the Fed's sinister plan in our Special Report
Survive the Fed's War on Cash.
We are making 100 copies available for FREE the general public.
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Best Regards
Phoenix Capital Research
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NEWS FLASH. They already manage to do this with QE and under-reported inflation numbers. That 20 year old $100 bill you recently found in the suit you wore to Bill Clinton's inauguration sure won't buy today what it could have bought then.
Forgive me, but I thought ZHers were smart? (in their own way) This article is just stupid so as to tempt people to get a copy of whatever junk this Phoenix lot are selling.
It may be easier to spot my sister who now drives a BMW and made $7,658 this week working fom home (Oh and what a stunner she looks in her avatar) but this article is no different, just click bait.
Can't undersatnd why it has not been down-voted to hell like that stupid piece yesterday
Have you ever consider, the physical dollars that circulate around the globe? Dollars stored for years in crypts in third world countries as a means of financial security against inflation, depreciation and the angry taxman?
Now, go figure what will happen when an idea such yours would be implemented. All of them will exchange their dollars with Euros, Pounds, even Remnibis.
And then guess what: Bye bye U.S. dollar as a global currency.
So everyone keeps the notes in their pocket as a medium of exchange and refuse to put them in the bank.
Problem solved!
No, it hasn't. People are assuming the Fed, for some magical reason, has to raise interest rates. It doesn't have to raise interest rates until inflation, as measured by it, crosses the threshold it considers unacceptably high. Economic growth and fall in unemployment rate don't compel a Central Bank to raise interest rates, only inflation does that.
The only problem with the idea is that no one is forced to deposit their cash into a bank, if they can hold it safely. People will simply stop depositing cash into banks and start transacting only in cash. Retail businesses receiving a lot of cash will start paying their employees in cash. Since the cash already in circulation doesn't have this magnetic feature, it will never make it back to any banks for deposit. Cash with the new feature is unlikely to be accepted for payments, since no one really has a clue when it was first withdrawn from the banking system and what its current discounted value is, unless they have the necessary instruments to read the withdrawal date and compute the current discounted value.
I do expect our fucking government to enact a redemption fee/tax on PM's at some point.
War on cash, if implemented == $5000 gold.
War on cash, if implemented == $0200 silver.
Go ahead federal reserve, make our day!
Hahaha.
What are they going to do with all the physical dollars in circulation outside the borders? Bet there's more outside than in. Good luck with that plan because you'll lose reserve status overnight.
Just another CRIMINAL...Take those "100 copies" and eat'm!
got somthin to say, say it and get out the way...CRIMINAL!
deal with this CRIMINAL, my main man
Another "War on Cash" article...sorry guys, but banning cash is one of those things that sounds good (to bankers) but would, in reality, be impossible to implement.
I don't care WHAT technology exists, no one trying to enforce such a thing would even come close to success. And the attempt would destroy what is left of the 'markets' as what little faith remains in fiat went right down the toilet.
It would be the finance world's equivalent of downing a bottle of Oxy with a bourbon chaser...result? The economy assumes room temperature, for good.
But go ahead...go for it. Because I think the economy SHOULD assume room temperature already. The fucker is DONE, stick a fork in it.
Nobody will want cash.There'll just be some other cash alternative that gets used which will further undermine faith in the dollar.
Bills not "marked" will be worth more.
"some kind of magnetic strip"
$100 bill, meet neodymium magnet. Voila, problem solved unless it becomes worth less just becasue it was erased. In that case all $100 bills become worth only $90 by default. Much easier to just create 10% hidden inflation which is what we have now.
25% tax on nothing is nothing isn't it? Great, just checking :-)
the tyrants can do anything they want - that's why they are tyrants - duh
QUOTE: "Indeed, we've uncovered a secret document outlining how the Fed plans to incinerate savings to force investors away from cash and into riskier assets."
Guess what, it is no longer a secret; take the advertising elsewhere' what's up Tyler? The incineration of savings is called ZIRP....ZH 101
The banks want to eradicate cash, they want everybody to use plastic, that way they own your money;
so the point of this ploy is to tax cash out of existence.
Zimbabwe currency, redux, expiration dates exclusive.
Sounds an awful lot like a voucher scheme.
.....nice lampshade you got going there......
He watches too much porn and has caused mental issues; of course that is obvious to anyone but him.
Why would anyone lodge cash to a bank. Cash is a high velocity item for the street. The only way they can try to control cash on the street is to have it expire and even then the underground economy might still recognize expired cash and use it like private scrip. Technology exists to make a few milligrams of gold or silver into leaf thin notes (Auric's I think) worth one or two dollars and carry and spend like paper money. Cryptocurrencies are out there. Go ahead, let the fed kill their cash, I have faith in the resulting unintended consequences and the resilience of underground economies.
My question as well. The bank is essentially a Roach Motel. They simply owe you the money and there is no guarantee of repayment though they like you to believe otherwise. Cyprus, Greece and others have found this out the hard way. Otherwise, you may try banging the banks with pots but that didn't help much.
Miffed
People should be paid interest on cash by the Fed. It is after all a "note" (an IOU from the Fed) and not money. In essence what the author proses is that the Fed discharge its obligation to pay real money by decreasing the value of the note over time.
This would be criminal theft.
Additionally, there is already a Fed induced tax on FRNs. It is called inflation, which, btw, is managed by the Fed through their monetary policy.
Get this right Phoenix - it won't be a tax on cash. It will be a 'discount' for using electronic money. Of course, they will raise prices by 3% in order to give electronic money purchasers that break. Cash buyers will just have to pay more.
That would be like shooting the mega penny bank; more plastic is used to make purchases than cash will ever be again and that is why some merchants will give a 2-3% discount for paying in cash. It is also why American Express is not accepted in many places; their transaction fees are higher than VISA & MC.
They will try ANYTHING to remain in control. Up to and including killing us. I have no doubts.
The Bible already tells us the beginning, the end, and everything in between. Our purpose for being part of His creation, why when given the choice we rebelled in Adam and what the rebellion has caused and how we can be reconciled and the way it will all end is more horrifying than the human imagination can comprehend. For example, when Jesus comes back and has ruled for the 1000 years, at the end He will vaporize, not just the earth, but the entire known and unknown universe in seconds, then the New Universe and New earth will be created & free for the stains of sin and sinners. It's going to be fantastic.
Unconstitutional. The Fed can't implement a tax on anything. Will it stop an attempt? Probably not. People need to be informed of who has power to implement taxes in govt. Then again, simply printing money out of thin air is a "hidden tax" on all Americans because prices rise to reflect the inflation. Guess they're already getting away with it.
The Fed is not part of the government.
THey can implement any sort of scheme like this and call it something other than tax.
Of course I think as soon as they do, they will be on a very short list of people who will be pushing up daisies.
The Fed is not the only criminal organization that has interest in cash. There are many others that have billions of dollars in black market trade.
I think they will take it quite personally is some banker is trying to fuck with their stash of cash.
"It's not a tax, it's a fee." - BHO
"It's not a bug...it's a 'feature'."
Probably covered under the Patriot Act.
You take $100 out of the bank and sit on it. Then you spend it at a garage sale. The garage sale people take it to the bank and it's only worth $90. Result: Faith in fiat is completely lost. The fiat paper economy implodes. The whole economy implodes. Nice plan.
I will take your $100 for $90 worth of goods and services.
If a machine is used far and wide enough for every retail outlet to need one, it is also simple and stupid enough for someone to hack and reset the date on that $100.
500 bps per month locked in? Sign me up.
Bazinga!
And then a cashless society starts, which is what they want.
BINGO. THIS is the reason such otherwise ASSANINE methods are being considered. Not because it will 'work'....but because it will, by default, destroy the physical 'cash' system, leaving them awwww shucks no choice but to go fully cashless. In similar fashion don't forget our gubbermint has actively discussed CONFISCATING.....errrr, transferring....people's retirement savings (401k, IRA, etc) into special 'gubbermint sekured accounts'. You know, to protekt us from all that market volatility and risk and stuff.
Never forget, people......if they're considering something......it's because they're CONSIDERING IT.
For the muppets a cashless society continues and gets locked in. For the rest of us we will barter, use AU and AG, as well as create our own IOU script within local markets ala Ithaca Dollar.
While most of the points of the article are valid, the conclusion? is oddmisleading.
Clearly there is discussion of obsoleting paper.
This will address the issue of hoarding.
No no Oh my god not hoarding, otherwise known as saving. It's a crime not yet a law..
That could be the most asinine proposal I have heard.
So I get a 100 dollar bill with a magnetic strip. I spend it. And if it does not get redeposited into the bank, I pay a tax on that time frame?
Why do all that bullshit when inflation does the very same thing(without the magnetic strip)?
Because the "tax" created by inflation does not go directly into the pocket sof our overlords. This one will.
"More and more outlets have begun to call for imposing a “carry” tax on cash"...I'd never heard this. Interesting concept, sinister even, but you'd kill cash completely (think, grocery stores, covenience stores, either IMMEDIATLY need a "cash depreciation strip" reading machine or accept only credit debit) and at 5% per month that's 60% IMMEDIATE inflation. More importantly...and this is for the political class reading here....hookers and coke dealers will not be accepting "debit". P.S. Who are these "outlets" referred to?
What are you people smoking? Tyler, does anyone read and approve submissions? Let's go all the way here. The GOV could nationalize all banks and claim all deposits for the UST. They can confiscate all property, assets, industries, and declare everyone a slave for life. There, you don't have to submit anymore BS.
Oh, shush now. Don't be giving the TPTB any ideas...
If they remove cash.....people will make their own medium of exchange............same as always.
Creation of a new black market, once again compliments of your federal government
Considering that $1.00 in 1913 would buy approximately $30.00 in goods and/or services today, “Just Us” and their minions have been and are continuing to “tax our cash”.
Cash is still fiat trash. Useful as long as a counter-party (greater fool) will accept it in exchange for their goods and/or services.
Everyone seems to be afraid of 25bp and the markets will dump; so-called 'normalization' should be decided by the markets. That is, the fed funds rate should be decided by the very banks that have to pay it, receive it.
So the carry trade will lose their free lunch. So?