For six years straight, the Fed has been trying to “trash” cash.
First it cut interest rates to zero… making it so that savings deposits produced almost nothing in the way of interest income. Consider that at current rates, a retiree with $1 million in savings earns a measly $2,500 per year in interest income.
The Fed’s hope was that by making it painful for savers to sit in cash, said savers would move into risk assets such as bonds and stocks. This has worked in that stocks are now in one of, if not THE biggest bubbles in history… while bonds are trading at yields never before seen outside of war-time.
However, this has now created a NEW problem for the Fed.
With bonds yielding so little, (AND increasingly volatile due to the lack of liquidity caused by QE), cash is once again looking increasingly attractive.
Put it this way, if you had a choice between having your cash earn next to nothing but remain stable vs. watching your capital gyrate by 5% or more per year (while still earning next to nothing), which would you take?
The answer is easy: you’d pick cash. Sure, you’d make next to nothing… but it sure beats the roller coaster ride you get in stocks or bonds. Indeed, cash actually produced the SAME return as stocks did last year… without the volatility!
This has created a REAL problem for the Fed… and it’s going to result in a far more aggressive campaign to TRASH cash going forward.
That campaign has already begun with several economists with close ties to the Fed calling to TAX cash… if not outlaw it altogether!
This is not just idle chatter either. JP Morgan and other large banks are beginning to forbid clients from storing actual physical cash in safe boxes. More banks will be joining in on this as well the Government. Indeed, the state of Louisiana has made it illegal to buy second hand goods in cash.
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Survive the Fed's War on Cash.
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Phoenix Capital Research