Get Ready for the Ban on Cash

Woman handing over credit card at cash register
Reddit

Not much to report from the  financial markets.

 

And things seem to have settled down in our hometown of  Baltimore, after they called out the National Guard.

So, we’ll return to our exploration of the Fed’s  fabulous fantasyland…

 

Yesterday, we  looked at the coming liquidity  drain.

 

It is roughly  what has been happening in California already. When more liquidity is being  used than is available, things dry up.

But wait…

Do the feds have  a still-untapped aquifer of cash and credit they can pump dry?

Short-term  interest rates are already as low as they’ve been. But could they go lower?

Yes on both  counts…

Ask your spouse:  ‘What will you give me if I kiss you?’ If the answer is nothing, you have  established the value of your kiss: zero.

But suppose the  answer comes: ‘If you take out the trash, maybe I’ll let you kiss me.’

Now, the value of  your kiss is even lower — below zero. You have to add something to it to make  it acceptable.

Likewise, it  appears that lenders — mainly in Europe and Japan — must add something to their  money each year in order to persuade the government to take it.

 

We have already  been humbled and flummoxed by zero-percent interest rates. Even when we are in  our cups…or deprived of oxygen…they  make no sense.

How could  something simultaneously have no value — or less than no value — and still be  worth anything?

 

Money has got to  be worth something, right?

 

Then how could it  be lent out for nothing…or less than nothing?

Bonds are a liability

Let’s take one  example…

Earlier this  month, the Swiss government sold 378 million Swiss francs ($354 million) of  bonds. Those that mature in 2025 carried a yield of MINUS 0.055% before accounting for  inflation.

Does this mean  what we think it means? That  the value of the money lent is less than zero?

So, if you have a  million francs’ worth of 10-year Swiss bonds, what is it really worth?

Well, if you had  to pay a mortgage of 2%, you wouldn’t have an asset, but a liability.

So wouldn’t the  portfolio of Swiss bonds also be considered a liability, not an asset?

And if it were a  liability to you, wouldn’t it have to be an asset to the Swiss government?

So, let’s get  this straight: The borrower gets an asset. The lender gets a liability.

In what kind of a  universe does that happen?

In a negative interest world, money has no meaning. You could build automobiles that don’t  run…airplanes that don’t fly…or computers that can’t add.

It would make no  difference. You could stay in business for an eternity as long as lenders were  willing to part with their cash for no return.

Attentive readers  will realize that we do not live in a zero-interest world. We live in a world  of flesh and blood. We live in a world where cash, kisses and credit still  count for something.

And in this  world, you still have to pay for what you get.

The Swiss ban cash

But little by  little, day by day, the world we live in gets stranger — thanks to this funny  money system.

And little by  little, the more curious the financial world becomes, the more people want to  hold on to cash to protect themselves.

One of the  strangest things to happen recently was that the government of Switzerland, of  all places, has refused to allow big depositors to withdraw cash.

According to  Swiss news website Schweizer Radio und Fernsehen:

 

 

    ‘The  Swiss National Bank confirms that hoarding cash to circumvent negative interest  rates is not welcome. “The National Bank has been recommending that banks with  cash demands […] act restrictively.”’

  And comments  former banking insider Frances Coppola at Forbes:

 

    ‘The  monetary policy of the last few years has been hampered by the supposed  existence of the “zero lower bound” at which (it is assumed) everyone would opt  for physical cash instead of bank deposits and bonds […]’

But if investors  simply cannot obtain large amounts of physical cash because banks won’t issue  it to them, the slightly-below-zero lower bound cannot bind. In which case negative  rates could be very negative indeed and no one would be able to do much about  it.

Escaping the Fed’s fantasyland

We have been predicting a ‘run on the dollar’.

Now, the Swiss  are leading the way. Keeping you from holding cash appeals for governments for  three reasons:

     
  1. It  is hard for them to control, track and tax.
  2.  

  3. It  is fast becoming irrelevant as new technologies make electronic transactions  easier. (Think Apple’s new iPay mobile payments system.)
  4.  

  5. As  long as you can hold cash, you can escape the feds’ fantasyland. If you can  stay in cash, they can’t enforce negative interest rates. You can just take  your cash and hold on to it — paying nothing for the privilege.

Following the Charlie  Hebdo attacks in  Paris, France is planning to limit cash payment to €1,000 (US$1,100). The logic  being that the attacks were funded with cash…

Meanwhile,  Citibank’s chief economist Willem Buiter has recommended taxing cash (a form of  negative nominal interest rates). And JPMorgan Chase has sent letters to  customers, telling them it will no longer allow cash to be stored in safety  deposit boxes.

  In the US cash is  not yet illegal, but it is suspect.

  Show up with a large  amount of cash at a bank…and you will likely have some explaining to do. Let  the police find it on you in a routine traffic stop…and they are likely to  confiscate (thanks to the Justice Department’s Civil Asset Forfeiture rule).

  It is just a  matter of time before holding cash becomes illegal in the US too.

  Will that be  enough to raise liquidity levels and asset prices?

  Stay tuned…

 

Regards,

Bill Bonner,
for the Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Reddit

Leave a Reply

6 Comments on "Get Ready for the Ban on Cash"

Notify of
avatar
Sort by:   newest | oldest | most voted
slewie the pi-rat
Guest
most of us get at least a bit dramatic, from time to time. getting cash from one’s own bank can be a real lulu. trust me! cash is not “banned”. neither is money. there are situs where, for the sake of Our Blessed Stability, cash is brought under “controls”. and those situs are spreading like cancer. after all, what would things be like if EVERYBODY used cash? L0L!!! slewie has worked out a thingy w/ his “personal bankster” [whom i did like, from the start, many years ago], about CASH. primarily, i let him know the same things Bill said,… Read more »
slewie the pi-rat
Guest
for those of you in the back, shooting spit-balls, credit/digitally we’re ready for QUADRILLION$, quintillion$, and maybe even Scrooge McDuck, too! but C.A.S.H. is being RATIONED, a.l.r.e.a.d.y.! isn’t it? why? slewienomics answers: because when the “money supply” is expanding this fast, the paper cashola supply can NOT keep up with it. AND the bankster banks are still insolvent, too? and, yes, Bill is right, the easiest way for the banksters to bail anybody in is for people to run them in a panic for cash. but, hey! who NEEDS cash? so now, CA is at: who NEEDS cash, and WHY?… Read more »
slewie the pi-rat
Guest

now, even THAT question may not be quite as “simple” as it seems at first blush.
after all, the banksters and their bankster banks ARE making up these “rules” as we go along.

aren’t they?

slewie the pi-rat
Guest
when the GFC hit the fan ~2008, what did Warren Buffett do? he bought BILLIONS in Goldman Sachs SPECIAL [for him?] Preferred STOCK to bail them [The Sqiudidity] OUT [at a GREAT “interest rate, too!, guaranteed!] and then borrowed enough from the Giant Vamire Squid to BUY the Burlington Northern Santa Fe RR Conglomerate, for, unhhh, cash, wasn’t it? about $34 Billion, or so, wasn’t it? in 2010, right? one hand still washes the other, where ALL bankstering is concerned. so when you’re playing with the banksters’ cash [you “own” a DEPOSIT, which is an ACCOUNTING entry, that CASH is… Read more »
slewie the pi-rat
Guest
now, let’s do the hypothetical, ok? 1) the FDIC insures deposits to $250,000. 2) there are only two Depositors in Ze Bank: slewie and Warren B. 3) slewie has $250,001.00 in Ze Bank. 4) Mr. B. has 10,000,250,001.00 in Ze Bank [$10 B more than yers trooly]. 5) Ze Bank gets “run” by slewie, can’t some up with the CASH, and goes “tits up”. 6) we both get bailed IN, have our FDIC insurance, and get $1 par value of “common stock” for each $1 we “lost” over the $250K “insured”. 7) slewie ends up with $250 under possibly Draconian… Read more »
KMac
Guest
The real reason that cash is bring restricted is that those WE trust with OUR money have used it for themselves. Those who still have money: withdraw it. Close your accounts. They spent our money on themselves. They used your property to feather their own nests. Take legal action. Sue them to the hilt gor stealing your hardearned money and trying to cover up their breaches of trust and crime by blaming it on terrorism. It is them. They bought mansions and live the high life on your money. Money you entrusted to them that they stole. Don’t let them… Read more »
wpDiscuz
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@dailyreckoning.com.au