“Every single major world central bank is either raising rates, cutting QE, or both.”
“The difference between bulls and bears hasn’t been this high in 30 years, according to Investors Intelligence. The last time investor sentiment was this far apart, stocks rallied – until they didn’t. The Dow Jones Industrial Average collapsed 22 percent on Oct. 19, 1987, the worst one-day selloff in history. Euphoria is a dangerous stage in the market cycle — when investors feel invulnerable and start to overpay for stocks. They become complacent with the expectation that they can sell their stocks to a ‘bigger sucker.'”
The Venezuelan government, amid looting, protests, shootings, and extremely long lines at banks, decided that its ban on the most circulated 100-bolivar note was ill-advised at this time.
The Indian government caused its own outbreak of chaos and deaths by banning 500- and 1000-rupee bank notes, worth about $7 and $14 respectively. Amid the ensuing long lines and protests, in at least 6 cases bank employees were arrested aiding their customers in the conversion of banned notes. Indians have been employing a number of workarounds to get their cash converted to the new notes, but others have been simply buying gold from vendors. The government’s response is to now push for the income-tax office’s raids on families to target not only cash holdings, but gold as well.
An article in The Economist enumerates the failures of the India demonetization initiative:
The cash ban has also caused a diplomatic row, as a flight to the safety of US dollar notes and the ensuing shortage of dollars has left Pakistan unable to pay its diplomatic staff in India.
Turning a blind eye to the chaos in other countries that are banning their own citizens’ cash, the head of the Australian tax office suggested banning the Australian $100 note in an explicitly stated attempt to raise tax revenue. Earlier in the year, a surprise $34 billion increase in the Australian budget deficit over four years had been acknowledged.
Developed-world governments are joining their developing-world counterparts in governing by surprise and openly placing their citizens’ wealth at risk through anti-cash messaging and actions.
The stated reasons usually range from fighting the drug black market (created by global drug prohibition) to fighting terrorists (often created, funded, and armed by developed-world governments) to fighting tax avoidance, which could be fought more effectively by lowering tax rates and eliminating burdensome paperwork and reporting requirements.
However, regardless of the stated reasons, the underlying motivation is to move cash-based activity into banks. This benefits the global ruling class in several ways.
After all, depositors at a bank are no longer the bank’s true customers, thanks to privileged credit facilities at the central bank, state-sponsored deposit and loan guarantees, and myriad banking regulations erecting barriers to entry and thereby fostering consolidation of bank ownership. Banks can survive without customers’ deposits, thanks to state backing, but they cannot survive without regulatory compliance. In the cashless society, the banks will have an army of new unwilling customers from whom to extract fees, without being subject to the otherwise countervailing market force of consumer choice.
And the state wins, because all depositors’ economic activity is transparent to it through its control over the banks, making tax collection more thorough and dragnet surveillance more comprehensive. The state can also, through its control over the banks, order accounts frozen at will. This could prevent, for example, a defendant in a government action from retaining a specialist lawyer that could mount an effective defense, which wouldn’t be a problem if he had cash.
Other than control, the state can directly profit from cash bans: notes that are not turned in can be cancelled and converted into a ‘fiscal stimulus’ windfall for the state, a strategy openly floated during India’s cash ban.
Workers and savers lose; who else loses? As a Telegraph article describes, a cashless society would be a nightmare for the homeless, who generally do not possess the proper paperwork to satisfy the state’s requirements to open a bank account. Suddenly the class warfare inherent in cash bans comes into focus, and not in a way that was expected.
As The Economist states:
India is not the first country to introduce abrupt, drastic reform of its currency. But the precedents—including Burma in 1987, the former Soviet Union in 1991 and North Korea in 2009—are not encouraging. Burma erupted in revolt, the Soviet Union disintegrated and North Koreans went hungry.
Governments that now seek to ban cash in partnership with banks should consider whether they wish to be in the company of the above countries, whether in their motivation or in the outcome.
Japan, already carrying the highest debt to GDP ratio of all OECD countries, has approved a record spending bonanza of 97.5 trillion yen in its 2017 budget, even while the Japanese birth rate has collapsed to 1899 levels, prompting questions as to how its mounting debt could ever be retired.
Italy, carrying the third-highest debt to GDP ratio and having been mired in recession for eight consecutive years, plans to nationalize four failing banks, borrowing at least 20 billion euros to do so. Since taxpayer bailouts were ostensibly banned by Europe in 2015, an exception to the rule will be invoked to enable the Italian bailout. But who would lend to the already massively indebted Italian government to fund its acquisition of zombie banks, especially after the IMF’s recent warning that Italy is on course to remain in recession for another decade, the government’s recent collapse after a failed referendum to increase executive powers, and in light of the half-dozen active Italian secession movements? Well, likely the same sort of institutional investors who recently bought 16.5 billion euros’ worth of 50-year Italian government debt, expecting to be able to flip it to the European Central Bank in a hypothetically-expanded bond-buying program down the road.
Sweden, facing a debt bubble and soaring housing prices, with mortgage loans now averaging between 105 and 140 years amortization, has seen its central bank’s board requiring a tie-breaker vote to continue its negative interest rate policy and bond-buying program.
European Union officials have decided to force Apple Computer to pay a retroactive 13 billion euros in tax to the Irish state for the activities of Apple’s Irish subsidiaries, which employ around 6000 individuals. The Irish government, not wishing to see an economic golden goose killed if Apple were to pack up and leave Ireland, insisted that it had not given Apple any special treatment warranting the tax and did not want the ordered transfer. The EU budgets cash it ‘earns’ from fines as a normal revenue item, so if Ireland refuses to collect the tax it may be transformed into an EU fine under competition rules instead.
Every day provides increased evidence that developed-world sovereign debt is quite literally “a bubble in search of a pin”, as Peter Schiff put it in his 2011 book ‘Crash Proof’.
“Mr. Mnuchin was on the board of Sears for the past 11 years, throughout its devastating decline. He is resigning now, letting the ship go down without him. Besides, he has already stolen the silver. How do you destroy a business? It’s not that hard. Rather than invest in new people and new methods, you take the money for yourself. It is even more attractive if you can borrow a lot of fake money at ultra-low rates against the company’s credit… pay it out to yourself and other financiers… and then jump ship, leaving the company, its employees, and its creditors to drown in your debt.”
http://bonnerandpartners.com/how-do-you-destroy-a-business/
“[Massachusetts] isn’t the only state to forgo its sales-tax holiday in order to raise additional funds. Kansas, North Carolina, Nebraska, Rhode Island and Wisconsin, state legislators are among those that have also decided against holding new tax holidays or reinstating them during the last few years. ITEP estimates that state and local governments that retain the holidays will lose out on more than $300 million in revenue due to the holidays this year. Those losses in revenue come as states are also poised to see aggregate tax revenue growth below 4 percent this year, down from 5.5 percent in 2015, according to Moody’s Investors Service.”
“In April the former Federal Reserve chief warned there was a risk Japan at any time could return to deflation. He noted that helicopter money — in which the government issues non-marketable perpetual bonds with no maturity date and the Bank of Japan directly buys them — could work as the strongest tool to overcome deflation, according to Honda. Bernanke noted it was an option, he said. Bernanke joined central bank chief Haruhiko Kuroda over lunch this Monday and on Tuesday he attended a gathering with Abe and key officials, including Koichi Hamada, another influential economic adviser. The central bank didn’t reveal what Kuroda and Bernanke discussed.”
“He argued that high-denomination notes in high-value currencies were little used other than for crime, with people in most parts of the world favoring cash for small payments and electronic alternatives like credit cards or Paypal for bigger ones. As such, Sands called for the elimination of the 500 euro note, £50 bill and 1,000 Swiss franc bill and the $100 note. Depending on the country, tax evasion robs the public sector of anywhere between 6 percent and 70 percent of what authorities reckon they should collect, Sands added. He said that global financial crime flows amounted to $2 trillion per year, with corruption accounting for another $1 trillion.”
http://www.cnbc.com/2016/02/08/ban-100-bills-to-tackle-crime-ex-bank-chief.html
“I think it’s going to be hard to push the Fed Funds rate below negative 1. That’s going to be difficult. People can basically take out cash and put it in a vault and they get a zero return on it. This is supporting the ban on cash rhetoric. This is a huge social debate that we should start having. One way of doing it is to ban cash. Banning cash is a social and political debate, which is going to happen increasingly. As long as we have cash, we can’t have rates of much below negative 1 percent.”
http://www.theepochtimes.com/n3/1974891-cash-ban-would-boost-effect-of-negative-rates/
“The ECB and the Bank of England have purchased so much government debt that they have recently reached even further down the credit ladder, with the ECB buying corporate bonds, and the Bank of England announcing purchases of ‘Tier C’ assets, which include assets ‘backed by credit cards; student loans; and consumer debt.’ Unfortunately, this isn’t backing at all. When will it end? It will end as credit defaults rise, bank bailouts become necessary, covenant lite debt proves to be, indeed, lite on covenants, and financial assets pushed to zero long-term yields prove, indeed, to yield zero returns over the long-term.”
http://www.hussmanfunds.com/wmc/wmc160711.htm
