The Coming War on Cash

FDR banned The People’s right to protect themselves from his and the Fed’s massive economic intervention policies in 1935 by declaring private ownership of gold illegal.  Prior to then, Gold had been considered the real, legal money backing all citizens’ “paper dollar notes”.  In other words, our real money (gold) was being stored safely on deposit at a bank and was to be returned to its owner via these dollar “demand notes” that people exchanged among themselves.  Unlike a contractual CD where the depositor gave up their claim to savings  for a period of time by contract, these dollar notes were redeemable “upon demand” at their respective institutions for gold  at $20.67 / gold oz.

During the Great Depression what was painfully exposed via “runs on the bank” was the fraud that was the U.S. banking system, a fraud that had been regularly exposed via the occasional, region-specific panics and depression. Bankers then (as today) knew that most dollar holders held the notes for use in the market place and only a small fraction would ever redeem gold.  Hence, it occurred to bankers that they could loan out notes in a supply exceeding the amount of gold they had in safekeeping, this to earn interest on the loans.   So long as their dollar holders didn’t all decide to cash in their notes at once, nobody would be the wiser.   The problem was, eventually the rouse would get exposed as too many notes would distort the economy by rearranging claims to wealth, and eventually find itself raising prices.  (complex subjects for blog posts of their own.)

Let it suffice to say, The Fed’s creation was supposed to end all crisis, and instead in it’s wake was the greatest of all crisis.  FDR stepped in to intervene using the best economic science of the day, forcing onto the economy a massive Keynesian intervention, including the confiscation of gold from The People.   Of course, what’s inflicted upon the people is often exempted for those in government, so foreign nations and their central banks could still exchange their dollars for gold.  But FDR did a switcheroo by changing the redeemable ratio for them to $35/ 0z., functionally exercising a partial default on all dollar obligations and debt — at least in terms of “real money” =  gold.   Looked at another way, you now needed another $13.35 — a full 62% of the original agreement — to get your deposited gold back!  Hello haircuts, but at least the gold could still be legally owned.  Naturally, all of this was for the good of the country.

This adjustment was, of course, rooted in the Keynesian claptrappery of past and present  that asserts “savings” to be the bane of any economic recovery particularly because when there’s economic trouble, most folks tuck in their horns and become cautious.   This is at the heart of every modern monetarist economist’s claim to your savings as a moral requirement to managing a healthy economy, so much so that it has (d)evolved to the point where we we have been collectively indoctrinated from an early age to timidly accept that we must be looted by a target of at least 2% of our savings via a CPI-measured decline in our purchasing power annually.  Its matured to the point where for the last five years we are also forced to accept policy-intervention-created, below-market interest rates on our savings accounts, even at zero% yielding negative returns when adjusted for inflation.

Today the efficacy of these policies continue to be exposed as “amid a death spiral”, really not at all unlike the drug junkie who finds himself  unable to attain his previous highs by using the amounts that once worked so well.  That’s especially so when we consider that when he first started using he could hold a job and family.  Economic efforts at manifesting inflation since the credit collapse of 2007-20010 have failed: the ordinary policy of low Fed funds rates even forced to zero barely got an economic pulse that resulted in an outright barrage of monetary and credit expansion, in some cases out right “monetization” such as QE III, which then flooded into asset prices either directly or via excess foreign reserves that are recycled from our massive trade deficits with foreign nations.  (These are the same monetary-expansion-fueled deficits that exported our once mighty manufacturing base abroad.)

No.  There has been no meaningful recovery.  Sales are stagnant, as is capital investment and wages.   The old easy money (heroin) highs are never as good as they once were, yet they are demanding more and more of the offending substance as the economic body of the addict sinks into poorer and poorer health. Asset prices are bloated and increasingly transparently dependent upon endless central bank intervention to support the entire risk spectrum of assets.  So bloated that a tiny 0.25% rise in the Fed Funds rate in December 2015 caused the global equity markets to regurgitate a large % of their YTD returns in 2015.

In the real world a spiraling addict will lose their job, followed by family, savings and belongings.   Soon enough, theft and selling ones self come into play just meet the fix.   Ultimately the addict is faced with a stark choice: Shape up or suffer worse and worse humiliation, declining health and, eventually, death.

But no so when it comes to the all powerful High Priests of monetary policy. There is no limit to what theories the economic ivory tower elites will test on the economy.  The latest trend is to push for the end of all cash.  One one hand we are told that this is to prevent tax fraud and eliminate criminals from moving their wealth.  That’s surely part of it.  But a higher objective is to give Central Bank meddlers even more power to confiscate your savings unless you do as they bid — put your capital to work in a broken, highly manipulated economy — so to avoid the stick of negative interest rates…    How to enforce? Of course, without cash and zero financial privacy,  they are providing the police-state-types a wide open window to wherever you transact and try to protect yourself from their actions.

To read up on the coming war on cash, consider the two referenced articles below.