Cash Deposits Are an Oxymoron

Dec 1, 2015

27

Baltimore, Maryland

Trading resumed yesterday on US exchanges. But investors seemed to be a bit groggy after the holiday. The action was limp and lifeless, with the stock market down 78 points when we last looked.

But the real news was elsewhere.

'The first shot in the war on cash?'

The headline caught our attention. We just finished researching and writing about the 'Deep State' (for our newsletter). This is something you're likely to hear more about.

'Deep State' describes the way the US government actually works, rather than the way it's supposed to work.

Over the years, hardly noticed by the press or the public, a group of 'insiders' has taken control of Washington.

Some of them are familiar government hacks and politicians. Some, largely anonymous, are in the private sector. And some represent foreign governments, foreign businesses (notably banks), and foreign organisations.


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These zombies and cronies - who number in the thousands - have much more power and authority than 100 million voters. Research shows that if they want legislation, they get it. Voters, on the other hand, get what they want only rarely...and probably only because the insiders want it too.

They get the money too. All those trillions of dollars diverted into bailouts, QE and ZIRP, for example...they had to go to someone.

And now the Deep State is setting itself up to get even more.

Dr Matthew Partridge reported last week in MoneyWeek magazine that a small Swiss bank has become the first retail bank in the world to charge ordinary customers negative interest on their 'cash' deposits.

Beginning next year, Alternative Bank Schweiz (ABS) will charge account holders 0.125% per year to hold their money.

Let's stop here for a moment and clarify.

There are 'cash deposits', and there is 'cash'. Cash deposits are an oxymoron. If you say you have 'cash' in the bank, you are mistaken.

The bank doesn't really hold 'your' cash. It owes you money. And if it goes broke, you'll stand in line with other creditors to get it (subject to whatever guarantees may be in place...and however well they may work).

Cash-in-hand is different. It is physical. Paper. You can do what you want with it. And you don't pay a negative interest rate.

Which is why the feds want to ban cash. They say it will make it easier for them to stimulate the economy. As long as you can hold cash-in-hand, you have an easy way to escape negative interest rates; you just take the money out of the bank and put it in your home safe.

If cash-in-hand is illegal, you have no choice. You have to keep 'your money' in the bank.

But negative interest rates do not really encourage spending. Warren Mosler in the Investor Network:

  • First, central bankers have got the interest rate thing backward. They think lowering rates will somehow stimulate the economy. But negative interest rates are just a tax. You start off with a certain amount of money - say, $100. If the rate is negative 1%, then you have $99 at the end of a year.

    How is taking money away from me supposed to stimulate the economy?

    ...if you're trying to save for retirement, all of a sudden you've got to save a lot more money because you've got a lot less income. Isn't there some theory that says when people's money goes away, and they have less, they spend less?

    Every accountant will tell you it's doing the opposite. Every analyst who looks at cash flows will tell you it's doing the opposite. Taking away money from people isn't going to stimulate growth. But they keep doing it anyway.

But if negative rates don't really encourage spending, why bother? This brings us to the real danger of banning cash...and perhaps the real reason the feds want to do it. William N Griggs:

  • U.S. Government Freezes Bank Accounts of Drone Pilot Whistleblowers Who Exposed Civilian Murder

    For having the courage to come forward and expose the drone program for the indiscriminate murder that it is, four vets are under attack from the government they once served.

    The US government failed to deter them through threats of criminal prosecution, and clumsy attempts to intimidate their families. Now four former Air Force drone operators-turned-whistleblowers have had their credit cards and bank accounts frozen, according to human rights attorney Jesselyn Radack.

    'My drone operators went public this week and now their credit cards and bank accounts are frozen,' Radack lamented on her Twitter feed (the spelling of her post has been conventionalized). This was done despite the fact that none of them has been charged with a criminal offense - but this is a trivial formality in the increasingly Sovietesque American National Security State

If you are forced to keep your money in the bank...and cash is outlawed...the Deep State will have total control over everyone.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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