Behind The War On Cash—-A New Power Grab By Statist Politicians

These are strange monetary times, with negative interest rates and central bankers deemed to be masters of the universe. So maybe we shouldn’t be surprised that politicians and central bankers are now waging a war on cash. That’s right, policy makers in Europe and the U.S. want to make it harder for the hoi polloi to hold actual currency.

The real reason the war on cash is gearing up now is political: Politicians and central bankers fear that holders of currency could undermine their brave new monetary world of negative interest rates. Japan and Europe are already deep into negative territory, and U.S. Federal Reserve Chair Janet Yellen said last week the U.S. should be prepared for the possibility. Translation: That’s where the Fed is going in the next recession.

Negative rates are a tax on deposits with banks, with the goal of prodding depositors to remove their cash and spend it to increase economic demand. But that goal will be undermined if citizens hoard cash. And hoarding cash is easier if you can take your deposits out in large-denomination bills you can stick in a safe. It’s harder to keep cash if you can only hold small bills.

All of which ignores the virtues of cash for law-abiding citizens. Cash allows legitimate transactions to be executed quickly, without either party paying fees to a bank or credit-card processor. Cash also lets millions of low-income people participate in the economy without maintaining a bank account, the costs of which are mounting as post-2008 regulations drop the ax on fee-free retail banking. While there’s always a risk of being mugged on the way to the store, digital transactions are subject to hacking and computer theft.

By all means people should be able to go cashless if they like. But it’s hard to avoid the conclusion that the politicians want to bar cash as one more infringement on economic liberty. They may go after the big bills now, but does anyone think they’d stop there? Why wouldn’t they eventually ban all cash transactions much as they banned gold and silver as mediums of exchange?

Beware politicians trying to limit the ways you can conduct private economic business. It never turns out well.

DYI Comments:  No doubt in this bloggers mind when the next recession hits the U.S.(and Canada) will have negative rates.  How far out and how deep?  Most likely rates from T-Bills to 5 year Treasury notes will go negative with 10 year T-Bonds less than 1% with 30 year T-Bonds under 2%.  Will this push basic savings accounts and CD's at the bank negative?  It is a possibility, unfortunately with worse consequences since sub atomic low rates.  The elderly and retired are generally big CD purchasers for all this will do in finish off the job of COMPLETE IMPOVERISHMENT of this group.

Cash hording along with increase in gold and silver coins will in this scenario.  How much of a police state will be created to do away with these mediums of exchange is unknown at this time.

This is Central Bank madness gone world wide.  Most likely will end in a deflationary smash then accelerate into high rates of inflation (10% to 15%) until saner heads prevail.

DYI