The War on Cash Is a War on Your Freedom to Opt Out

Posted on May 24, 2016 by Charles Hugh Smith

I’ve covered the war on cash i.e. the proposed elimination of cash, a number of times, for example, The War On Cash: Officially Sanctioned Theft (June 13, 2015)
Our first question should be: just how big a share of our financial universe is cash? The answer is: vanishingly small. Look at this chart of total credit in the U.S. economy–$63 trillion–and total cash: $1.45 trillion. Cash is the thin red line at the bottom of the chart–it barely registers.

Meanwhile, total household/non-profit-sector financial assets total $70.3 trillion (net $55.8 trillion minus liabilities of $14.5 trillion).
Total money (currency in circulation and demand deposits) is over $10 trillion.
If cash is such a small share of money and assets, why are governments so keen to ban cash?
The official answer is to limit money-laundering by drug traffickers and criminals. But laundering money through official banking channels is not that difficult, so cash is not necessary for laundering.
Another official reason is tax evasion. But tax evasion is now so easy, once again cash is not required: The World’s Favorite New Tax Haven Is the United States:Moving money out of the usual offshore secrecy havens and into the U.S. is a brisk new business.
THE BIGGEST TAX HAVEN OF THEM ALL? THE U.S., FATCA AND THE CRS “By resisting new global disclosure standards, the U.S. is creating a hot new market, becoming the go-to place to stash foreign wealth. Everyone from London lawyers to Swiss trust companies is getting in on the act, helping the world’s rich move accounts from places like the Bahamas and the British Virgin Islands to Nevada, Wyoming, and South Dakota.”

The irony of the situation has not been lost on at least one foreign observer – a Swiss lawyer quoted in the Bloomberg report:
“How ironic—no, how perverse—that the USA, which has been so sanctimonious in its condemnation of Swiss banks, has become the banking secrecy jurisdiction du jour. That ‘giant sucking sound’ you hear? It is the sound of money rushing to the USA.”
So if large-scale money-laundering and tax evasion no longer require cash, why are governments so anxious to ban cash? The simple answer is to eliminate small-time tax evasion by making every transaction visible to authorities.
This raises the obvious question: how much extra tax revenue would be raisedby eliminating cash purchases at swap meets, garage sales, farmer’s markets, etc.? Let’s face it–the revenues gained would be modest, as many of the people using cash don’t earn enough to pay much income tax anyway.
As for drug-related transactions–does anyone seriously think a buyer of street heroin is going to log the sale electronically via a debit card? Or that the dealer would digitally transact the purchase as “heroin, sold by ABC Dealers, Inc.”?
(Legalizing drugs and treating addictions as a medical issue would eliminate the illegal drug trade in one fell swoop. Look at Portugal’s positive experience as a real-world guide.)
The real goal behind calls to eliminate cash is to limit our freedom to opt out: to drop out of the entire must-get-a-paycheck-and-pay-payroll-taxes lifestyle that supports the status quo.
As I have often noted, a very common response to the decay of the Roman Empire was to opt-out / drop out: in effect, stop working for the Man, stop paying taxes and stop borrowing money.
As taxes rose to crushing levels, productive people fled to monasteries or the relative protection of large estates (whose wealthy owners naturally evaded taxes), or simply went off the grid.
This is known as Voting With Your Feet (August 14, 2015).
There are many ways to opt out, and most involve reducing expenses, living low to the ground and developing multiple income streams. Cash is integral to this lifestyle, and not just for purposes of tax evasion: cash is a proxy for the freedom to maintain some privacy in an era of Big Brother repression, surveillance and the suppression of dissent.
For the record, I am a proponent of rendering under Caesar that which is Caesar’s, i.e. paying all taxes owed to the various levels of government. Evading tax is personally beneficial, but it simply increases the burdens on those who are unable to skim/scam their way out of taxes.
Ultimately, the war on cash is all about increasing control by eliminating privacy and the freedom to abandon the debt-serf rat-race. I should have the right to conduct my business with cash and pay my taxes digitally. Cash is necessary to maintain some modicum of privacy in an age of all-pervasive financial repression, surveillance and the suppression of dissent.
I recently discussed the war on cash with Adam and Daniel of the Wake Up Podcast: The War on Cash with Charles Hugh Smith (YouTube)
Readers of my book A Radically Beneficial World will not be surprised to find that I see crypto-currencies as playing an increasingly important alternative role in a world of state-sponsored financial repression.

A New Digital Cash System Was Just Unveiled At A Secret Meeting For Bankers In New York

Posted on May 2, 2016 by WashingtonsBlog

http://www.washingtonsblog.com/2016/05/a-new-digital-cash-system-was-just-unveiled-at-a-secret-meeting-for-bankers-in-new-york.html 

By Michael Snyder, the Economic Collapse Blog.

Last month, a “secret meeting” that involved more than 100 executives from some of the biggest financial institutions in the United States was held in New York City.  During this “secret meeting“, a company known as “Chain” unveiled a technology that transforms U.S. dollars into “pure digital assets”.  Reportedly, there were representatives from Nasdaq, Citigroup, Visa, Fidelity, Fiserv and Pfizer in the room, and Chain also claims to be partnering with Capital One, State Street, and First Data.  This “revolutionary” technology is intended to completely change the way that we use money, and it would represent a major step toward a cashless society.  But if this new digital cash system is going to be so good for society, why was it unveiled during a secret meeting for Wall Street bankers?  Is there something more going on here than we are being told?
None of us probably would have ever heard about this secret meeting if it was not for a report in Bloomberg.  The following comes from their article entitled “Inside the Secret Meeting Where Wall Street Tested Digital Cash“…

On a recent Monday in April, more than 100 executives from some of the world’s largest financial institutions gathered for a private meeting at the Times Square office of Nasdaq Inc. They weren’t there to just talk about blockchain, the new technology some predict will transform finance, but to build and experiment with the software.

By the end of the day, they had seen something revolutionary: U.S. dollars transformed into pure digital assets, able to be used to execute and settle a trade instantly. That’s the promise of a blockchain, where the cumbersome and error-prone system that takes days to move money across town or around the world is replaced with almost instant certainty.

So it is not just Michael Snyder from The Economic Collapse Blog that is referring to this gathering as a “secret meeting”.  This is actually how it was described by Bloomberg.  And I think that there is a very good reason why this meeting was held in secret, because many in the general public would definitely be alarmed by this giant step toward a cashless society.  Here is more on this new system from Bloomberg…

While cash in a bank account moves electronically all the time today, there’s a distinction between that system and what it means to say money is digital. Electronic payments are really just messages that cash needs to move from one account to another, and this reconciliation is what adds time to the payments process. For customers, moving money between accounts can take days as banks wait for confirmations. Digital dollars, however, are pre-loaded into a system like a blockchain. From there, they can be swapped immediately for an asset.
“Instead of a record or message being moved, it’s the actual asset,” Ludwin said. “The payment and the settlement become the same thing.”

Why this is so alarming is because we are seeing other major moves toward a cashless system all over the planet.  In Sweden, 95 percent of all retail transactions are already cashless, and ATM machines are being removed by the hundreds.  In Denmark, government officials actually have a stated goal of “eradicating cash” by the year 2030.  And in Norway, the biggest bank in the country has publicly called for the complete elimination of all cash.
Other nations in Europe have already banned cash transactions over a certain amount. Here are just a couple of examples…

As I have written about previously, cash transactions of more than 2,500 euros have already been banned in Spain, and France and Italy have both banned all cash transactions of more than 1,000 euros.
Little by little, cash is being eradicated, and what we have seen so far is just the beginning. 417 billion cashless transactions were conducted in 2014, and the final number for 2015 is projected to be much higher.

The global push toward a cashless society is only going to intensify, because banks and governments both tend to really like the idea of such a system.
Banks really like the concept of a cashless society because it would force everyone to be their customers.  There would be no more hiding cash in a mattress at home or trying to pay all of your bills with paper money.  Under a cashless system, we would all be dependent on the banks, and they would make lots of money whenever we swiped our cards or our “chips” were scanned.
Governments see a lot of advantages in a cashless society as well.  They tell us that they would be able to crack down on drug dealers, tax evaders, terrorists and money launderers, but the truth is that it would enable them to watch, track, monitor and control virtually all of our financial transactions.  Our lives would become open books to the government, and financial privacy would be a thing of the past.
In addition, the potential for tyranny would be absolutely off the charts.
Just imagine a world where the government could serve as the gatekeeper for who is allowed to use the cashless system and who is not.  They could require that we all submit to some sort of government-issued form of identification before being permitted to operate within the system, or it is even conceivable that a loyalty oath would be required.
Of course if you did not submit to their demands, you could not buy, sell, open a bank account or get a job without access to the cashless system.
Hopefully people can understand where this is going.  Paper money is a very important component of our freedom, and if it is taken away from us that will open the door for all sorts of abuse.
Even now, cash is slowly being “criminalized” in America.  For example, if cash is used to pay for a hotel room that is considered by federal authorities to be “suspicious activity” that should be reported to the government.  Of course it isn’t against the law to pay your hotel bill in cash just yet, but according to the government it is something that “terrorists” do so it needs to be closely watched.
It doesn’t take a whole lot of imagination to see where all of this is going.  And for those of us that understand what time it is, this is a clear indication that it is getting late in the game.

The Inevitable Failure Of The War On Cash

Submitted by Tyler Durden on 04/04/2016 17:55 -0400
http://www.zerohedge.com/news/2016-04-04/inevitable-failure-war-cash
Submitted by Jeff Thomas via InternationalMan.com,
Some years ago, when I suspected there would be a War on Cash at some point, everything in the behaviour of the central banks pointed to the idea—it fit exactly into their own informed, yet unrealistic, pattern of logic. I therefore decided that it would be a likely development and would take place at a time when they had tried everything else and had run out of other ideas. As to a date when this might happen…I had no idea.
When several countries had begun to limit the amount of money that a depositor could take out of a bank, I decided that the first shots in the War on Cash had been fired and began to publish my prognostications as to what shape it would take. First, there were the benefits to the bank (the elimination of cash transactions, which would assure that virtually all monetary transactions, large and small, would have to be passed through banks, allowing them to effectively “own” all deposits, charge for every transaction and even refuse transactions). The governments would also benefit. In approving the banks’ monopoly on monetary transactions, they’d benefit primarily through the new ability to tax people by direct debit, ending any remnant of voluntary payment of taxation.
What I didn’t anticipate at that time was that, within a few months, the War on Cash would be escalated quickly—more quickly than was safe for them to do, as it could alarm depositors. (As in the old analogy of boiling a frog, it’s always best to turn up the heat slowly, to lull the victim into complacency as he’s being done in.)
This indicated to me that the central banks had decided that they’d already waited too late and had better hurry up the programme to assure that it was in place before a currency crisis could heat up.
Since then, someone came up with an excellent name for the phenomenon, one that succinctly describes the plan in a nefarious way, as it deserves to be described—the War on Cash. Today, anyone who is paying attention is aware of the War on Cash and what it might do to him. As each new salvo by the banks and governments is uncovered, attentive observers are publishing such developments on the Internet.
However, there’s another facet to the War on Cash that no one (to my knowledge) has yet addressed. The war is still new, and those who will be attacked are understandably still scrambling for their muskets and hurrying to the ramparts. (Musing on how a war will play out usually comes later, as it’s winding down and a victor seems apparent. However, in my belief, it’s wise to examine what the landscape will look like after the war is over, as it can serve to inform us as to what battle tactics should be employed.)
So, let’s have a look. First off, we know that whenever there’s a coming monetary collapse, major banks look forward to employing their political influence to assure that legislation and emergency government measures protect them in a way that results in putting upcoming competitors out of business. We can expect the same this time around. These smaller banks arise during boom times by creating many small branches—the type seen in strip malls and shopping villages. Typically, they have only 1,000 or so depositors per bank—just barely enough to create profit, but, as “convenience banks,” they can count on a steady business from those who live nearby.
Larger banks also tend to create numerous branches during good times, in order to hold down the rising competition; however, they resent the need to create endless less-profitable entities that tie up funds that could otherwise go out as directors’ bonuses. Consequently, when a monetary crisis occurs and the government steps in to help out the major banks, many of the smaller competitors are driven under, as they don’t receive the same governmental support. At such times, we see the edifices in the city remain, whilst the little banks in the strip mall disappear. The majors can now be rid of them. During a banking crisis, a country returns to 19th-century banking in terms of available institutions. Want to make a deposit? Make a trip into the city.
In keeping with the War on Cash, ATMs will also be eliminated. All transactions will be by plastic card or smartphone.
Certainly, as a result of the dangerous position the banks will already be in, we shall witness a steady increase in the charges by banks for the privilege of having them control depositors’ economic worth. Worse, we shall witness the outright confiscation of deposits (as in Cyprus in 2013) and the control of how much a depositor may debit his account in any given week (as in Greece today). It’s at this point that a universal trend to get around the banks’ control will unquestionably take hold. This, I believe, will manifest itself in two ways: top down and bottom up.

Top Down

As I write, bank branches—all of them in small towns—are already closing in “lesser” countries like Romania. This will both grow and spread eventually, to more prominent countries. Banking will be increasingly difficult for depositors, as the ability to actually talk to individuals at the bank will dry up. The bank will become more like a faceless authority that holds power over depositors’ money and will grow to be hated in a relatively short time. (Most of the people of the world have already learned to be deeply distrusting of banks and bankers; outright hatred would not be a major next step.)

Bottom Up

In the Eastern provinces of Mexico, the Campesinos already eschew banks, choosing instead to store their money privately. (Chiapas Province is in a virtual economic war with Western Mexico. They value the Libertad as East Indians value gold.) Those Mexicans who live further to the west regard their eastern brothers as somewhat lawless and uncivilised at present. However, when the Campesinos prove to be surviving the crisis better than their western neighbours are, the western provinces will, of necessity, follow their lead. Mexico will be amongst the first countries to return to precious metals as the primary (if not sole) currency, setting the stage for other countries.
Countries such as Romania and Mexico will serve as an early-warning system. The solutions they and other “fringe” countries employ will spread quickly to the larger world. In order to keep from being controlled by banks, the average person in the EU, U.S. and other “civilised” jurisdictions will learn quickly that, if other forms of trade (alternate currencies, precious metals, barter, etc.) allow him to feed his children when the banks restrict him, he’ll resort to any and all forms of black market dealing that he can find.

The Treaty of Versailles

Following World War I, the victors decided to economically cripple the losers—the Germans. The Treaty of Versailles was ruthless in its purpose—to strip Germany of all possibility of future prosperity, so that it could never rise again.
Of course, what happened was the opposite. Following an economic collapse just five years after the war, the German people, now desperate, chose to follow a new leader who promised that he would “make Germany great again.” The more arrogant he became, the more support he received. The oppression of the treaty failed, as Germans, pushed to the wall, came out fighting.
I believe that the War on Cash will end without such an extreme, but, just as with the Treaty of Versailles, will be stopped by the people of the world as a result of a monetary stricture that is simply too oppressive to be tolerated. This will by no means be a pleasant historical period to travel through. Many people will have their savings wiped out. Many will literally starve. But the anger that’s created in them will reveal the banks as the clear “enemy” in this drama, and those citizens who are presently respectful of the laws of their country will increasingly defy the enemy. They will resort to an alternate system. This is historically what has always occurred when people have been squeezed to this degree, and it will repeat itself this time around.

Is a Ban on Physical Cash Coming Soon?

Submitted by Phoenix Capital Research on 10/07/2015 18:54 -0400
http://www.zerohedge.com/news/2015-10-07/ban-physical-cash-coming-soon

The Central Banks hate physical cash. So much so they there will likely try to ban it in the near future.

You see, almost all of the “wealth” in the financial system is digital in nature.

1)   The total currency (actual cash in the form of bills and coins) in the US financial system is a little over $1.36 trillion.

2)   When you include digital money sitting in short-term accounts and long-term accounts then you’re talking about roughly $10 trillion in “money” in the financial system.

3)   In contrast, the money in the US stock market (equity shares in publicly traded companies) is over $20 trillion in size.

4)   The US bond market  (money that has been lent to corporations, municipal Governments, State Governments, and the Federal Government) is almost twice this at $38 trillion.

5)   Total Credit Market Instruments (mortgages, collateralized debt obligations, junk bonds, commercial paper and other digitally-based “money” that is based on debt) is even larger $58.7 trillion.

6)   Unregulated over the counter derivatives traded between the big banks and corporations is north of $220 trillion.

When looking over these data points, the first thing that jumps out at the viewer is that the vast bulk of “money” in the system is in the form of digital loans or credit (non-physical debt).

Put another way, actual physical money or cash (as in bills or coins you can hold in your hand) comprises less than 1% of the “money” in the financial system.

As far as the Central Banks are concerned, this is a good thing because if investors/depositors were ever to try and convert even a small portion of this “wealth” into actual physical bills, the system would implode (there simply is not enough actual cash).

Remember, the current financial system is based on debt. The benchmark for “risk free” money in this system is not actual cash but US Treasuries.

In this scenario, when the 2008 Crisis hit, one of the biggest problems for the Central Banks was to stop investors from fleeing digital wealth for the comfort of physical cash. Indeed, the actual “thing” that almost caused the financial system to collapse was when depositors attempted to pull $500 billion out of money market funds.

A money market fund takes investors’ cash and plunks it into short-term highly liquid debt and credit securities. These funds are meant to offer investors a return on their cash, while being extremely liquid (meaning investors can pull their money at any time).

This works great in theory… but when $500 billion in money was being pulled (roughly 24% of the entire market) in the span of four weeks, the truth of the financial system was quickly laid bare: that digital money is not in fact safe.

To use a metaphor, when the money market fund and commercial paper markets collapsed, the oil that kept the financial system working dried up. Almost immediately, the gears of the system began to grind to a halt.

When all of this happened, the global Central Banks realized that their worst nightmare could in fact become a reality: that if a significant percentage of investors/ depositors ever tried to convert their “wealth” into cash (particularly physical cash) the whole system would implode.

As a result of this, virtually every monetary action taken by the Fed since this time has been devoted to forcing investors away from cash and into risk assets. The most obvious move was to cut interest rates to 0.25%, rendering the return on cash to almost nothing.

However, in their own ways, the various QE programs and Operation Twist have all had similar aims: to force investors away from cash, particularly physical cash.

After all, if cash returns next to nothing, anyone who doesn’t want to lose their purchasing power is forced to seek higher yields in bonds or stocks.

The Fed’s economic models predicted that by doing this, the US economy would come roaring back. The only problem is that it hasn’t. In fact, by most metrics, the US economy has flat-lined for several years now, despite the Fed having held ZIRP for 5-6 years and engaged in three rounds of QE.

As a result of this… mainstream economists at CitiGroup, the German Council of Economic Experts, and bond managers at M&G have suggested doing away with cash entirely.

If you think this sounds like some kind of conspiracy theory, consider that France just banned any transaction over €1,000 Euros from using physical cash. Spain has already banned transactions over €2,500. Uruguay has banned transactions over $5,000. And on and on.

This is just the beginning. Indeed… we've uncovered a secret document outlining how the US Federal Reserve plans to incinerate savings.

One Part Of The Economy Is Booming: The Underground/Cash-Only Sector

Submitted by Tyler Durden on 10/09/2015 08:24 -0400
http://www.zerohedge.com/news/2015-10-09/one-part-economy-booming-undergroundcash-only-sector 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

If you make it so burdensome to operate a legit business, then you're basically giving people without big lines of credit and capital few choices but to work in the cash-only underground economy.

It won't be much of a surprise to those living outside the Washington D.C. beltway and the Unicorn Herd of start-ups selling for millions of dollars that the underground cash-only economy is one of the few bright spots in the U.S. economy. Correspondent B.U. recently submitted this report from rural America in response to my entry What Happens to our Economy as Millions of People Lose the Habits of Hard Work?, which mentioned those in the cash-only sector as not showing up in official employment statistics:

It is very common for folks where I live to get some form of subsidy be it SSI or WIC or whatever. Then they maintain their lifestyle by:

-- Selling items for cash on Craigslist:

This is mostly sub $1500 cars, Building materials or scrap metal.

I know quite a few folks that are doing very well in this line of business.

--Selling at various ‘trades-days’:

A friend mine clears ~$100K just trading in gold, firearms and ammunition.

Others I know trade cattle and livestock.

Another friend repairs cars at his home. He has weeks of backlog and turns away work all the time.

The key to all of this is that these folks have no official business. They trade only in cash. They do not make deposits in the bank except for the government checks.

The point is that for these folks, unplugging was a pay raise just in the tax exposure.When they get sick, they claim indigent and get whatever they need.

The spread between the burden of regulation and taxes is getting so onerous that folks are just falling into the very solution you describe.

I believe your focus is more professional in nature in terms of folks being a hired gun (i.e. free-lancer/contract employee). But what I see are the non-professionals as the ones who are really moving to fill the void of value that is growing as deflation/inflation oscillate.

Thank you, B.U., for the straight-up report from the real world. Despite the fact I pay all my taxes (and am royally reamed as a result), I sympathize with those making tax-free incomes in the cash-only economy.

Back when I had multiple employees in the 1980s, I was basically working to pay workers compensation insurance (40% to 80% of the hourly wage for construction workers), liability coverage, unemployment insurance, disability insurance, FICA (employers' share of Social Security), excise tax, income tax, rent on the office that we were required by law to maintain, healthcare insurance for all the employees, filling out HUD/FHA forms required when building homes with FHA loans, and so on. Then there's the cost of accounting and tax returns (complicated when you're operating a business), and a long list of other expenses I've forgotten.

My partner and I had a stock response when any employee griped about all the money we must be making: we'd take out our keys to the office and offer it to them, and say "payday's on Friday. It's all yours." I'd have been relieved if any had been dumb enough to accept the offer. No one ever did.

It's no wonder that legit small business and self-employment is often a struggle for financial survival. I've covered the travails of one serial entrepreneur in launching a new business in today's America: the costs were so heavy that he gave up. It was impossible to actually make a living once you met all the absurd regulations, codes and requirements.

The people enforcing the regulations ("just doing my job") are paid by taxpayers; their job is safe, their paycheck and benefits guaranteed.

Our Government, Destroyer of Jobs (August 12, 2015)

The Troubling Decline of Financial Independence in America (August 28, 2015)

The Fading American Dream of Working for Yourself (October 2015)

Financial independence is the American Dream because it gives us the freedom to say Take This Job And Shove It (Johnny Paycheck).

This chart shows the tax-paying self-employed as a percentage of those with jobs (all nonfarm employees). According to the FRED data base, there are 142 million employed and 9.4 million self-employed. (The incorporated self-employed, typically physicians, attorneys, engineers, architects etc. who are employees of their own corporations, total about 5 million.)

This chart depicts self-employment from 1929 to 2015. Self-employment is cratering in the "recovery" of high taxes, senseless regulations and burdensome report-filing (big fines if you don't comply), tax preparation, business licence fees, fishing-expedition lawsuits, etc.

I have no problem with paying all my taxes for a couple of reasons. One relates to "Render therefore unto Caesar the things which are Caesar's." That's my view, but I don't hold anyone else to it. That's up to them to deal with.

I live by Andy Grove's dictum Only the paranoid survive and for good reasons. (Intel co-founder Grove wrote a book with this as the title: Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company.)

Having experienced COINTELPRO in the early 1970s, I know what's it like to be an enemy of the State. Violating tax codes makes you a very easy target for the state. If you want to draw a target on your back, be my guest. I'm going to pass.

(The FBI thug who "was just doing his job" snarled at me, "This isn't the Sunshine Biscuit Company, this is the FBI!" Hopefully their witty-threat training has improved.)

Anyone who can't find a state/Corporate America job or says Take This Job And Shove It has my sympathy. I've been down to my last $100, and it's a lonesome, troublesome feeling. If you make it so burdensome to operate a legit business, then you're basically giving people without big lines of credit or plenty of capital and regulatory expertise few choices but to work in the cash-only underground economy.

"It's Time To Hold Physical Cash", Fidelity Manager Warns Ahead Of "Systemic Event"

Submitted by Tyler Durden on 06/22/2015 05:30 -0400
http://www.zerohedge.com/news/2015-06-21/its-time-hold-physical-cash-fidelity-manager-warns-ahead-systemic-event
As Jamie Dimon recently noted while discussing the perils of illiquid fixed income markets, the statistics around “tail events” can no longer be trusted.
In other words, 6, 7, or 8 standard deviation moves that in theory should only happen once every two or three billion years may now start to show up once every two to three months. Evidence of this can be found in October's Treasury flash crash, January's fantastic franc fuss, and last month's Bund VaR shock.
Why is this happening? Simple. There’s no liquidity left and the idea of efficient markets facilitating reliable price discovery is an anachronism.
Today’s broken, “mangled” (to use Citi’s descriptor) markets come courtesy of: 1) frontrunning, parasitic HFTs, 2) the post-crisis regulatory regime which, to the extent it’s well meaning, was conceived by people who never had any hope of evaluating the likely knock-on effects of their policies, and 3) central banks, who have commandeered sovereign debt markets, leaving a trail of illiquidity and shrunken repo in their wake.
Meanwhile, equity and fixed income bubbles continue to inflate on the back on central bank largesse and the only two options for rescuing a highly leveraged world are writedowns and/or inflating away the debt.
So what is a savvy investor to do in this powderkeg environment? Simple, says Fidelity’s Ian Spreadbury: own gold, silver, and physical cash. 
Via The Telegraph:

The manager of one of Britain’s biggest bond funds has urged investors to keep cash under the mattress.

Ian Spreadbury, who invests more than £4bn of investors’ money across a handful of bond funds for Fidelity, including the flagship Moneybuilder Income fund, is concerned that a “systemic event” could rock markets, possibly similar in magnitude to the financial crisis of 2008, which began in Britain with a run on Northern Rock.

“Systemic risk is in the system and as an investor you have to be aware of that,” he told Telegraph Money.

The best strategy to deal with this, he said, was for investors to spread their money widely into different assets, including gold and silver, as well as cash in savings accounts. But he went further, suggesting it was wise to hold some “physical cash”, an unusual suggestion from a mainstream fund manager.

He pointed out that a saver was covered only up to £85,000 per bank under the Financial Services Compensation Scheme – which is effectively unfunded – and that the Government has said it will not rescue banks in future, hence his suggestion that some money should be held in physical cash.

He declined to predict the exact trigger but said it was more likely to happen in the next five years rather than 10. The current woes of Greece, which may crash out of the euro, already has many market watchers concerned..

Mr Spreadbury's views are timely, aside from Greece. A growing number of professional investors and commentators are expressing unease about what happens next..

“The problem is that people are struggling to work out how to diversify if QE programmes stop,” he said.

Mr Spreadbury added: “We have rock-bottom rates and QE is still going on – this is all experimental policy and means we are in uncharted territory.

“The message is diversification. Think about holding other assets. That could mean precious metals, it could mean physical currencies.”

As The Telegraph notes, this is "an unusual" piece of advice coming from "a mainstream strategist" and it suggests the "serious people" are starting to realize that a certain tin foil hat fringe blog — which can already count LIBOR manipulation and HFT proliferation as examples of conspiracy theories turned world-changing conspiracy facts — may be correct to warn that if the current state of affairs persists for much longer, the "market" may one day be halted and simply never reopen.

Goldman Asks, Is The Bundesbank "Ominously" Trying To Sabotage The ECB's QE?

Submitted by Tyler Durden on 06/17/2015 04:00 -0400
http://www.zerohedge.com/news/2015-06-16/goldman-asks-ominously-bundesbank-trying-sabotage-ecbs-qe
When the sell-off in German Bunds first got going, it looked like a temporary squeeze, with the largest position in the market – the ECB QE trade – coming under pressure after much weaker-than-expected Q1 GDP on 4/29.


However, as (Draghi mouthpiece) Goldman notes, there is something more than supply dynamics or ECB communications going on, as the Bundesbank (Buba) buying has fallen short of its purchases (in average maturity terms) from the very beginning. Goldman warns, ominously, this kind of signal – from the key hawk in the Eurosystem – has the potential to undercut the credibility of ECB QE, since it weakens the portfolio balance channel.
*  *  *
Goldman previously argued that the weak activity reading rattled a market that had been operating on a core thesis of strong US growth. The resulting uncertainty caused Bund yields and EUR/$ to rise, with the DAX also selling off on the day. Since then, something more ominous has come into play...

One clue has been the communications ping pong from the ECB. On May 18, Executive Board member Coeure said “the rapidity of the reversal in Bund yields is worrisome,” citing it as another example of “extreme volatility in global capital markets.”

ECB President Draghi sent the opposite message on Jun. 3, saying “one lesson is that we should get used to periods of higher volatility,” followed on Jun. 10 by Executive Board member Coeure stating that “the ECB does not intend to counter [Bund] volatility in the short term."

Goldman took a dim view of all this in our last FX Views, even if a charitable interpretation is that President Draghi basically sent a dovish message on Jun.10 and simply didn’t want to signal "activism" in the face of short-term volatility.

After all, one goal of ECB QE ought to be to make Europe’s safe haven asset (Bunds) expensive, so that investors get pushed into risky assets like equities and the Euro periphery.

If there is ambivalence, it sends a harmful message to markets that, after all, are still new to ECB QE. This might be one reason why EUR/$ has held up, even as US data (payrolls, retail sales) have picked up.



There is something more than supply dynamics or ECB communications going on, something that has the potential to undercut the credibility of ECB QE.

As Goldman explains below, the Bundesbank has reduced the weighted-average maturity of its Bund purchases from 8.1 years in March to 5.7 in May, in contrast to the Eurosystem as a whole where this number has stayed around 8.0 years.

It's not like the Bundesbank is not spending its money (as we noted previously, in fact May - just as ECB telegraphed to its most valuable clients - saw purchases soar)..


but it is what it is spending it on, not how much that matters...

The ECB publishes monthly data for the outstanding stock of bonds bought under its QE program, together with a weighted average for the corresponding number of years to maturity. We use these data to calculate the average maturity of monthly buying by the Eurosystem (Exhibit 3).



This shows that the average maturity of ECB bond buying is around 8.0 years, in line with what Executive Board member Coeure said in his May 18 speech. However, while Italy and Spain see purchases that have an average maturity above that of the outstanding debt stock, Bundesbank buying has fallen short from the very beginning.

There are obviously many explanations for what is going on (see below).

But this kind of signal – from the key hawk in the Eurosystem – has the potential to undercut the credibility of ECB QE, since it weakens the portfolio balance channel.

After all, it was supposed to be low yields in core Europe into risk assets. If those yields now rise and become more volatile, such portfolio effects will be lessened.

*  *  *
What Goldman is implicitly suggesting is:

Buba is intentionally focusing on shorter-dated maturities, unwilling to throw away its cash on the high prices that bond holders will demand for high cash coupon debt (when in fact the central bank should be price agnostic if it had truly "got ECB religion")

So is Buba really sabotaging Draghi?
Or is this a warning to Weidmann to stop being stingy with the bond buying?
Remember also, Goldman needs low-ish bond yields and low-ish volatility for its QE-driven weak EUR trade to pay off...

It remains our view that fundamentals will ultimately take EUR/$ lower in line with our forecast. That said, we see recent Bund volatility and what it means for the credibility of ECB QE as the first material challenge to our view.

So there's ulterior motives for this 'warning' whereever we look.
*  *  *
Perhaps it is also the timing of such a note that implies a louder warning... with Grexit around the corner, those "expensive" long-dated Bunds are going to be even more pricey when Buba needs to step in and buy to prove contagion is not there.

Bundesbank Chief Says "Nein" To Cash Ban

Submitted by Tyler Durden on 06/17/2015 09:29 -0400
http://www.zerohedge.com/news/2015-06-17/bundesbank-chief-says-nein-cash-ban
Last month, the calls for a cashless society got a bit louder when Peter Bofinger, a member of the German Council Of Economic Experts and a prominent Keynesian economist in a land where sound money policies generally predominate, called coins and bills “an anachronism” that limits the influence of central banks. Bofinger’s comments come on the heels of a growing chorus of cash abolitionists including Harvard economist Ken Rogoff and Citi’s Willem Buiter. Why a cashless society you ask? Here’s a brief refresher:
The collective actions of the world’s most influential central banks have done wonders when it comes to inflating asset bubbles but have done very little to revive robust economic growth. In fact, far from smoothing out the business cycle and resuscitating DM demand, post-crisis monetary policy has actually had the exact opposite effect: it has set the stage for an even more spectacular collapse while simultaneously creating a worldwide deflationary supply glut. At this stage, a sane person might be tempted to call it a day on the monetary experiments, especially considering that the limits have been reached. That is, there are literally no more assets to buy and rates have hit the effective lower bound where rational actors will eschew bank deposits in favor of the mattress. But not so fast. The world could always ban cash because if you eliminate physical currency and force people to use a debit card linked to a government controlled bank account for all transactions, you can effectively centrally plan everything. Consumers not spending? No problem. Just tax their excess account balance. Economy overheating? Again, no problem. Raise the interest paid on account holdings to encourage people to stop spending.
On the heels of Bofinger’s comments we said the following: “Paging Mr. Weidmann, your countrymen are going Keynesian crazy.”
Lo and behold, Weidmann has indeed entered the debate and unsurprisingly, he is not a fan of the cash ban calls. FAZ has more (via Google translate):

Bundesbank President Jens Weidmann has advocated that cash despite technical innovations and digitization should continue to play an important role in payment transactions. "The Bundesbank does not believe to abolish the cash," Weidmann said on Monday in Frankfurt at the biennial held payments Symposium of the central bank. On the one hand, every citizen should continue to pay as he wants - "So cash or cashless" argued Weidmann. Secondly, monetary policy would be reasons that may be brought against the adherence to the cash, "standing on feet of clay."

By its second justification Weidmann resorted to the last often raised by critics cash-argument, in a world without cash monetary policy would work better. Underlying this is the idea that savers react to negative interest rates of the central and commercial banks, by removing their money from accounts and keep in the form of cash. If there were no cash, the negative interest rates would direct impact on the accounts of depositors. Because they can not just withdraw your money, they would consume more and invest instead - and thus stimulate economic growth.

Weidmann contradicted this argument sharp. On the one hand, a moderate negative interest would not necessarily "lead flight to cash" to.On the other hand - and this is much more important - going discussion on "real problem" over. The control and capital market interest rates are due to the subdued growth prospects "and a subdued inflationary pressures in the foreseeable future" at a low level. The expansive monetary policy of central banks is to be understood as a reaction to it. So the most important task was to tackle the cause of the weak growth in the euro area. "So if the weak growth is the crux of the problem, then it is necessary to overcome this weakness, rather than to operate daring acrobatics in the form of wanting to do away with the cash, so that the monetary policy seem even more expansive and cover long-term structural problems in the short term with cheap money can "Weidmann said.

So once the Keynesian cabal gets its way and abolishes cash, effectively weighing the anchor on negative rates and thereby making it possible to manipulate not only macroeconomic outcomes, but microeconomic ones as well, it appears those who still value their right to choose for themselves how and when they spend their money can at least move to Germany where Bubba will make one last stand against the insidious Peter Pan crowd.

The War On Cash: Officially Sanctioned Theft

Submitted by Tyler Durden on 06/13/2015 22:15 -0400
http://www.zerohedge.com/news/2015-06-13/war-cash-officially-sanctioned-theft
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
While the benefits to banks and governments of banning physical cash are self-evident, there are downsides to the real economy and to household resilience.

You've probably read that there is a war on cash being waged on various fronts around the world. What exactly does a war on cash mean?

It means governments are limiting the use of cash and a variety of official-mouthpiece economists are calling for the outright abolition of cash. Authorities are both restricting the amount of cash that can be withdrawn from banks, and limiting what can be purchased with cash.

These limits are broadly called capital controls.

The War On Cash: Why Now?

Why are governments suddenly acting as if cash money is a bad thing that must be severely limited or eliminated?

Before we get to that, let’s distinguish between physical cash—currency and coins in your possession—and digital cash in the bank. The difference is self-evident: cash in hand cannot be confiscated by a “bail-in” (i.e. officially sanctioned theft) in which the government or bank expropriates a percentage of cash deposited in the bank.  Cash in hand cannot be chipped away by negative interest rates or fees like cash held in a bank.

Cash in the bank cannot be withdrawn in a financial emergency that shutters the banks, i.e. a bank holiday.

When pundits suggest cash is “obsolete,” they mean physical paper money and coins, not cash in a bank. Cash in the bank is perfectly fine with the government and its well-paid yes-men (paging Mr. Rogoff and Mr. Buiter) because this cash can be expropriated by either “bail-ins” or by negative interest rates.

Mr. Buiter, for example, recently opined that the spot of bother in 2008-09 (the Global Financial Meltdown) could have been avoided if banks had only charged a 6% negative interest rate on cash: in effect, taking 6% of the depositor’s cash to force everyone to spend what cash they might have.

Both cash in hand and cash in the bank are subject to one favored method of expropriation, inflation. Inflation—the single most cherished goal of every central bank—steals purchasing power from physical cash and digital cash alike. Inflation punishes holders of cash and benefits those with debt, as debt becomes cheaper to service.

The beneficial effect of inflation on debt has been in play for decades, so it can’t be the cause of governments’ recent interest in eliminating physical cash.

So now we return to the question: Why are governments suddenly declaring war on physical cash, the oldest officially issued form of money?

The first reason: physical cash has the potential to evade both taxes as well as officially sanctioned theft via bail-ins and negative interest rates. In short, physical cash is extremely difficult for governments to steal.

Some of you may find the word theft harsh or even offensive. But we must differentiate between taxes—which are levied to pay for the state’s programs that in principle benefit all citizens—and bail-ins, i.e. the taking of depositors’ cash to bail out banks that became insolvent through the actions of the banks’ management, not the actions of depositors.

Bail-ins are theft, pure and simple.  Since the government enforces the taking, it is officially sanctioned theft, but theft nonetheless.

Negative interest rates are another form of officially sanctioned theft.  In a world without the financial repression of zero-interest rates (ZIRP—central banks’ most beloved policy), lenders would charge borrowers enough interest to pay depositors for the use of their cash and earn the lender a profit.

If borrowers are paying interest, negative interest rates are theft, pure and simple.

Why are governments suddenly so keen to ban physical cash? The answer appears to be that the banks and government authorities are anticipating bail-ins, steeply negative interest rates and hefty fees on cash, and they want to close any opening regular depositors might have to escape these forms of officially sanctioned theft.  The escape from bail-ins and fees on cash deposits is physical cash, and hence the sudden flurry of calls to eliminate cash as a relic of a bygone age—that is, an age when commoners had some way to safeguard their money from bail-ins and bankers’ control.

Forcing Those With Cash To Spend Or Gamble Their Cash

Negative interest rates (and fees on cash, which are equivalently punitive to savers) raise another question: why are governments suddenly obsessed with forcing owners of cash to either spend it or gamble it in the financial-market casinos?

The conventional answer voiced by Mr. Buiter is that recession and credit contraction result from households and enterprises hoarding cash instead of spending it.  The solution to recession is thus to force all those stingy cash hoarders to spend their money.

There are three enormous flaws in this thinking.

One is that households and businesses have cash to hoard.  The reality is the bottom 90% of households have less income now than they did 15 years ago, which means their spending has declined not from hoarding but from declining income.

While Corporate America has basked in the glory of sharply rising profits, small business has not prospered in the same fashion. Indeed, by some measures, small business has been in a 6-year recession.

The bottom 90% has less income and faces higher living expenses, so only the top slice of households has any substantial cash.  This top slice may see few safe opportunities to invest their savings, so they choose to keep their savings in cash rather than gamble it in a rigged casino (i.e. the stock market).

The second flaw is that hoarding cash is the only rational, prudent response in an era of financial repression and economic insecurity. What central banks are demanding--that we spend every penny of our earnings rather than save some for investments we control or emergencies—is counter to our best interests.

This leads to the third flaw: capital -- which begins its life as savings -- is the foundation of capitalism. If you attack savings as a scourge, you are attacking capitalism and upward mobility, for only those who save capital can invest it to build wealth. By attacking cash, the central banks and governments are attacking capital and upward mobility.

Those who already own the majority of productive assets are able to borrow essentially unlimited sums at near-zero interest rates, which they can use to buy more productive assets, while everyone else--the bottom 99.5%--is reduced to consumer-serfdom: you are not supposed to accumulate productive capital, you are supposed to spend every penny you earn on interest payments, goods and services.

This inversion of capitalism dooms an economy to all the ills we are experiencing in abundance: rising income inequality, reduced opportunities for entrepreneurship, rising debt burdens and a short-term perspective that voids the longer-term planning required to build sustainable productivity and wealth.

Physical Cash: Only $1.36 Trillion

According to the Federal Reserve, total outstanding physical cash amounts to $1.36 trillion.

Given that a substantial amount of this cash is held overseas, physical cash is a tiny part of the domestic economy and the nation’s total assets. For context: the U.S. economy is $17.5 trillion, total financial assets of households and nonprofit organizations total $68 trillion, base money is around $4 trillion, and total money (currency in circulation and demand deposits) is over $10 trillion (source).

Given the relatively modest quantity of physical cash, claims that eliminating it will boost the economy ring hollow.

Following the principle of cui bono—to whose benefit?--let’s ask: What are the benefits of eliminating physical cash to banks and the government?

Benefits To Banks And The Government Of Eliminating Physical Cash

The benefits to banks and governments by eliminating cash are self-evident:

1. Every financial transaction can be taxed
2. Every financial transaction can be charged a fee
3. Bank runs are eliminated

In fractional reserve systems such as ours, banks are only required to hold a fraction of their assets in cash.  Thus a bank might only have 1% of its assets in cash. If customers fear the bank might be insolvent, they crowd the bank and demand their deposits in physical cash. The bank quickly runs out of physical cash and closes its doors, further fueling a panic.

The federal government began insuring deposits after the Great Depression triggered the collapse of hundreds of banks, and that guarantee limited bank runs, as depositors no longer needed to fear a bank closing would mean their money on deposit was lost.

But since people could conceivably sense a disturbance in the Financial Force and decide to turn digital cash into physical cash as a precaution, eliminating physical cash also eliminates the possibility of bank runs, as there will be no form of cash that isn’t controlled by banks.

While the benefits to banks and governments of banning physical cash are self-evident, there are downsides to the real economy and to household resilience.

In Part 2: What To Do With Your Cash Savings, we'll look at the most influential forces in play in this war, and consider strategies for preserving purchasing power, avoiding bail-ins, fees and other threats to cash savings.

Louisiana Bans Cash Transactions on Used Goods!

Posted on April 10, 2015 by The Doc
http://www.silverdoctors.com/louisiana-bans-cash-transactions-on-used-goods/
The State of Louisiana has just passed new legislation BANNING cash transactions for used goods, mandating that any purchase be made via check, electronic transfers, or money order issued to the seller.
The draconian new law also requires all transactions to provide the State documentation of a description of the goods sold, and the client’s personal information including name, address, driver’s license number and the license plate number!

LA House Bill 195 updates the original bill passed in 2011:

Every person in this state engaged in the business of buying, selling, trading in, or otherwise acquiring or disposing of junk or used or secondhand property, including but not limited to jewelry, silverware, diamonds, precious metals, ferrous materials, catalytic converters, auto hulks, copper, copper wire, copper alloy,  bronze, zinc, aluminum other than in the form of cans, stainless steel, nickel alloys, or brass, whether in the form of bars, cable, ingots, rods, tubing, wire, wire scraps, 10 clamps or connectors, railroad track materials, water utility materials, furniture, pictures, objects of art, clothing, mechanic’s tools, carpenter’s tools, automobile hubcaps, automotive batteries, automotive sound equipment such as radios, CB radios, stereos, speakers, cassettes, compact disc players, and similar automotive audio supplies, used building components, and items defined as cemetery artifacts  is a secondhand dealer.

Anyone, other than a nonprofit entity, who buys,sells, trades in, or otherwise acquires or disposes of junk or used or secondhand property more frequently than once per month from any other person, other than a nonprofit entity, shall be deemed as being engaged in the business of a secondhand dealer.

A secondhand dealer shall not enter into any cash transactions in payment for the purchase of junk or used or secondhand property. Payment shall be made in the form of check, electronic transfers, or money order issued to the seller of the junk or used or secondhand property and made payable to the name and address of the seller.  All payments made by check, electronic transfers, or money order shall be reported 16 separately in the daily reports required by R.S. 37:1866. 

As Atty Thad Ackel of Ackel & Associates LLC notes, this law goes far beyond even the extraordinary step of banning cash transactions:.

The law goes further to require secondhand dealers to turn over a valuable business asset, namely, their business’ proprietary client information. For every transaction a secondhand dealer must obtain the seller’s personal information such as their name, address, driver’s license number and the license plate number of the vehicle in which the goods were delivered. They must also make a detailed description of the item(s) purchased and submit this with the personal identification information of every transaction to the local policing authorities through electronic daily reports. If a seller cannot or refuses to produce to the secondhand dealer any of the required forms of identification, the secondhand dealer is prohibited from completing the transaction.

This legislation amounts to a public taking of private property without compensation. Regardless of whether or not the transaction information is connected with, or law enforcement is investigating a crime, individuals and businesses are forced to report routine business activity to the police. Can law enforcement not accomplish its goal of identifying potential thieves and locating stolen items in a far less intrusive manner? And of course, there are already laws that prohibit stealing, buying or selling stolen goods, laws that require businesses to account for transactions and laws that penalize individuals and businesses that transact in stolen property. Why does the Louisiana State Legislature need to enact more laws infringing on personal privacy, liberties and freedom?

At least in Louisiana, the slippery slope towards full-fledged fascism has begun…

Fighting The "War on Terror" By Banning Cash

Submitted by Tyler Durden on 03/23/2015 18:29 -0400

iShare21

 http://www.zerohedge.com/news/2015-03-23/fighting-war-terror-banning-cash

Submitted by Joseph Salerno via Mises Institute,
It was just a matter of time before Western governments used the trumped up "War on Terror" as an excuse to drastically ratchet up the very real war on the use of cash and personal privacy that they are waging against their own citizens.
Taking advantage of public anxiety in the wake of the attacks on Charlie Hebdo and a Jewish supermarket, France has taken the first step.  It seems the terrorists involved partially financed these attacks by cash, as well as by consumer loans and the sale of counterfeit goods. What a shockeroo!
The terrorists used CASH to purchase some of the stuff they needed--no doubt these murderers were also shod and clothed and used  cell phones, cars, and public sidewalks during the planning and execution of their mayhem.   Why not restrict their use?  A naked , barefoot terrorist without communications is surely less effective than a fully clothed and equipped one. 
Despite the arrant absurdity of blaming cash and financial privacy for these crimes,  French Finance Minister Michel Sapin brazenly stated  that it was necessary to "fight against the use of cash and anonymity in the French economy."
He then announced extreme and despotic measures to further restrict the use of cash by French residents and to spy on and pry into their financial affairs.
These measures, which  will be implemented in September 2015, include:

Prohibiting  French residents from making cash payments of more than 1,000 euros, down from the current limit of  3,000 euros.

Given the parlous state of the stagnating French economy the limit for foreign tourists on currency payments will remain higher, at 10,000 euros down from the current limit of 15,000 euros.

The threshold below which a French resident is  free to convert euros into other currencies without having to show an identity card will be slashed from the current level of 8,000 euros to 1,000 euros.

In addition any cash deposit or withdrawal of more than 10,000 euros during a single month will be reported to the French anti-fraud and money laundering agency Tracfin.

French authorities will also have to be notified of any freight transfers within the EU exceeding 10,000 euros, including checks, pre-paid cards, or gold.

*  *  *
Just remember... it's for your own protection.

Kick the credit card habit and learn to stash cash

By Claire Wolfe
Issue #107 • September/October, 2007

My friend Jeanie, a professional woman, whips out her credit card at every spending opportunity. Wal-Mart expedition? Credit card. A week's worth of groceries? Credit card. DVD rental? Yep, you got it—out comes the credit card. If gumball machines took credit cards I wouldn't be surprised to see Jeanie pop a ten-cent purchase onto that card.
It's the new American way and—so the propaganda of the cashless society tells us—the way of the future.
Ick!
Now don't get me wrong. Jeanie uses her credit card responsibly. She and her husband pay the bill in full every month. The card mostly gives them a convenient, easily trackable record of spending ("Honey, did you pay $159 for a new gas-powered weed-whacker last month? I sure didn't.").
We all know it; a credit card can be a blessing when the car breaks down or you finally stumble upon those bargain-rate solar panels you've been looking for—just when your cash is tapped out. Credit cards offer purchase protection; if you get "had", they give you recourse. Some things, like renting a car or buying gas at certain service stations, you can't do at all unless you have a credit card.
But we all know, too, the perils of constant credit—like impulse buys and being seduced by credit offers whose fine print is as insidious as a politician's promise. Miss making that full payoff just once and you can plunge into the Darkest Depths of Credit-Card Hell—chained to usurious finance charges and late fees high enough to pay Christmas bonuses for the credit-card vendor's executive staff. Amazing how easy it is to stumble into that hell and how hard it is to struggle, bite, and claw your way out.
When we get into debt, somebody else—usually some corporate stranger—literally owns a portion of our future life. Talk about ick!
Then, too, an increasing lot of us are realizing that having trackable purchases is more "convenient" for various snoops and profilers than it is for us.
So. That leaves some, including yours truly, paying for every possible thing with grubby, old-fashioned pieces of paper. I suspect a fair number of BHM readers are with me on this.
We might be behind the times, but we're telling snoops to mind their own business and are avoiding selling our future for a mess of DVDs or a pair of boots we'll never wear. We tell ourselves we can regularly set cash aside, in a savings account or in a small back-of-the-cupboard stash, for our larger needs. And sometimes we even do.
It works so well!
In theory.
As I discovered last winter when the truck died after I'd already had a major run on my cash, the theory has a few minor flaws.

The simple path to stashing cash

I'm not here to tell you The Secret of a Perfect Life Savings Plan. If I could do that, I'd write a self-help book and retire to Andorra after making millions (mostly from people who used credit cards to buy the book).
But I have found ways to make saving small, targeted amounts a pleasure. Ways that can make it sort of a game. Ways that yield enough little rewards to keep me enthusiastically stashing cash away for special needs. Because of that, I've been able to pay my property taxes without a twice-a-year pinch. When the plumbing broke, I didn't blink. And when I needed a new DVD player I could buy one right now, today, without approaching the borders of credit purgatory. I'm even halfway to paying for those truck repairs. (The story of why I'm only halfway is part of the game. More on that later.)
The little things I'm going to talk about in this article are just that—little things. Simple things. They're not a substitute for long-term savings accounts or investments. They're not meant to replace any gold bars and silver rounds you already have stashed. These simple savings aren't meant to be the way you finally gain fame by having your carcass found moldering atop a mattress containing $1.5 million in cash, when all along everybody thought you were just a bag lady.
But for ordinary purposes, my simple savings work pretty well. I'll tell you exactly how I do it. You can think of your own twists.

Coins in jars

With coins alone, and no big effort, I've saved $200+ several times over within the last year. And that's with an annual income of about $1.98. (Okay, slightly more than $1.98.) Here's how.
1. Find two tall decorative jars, the kind you might put spaghetti or sugar in.
2. When you go to the store, start making it a practice never to offer exact change. If the item you buy costs $1.05, hand the clerk two one-dollar bills and pocket the $.95 you get back. Every evening, empty all your dimes and quarters into one jar, pennies and nickels into the other.
3. When the dime-and-quarter jar gets full, take it to a bank or store that has a change counter/sorter, and trade the coins in for bills. (Boy, was I surprised—and inspired!—the first time I learned one jar contained $200. I was thinking more like $50.)
4. DO NOT save the bills. And don't use them for mundane purposes like paying the power company (unless, of course, the power company is about to put your lights out). Use them for a planned, but strictly enjoyable, purchase. Or take them right out and spend them on a treat. An indulgence. A luxury. The saving has been painless; now you get downright pleasure. That part's important. It inspires you to do more.
If you have children, you can enhance the fun by seeing who can guess the exact dollar amount that'll be in the full jar. Or how many coins of each type are in the jar. The child who comes closest gets a personal share of the loot, while the rest is spent on family fun.
And what about the penny-and-nickel jar? Hang on to the full one and start another. Currently, the metal value of nickels, and especially pennies, is higher than the face value of the coins. So there's no point in spending them. Once the government debases them even further than it already has, you can go back to mixing the new, cheap ones in with the dimes and quarters.

Bills in folders

This is the part that saves you from panic when the water heater suddenly sends a cascade through your sheetrock or the dog has a close encounter with an entire gang of crazed porcupines.
1. Make or buy a group of sturdy envelopes—no fewer than four, no more than 10. Sturdy is the byword; you'll be handling them a lot. But they can also be beautiful if that helps inspire you. (Again, the kids can get involved, making and decorating them.)
2. Write a list of the types of expenses in your life for which a few hundred dollars cash could be handy. Let your list include both necessities and pure pleasures. Write down both predictable, known expenses (like those property taxes) and less predictable, but virtually certain ones (like car repair).
3. Next, choose at least four, and no more than 10, of those items to save toward. Label your envelopes accordingly. For instance, your collection of envelopes might include: School Clothing, Vehicle Registration, Medical Expenses, Trip to Yellowstone, and Landscaping. Or perhaps: Music Lessons, Vet Bills, Bedroom Redecorating, Art Supplies, and "Projects." It's good to have some general ones like "Projects." I personally make sure to have one envelope labeled simply, "Fun."
4. As you did with the change, start making purchases with larger bills than you need. If you pick up $11.47 worth of food at the grocery store, pay with a $20. If you buy a $4 item, use a $10. If something costs $33.25, use a $50. If it costs $43.25, use three $20s—and in each case, pocket all the bills and coins you receive in change.
5. At the end of the day, coins go into your jars. At the end of the day—or a couple of times a week—sort through your bills. You'll quickly end up with an impressive wad of them, even if the denominations are small. Slip your $20s, $50s, and $100s (if you ever see such things) back in your wallet to spend, along with a couple of $1s for tiny purchases, tips, and such. Take the majority of your $1s, $5, and $10s and place them in the envelopes.
6. Now here's where it gets interesting. And where you may learn some things about yourself and your own priorities. You have three sizes of bills. You have four or more envelopes. How do you decide what goes where? You might make some pre-set rules. Perhaps all $5s go into the envelope marked "New Chain Saw" and you divide the $10s between "Medical Expenses" and "Impulse Spending." (At my house, all $1s go into the "Fun Fund," without fail.) Or you divide the available money evenly between all your envelopes. But maybe you give yourself some flexibility. Say you have three envelopes for "happy" expenses (Christmas Presents, Visit to Folks, and New Puppy); you tell yourself you'll put that day's $5s into whichever envelope calls out most strongly to you. You might discover that, time after time, New Puppy calls out more than visiting family. Or that New Puppy, no matter how appealing, turns out not to fit into your life plans—a fact you discover only after making weeks of more-or-less unconscious decisions about where to put your savings. (This is exactly what's happened with me and the envelope labeled "Truck Repair." I've been getting along so well without my vehicle, and have been so happy not to have to make $40 fuel fill-ups, that I keep slipping my bills into other envelopes.)
7. Put your simple savings away where neither you nor little household thieves are tempted, but where you can easily pull them out and stuff them several times a week. Oh yes. Put them someplace that has enough space to accommodate their increasing bulges. Because they will grow.
That's it.
And remember the main trick: Make purchases with larger bills than you need to; pocket the change; get into the habit of stashing it before you have a chance to spend. No pain. No sacrifice. In most cases, you won't even notice it's gone from your wallet.
You can augment this envelope plan by setting aside monthly amounts for regular expenses. When you pay the bills each month, for instance, $75 always goes into the Vehicle Maintenance envelope and $50 toward Property Taxes.
Then the money is there when you need it, without you having to feel a crunch.

Perils of stashed cash

Ah, but mention of household thieves is a reminder (as if any were needed) that saving cash has its perils. Ironically, the more successful we are at these simple savings, the greater the risk can be, if we're not careful.

By using the envelope method, it won't be long before you have that new chainsaw.

It's fun and instructive to involve kids. But nobody's more likely to blurt to a friend, "Hey, we have a jar with $100 in it at our house!"
Envelopes of cash, even when they contain only $50 to $250, are a temptation to drug-abusing cousins, spouses with gambling problems, and teenagers who believe their allowances are punitively small.
Worst of all we now face the threat of having our savings stolen by police officers, who can, without any other evidence, call all our cash "evidence of drug dealing" and take it from us without due process. This is a far worse crime than freelance thefts by kids or drug-abusing nephews, but it's also a modern American reality.
So don't tell the whole world what you're doing. Choose a discreet place to store your simple savings and share the information only with those who have a need—and can be trusted—to know. Spend discreetly, too. DO NOT use cash for multi-thousand dollar purchases unless you want to draw government attention to yourself.
If you really need to amass quite a lot—as for a new car or an addition to your house, bank it. Or if you don't trust banks, put it into gold and silver and hide it securely and preferably not on your own property.
There's also one ordinary non-criminal drawback to simple savings. Your money doesn't draw interest. But that may not be as big a deal as it seems. Interest rates these days barely beat inflation (perhaps not even that, if you believe figures calculated by contrarian economy-watchers).
No wonder so few people save. Also, unless you drive your banker crazy by opening half-dozen tiny accounts, bank accounts have the disadvantage of aggregating all your funds into one lump. That makes it easy for those small, simple priorities like "weekend in wine country" or "new saddle for the pony" to get lost.
Besides, if you've been using credit cards at 15.99 percent, or 12.99 percent, or (heaven forbid) even 22.99 percent, anything you save in cash puts you way ahead of that.
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