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.

This Is The Real Reason For The War On Cash

Submitted by Tyler Durden on 02/18/2016 09:00 -0500
http://www.zerohedge.com/news/2016-02-18/end-economic-liberty-war-cash-wont-end-well
Originally posted Op-Ed via The Wall Street Journal,
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.
Mario Draghi fired the latest salvo on Monday when he said the European Central Bank would like to ban €500 notes. A day later Harvard economist and Democratic Party favorite Larry Summers declared that it’s time to kill the $100 bill, which would mean goodbye to Ben Franklin. Alexander Hamilton may soon—and shamefully—be replaced on the $10 bill, but at least the 10-spots would exist for a while longer. Ol’ Ben would be banished from the currency the way dead white males like him are banned from the history books.
Limits on cash transactions have been spreading in Europe since the 2008 financial panic, ostensibly to crack down on crime and tax avoidance. Italy has made it illegal to pay cash for anything worth more than €1,000 ($1,116), while France cut its limit to €1,000 from €3,000 last year. British merchants accepting more than €15,000 in cash per transaction must first register with the tax authorities. Fines for violators can run into the thousands of euros. Germany’s Deputy Finance Minister Michael Meister recently proposed a €5,000 cap on cash transactions. Deutsche Bank CEO John Cryan predicted last month that cash won’t survive another decade.

The enemies of cash claim that only crooks and cranks need large-denomination bills. They want large transactions to be made electronically so government can follow them. Yet these are some of the same European politicians who blew a gasket when they learned that U.S. counterterrorist officials were monitoring money through the Swift global system. Criminals will find a way, large bills or not.

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.
So, presto, ban cash. This theme has been pushed by the likes of Bank of England chief economist Andrew Haldane and Harvard’s Kenneth Rogoff, who wrote in the Financial Times that eliminating paper currency would be “by far the simplest” way to “get around” the zero interest-rate bound “that has handcuffed central banks since the financial crisis.” If the benighted peasants won’t spend on their own, well, make it that much harder for them to save money even in their own mattresses.
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.
Cash is also the currency of gray markets—amounting to 20% or more of gross domestic product in some European countries—that governments would love to tax. But the reason gray markets exist is because high taxes and regulatory costs drive otherwise honest businesses off the books. Politicians may want to think twice about cracking down on the cash economy in a way that might destroy businesses and add millions to the jobless rolls. The Italian economy might shut down without cash.
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.