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.

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