QUESTION:
Hi Marty,
if they eliminate cash – how would that affect 3rd world countries?
Wouldn’t that add a huge dose of salt on that part of the wounded world?
Also would we be back to Silver as the payment that the Tax man does not get?
Ala Hunt brothers who bought it when Gold was illegal to own?
best
D in Australia
ANSWER: I do not see how it will be possible to eliminate physical money, for it would require Third World economies to adopt modern technology.More than half the world is not into technology. Moreover, there is still a reasonable segment of people within the industrialized world who are not into the technology age. Denmark will move to a near fully electronic money system come January 2016. Stores will not accept cash but there must be exceptions such as medical.
Such a transition urged by Rogoff and Buiter, the harbingers of Economic Totalitarianism, merely illustrate how they live in a bubble and do not see that the entire world does not fit the way they live. That does not mean the major nations will not attempt such a scheme for they are desperate for cash. A friend applied for a mortgage. Every penny they were putting down as the down-payment had to be proved right down to a check for $400. What was it for and why did a relative give them $400. The questions were all related to what they are calling money laundering or in other words tracing every penny for tax purposes.
Europe is looking at this move to electronic money because the banking system is infected with euro debt of member states lacking a single reserve debt system as exists outside in the USA, Canada, Britain, and Australia just to mention a few.So the design of the Euro is a fatal flaw and instead of correcting the design, they choose to become more authoritarian.
The failed structure of the euro has undermined the entire European banking system. The USA is not in that type of position. Europe sees eliminating cash and moving electronic as preventing a bank run, in addition to enhanced taxation.
I personally remain skeptical that such a cashless society will work, for unless the entire world moved in that direction simultaneously. Human nature dictates that there will of course emerge some form of a black market to allow capital to escape even if they impose capital controls. This is why they are hunting gold at this stage for that would be the obvious escape value. In Spain they have been shutting down retail gold sales to the public. This is obviously one step all governments could take and make it simply illegal to buy or sell gold. Don’t forget, Roosevelt did that in 1934. The only exception was collectible coins so at the very least use older common date gold coins rather than bullion in bar form.
It will be much harder for the USA to move toward electronic money for about 40% of all paper dollars circulate outside the country. Certainly, taking that step would be a major move forward to destabilizing the world economy for moving to electronic dollars would be a step in the process of dethroning the dollar as the reserve currency.
The movement in the USA is clearly for tax purposes. They also use terrorism as the excuse, but it is all about money. Yes, these harbingers of total Economic Totalitarianism are quick to sell all our freedoms out for a theory they come up with sitting in their office. They argue this will stop crime.
The Romans tried that. They made it illegal to pay a prostitute with a coin that bore the image of the emperor and of course they all did. So they created private tokens displaying the position with the price on the reverse. You bought the token and paid the prostitute and she redeemed the token. This is human nature. The same will take place with drugs.
While crypto-currencies could be made illegal and France is including them in their restrictions to start in September outlawing transactions of €1000 or more in cash, humanity dictates that there will be something to emerge to facilitate the underground economy. In Japan when the people refused to accept their own government’s coins for 600 years as was the case in Zimbabwe, the people used currencies of other countries. For Europe, do not hoard Euros – move to dollars for now. It will be harder for the USA to move to move fully electronic.
I have been warning that the USA would eventually move to electronic money since 1985. It was very clear that the US government was moving to restrict cash as much as possible. They use to issue even $10,000 bills in 1934 and today the largest denomination is $100. All along they have been shrinking the physical money supply as much as possible. As of July 2013, currency in circulation—that is, U.S. coins and paper currency in the hands of the public—totaled about $1.2 trillion dollars. At the end of 2013, the US GDP was $16.77 trillion, which is less than 8%. So moving electronic to these academic is no big deal. They have zero experience in dealing with the real government behind the curtain and are clueless that total control in the hands of government means that NO ONE WILL BE ABLE TO BUY OR SELL WITHOUT THE APPROVAL OF GOVERNMENT.
In Europe, the total physical money supply in paper currency was reported by the ECB at the start of April 2015 as €17.5 billion against the entire Eurozone GDP of €14.303 trillion (US$18.451 trillion in 2014. This makes the amount of paper currency floating in circulation at about 12.2%. But European banks were short €115 billion back in 2013.
The ECB revealed that 12 of the top 25 banks have already covered their capital shortfall by increasing their capital by €15 billion in 2014.The asset quality review showed that as of end-2013 the book values of banks’ assets needed to be adjusted by €48 billion. Furthermore, the bank’s non-performing exposures (any obligations that are 90 days overdue, impaired or in default) increased by €136 billion to a total of €879 billion. The assessment also showed that a severe financial crisis scenario (3 years recession) would deplete the banks’ loss-absorbing Tier 1 capital, the measure of a bank’s financial strength, by about €263 billion. This would result in the banks’ median ratio decreasing from 12.4% to 8.3%, a higher higher than in previous similar exercises.
The move toward electronic money is seen as critical in Europe behind the curtain to prevent primarily a banking crisis that will see Europe meltdown like a block of ice on a hot summer day. The failed structural design of the euro is not being addressed for it will be the federalized complete of Europe. So the step will be to create electronic money and prevent bank runs.
Keep in mind, however, that this could be the very fundamental behind the potential Phase Transition in the U.S. equity market. This will have nothing to do with earnings; it will have more to do with capital preservation. At the end of such a move, there will be calls for a global currency summit and revision probably in the post-2017 era. If the US moved to electronic money, that would so disrupt the world economy that such a move alone might provoke world war.
