Sicilianthing

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The war on cash is escalating. Just a week ago, the infamous Willem Buiter, along with Ken Rogoff, voiced their support for a restriction (or ban altogether) on the use of cash (something that was already been implemented in Louisiana in 2011 for used goods).

Today, as Mises' Jo Salerno reports, the war has acquired a powerful new ally in Chase, the largest bank in the U.S., which has enacted a policy restricting the use of cash in selected markets; bans cash payments for credit cards, mortgages, and auto loans; and disallows the storage of "any cash or coins" in safe deposit boxes.


Buiter defended his "controversial" call for a ban on cash, as Bloomberg reports:

“The world’s central banks have a problem.

When economic conditions worsen, they react by reducing interest rates in order to stimulate the economy.

But, as has happened across the world in recent years, there comes a point where those central banks run out of room to cut — they can bring interest rates to zero, but reducing them further below that is fraught with problems, the biggest of which is cash in the economy.

In a new piece, Citi’s Willem Buiter looks at this problem, which is known as the effective lower bound (ELB) on nominal interest rates.

Fundamentally, the ELB problem comes down to cash.

According to Buiter, the ELB only exists at all due to the existence of cash, which is a bearer instrument that pays zero nominal rates.

Why have your money on deposit at a negative rate that reduces your wealth when you can have it in cash and suffer no reduction?

Cash therefore gives people an easy and effective way of avoiding negative nominal rates. Buiter’s note suggests three ways to address this problem:

Abolish currency.

Tax currency.

Remove the fixed exchange rate between currency and central bank reserves/deposits.


Yes, Buiter’s solution to cash’s ability to allow people to avoid negative deposit rates is to abolish cash altogether. (Note that he’s far from being the first to float this idea. Ken Rogoff has given his endorsement to the idea as well, as have others.)

Before looking at the practicalities of abolishing currency, we should first look at whether it could ever be necessary.

Due to the costs of holding large amounts of cash, Buiter puts the actual nominal rate at which the move to cash makes sense as closer to -100bp.

So, in order for a cash abolition to become necessary, central banks would need to be in a position where they wished to set nominal rates much lower than that.

Buiter does not have to go far to find an example of where a central bank may have wanted to set interest rates much lower to -100bp.

He uses (a fairly aggressive) Taylor Rule to show that Federal Reserve rates should have been as low as -6 percent during the financial crisis.”

As mentioned above, no meddling by a central bank is ever too extreme or too crazy for Mr. Buiter.

But now the banks themselves are getting involved, (as Mises' Joseph Salerno notes),

The war against cash has, up to now, been waged almost exclusively by national governments and official international organizations, although there are exceptions.

Now the war has acquired a powerful new ally in Chase, the largest bank in the U.S. and a subsidiary of JP Morgan Chase and Co., according to Forbes, the world's third largest public company.

Of course , it is hardly surprising that a crony capitalist fractional-reserve bank, which received $25 billion in bailout loans from the U.S. Treasury, should want to curry favor with its regulators and political masters and, in the process, ensure its own stability by helping to stamp out the use of cash.

For the very existence of cash places the power over fractional-reserve banks squarely in the hands of their depositors who may withdraw their cash in any amount and at any time, bringing even the mightiest bank to its knees literally overnight (e.g., Washington Mutual).

What is a surprise is how little notice the rollout of Chase's new policy has received.

As of March, Chase began restricting the use of cash in selected markets, including Greater Cleveland.

The new policy restricts borrowers from using cash to make payments on credit cards, mortgages, equity lines, and auto loans.

Chase even goes as far as to prohibit the storage of cash in its safe deposit boxes .

In a letter to its customers dated April 1, 2015 pertaining to its

"Updated Safe Deposit Box Lease Agreement,"

one of the highlighted items reads: "You agree not to store any cash or coins other than those found to have a collectible value."

Whether or not this pertains to gold and silver coins with no numismatic value is not explained.

As one observer commented:

This policy is unusual but, since Chase is the nation's largest bank, I wouldn't be surprised if we start seeing more of this in this era of sensitivity about funding terrorists and other illegal causes.

Bet on it.

As we previously concluded,

We keep being bombarded by moves to restrict the use of cash and demands to ban it altogether. These demands seem to mainly revolve around two arguments:

one is that “only criminals need cash”, which is on a par with the absurd assertion that we should all be fine with Stasi-like ubiquitous government surveillance “if we have nothing to hide”.

The other one is that a cash ban would make life easier for the central planners who are actively undermining the economy with their policy of debasement.

We would argue that central banking and fiat money have done more than enough harm already and that the eradication of financial privacy has gone way too far. Money and banking should be freed from the clutches of government-directed monopolization and cartelization and should be returned to the free market.
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In short, things in the already insane monetary realm are about to get a whole lot insane-er. But don't worry, the central banks are in full control.

astrolite

Yesterday I received a notice from BankAmerica credit card division, reguarding ALL OF THE NEW FEES Almost all are $10 for ANY use of the credit cards, for cash, for debts, for deposits, for withdrawls, ETc. In that the Private Fed has their money printed for free and loans it back to our government for 10%, (their never having had any capital except that they created out of nothing) And banks get it for free, no interest, and no collateral (fractional banking) they (the banks) loan it to us at about 29.99%, not only do they get back money when they didn't have anything to loan, then receive usury interest on money they got for free! Now they want to charge so many fees that they will get a huge percent of any t***saction. I can see why they want to eliminate cash (BUT THERE IS ANOTHER REASON: UNDER TRUE C*******M THERE WILL BE NO MONEY) " from those according to their ability, to those according to their need" (Marx) (with the exception of the PIGS, who are more equal than others" (Orwell) Now with all of those in power now being c*******t, and the media being controlled by c*******t editors and publishers and hiring only c*******t reporters, and the education departments being headed by c*******ts, and of course the State Department being headed by c*******ts since 1927, The democrat party being wholly c*******t, and about half the republican party being c*******ts too..........And we wonder why they want to eliminate cash....and with a stroke of a key, eliminate all capital in America...Voila! The goal of c*******m is achieved!

lpnmajor Loc: Arkansas

We have a debt driven monetary system. Cash avoids all the fees exacted on debt t***sactions, so is anathema to the banks. Using a card for t***sactions, allows the issuer to "loan" you money for that t***saction, thus allowing them to charge many fees. Here's the thing; the merchant pays the issuer, to make the t***saction - in order to get their money for the item you bought, then YOU pay the issuer again - to complete the same t***saction. They get paid both ways.

This is how money is made. You take $1 and sell it multiple times to multiple people and take a fee each time and each direction, until shortly, the $1 is worth less than nothing. Having a debt driven economy, allows banks to do business - with NO MONEY AT ALL. It's all numbers on paper ( or hard drive ), allowing them to sell money, far in excess of actual cash reserves.

Our banking system is one giant Ponzi scheme. Should a good number of people turn in their cards, thus denying the banks that cash for t***saction fees - the banks would collapse.

Iggy Rat Loc: Lost in America

Succinct. Almost elegantly stated. Somewhat frightening.

Sicilianthing

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That's why I continue to HAMMER the message home.... people don't understand WTF their dealing with or what they're faced with...

Anyday now... notice the Encroachments like the ones you just mentioned...

ever so slowly they creep and no one has done anything as of yet !


READY to Fight,

Sound the Alarms,

Where are all those Courageous Men out there to lead ?

Ha... LMFA O !

Sicilianthing

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GAME OVER Major... Lock n Load, Stock up, Buy AMMO !

Prepare...

Sicilianthing

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Keep buyin AmMO !

stymie

This move by the banks are just the beginning of big changes that are on the horizon of our global financial system and policies. The IMF committee will meet later this year and introduce another Reserve Currency. Whereas the U.S. Dollar is the major reserve currency and most people do not understand but there are six more reserve currencies albeit at lesser percentages we are the only one that can and does continue to print money out of thin air since Nixon took us off the Gold Standard in 1971. The dollar is backed by nothing but our word and that has been on a downward spiral lately.
There is a lot going on here in the financial world but the bottom line is that China is quickly becoming a world financial power and the banks are starting to position themselves for the changes that will occur later this year, probably around Oct. The dollar will maintain its major reserve status but will be devalued substantially as Chinas "YUAN" will be added as another reserve currency.

Sicilianthing

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Basically if you have $100,000 in the bank, it becomes $50,000 by morning... or less correct ?

And mass Pandemonium will set in about 72 hours after the devaluation.

They're gonna TORCH the Bank Branches on the corner... !

stymie

Its going to be ugly on a global scale. As of now our dollars represents approximately 62% of the Reserve and China, if approved in October and I believe they will be, will garner somewhere between 10 to 15 Percent of the Reserve based on their exports and GDP. This will move mountains of money instantly and when the dust settles I fear the IMF will be paving a new road. I'm just not real sure where that road will end. However, your guess is as good as the next persons. Good Luck America but again we will need more than luck we need leadership in the right direction so I repeat Good Luck America.

Sicilianthing

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Yes Sir

Leadership will emerge in the chaos... but beware of the decoys dressed as Clowns.

stymie

Good advice about the Clowns!! They will abound.
What is really amazing to me is, to quote Biden, this is a big F---ing deal and no one here on OPP is commenting. The Banks and MSM will not say much but quietly behind the scenes they will adjust to protect themselves. Not a bad thing for all of us to ponder. Wonder where Marvin is now? Probably running up debt somewhere since it is such a good thing.

Sicilianthing

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Yep and the Debt has been frozen the entire 46 days past but the spending continues on the debt clock...

There's a Topic called $18,112,975,000,000 ...

This has never been done before... Freezing the Debt accrual...

Something is seriously wrong and about to come apart.

stymie

That's just interest accrual running up the debt clock. Can't stop that. In my opinion a Debt Limit would signal to the World that we are perhaps starting to get the message and be serious about our out of control spending. Investors may look at that as a plus and buy our long term debt.
Have always thought of myself as a "Glass half Full" person but this is worrisome.

Sicilianthing

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Yep and it was done secretly, no news of it anywhere except that one article I found.. and it took them a month to uncover it...

No one wanted it reported or no one wanted to let anyone know about it...

could mean we have defaulted on our interest payments.


You know what that means right ?