It has been argued that most of our financial woes can be laid at the feet of the Federal Reserve Bank and the commercial banks with which it interacts closely.
Bill Bonner, something of a living-legend in the financial newsletter publishing business, has penned a piece that’s worth our attention.
First, he sites a piece by Kenneth Rograff of Harvard who attacks the existence of cash.
Writing last month in the Wall Street Journal under the headline, ‘The Sinister Side of Cash,’ he noted that ‘paper currency, especially large notes such as the U.S. $100 bill, facilitate crime: racketeering, extortion, money laundering, drug and human trafficking, the corruption of public officials, not to mention terrorism.’
As Bonner points out, so do a lot of other things. So why the focus on cash?
Skipping ahead in his rather lengthy piece to the end, we find Bonner speculating on what might happen in the event of a real market crash, the sort that takes down both the stock and bond markets to the point where losses perhaps approaching $100 trillion pile up in a matter of days. What could we expect from monetary authorities in addition to their mindless efforts to buy up assets in a futile attempt to stem the losses that we’ve seen so often in the past?
According to Bonner,
So what’s next?
When the next crisis hits, central bankers will rush back into their tool rooms and bring out something new. It will no doubt include ‘helicopter money.’
This is the term economist Milton Friedman used to describe direct giveaways of newly minted money without any corresponding increase in the government’s budget deficit.
Huge new infrastructure projects will be announced. Tax credits, tax cuts, minimum guarantee incomes — we don’t know what the feds will come up with.
But watch out…
With the carrot will come the sticks. The feds will impose measures to crack down on tax cheats, tighten the noose on black-market operators, and shut off funds to causes they don’t like.
They’ll use their money helicopters to ‘drone’ you. That is, they’ll make sure you do with your money as they please.
Mr Rogoff’s nutty suggestion to restrict cash could become law.
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How it all ends
There’s something fundamentally tranquilising about having a central bank that gives out the word that it’s got your back.
The Bank of Japan is buying bonds AND stocks (by way of exchange-traded funds)…pushing up prices for both.
Under its €1.7 trillion ($1.9 trillion) QE program, the European Central Bank bought so many government bonds it ran out of new bonds to buy. So, this summer, it added corporate bonds to its shopping list.
According to Reuters, it will soon run out of corporate bonds, too. Then it will have to follow the Bank of Japan’s lead…and wade into the stock market…if it wants to keep its QE program going.
And in the US, the Yellen Fed continues to jive and diddle…teasing investors with the threat of ‘normalising’ interest rates, but having neither the desire nor the fortitude to act.
We’ve been wondering how it ends. Bear markets are facts of life. But if the central bank has set its face to stopping them, then what?
Central banks — in the current system — can create unlimited amounts of fake money. They can use this money to buy real financial assets.
Theoretically, they could buy the entire world’s stocks and bonds. And theoretically, they can leave the feds with almost complete ownership of the planet’s capital.
The rich get richer (selling their assets to the feds at inflated prices). The poor get poorer (as the misallocation of capital increases…price signals are distorted…and real wealth is wasted).
What goes wrong?
Everything. As in politics, the gap between theory and practice is as wide as the Sargasso Sea.
The next crisis
Even with the largest bidder in the world on their side, investors can still panic.
That would mean a big drop in asset prices, high-profile bankruptcies, and a new crisis.
Things move fast. The feds may step in with more QE buying, but they may be a dollar short and a day late.
A 20% drop in stock prices is equal to a loss of about $5 trillion in the US alone.
The bond market is roughly twice the size of the stock market, so add a 20% drop there and you’re talking real money — a total loss of $15 trillion…which could easily happen in a few days.
Now, imagine a drop similar to the 2008–09 plunge…
In round numbers, equities lost 50%. Today, there’s about $60 trillion worth of stocks worldwide, so that would be a $30 trillion loss.
If the bond market fell in sync, you’d be looking at another $60 trillion or so…or a total loss of market capital of $90 trillion.
What would the feds do?
Yes, they would buy stocks and bonds. But they would buy at market prices. Owners would still take big losses.
And the feds wouldn’t stop there.
We are now almost eight years into the central bank’s various ‘stimulus’ programs; they have coincided with the weakest recovery on record.
After taking account of inflation, incomes for most Americans are lower today than they were in 2007.
Clearly, reducing the cost of credit doesn’t work — even with yields on roughly $13 trillion worth of bonds in negative territory.
Fire up the whirlybirds
So what’s next?
When the next crisis hits, central bankers will rush back into their tool rooms and bring out something new. It will no doubt include ‘helicopter money.’
This is the term economist Milton Friedman used to describe direct giveaways of newly minted money without any corresponding increase in the government’s budget deficit.
Huge new infrastructure projects will be announced. Tax credits, tax cuts, minimum guarantee incomes — we don’t know what the feds will come up with.
But watch out…
With the carrot will come the sticks. The feds will impose measures to crack down on tax cheats, tighten the noose on black-market operators, and shut off funds to causes they don’t like.
They’ll use their money helicopters to ‘drone’ you. That is, they’ll make sure you do with your money as they please.
Mr Rogoff’s nutty suggestion to restrict cash could become law.
Consider yourselves warned.
Source: The Daily Reckoning Australia
If they take cash away ,people will just trade things
federal reserve is Not in my constitution. get rid of money manipulation. let it work naturally
We are swiftly moving toward a system where cash will have NO value, in a world with one monetary system. You will not be able to buy or sell ANYTHING unless it is through the internet and the transaction is logged into the central database. Every PC, note book, smart phone, tablet, or whatever other electronic device the future holds will come with a built in chip scanner. Every private transaction will have to go through the system. If you sell your car to your neighbor, the sale will be through the chip reader in your mobile device and go on record. Every document that can be connected to you in any way will be in your file. You won’t even be able to buy the most basic necessities of life. No food. No shelter. No clothing. Why? Because there will be NO cash. Money will be transferred in and out of your account through the system and no other way. The technology is here and being put into place. I personally believe it will not be suddenly be forced on us, but rather sold to us, in the name of convenience. When they have 85% to 90% participation all cash will be declared worthless and the system will be made mandatory. That’s when the road will get rough. Just to help it along I believe there will be a world wide economic collapse that will make 1929 look like the glory days, and the “system” will be declared the only way out. This will cause a drastic alteration in our way of life. For quite some time now the financial industry has been steering us away from using cash and promoting the use of credit and debit cards in the name of convenience. There was one particularly blatant Target commercial depicting a check out line running like a well oiled machine, until someone wanted to pay in cash. Then the whole operation ground to a halt until after the cash transaction was done. Then it resumes its HIGHLY efficient operation. Now they are constantly touting the “smart cards” with the built in chip. This chip holds vastly more personal information than the old magnetic strip. Soon the implanted chip will be promoted heavily promising fast and easy access to all your financial, medical, and other personal information, which will be kept in a central database or network of databases. The beginning of this is all the promotion of storing our information in the “cloud”, on a computer that you don’t own and have no control over, in a location unknown to you. All this with the “promise” of security. I don’t think that the implanted chip will in fact hold all your information, rather it will be the key for you to access to the database that holds your info. This will all be promoted in the name of convenience, security, and ease of access. Once the vast majority of the people are on board with this and using this form of EFT, cash will be declared obsolete and worthless and this chip implant will be made mandatory as a total replacement for cash. Thereby ensuring that ALL transactions public or private will be monitored by the government. Once it is made mandatory it is quite conceivable that new born children will be required to receive a chip before leaving the hospital. However, considering the size of the chip, they may wait until the child has grown larger. As it is now they must receive a SS number before leaving the hospital. This too will be promoted in the name of safety and child identification. Although these are apparently positive aspects of this system, the system is incredibly vulnerable to government abuse and over reach. With a global government in control, and no one to stand against it, this system affords them tremendous power to wield over the populace. Power corrupts and absolute power corrupts absolutely. I am in NO WAY advocating taking the “mark of the beast”. I’m just warning you that we’re in for a VERY rough road ahead.
As for my comment you can replace the word “chip” with any applicable technology that is developed. I don’t claim any special insight or knowledge. This is just my own perspective based upon my understanding of scripture and my observations over 40 years as a Christian.
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Poor strippers.
They don’t like cash because people don’t report it on income, they loose. Just exactly what happened in Greece. No one took credit cards for anything always want cash for labor, soon economy failed. With credit and debit cards they can keep better paper trail.