- A dystopian future world with two types of currency and one evil aim
- Freeing the hand of central bankers to fire the final volley in the War on Cash
- Countdown to G-20 and the first dollar deathblow — 5 days away
- Feds make up their money-laundering rules as they go along
- Pizza for better workplace productivity… the upside-down world of European taxation… calling a truce in intergenerational warfare… and more!
The idea is so outrageous, so far “out there” and so convoluted… that the power elites will probably try to pull it off sooner or later.
Imagine a world where the currency in your pocket has a different value than the currency held in your bank account.
Just try wrapping your mind around that.
As Jim Rickards told us here yesterday, the Federal Reserve’s annual shindig in Jackson Hole, Wyoming, was a snooze. Fed chair Janet Yellen’s Very Important Speech conveyed nothing new.
The real news, as usual, flew under the radar.
It’s a new front opening in the War on Cash — far from the battles over money laundering, drug running and terrorism that leave you vulnerable to confiscation if you’re caught carrying large amounts of currency.
Before we go any further, we should get back to basics.
“When Jim says the ‘central banks are cranking up the printing presses,’” a reader writes, “are they really printing paper money, or is that just a euphemism for creating money out of thin air? If they are actually printing trillions of paper dollars, how can they ever affect a ban on cash in the future?”
To be sure, Jim is speaking metaphorically. Without getting too deep in the weeds, money created by the Fed comes in the form of electronic entries on the ledgers of the biggest banks. (Then the banks, if they feel like it, lend these electronic entries many times over… but that’s a whole other story.)
Depending on whom you believe, the total value of all coins and banknotes on the planet is about $5 trillion. Meanwhile, the CIA World Factbook tells us the total value of “broad money” — coins and bank notes, plus money market accounts, savings accounts, checking accounts and time deposits — is more than 16 times larger, $80.9 trillion.
That gap between physical currency and “broad money” is key to the diabolical scheme mooted at Jackson Hole that nearly no one is talking about.
A professor at Carnegie Mellon University named Marvin Goodfriend gave a talk about a paper he wrote with the dry and wonkish title The Case for Unencumbering Interest Rate Policy at the Zero Bound. Our rewrite would be How We’ll Win the War on Cash Once and for All.
“On its face, the Goodfriend speech was about negative interest rates,” Jim tells us. As we’ve been describing for some time now, negative rates are de rigueur in Japan and Europe. You can put money in the bank and get less of it back when you take it out.
Everyday people are coping as best they can. Only yesterday, we told you how people in Germany are buying home safes in which to keep their physical currency, the better to ensure it won’t lose value.
At the risk of belaboring the obvious, “If citizens can go to cash, that makes it difficult to impose negative rates on digital bank accounts,” says Jim.
Here in The 5, we’ve periodically cited a laundry list of academics who would just as soon abolish cash, the better to achieve their aims.
But in his talk at Jackson Hole, Professor Goodfriend identified the proverbial fly in the ointment: “The public is likely to resist the abolition of paper currency.”
How to get around that? The professor has come up with a mouthful he calls the “flexible market-determined deposit price of paper currency.”
“In plain English,” says Jim, “this means the ‘money’ in your bank account and the ‘money’ in your purse or wallet would be like two different kinds of currency.
“There would be an exchange rate between the two, just as there is an exchange rate between dollars and euros…
“What this means is if you go to the bank and withdraw $1,000, the bank might only give you $980 in cash because of the ‘exchange rate’ between your bank account and cash. Or if you deposit $1,000 in cash, the bank might only credit your bank account $980 because of the same ‘exchange rate’ between your cash and the bank account balance. In short, it’s a way to impose negative interest rates on physical cash.
Professor Goodfriend, supplying intellectual ammo in the War on Cash
[Carnegie Mellon University photo]
“It’s true,” Jim allows, “that Goodfriend is an academic, not a policymaker. But Yellen and other Fed bigwigs like William Dudley and Stanley Fischer were sitting in the audience.
“In my experience, this is how things start,” Jim goes on.
“Some ivory-tower academic writes about a policy proposal. A few other ivory-tower academics and Beltway think tanks take the idea and run with it. Then one of those academics gets appointed to a policy position. The next thing you know, the policy is in effect.”
Because it’s so convoluted, and so completely counter to people’s expectations of what’s “normal”… we imagine it could be introduced only under cover of dire financial crisis worse than 2008.
We’re talking about a moment when the masses are so panicked about whether 18-wheelers will still deliver food and toilet paper to the stores that they’ll put up with any scheme imposed by their masters if it means they won’t go cold and hungry.
That dire moment is not right around the corner… but the stage is being set, starting this weekend. The dollar’s slow-motion death begins on Sunday.
As we’ve been saying for a while, that’s when leaders of the G-20 nations meet in China. There, China and Russia will likely step up their trade and foreign exchange in a way that bypasses dollars. Saudi Arabia might well find a new pricing benchmark for oil that’s not the dollar. The International Monetary Fund will move forward with its plans to supplant the dollar with the “special drawing right,” or SDR, as the globe’s reserve currency — itself a wonky academic scheme a few years ago that Jim was among the first to spot.
Those maneuvers won’t necessarily make big headlines. They’ll occur behind the scenes. But they’ll all tee up the big event at the end of September. It’s only 30 days away now. Jim calls it “D-Day” for the dollar.
Will you be ready? Follow this link to start making your plans.
Yet again, the markets look listless on a broiling late-summer day here on the East Coast.
The major U.S. stock indexes have all slipped about a third of a percent, the Dow now below 18,400. Treasury rates continue to inch up, the 10-year at 1.57%. Gold has lost a bit more ground, now $1,307.
The big mover is crude, down more than 3% and back below $45 after the weekly inventory numbers from the Energy Department.
Meanwhile, back on the money-laundering front of the War on Cash, the rules of engagement are getting fuzzier.
Yesterday, the Treasury Department and four agencies that regulate the banks issued a “fact sheet” in hopes of “dispelling certain myths” about the feds’ money laundering rules.
The rules are so stiff that banks often cut off access to countries, businesses and individuals that are completely legit, lest the banks incur steep penalties. They’re turning down business from customers in island nations, emerging-market nations, even on the U.S.-Mexico border.
“While the statements didn’t change the rules,” says this morning’s Wall Street Journal, “they emphasized that the government doesn’t take a ‘zero tolerance’ approach to enforcing anti-money-laundering laws and reserves enforcement action for the most egregious instances of widespread or intentional wrongdoing, such as recent fines related to the movement of drug-cartel money.”
Translation: “Yeah, we know these rules are draconian, so we’re going to exercise discretion in how we enforce them. We’ll let you know when you cross the line.”
Next time someone tells us America is an exceptional nation because we have the “rule of law,” we’re going to have a hearty laugh…
What a downer this episode of The 5 has been. Let’s lighten things up with the following question: Is pizza the solution to the globe’s sagging productivity?
Best-selling author and Duke behavioral-econ professor Dan Ariely has a new book coming out this fall. It’s called Payoff: The Hidden Logic That Shapes Our Motivations… and this week, his PR team is generating some advance buzz with a study he conducted for the book.
The guinea pigs were workers who assemble computer chips at an Intel factory in Israel. One group got an email promising pizza for hitting the day’s production targets. Another got an email promising a cash bonus of about $30. A third got an email promising a text message of praise from the boss. A fourth group, the control, got no email at all.
The pizza group generated a 6.7% boost in productivity compared with the control group. Praise did nearly as well, 6.6%. The cash group lagged at 4.9%.
The experiment continued for a week, and the cash group wound up performing worse than the control.
That said, the study did not address the long-term impacts of pizza: All those carbs would surely contribute to obesity and drive up an employer’s health care costs, no?
“This is simply amazing,” a reader writes of Apple’s tax tussle with the European Commission, “and for those who are still out there that favored Great Britain remaining in this organization, what do you say now?
“It now seems appropriate for Ireland to cast its vote to remain or leave to avoid any further actions that infringe on their right to self-rule. One can only hope that people everywhere can see and understand how Big Government thinks and operates.
“They won’t even acknowledge the very laws they themselves created, so instead, they decree we are running out of money, we do have inflation (so we have to be careful as to how much more we print), so we are going to take what we want. If they feel they can do this to a giant international corporation like Apple, how do you think they will treat the small individual?”
The 5: Considering Ireland’s government wasn’t demanding the $14.5 billion, it’s hard to overstate how strange the whole thing is.
Although Apple tried in its statement yesterday: “We now find ourselves in the unusual position of being ordered to retroactively pay additional taxes to a government that says we don’t owe them any more than we’ve already paid.”
“Though you promise great information for those of us who are still treading water, your promises are still too difficult to utilize,” writes a reader who came aboard a few days ago after subscribing to Lifetime Income Report.
“How do I know there will not be yet another $49 hook and no fish?
“Could it be that I am just too poor — and getting more so with each hook?
“Disappointed with your method of fleecing me.”
The 5: Are you sure you received your full complement of Zach Scheidt’s special reports after subscribing? They should contain ample information about how you can “piggyback” Canada’s version of Social Security. (If you didn’t, write our customer service folk right away. Here’s the email link.) Your first monthly issue should arrive in another week or so.
What you’re reading right now is a window into the ideas that the other Agora Financial editors are up to. Sure, we’d be delighted if you subscribed to another paid newsletter… but we tailor the infotainment such that we hope you get something out of it regardless.
“Dave, for those comments about boomers,” a reader writes, “here’s a song for them (OMG, more song stuff): ‘The Living Years’ by Mike + The Mechanics.
“First verse starts out, ‘Every generation blames the one before…’
“Oops, I used an ellipsis.”
The 5: Heh… I confess I kinda like that song. (More progger apostasy!)
The 5 Min. Forecast
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