Upstream Theft

The stories are all over the Internet. Governments are forcing us into a cashless society. Supposedly the pretext is terrorism, and the real reason is to take more control. No doubt more power appeals to politicians, and banning cash seems like the next step after mandatory reporting of cash transactions. However, I think there is a more serious driver than simple power lust.

A more compelling case is that cash banning is the logical follow up to bail-ins. Most people think a bail-in is when banks steal your deposit. So it seems to make sense that governments want to force people to keep their cash in the bank. Then they are easy meat for the next bail-in.

 

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However, a bail-in isn’t theft by your bank. There’s theft, alright, but the culprit is upstream. For example, in the case of Cyprus, the theft occurred in plain sight. The thief was Greece. That country sold instruments which it fraudulently called bonds, but it had neither means, nor the intent to repay. Those bonds are bogus paper. The Greek government stole the money, in the guise of borrowing it.

The Cypriot banks invested considerable deposits in Greek bonds. When depositors realized this, they began to withdraw their cash—a run on the banks. The banks were insolvent, so someone had to take losses. A bail-in shifts the losses from bondholders and other creditors to depositors.

It’s an example of how a corrupt monetary system causes corruption in banking. If government bonds are defined as the risk-free asset, then banks must hand depositors’ funds over to governments to spend. That can’t end well.

An honest bank will shut down operations before it burns through so much capital as to harm depositors. However, regulation obliges banks to buy government bonds (typically using short-term deposits). Thus the bail-in was devised to protect banks, though it violates law developed over centuries.

 

More Central Planning Needed

Neither control for its own sake, nor bail-ins, are the primary drivers of going cashless. Central banks don’t care about regulating the people, though they do support this new war on cash. Bail-ins are not a consideration in the US yet, though already American economists and bankers have expressed support for cash banning. So what’s really going on?

Citi’s Willem Buiter and Harvard economist Kenneth Rogoff are quite explicit. Central banks are grappling with the limit to their planning. As they push down the interest rate, more people withdraw their cash. This squeezes the banks, which make money by borrowing from depositors and lending at higher interest. Banks cannot pay a positive rate in order to earn a negative rate. If the interest rate on the government bond is negative, then the bank must set the interest on deposits at an even lower negative rate.

For some odd reason, depositors don’t like paying the bank to deposit their cash. It’s weird, I know. Instead, they withdraw their deposits. Withdrawals reduce bank funding, forcing banks to sell bonds. This pushes interest up, contrary to the plans of the central bank. It’s worth noting that bank runs and interest rate pressure are the reasons why President Roosevelt outlawed gold in 1933.

This simple preference not to lose money is dangerous to central banks. It threatens the monetary system to its foundations, because it’s an escape hatch allowing people to opt out of the central plan. If central banks don’t respond, then they accept a hard limit to their power over people. They’re stymied in their desire to set negative interest.

Thus they’re coming to take away your cash. However, they had better be careful. People will react to the central bank response, which forces another policy response, to which people will react, and so on. Central banks risk the destruction of their currencies.

 

This article is from Keith Weiner’s weekly column, called The Gold Standard, at the Swiss National Bank and Swiss Franc Blog SNBCHF.com.

 

 
 

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15 Responses to “They’re Coming to Take Away Your Cash”

  • There’s an even simpler reason VB, banks owe their deposit customers Legal Tender, Cash Dollars for their deposits. Banks must buy Legal Tender Cash Dollars from The Fed, at face value. The Fed must hold collateral of equal value to the Legal Tender, Cash Dollars it receives from the Treasury. Banks don’t have the assets to buy $11-Trillion in Legal Tender, Cash Dollars they owe to their depositors. The Fed does not have the collateral to get the Legal Tender, Cash Dollars from the Treasury. They are broke.

    Solution: Ban Legal Tender Cash Dollars, ban their legal obligations to pay.
    http://carl-random-thoughts.blogspot.com/

    • therooster:

      You may want to rethink that one, Dwain. Genocide might work just as well with the number of people that would be wiped out. No offense intended. A transition is called for , no doubt, but the process by which it takes place cannot be “an event” by anything that is proclaimed by fiat or legislation in a top-down context. This is where the classical thinking of recent history has to change. It’s been trapped.

      The process must be by the market as we enter real assets into circulation such as gold and silver or their fully backed derivatives. The assets provide liquidity to support real economy and allow debt to be purged, organically without changing people’s habits. Furthermore , it bypasses the political obstructions, pitfalls and delays

      • I’m explaining how the system was designed by law and how far we’re removed from it. They want to ban the cash (fiat money) and keep the credit, which is a product of debt, credit does not exist otherwise. For example, the credit that populates your deposit account, is bank debt and it only exists for as long as the bank can remain solvent. That’s the reason why all the talk of ‘bank bail-ins’ is total nonsense, using their debt to their customers to bail themselves out of debt, how stupid is that? But because people have been conditioned to believe the credit/debt generated by the Fed and the banks is ‘money’ they assume that they have ‘money’ in the banks. There is $1.37-Trillion in legal tender money in circulation around the globe, all the rest is credit, an obligation to pay money, or the assumption that money will eventually be paid. Thus the need to ban cash, ban the Fed and bank’s legal obligations to pay in legal tender….

        The problem is that people don’t think through the words used. For example, Fiat Currency.

        If purging the debt and a reset are the goals then, why not mark the Fed and banks’ ‘credit dollar’ to market. Currently, their ‘credit dollar’ is worth about $0.04 in legal tender dollars, reprice all debt accordingly.

        • therooster:

          How the system was designed by law is only one half of the full design, Dwain. This is the toughest part of the paradigm shift, convincing people that market currency should be designed by the market or at least a significant portion should be designed by the market. Think of a yin-yang hybrid of debt based liquidity and asset based liquidity and you’ll have the framework. What you’ve portrayed, so far, has all been based on debt based liquidity within the referenced yin-yang. The debt based liquidity makes its home on “the dark side” of that yin-yang. Keep in mind that this reference is to a liquidity model ….currency and the nature of the currency.

          Capitalism is far more incomplete than it is flawed.

          In my last post, I made reference to entering real assets into circulation. I’m referring to debt-free market assets from the organic workings of the market, assets with good currency properties such as gold and silver. The added debt-free liquidity allows for the debt based liquidity (fiat currency) to be removed and destroyed. Think of it as a supplementation and a market governed displacement by osmosis.

          Just add real assets and stir …… gently. The rest will just happen as per market law.

          For the sake of appeasing your sense of order and how and why this should come about in this manner, I’d ask you to recall the order of creation. It is light that comes out of darkness …. thank God.

          • 97% of the currency in use is market based. Credit being used as currency (FRAUD) is a product of banks and capitalism. Gold and silver have poor currency qualities. They’ve never really worked as a currency (hard to come by and never enough) and they were the impetus for fractional reserve banking, not to mention wars and government debt. The best market use for gold and silver is to hold as a store of wealth. Of course, people should be free to use gold and silver in any manner that serves their interests.

            OK I’ll say it again: The U.S. Fiat (Legal Tender) Currency Is Not Debt Based. There is no debt generated or owed in the creation, distribution or circulation of Legal Tender Federal Reserve Notes and U.S. Coin. As a currency, in a free market, free enterprise economy, fiat functions best. And there is absolutely no good reason for any government issuing a fiat currency to be in debt, they don’t even need to tax. That should clue you in to just how corrupt our system is.

            Capitalism is little more than a revamped mercantilism, with fascist underpinnings, that shifted the benefactor from the state to the listed corporations. It is a flawed ideology that instills and glorifies all the qualities of a sociopath in its adherents. It’s barbarous, predatory and darwinist, and it requires fractional reserve banking and government to work. But hey, we do get a lot neat stuff from it, that most can only afford to buy with bankster credit.

            I’m more of a free enterprise economy and liberty minded kind of guy, capitalism is just too close to indentured servitude for my taste. And, I wouldn’t say I have a “sense of order”, I’m just mechanically inclined, I like figuring things out and when something is broken, I look for what caused it and how to go about fixing it.

  • therooster:

    The fiat banking system is a participating component in an incomplete model that is still in development, gentlemen. Banks only provide debt based liquidity to the market, liquidity we refer to as fiat currency. The “other side” of the emerging “liquidity yin-yang” is still a work in progress and that “other side” would be asset based liquidity….valued in real-time.

    Consistent with light coming out of darkness in the process of creation, “light side liquidity” could not efficiently makes its debut without the advent of floating currency and real-time pricing for commodities, particularly for monetary assets like gold and silver in view of the fact that they are limited and finite resources. Liquidity is directly proportionate to price. On the basis that elements like gold and silver now have fully scalable liquidity, based on price, adding assets into circulation in order to relieve debt of a historically tremendous proportion , is taking shape.

    This has been an issue of capability/incapability, as a matter of fact, based on capability given any present circumstance. We can only do what we can do given the tools at our disposal.

    You cannot pour new wine into old wineskins.

    • therooster:

      Dwain … you made reference to “97% of the currency in use is market based”. Perhaps we vary in the language we use ? I’m sure you are referring to debt based fiat, which is not what I call “market based”. I find the word “fiat” and the term “market based” to be somewhat of a contradiction. My personal point goes back to currency creation, so that 97%, by my definition, is debt based and falls on the ‘dark side” of the referenced yin-yang of liquidity. When you look upon it in that way, it’s glaringly obvious that there is an overwhelming amount of debt based liquidity in comparison to asset (debt-free) based liquidity. The problem is not debt, as most think, but a massive imbalance of debt …. far too much in reference to the yin-yang relationship for liquidity.

      Traditional coping methods have been tied to the business cycles by way of increasing credit and decreasing credit, a proposal that I simply look upon as being like a karmic wheel of repetition. The balance does not necessarily have to come about by way of withdrawing debt (fiat) and allowing the economy to suffer. We can now add assets to existing debt based liquidity, assets that have no debt, yet have fully scalable liquidity in real-time. Think of those assets as a being a “supplement” . It’s an add-on, only, not a change to what we have in place, thanks to the efforts of CB’s. In the presence of the added debt-free liquidity, the debt based liquidity can be safely removed. Interest rates can rise and be governed responsibly.

      Bullion actually saves the fiat system on the basis of circulation. Most see bullion as an investment and have a polarized view of bullion in contrast to fiat currency and the USD. The yin-yang application of circulating debt and assets is actually a symbiotic relationship that adds to the health and the value of both. Bullion becomes a currency, while fiat “numbers” become measures of value for comparison in support of debt-free trading. In this “light side” application, the bullion (by mass) is the settlement currency and that fiat “numbers” are measurement tools in real-time, but not currencies for settlement.

      Just add assets and stir ….. gently, by way of the market, bottom-up

      In may help to summarize the above by saying that in the process of creation, it is light that springs forward out of darkness.

      • therooster, please don’t reinterpret what I state to fit your delusions, adjust your delusions to fit what I state. 97% of what is being used as if it’s a currency is credit/debt, NOT FIAT, NOT LEGAL TENDER, NOT MONEY and by law, NOT A CURRENCY. The only thing legally valid about is the DEBTS incurred with its use.

        Now, if you want to continue relying upon trite clichés, myths, falsehoods and errors as the basis of your arguments, have at it, but leave me out of it.

  • Crysangle:

    Careful there Keith .

    If the central bank denominates sovereign debt as risk free , it is the bank which has set up the scheme for the free or fraudulent issuance of bonds by a government . Banks could also clearly warn depositors of their position on the ladder , but don’t . The complicity between banks , central banks , and government is complex . FRL might also be considered theft in itself .

    I am saying this as it is too easy to just point the finger at one party to all of that and blame them … that is what they all do ! Ultimately it is up to the depositor/individual to inform himself also , which is actually what you are helping with .

  • therooster:

    Now that gold weight can be be digitized and distributed as a fully bullion backed currency, is that currency considered to be what MSM would call “cash” ? Could this be a heavily veiled attempt to have debt purged from society ? It would help !

    • VB:

      “Cash” is everything anonymous that the governments can’t track and the transacting in which they cannot tax. This is what they want to eliminate. The crap you are constantly pushing can be tracked and taxed just fine, so it is not threatened by this.

    • I don’t see how reestablishing an old debt currency is going to fix anything. We have a debt free currency now, we just don’t use it. Probably because $18-Trillion in bankster credit is so much easier to conceal from public view than $18-Trillion in cash would be. With cash, people would know exactly what government was spending their money on and exactly its cost.

  • VB:

    Nonsense. There are much more obvious and immediate reasons why governments want to outlaw cash. No cash means no anonymous transactions. This means the governments collecting additional tax on all the illegal business. Think about the hundreds of billions involved in the drug trade. The heavily indebted governments are salivating just thinking of getting their cut from that – and we now finally have the technology in place to make it possible.

    It’s not terrorism, it’s not a power grab, it’s not a banking conspiracy – it’s a simple money grab by the governments.

    Will it work? Of course not. The drug dealers will switch to barter or to foreign currencies and will continue their illegal trade, while the rest of us will lose even more of our freedoms. Typical government job, what.

    • All-Your-Gold-Are-Mine:

      Nonsense? You need to go back and read what was written. Unless you’re a conspiratorial nutcase, the author cites the MAIN reason banks are against cash when rates are held artificially low for years (as they have been). lol

      • VB:

        Yes, I did read it and the reason you quote is precisely what I call “banking conspiracy” and “nonsense”. There is a much more simple and immediate explanation, as I explained in my post.

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