Rig Plunge

BALTIMORE – Is there really a “War on Cash”? No. There’s a war on you. We’ll come back to that in a minute… First, a quick roundup of last week’s action. Friday brought more bad news for U.S. shale oil producers. (More on this below in today’s Market Insight.) Reports Bloomberg:

 

“The number of rigs drilling for oil and gas in the U.S. is plunging toward the lowest level in more than 75 years of records… culminating in the collapse of almost 75 percent of the rig count.”

 

1-rigusoBaker Hughes US rotary rig count – click to enlarge.

 

The fracking boom towns are now turning into ghost towns. The billions of dollars of investment (the industry has never been cash positive) have stopped flowing into the U.S. shale producers. Revenues (such as they are) have slowed to trickle on a cold day.

And in the tech sector, Yahoo is paying the price for its buying spree. It’s one of the 11 companies that, according to USA TODAY, “lost obscene sums” of money last year:

 

“There are 11 companies in the broad Russell 3000 index, including a whole host of energy companies like Apache but also industrial conglomerate General Electric and struggling online portal Yahoo, that have reported staggering net losses in the just-completed calendar year…

Each of these companies reported net losses of $4 billion or more last year – dwarfing even the impressive $1 billion net loss reported Thursday by struggling retailer Sears.”

 

2-YHOOYahoo, monthly. The stock was a darling of the late 90s internet bubble and remains about 75% below its year 2000 peak (although it is up nearly 500% from its 2002/3 low, and more than 200% from its 2012 low) – click to enlarge.

 

Pile of Manure

But let us return to the War on Cash. It is far more sinister than you might realize. Several countries – such as Denmark, Sweden, and Norway – are already almost totally cashless.

Others, such as France, have banned cash transactions over certain amounts. There are even plans at the highest levels of the Indian government – right now one of the most cash dependent societies in the world – to “disincentivize” using cash.

Meanwhile, establishment economists and commentators – most notably Harvard economists Larry Summers and Kenneth Rogoff, Citibank chief economist Willem Buiter, Andy Haldane at the Bank of England, and Martin Wolf at the Financial Times – have come out in favor of a cashless society.

As we recently reported, Summers tells us it’s “time to kill the $100 bill.” And according to the New York Times, “Getting Rid of Big Currency Notes Could Help Fight Crime.”

Today, we dig a little deeper into this pile of manure to try to find out what it hides. And what a surprise! There is the Deep State – malodorous, malevolent, and malignant.

Bien PensantsSummers, Rogoff, Buiter, Haldane and Wolf – a truly insufferable collection of statist bien pensants

 

Banning Ben Franklins

First, let us dispose – as we would a dirty diaper with an outstretched arm – of the notion that getting rid of Ben Franklins and other large denomination bills would somehow “fight crime.”

If you want to do a $100,000 cash deal now, you need a stack of $100 bills a little more than four inches high. Now suppose the $100 bill is no longer available. Does the drug dealer say to his client, “Whoa, I guess we can’t do business. I can’t be bothered to carry big wads of cash.”?

 

Teenagers passing drugs“Sorry buddy, this is the last time….when there are no more Benjamins, it’s over…I just can’t take all that small cash…” (one of the many imaginary conversations currently playing in Larry Summers’ head).

Photo credit: Corbis

 

Does the crony defense contractor meet a member of the House Armed Services Committee in the parking garage and tell him, “I’m sorry, I just can’t get you the money. It won’t fit in the envelope.”? Does the prostitute tell her pimp: “I don’t work for 20s.”?

Don’t worry about the criminals. In Argentina, the backbone of the economy is the 100-peso note – worth only about $6. We have a place in Argentina. We’ve seen how it works. People use 100-peso notes for everything – from buying the morning paper to selling $1 million apartments.

They carry it around in paper bags (so as not to attract attention of thieves.) They stash it in safes. Stacks of it bulge from their pants pockets and sit on the counters of the black market money changers. A nuisance? Yes. A crime stopper? Are you kidding?

Drug sellers, prostitutes, hit men, terrorists, money launderers. They’re already hunted like criminals… and threatened with fines, jail, or death. Is the inconvenience of small denomination bills going to stop them?

Forget it. They’ll switch to smaller bills, foreign currencies, Bitcoin, gold, or something else. Block the use of convenient currency… and they’ll innovate.

 

A Savings “Tax”

How about the idea that banning cash will help the economy? With cash harder to come by, it will be easier for central bankers to impose a negative interest rate on your bank deposits. Without the option of holding your savings in physical currency, you’ll have no choice but to keep your money on deposit in the bank… and pay to save.

But a negative interest rate is just another tax… one that is imposed by employees of the banking industry cartel and that needs no vote in Congress. At a negative rate of 1%, you lose $10 for every $1,000 of savings. This is the same as a 1% “savings tax.”

 

nirpThe black hole of NIRP – ultimately, it’s just another tax

Image by dreamstime.com

 

But hold on… Raising taxes does not normally cause people to spend money. It causes them to zip up their purses, not open them. Taking away your money leaves you with less of it. (Duh!) You have to cut back. And if you are saving for your retirement, a tax on your savings means you will have to save more (and spend less) of what you earn.

There is no evidence anywhere in the historical record of an economy helped by taking money away from people. The idea is so absurd it could only come from a PhD economist… or a scoundrel. But to fully understand it… we need to go back hundreds of years.

Stay tuned…

 

Charts by: Baker Hughes/WTRG Economics, StockCharts

 

Chart and image captions by PT

 

The above article originally appeared at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.

 

 

 

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One Response to “The Deep State Is Coming for Your Savings…”

  • Kafka:

    Bill
    The criminals in the financial/banking community are the only ones beating the drum to eliminate cash. More crime is committed by the click of a mouse than having $100 bills in circulation. And these criminals certainly don’t want a vote on the question where they would lose 99 to 1. This is just one more step to push the middle class entirely into slavery.
    As to drilling rigs, there is such a difference between the most modern rigs and most of the older ones, in terms of productivity, that rig count doesn’t have the same meaning as before. And when oil prices were high, costs were high. Much of the cost structure is way down so what used to be the cost per barrel has fallen dramatically.

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