We
began writing on the War on Cash some time ago, when it was still just a
theoretical ploy that we believed banks and governments were likely to employ
as their economic adventurism continued to unravel.
But,
in the last year, several countries have, as a part of the War on Cash, begun
removing larger bank notes from circulation in order to force people to perform
all economic transactions through the banking system, assuring that the banks
would gain total control over the movement of money.
Of
course, the banks could not admit their true goal to the public. They instead
used the governments to claim that the measure was being undertaken to restrict
crime (money laundering, drug deals, black marketing, terrorism, etc.)
Recently,
without any fanfare, ATM’s in Mexico have ceased issuing the 500 peso note
US$24). The largest note is now the 200 peso note (US$10).
At
about the same time, Citibank in Australia declared that it will no longer
accept coins or banknotes.
India
has joined those countries that have done away with larger notes. They did so
quite suddenly and the effects are already being felt by the Indian people. The
elimination of the 500 rupee and 1000 rupee notes has, of course, not limited
the level of spending in India, but it
has
caused a sudden demand for considerably more smaller notes through which to
accomplish the same transactions.
A
problem with the removal surfaced immediately when people using ATM’s were
withdrawing far more notes than ever before in order to have enough cash to
function normally. The ATM’s were quickly being emptied of the smaller
denominations. The people of India cried foul, as 86% of all money in
circulation had vanished from the system overnight. The limit for withdrawal
per day is 2500 rupees (US$37) – which for some is sufficient to pay for daily
expenses, but is most certainly not sufficient to carry on a business or facilitate
larger transactions.
Although
deliveries of notes to the ATM’s has increased, the banks simply cannot make up
for the sudden loss of 86% of the nation’s money. Not only can the delivery
trucks not meet the demand, the machines cannot store the volume of notes
needed.
The
result has been a partial breakdown of commerce. With millions of people
beginning each day with insufficient funds to function, one bi-product of the
money shortage is that over 9.3 million trucks have simply been abandoned by
their drivers. (Nearly two thirds of all freight in India moves by road.)
In January of 2016, we published an article that made reference to the turning point of
World War Two on the western front. Although the German war machine was
collapsing, a major last-ditch effort was made at the Battle of the Bulge to
reverse the tide of the war. German tanks raced to the battle and might well
have made the Germans the victors, but they
ran
out of gasoline along the way
.
The crews, understanding that the game was well
and truly over, simply left the tanks and began to walk back to Germany. The
great significance of this event is that, no matter how much bluster a
political or military leadership presents, and no matter how obediently the
soldiers respond to such posturing, once it’s clear that the game is up, the
pretense amongst the soldiers evaporates.
The same is true in commerce. When those who
make the decisions in banking and government try to game the system one time
too many, dysfunction sets in and the “soldiers” – the countless minor
participants in the system – simply walk away.
The lesson to be learned here is that, in all
countries where a War on Cash is being destructively waged, the end will not be
a positive one. The people of each country will increasingly become unable to
function normally, as in Greece, where there have been riots due to the banking
squeeze. Banks and governments have colluded to tie up wealth in order to have
their hands on as much of it as possible, as they grow nearer to economic
collapse. As the situation drags on, their intent is becoming ever-more
transparent to those who have to suffer the difficulties caused by the squeeze.
But, as difficult as it may be to accept, these
are “the good old days”. The direst events to come have not yet begun to
surface.
As I’ve mentioned in past
articles, the problem reaches its nadir when trucks that move the
country’s food come to a halt. As long as sufficient food remains available to
us, we treat it as just another commodity. But unlike clothing, hardware,
vehicles, etc., when our source of food is cut off, even for a very short
period, we become frightfully aware that its level of importance is
far beyond that of any other commodity.
It’s been said that the average person abandons
his moral inhibitions after three days without food. After this time, an
otherwise morally responsible man is literally prepared to kill his neighbour
for a loaf of bread.
To date, none of the countries that have
declared a War on Cash has yet experienced a food panic. It would not be
surprising if India becomes the first, as their trucking problem has them on
the edge already.
However, it’s ironic that the War on Cash problem
is most pronounced in what was called “the free world” only two generations
ago. Many of those countries that we’ve come to regard as being both prosperous
and “safe” are becoming less so with great rapidity.
Small wonder, then, that an increasing number
of people are exiting these once-choice jurisdictions and seeking those that
are not similarly in economic decline. Although we cannot predict how far the
elimination of cash will spread, the further you are from the epicentre of the
problem, the greater your chances of coming out with your skin on.
The trick, of course, is to say, “This is where
I get off,” well before (as we are beginning to see in India) the driver himself
has abandoned the bus.
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Jeff Thomas is British and resides in the Caribbean. The son of an economist and historian, he learned early to be distrustful of governments as a general principle. Although he spent his career creating and developing businesses, for eight years, he penned a weekly newspaper column on the theme of limiting government. He began his study of economics around 1990, learning initially from Sir John Templeton, then Harry Schulz and Doug Casey and later others of an Austrian persuasion. He is now a regular feature writer for Casey Research’s International Man (http://www.internationalman.com) and Strategic Wealth Preservation in the Cayman Islands.
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The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.