Sunday, February 28, 2016

More On NIRP And The War On Cash

     Articles addressing these threats have been multiplying. An increasing number of commentators are treating them as real possibilities rather than fever-dream nightmares.

     Here’s a thoughtful piece from Tyler Durden, which demonstrates en passant why one should not put too much faith in anyone’s forecasts:

     Back in August 2012, when negative interest rates were still merely viewed as sheer monetary lunacy instead of pervasive global monetary reality that has pushed over $6 trillion in global bonds into negative yield territory, the NY Fed mused hypothetically about negative rates and wrote "Be Careful What You Wish For" saying that "if rates go negative, the U.S. Treasury Department’s Bureau of Engraving and Printing will likely be called upon to print a lot more currency as individuals and small businesses substitute cash for at least some of their bank balances."

     Well, maybe not... especially if physical currency is gradually phased out in favor of some digital currency "equivalent" as so many "erudite economists" and corporate media have suggested recently, for the simple reason that in a world of negative rates, physical currency - just like physical gold - provides a convenient loophole to the financial repression of keeping one's savings in digital form in a bank where said savings are taxed at -0.1%, or -1% or -10% or more per year by a central bank and government both hoping to force consumers to spend instead of save.

     For now cash is still legal, and NIRP - while a reality for the banks - has yet to be fully passed on to depositors.

     The bigger problem is that in all countries that have launched NIRP, instead of forcing spending precisely the opposite has happened: as we showed last October, when Bank of America looked at savings patterns in European nations with NIRP, instead of facilitating spending, what has happened is precisely the opposite: "as the BIS have highlighted, ultra-low rates may perversely be driving a greater propensity for consumers to save as retirement income becomes more uncertain."

     Please read the whole thing. Once again, people’s responses to changes in economic and fiscal policies have baffled the “planners.” It’s a reminder that no one should be certain that he sees – or feels – all the incentives that apply to a given context.

     Now, Europe and Japan are not the United States. It’s quite possible that Americans’ response to the imposition of NIRP would be different. What seems assured is that we wouldn’t passively accept the new monetary regime without at all changing how we store and handle our wealth.

     This is highly relevant to the accelerating disaffiliation, among ordinary Americans, from the political system and the laws and policies promulgated by our political class.

     I’ve lost count of the number of times I’ve cited this supremely important observation from the late Benjamin M. Anderson:

     There is no need in human life so great as that men should trust one another and should trust their government, should believe in promises, and should keep promises in order that future promises may be believed in and in order that confident cooperation may be possible. Good faith -- personal, national, and international -- is the first prerequisite of decent living, of the steady going on of industry, of governmental financial strength, and of international peace.

     Among the seemingly irrefutable facts of our time is that trust is everywhere declining. Trust in large institutions – emphatically including governments – is at what might be an all-time low for the era of recorded human history. It behooves us to try to grasp why.

     When I wrote in 2009 that:

  • Our military is being emasculated as we speak, with funding cuts to deprive it of men and machines, and legal entanglements to ensure that no soldier in the field can ever be certain that he won't be tried for murder by civilians, or worse, by foreigners.
  • Our alliances are faltering as no one ever expected, as our chief executive kowtows to the worst men in the world and fails to uphold America's actions in its own interest.
  • Our politicians are interested solely in getting elected and staying in office, and will do anything, sacrifice anyone, and betray any principle of right, to achieve those goals.
  • Our economy is being bled to death by layer after layer of taxation, regulation, legal mandates, and outright nationalizations, nearly all intended to benefit some provincial interest some gaggle of politicians counts on for support.
  • Our currency has been so debased that the other nations of the world, fooled over the decades into accepting mountains of it for their wares, are getting ready to write it off.
  • Our schools have become cesspits of socialist indoctrination and multicultural propaganda, where a child saying grace over his lunch is subject to harassment as a bigot.
  • Our cities and communities are weakening under the assaults of illegal immigration, eminent-domain attacks on property rights, forced injection of "refugees" who hate America and all it stands for, and the use of insane lawsuits to prevent development in the name of "saving the planet."
  • Our churches -- the ones that still respect God and value freedom -- are steadily being muzzled by the moral and cultural relativists, the "inclusionists," and the Muslims.
  • Our women are largely persuaded that killing an unborn baby constitutes a "woman's right" and a "safe medical procedure."
  • Our arts have become unfathomably vile.
  • Every right we have is under sustained, determined assault.
  • Our people are losing faith in one another, in themselves, in their futures, and the futures of their children.

     Things were already pretty bad. Here we are, six and a half years further down history’s road. Would anyone care to claim that they’re better?

     Trust is the consequence of prior experiences: specifically, the fulfillment of promises, guarantees, and predictions. Smith, unless he’s a total moron, would not trust Jones on the basis of zero prior acquaintance. Few Smiths would trust Jones on a serious matter – that is, a matter pertinent to Smith’s well-being or security – unless Jones had already accumulated a record of good performance. And no Smith who belongs anywhere but a sanatorium would trust Jones had Jones accumulated a record of poor performance: inaccurate forecasts, failures, and betrayals.

     Poor performance is the hallmark of governments in our time. They exhibit all three kinds:

  • Forecasts that turn out to be wildly wrong;
  • Failures to perform as promised;
  • Outright betrayals of trust.

     This is especially the case in economic and fiscal matters.

     From March 1933 onward, the federal government has done nothing but steal value from the dollar. Over the eighty-three years since then, a pound loaf of bread of good quality has gone from $0.10 retail to over $4.00 in most metropolitan areas. That’s not because of a shortage of wheat flour, ovens, or bakers.

     Now and then we’ve been told about policy changes to “strengthen” the dollar. Such “strengthenings” have always been strictly relative to the currencies of other nations. Governments cannot create value. They can only consume it.

     Trends in the financial markets are never infinite. (“Trees do not grow to the sky.” – Baron Philippe de Rothschild) They will always come to an end. However, trends in political motivations can be relied upon...and the motivation of governments is always to steal.

     Not one of the economic or fiscal developments of the last thirty years has conduced to greater prosperity for Americans. Not one points to a brighter future for our descendants. Perhaps worst of all, few of us believe that a “change of regime,” such as the one that will nominally occur on January 20, 2017, will improve matters. Our trust in the words, intentions, and deeds of politicians is gone.

     Yet, with personal attention to our circumstances and the exercise of prudent, well thought out efforts, many Americans have endeavored to secure their personal and familial situations against the dark tides they foresee. Many of those efforts went to securing our wealth and our ability to ride out a financial storm. Ann Barnhardt and others have exhorted us to back away from the existing financial system in all its manifestations. Some Americans have heeded that advice in its entirety; others only partway.

     Some, but not nearly a majority. The great majority of us are still exposed to political and financial predation. Some disbelieve the prognostications of calamity. Others feel they have no alternative but to remain in the system. Still others are betting that by dint of careful timing, they’ll be able to profit from whatever might develop.

     How would you, Gentle Reader, endeavor to protect your savings if they were made wholly electronic or promissory – that is, if they could not be converted into a tangible form? Given that the demand for physical gold and silver is already so high that delivery delays now average three months, what would you expect if, say a year from now, the $100 bill were entirely out of circulation and American banks had followed Europe and Japan into negative-interest-rate territory? Can you imagine being able to acquire the money metals at any price in non-material currency?

     More critically: Would you repose your trust in an entity that to continue in existence must feed upon the value you create, if it moved toward such a situation?

     Today, the esteemed Glenn Reynolds cites a Peggy Noonan column of considerable insight:

     There are the protected and the unprotected. The protected make public policy. The unprotected live in it. The unprotected are starting to push back, powerfully.

     The protected are the accomplished, the secure, the successful—those who have power or access to it. They are protected from much of the roughness of the world. More to the point, they are protected from the world they have created. Again, they make public policy and have for some time.

     I want to call them the elite to load the rhetorical dice, but let’s stick with the protected.

     They are figures in government, politics and media. They live in nice neighborhoods, safe ones. Their families function, their kids go to good schools, they’ve got some money. All of these things tend to isolate them, or provide buffers. Some of them—in Washington it is important officials in the executive branch or on the Hill; in Brussels, significant figures in the European Union—literally have their own security details.

     Because they are protected they feel they can do pretty much anything, impose any reality. They’re insulated from many of the effects of their own decisions.

     Noonan might be late to the party, but she’s correct nevertheless. The “protected” – the political elites and those “connected” who can shelter under their wings – might imagine that they can destroy cash, impose NIRP, and somehow not suffer along with the rest of us. After all, they’ve imposed so many shackles and depredations on us “unprotected” ones, and as Noonan indicates, have managed to evade the consequences. But destroying the money is a quite different kettle of fish.

     The destruction of our money will involve the final destruction of general trust, for as David Friedman has written, there are only three ways people can interact:

  • Love,
  • Trade,
  • Force.

     Without a trustworthy medium of exchange, trade will be impossible, and the “unprotected” surely won’t feed, clothe, and house the “protected” out of love. Perhaps what would ultimately come of that would be better than what we endure today. But it wouldn’t be guaranteed to get here quickly.

     It’s time for all Americans to look to their defenses: to their larders, to their savings, to their armaments, and to the reliability of their relatives, friends, and neighbors. As Tyler Durden notes in the article cited in the opening segment, you don’t want to be the last to panic:

     And then this from "Demand For Big Bills Soars As Japan Stuffs Safes With 10,000-Yen Notes":
     “Demand for 10,000-yen bills is steadily rising in Japan, even as the nation’s population falls and the use of credit cards and other forms of electronic payment increases,” Bloomberg writes. “While more cash might sound like a good thing, some economists are concerned that it shows Japanese households are squirreling away money at home instead of investing it or putting it into bank accounts -- where it can make its way back into the financial system and be put to productive use.”

     One safe maker who spoke to Bloomberg said safe shipments have doubled over the last six months. While part of the demand for safes is likely attributable to the country's new "My Number" initiative, "the negative-rate policy is likely to intensify the preference of Japanese households to keep cash at home,” Hideo Kumano, an economist at Dai-ichi Life Research Institute said. “Overall, the trend of more cash at home reflects concern about the outlook for economy among households. This isn’t a good thing.

     No it isn't, and not because of concern about the outlook for the Japanese economy: that had no chance long before Abe and Kuroda came on the scene, mostly as a result of Japan's demographic spiral of doomed.

     "It isn't a good thing" because it confirms that the global run on physical cash - as much as the bankers of the world would like to keep it under wraps - has begun, and as the chart above shows, in a fractionally-reserved world in which there are $10 in savers' claims for every $1 in physical currency, it quite literally pays to panic first, as the 9 out of 10 people who panic after the first one, will be stuck with nothing.

     Verbum sat sapienti.


FrozenPatriot said...

Great job, Fran. I'll be spreading this one around my sphere of influence.

Thanks for doing what you do!

Tim Turner said...

Welll, it's over 12 hours since I read this, and I still want to comment.

SON OF A *****! When I was growing up, I read about the fall of the Roman empire, the Crusades, and World War 1. Yikes. Then, somewhere between 11th grade and my second year of college (with a tour in Viet Nam in between) I read about them again and felt an agony that I till remember to this day.

"How could those guys do that?" "Why didn't they see what was happening?" "How could they LET THAT HAPPEN?"

It's happening now. Negative interest rates and virtual cash are under the main stream media radar, it seems. I'm reading about both (and Obama, globalization, muslims, etc.) here on the web, but we know all you rabble-rousing bloggers are "right-wing" and extremist, right?

And here I am with my wife and daughter and her boyfriend and I'm 65 and haven't paid off the mortgage and am afraid to buy a gun, but even more afraid to go for a walk in the dark.


I voted. I stood on a corner with 7 or 8 others a few weeks after Santelli called for a tea party. I read Barnhardt and others and watched the movies about the "too big to fail" lie that stuck taxpayers with the banks' and Wall Street's bad (noose-worthy, in other times) investments.

And I'm sitting here, unarmed, with half our 401K money in the stock market, estranged from my neighbors and wondering which event will cause the thugs from Oakland to come the 20 miles to terrorize me. . . or the illegal immigrants to outvote me and just take until my "nest egg" is worthless.

I was born in 1950 and Fran is right. There has never been a time in my life when trust in government was as low as this. And I don't believe there has been a time in American history when people felt such a disconnect between their ideals and reality.

The Civil War must have come close. But I've read a lot about that, and despite the deaths and rhetoric of that time, I get the impression that Americans today are more divided, adrift and without a unifying ideal than ever before.

Trust in government, poiticians or a (hopefully) good man is not enough. Social Justice isn't doing it, either. Globalism, diversity and/or kumbaya sentiment has yielded nothing positive vis a vis death tolls, as far a I can tell.

I think Magna Carta, the Treaty of Westphalia, nation states, family, God and tradition are far more important than whatever is being otherwise taught in our schools are.

That's just me and what I notice. But as Fran pointed out, when bread costs 40 times more after the creation of an entity that was supposed to curb inflation, something is wrong.

Monty said...

I am reminded of a book on tape that I listened to about the history of the Byzantine Empire. We know how that ended. As I listened, I heard about great emperors, wise men, and generals who time and again brought the eastern Roman empire back from the brink only to have those gains thrown away. What particularly struck me, was when the book spoke of how the elites/oligarchy/large landowners undermined the foundations of the empire for their own short term enrichment and empowerment (gosh, sound familiar?).

I never got to the end of the book; it was more sorrowful than I could bear because I knew how the story ended and because I am seeing that history played out again in real life in my own country.

nels said...

How would I protect my savings? Over the last few years I'v been turning my savings into land, ammunition, tools, solar panels and I'm starting to look for heavy equipment. I'm trying to turn all my financial assets into tangibles, and take delivery.