The “Logic” Behind the War on Cash (Audio)

Earlier this year, we wrote about the latest developments in the international “war on cash.” Some central bankers have gone so far as to suggest that cash be eliminated entirely. In his latest podcast, Tom Woods and Charles Hugh Smith talk about why central authorities want to abolish cash and the role cash plays in a free society.

Near the end, Smith recommends investing in local businesses or real estate as a better way of protecting your savings than keeping large sums of money in the banking system. We’re pretty sure he would agree that buying physical gold and silver is also a good way to save your wealth and maintain its purchasing power over the long term.

Highlights from the podcast:

Charles Hugh Smith:There’s several ways to describe [the war on cash]. I would describe it in terms of control and more specifically, centralized control. In other words, when money is issued, it is issued by central authorities. But once it’s in our hands, we are free to use it as we see fit. That leaves a lot of things in the economy outside the control of the central authorities… So as things start unraveling, they want to take that control we have with cash away, so that they will be able to control every aspect of money. Not just the issuance of money and credit, but limiting the ways that we can transact business with that money.

Tom Woods: I first want to go into how they’ve tried to sell this to people. They’ve tried to say it’s really just for everybody’s own good. They haven’t said it’s because we want to be able to plan the monetary system more effectively, and we don’t want you people to be able to opt out of our crazy planning… [Cash] is used by terrorists [and drug dealers].

Smith: Therefore, if you’re using cash, especially in large amounts, you must be (a) terrorist, (b) drug dealer…

Woods: Italy, for example, made cash transactions over €1,000 illegal… That’s a country that is heavily in cash for cultural reasons… I think it’s like 7.5 million Italians who are “unbanked” – they’re not even in the banking system at all. They want to dragoon them into the banking system. Switzerland has proposed banning cash payments in excess of 100,000 francs. Russia banned cash transactions over 10,000. Spain banned cash transactions over 2,500 euros. Mexico, Uruguay, and so on and on. This is not just some feverish conspiracy thought that you and I are having. This is actually taking place… Explain the concept of negative interest rates and explain how that applies to the war on cash.

Smith: The negative interest rates are one tool that the central authorities have to influence us to spend the money we have rather than save it and potentially invest it in productive resources. That’s our options with cash. We can either save it to invest it in something productive, or we can spend it. With negative interest rates, that means it costs you money to keep cash in your bank. There are several versions of negative interest rates. One is that the bank simply charges you a fee for holding cash. Instead of paying you 2% interest that you would earn, it takes a 2% fee away from you every month. This puts pressure on anybody with cash to just go ahead and spend it now. That’s what the authorities want, because they fear a recession which could lead to deflation, and basically the end of their credit bubble… They want us to spend it through official channels where it can be taxed. That’s the other part of pushing you into the banking system. Every transaction that you conduct will be visible to them and it also can be taxed…

Woods: There are some people who want to get rid of cash altogether. They don’t just want to place restrictions on the use of it, they want to get rid of it all together. Suppose those maximalist demands were met. There is no cash that I can just hold outside the banking system. I’d have to be banked. I’d have to be part of the banking system… They’re eroding my purchasing power as a deliberate matter of policy month after month. So the incentive is to spend immediately, because if you save the value of what you save is eroded over time…

Let’s talk about financial privacy. Cash gives you financial privacy, but money in the bank does not, because they can follow every single transaction… I’m not even a fan of fiat money, but I’m more in favor of something I can hold than something that’s entirely electronic and in the hands of a system the government can snoop through all the time…

Smith: The idea that these economists proposed was that in the 2008-2009 financial meltdown, they are saying, ‘We could have overcome that by simply imposing a 5% fee on all cash immediately.’ In other words, forcing everyone who has two nickels to put together to spend it or else they are going to lose 5%. This kind of draconian forcing people to spend whatever cash they might have has another very negative effect – it takes away our ability to plan long term and make productive investments for our own households…

Why are the rich getting richer at a much faster rate than the rest of us? This ability to create money out of thin air using our money as the base – that is the main driver of inequality…

Woods: Is there anything we can do to protect ourselves from this?

Smith: The bail-ins that happened in Cyprus… they tend to happen with very large sums first [but they eventually move it down to smaller sums of money]… [Don’t] keep very large sums of cash in one institution. Preferably, perhaps, not even in one national banking system, so you’re spreading your risk around for bail-ins… My personal preference is to invest whatever I can into a productive, real world asset that is not cash… Such as rental housing, a business, or an investment in another person’s business in your local economy…

Get Peter Schiff’s latest gold market analysis – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning more about physical gold and silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!