The Twilight of Cash?

June 20, 2015

Many decades ago you could walk into almost any bank with a bundle of cash and exchange it for a predetermined amount of gold and/or silver. Cash was used because of its portability, light weight, and the confidence of the citizenry that it was as good as gold. I’m sure you already know where this is going. Fast forward to present day and look around you at the plight of cash. It is now redeemable for nothing, is essentially worth nothing, has zero intrinsic value, and despite ludicrous measures, is rather easily counterfeited. So the question I’m going to pose is this: Why oh why would banks, the USGovt, and the global establishment want to outlaw and abolish something that is already a proxy for slavery and servitude? The dollar (and all paper currency for that matter) has already fulfilled its predestined purpose. A dollar buys a nickel’s worth – quite literally – and still people will break their backs, sacrifice their families, and even take the life of another all in the pursuit of pieces of paper. Why is the establishment so against cash?

I’ve been writing articles for almost 10 years now, and even more importantly, have been reading the work of others, and as a group we’ve mentioned the idea of capital controls thousands of times. However, I don’t think we did a great job of defining what exactly a capital control is. Anymore, the term capital is really an oxymoron since, by definition, capital is the result of the foregoing of consumption, which results in savings, which can be invested in various ventures, lent to others, or used to increase one’s own productive base. The bottom line here is that there really isn’t much in the way of capital at all. At least not real capital. This phony garbage that the central banks print and call capital is counterfeit, doesn’t function as actual capital does (think about the risks you’d be willing to take with your hard-earned savings versus the risks you might take with ‘free money’).

Just as an aside, the above is a big part of the reason there are so many bubbles. Since it takes little time to get a boatload of money if you’re a big bank or hedge fund, and it really costs you nothing if you lose, why not bet the farm? Real capital isn’t handled like that. Think of the little kid with the lemonade stand and a piggy bank. If some out-of-control government thug doesn’t shut the kid down for operating a concessionary without a license and if the kid manages to hang on to his earnings, he’s probably going to be pretty careful about what he spends them on. It is too bad adults don’t act like kids in this regard because the kids get it and the adults act like they fell out of the stupid tree and hit every branch on the way down.

In days of old, the idea of capital controls used to spur thoughts of governments, using banks as proxies, taking steps to ensure that funds remained in country. The cloak and dagger material of many movies involved the sidestepping of capital controls by using the infamous ‘Swiss Banks’ or offshore accounts. Countless fiction novels have been written and this unfortunate and somewhat inaccurate portrayal of capital controls became part of the fabric of understanding for many people.

Capital Controls – Layer One

When you take a look a little deeper at what exactly cash is and what it represents, it has to enter the equation that cash in and of itself is a capital control. How? Let me rephrase and hopefully that’ll facilitate a better understanding. Cash has become quite an effective capital control. Let’s say you have $25,000 in a bank account somewhere on Main Street USA. You walk into your bank and the teller you’ve done business with for 20 years greets you with a smile. Then you drop the bomb and ask for $10,000 in cash. You’ve found the ultimate hot wheels collection up for auction this coming weekend and you’re not sure how much it’ll cost. Plus you might find some other stuff. Your friendly teller becomes suspicious and you’ve just generated a report to the Financial Crimes Center in Detroit Michigan on Form 104. A report of suspicious activity with your name on it. Over something as silly as an auction or whatever it might be. The quick response might be – well, just pay with a check! Too bad, you’re still getting that 104, although you might remain in your teller’s good graces. If you stick with your plan to withdraw cash you might have to wait up to two weeks or even more (I’ve heard stories all over the place on this issue) to get money from your own account. How is that not a capital control? The flow is being controlled and intimidation tactics are being used to dissuade people from spending their own money as they wish. This in an economy that lives and dies on consumption. Keep in mind what I’m talking about here are totally legal and legitimate activities. The very act of wanting to use cash and the anonymity it provides is being criminalized.

Capital Controls – Layer Two

At a deeper level, the idea of fiat currency itself is a capital control, especially when the exchange value versus other fraudulent currencies is not a process the average economic actor even gets to have a say in. We’re just along for the ride. In actuality, the fiat currency is the perfect tool for graft as the whole concept allows central banks and governments to rip-off the holders of such currency through inflation. Remember, a paper federal reserve note is NOT capital. It was supposed to represent capital, and for a time did, but what has happened over the decades? The value of said notes keeps dwindling and the stooges at the not-so-USFed brag about it on their websites with their little inflation calculators. The economic intelligencia tells us that this robbery via inflation is necessary for economic growth when in fact that robbery via inflation has replaced economic growth. These same clowns will tell us that we’re better off economically today because we have smart phones that we can use to watch their propaganda and baloney. Not only did we not have any capital to exchange for these gadgets, but even worse we willingly went into debt to have this stuff. But we’re better off. I guess if you also look at debt the way proselytizers like Mike Norman look at debt then we are better off. These folks think that we get rich when we borrow because we get money. They forget the other half of the equation – that the money we get today must be paid back at some date certain in the future with interest.

So the currency itself is a capital control, and it is inherently compromised because the currency represents DEBT. That’s why they’re called ‘notes’. So we go to the grocery store with a bunch of paper debt tickets and trade them for someone else’s hard work just like we get paid in DEBT for our own hard work. And while the exchange value of those notes continues to shrink, making us work even harder to stay afloat (or double down on debt), the debt that those notes represents is still there – due and payable to the (insert your favorite descriptive here) who set this whole mess up.

Even More Capital Controls

Beyond all of the above-mentioned issues, cash itself is under even further attack. Again, I pose the question why attack the perfect tool for controlling people? I guess it isn’t the perfect tool then is it? Obviously the powers that be have found reasons to look down on cash. The first is the obvious one – the underground economy. There was a rather intensive study done in last quarter’s edition of ‘The Regional Economist’ published by the St. Louis Fed. It focused on the underground economy and lamented that such a substantial amount of business is conducted without being subject to taxation, regulation, and so forth. “How dare the serfs find loopholes in our perfect scam!” the article might as well have said. While the study did a poor job of concluding on the size of the underground economy, it admitted it is probably substantial when one looks at electricity and energy rates and how they correlate with measurable GDP.

Of course this cynic’s first question was how could we even make a statement like that when GDP has been distorted to the point it has? The study made no attempt – at least not visibly – to account for the changes in GDP methodology and how that might impact any attempt at measuring the underground economy. But it is there. The kid with the lemonade stand I mentioned above and his big brother who mows lawns in the neighborhood during the summer for $20 per are part of the underground economy. So is the day laborer that works when there is work and his employer is barely staying in business as it is, so he pays his guys under the table. Such activity has already been criminalized, but not because it might not be safe for a bunch of roofers to be crawling around 3 stories up in the sky without workman’s comp insurance if someone falls. If you think the government is concerned about your health we really need to talk.

Another, and more sinister reason for these types of capital controls is simply the idea of tracking purchases and consumer habits. But it goes even further than that. With a digital currency, governments and other banking ‘authorities’ can actually watch the digital currency move through the economy. While on the surface this might sound like a legitimate study tool for economists, where does the issue of privacy and the Fourth Amendment enter the discussion? Therein lies the crux of the matter. Cash provides privacy, anonymity. We’ve been cultured to believe over the past 15 or so years that anyone who desires anonymity has something to hide and needs to be surveyed. First of all, the Constitution speaks very clearly the expectation of privacy for all Americans. Many have forgotten this, perhaps because they didn’t pay attention to their civics lessons in school – or because maybe the civics lessons are now centered on the promotion and propagation of Marxism. But I digress.

Now it might sound silly for a devout specie money advocate such as myself to be defending a worthless paper currency, however, there is an overriding principle in force here. That is the desire and drive towards the tangible. While the paper note is essentially not worth the paper it is printed on, it is still tangible. You can hold it in your hand. You can squirrel it away under your mattress if you so desire. And if the USGovt continues its experiment in fiscal insanity then you might be able to use paper dollar notes as wallpaper or perhaps as fire starter in the not too distant future. When all is said and done though, I’d much rather have something I can hold in my hand rather than digits on some crooked central banker’s computer screen.


Andrew W. Sutton, MBA Chief Market Strategist Sutton & Associates, LLC

Andy Sutton is the Chief Market Strategist for Sutton & Associates, LLC – a Registered Investment Adviser in Pennsylvania. His focuses are econometric modeling and risk management. The firm specializes in wealth preservation and growth and recognizes the validity of non-paper assets in achieving a balanced approach. The firm is also currently working with a growing clientele towards avoiding the risks outlined above.

The symbol for silver ‘AG’ comes from the Latin word ‘agentum’ meaning silver.