Imagine you’re stood outside your bank one day when a series of army helicopters land nearby. There’s no security risk. The country isn’t under attack. The army has just been enlisted to restock the bank with cash in an emergency.
It sounds utterly bizarre. But that’s exactly what’s been happening in India over the past week or so. The country is in uproar over a new government plan to abolish five sixths of the cash in circulation.
It’s a story longtime readers will be familiar with. Maybe you remember my petition to the government last year following Andy Haldane’s suggestion the state should consider abolishing cash altogether.
Well, if you were in any doubt that this is a truly global story, look to India. Although I must admit, there are some strange elements to the story I didn’t think we’d see anywhere. Helicopters and fighter planes full of cash, for instance.
I’ve received a fair bit of correspondence about this, as you’d expect. One particular note caught my eye. It claimed our analysis of the move (and Jim Rickards’ analysis too) was misleading:
What happened in India was that the notes were recalled and new ones were substituted .
Indians will still have their cash in newly minted notes -but the difference being the state will now know who owns what, and presumably tax it. That’s why there was no limit on what Indians could declare to the banks.
There is no sinister motive other than what states’ always subject their citizens to!
It appears to clearly be a dramatic measure to stamp out tax evasion, not abolition of cash.
Please correct me if I have missed something vital here that you know and I do not.
I wouldn’t say it’s misleading at all. Here’s why:
The state argues that abolishing cash reduces chances for black market exchange and tax evasion. Which is true. It does. And you’d expect the government to highlight these particular aspects of the plan. So on that front, you’re right.
But here’s the problem. We know the preferred way of dealing with a banking crisis now is to follow the Cypriot model. That is, not to bail the bank out… but to bail it in. That means to use depositor’s cash to recapitalise the bank.
Whether that’s morally right or wrong is a story for another day.
But think it through. In a world where there’s no cash and the government can “control” the flow of money from one part of the economy to another… what happens when a bank looks shaky? They lock the system down. There’s no cash, so you can’t get your money out and shove it down the back of the sofa, if that’s what you want.
In fact, there’s pretty much nothing you can do, because the state can electronically “lock” your capital in the bank. No need to worry about a bank run. Just lock the system down from a computer.
As we’ve said before, it leaves the state free to impose a kind of Financial Martial Law on the populace.
There’s a deeper and more important level to this, too. It comes down to the relationship between economic freedom and state control. I’m not necessarily saying having a mattress full of cash is a good thing. But it’s a choice people are free to make in a cash economy. Eliminating the majority of the cash in the system just makes it easier for the state to control how and where you spend your money. If you believe people deserve the freedom to manage their own financial affairs, that’s wrong.
So no, I don’t think we’re being misleading. I think we’re highlighting a huge risk of a cashless economy – one that the state makes no effort to educate people about. When you consider it like that, who’s really being misleading?
Real estate: only way is up?
So it turns out that property stocks have been the worst performers on the MSCI UK index since the referendum.
That’s not to say there’s been a collapse, or even a particularly sharp selloff. There hasn’t. But the market is down. No one really knows what Brexit means yet. In London, where huge parts of the property market are driven by the finance industry, you’d expect particular uncertainty.
If Brexit hits the City’s role as a key financial sector – and there threat is more from a more business friendly US than Europe – that could take a key source of demand out of the market. That’s led to prices drifting lower and projects coming under review.
But what if that just means all the bad news is now priced in to the market? If that’s the case the contrarian move would be to say the fall is over and the market is going to rise. Which is what you’d expect if Akhil Patel is correct and property is at the start of a decade long boom.
Making America great again… using robots?
Donald Trump has already started making noises about bringing US manufacturing jobs back to America.
You’d expect that. It was one of the core pledges he made in his campaign. Yesterday Bloomberg reported that he’s planning to start putting pressure on key manufacturers – like the firms that assemble the iPhone – to move from China to America:
“Apple asked both Foxconn and Pegatron, the two iPhone assemblers, in June to look into making iPhones in the U.S.,” a source said. “Foxconn complied, while Pegatron declined to formulate such a plan due to cost concerns.”
You can see the appeal for the President-elect. Bringing the manufacture of iPhones back onshore would be a major political win. It might also send a signal to other manufacturers to do the same.
But there’s another part to the story that wasn’t reported. Foxconn is the firm that laid off 60,000 Chinese workers in a single day over the summer – and replaced them with robots.
I’m sure when Trump talks about work coming back to America, he meant work for workers, not for robots. If you feel like a Chinese worker takes your job, you complain about China. If an American robot does… who do you blame?
The underlying point is this: globalization reorganized the world as new, cheap sources of labour became a part of the global supply chain. But we’ve arguably reached the peak of that trend.
We’ve barely started when it comes to technology and automation on a large scale. That’s the next force that will reorganize how and where the world works. There will be winners and losers, just like globalization. Want to be a winner?
Have a great weekend.
Nick O’Connor
Associate Publisher, Capital & Conflict
Category: Economics