And then reality hit

We spent last week talking about the threat posed by a cashless economy.

And the stream of messages of support continued over the weekend. The end of cash is coming. People are waking up to the seriousness of the threat. Like this C&C reader, for instance (emphasis mine):
When I first subscribed I was disillusioned with Capital and Conflict for several reasons.

1. I felt very depressed reading your articles and said to myself you should call them “Doom and Gloom”.

2. How was just an ordinary chap like me supposed to survive what is in store for us by the banks. I still feel the same a bit I think. Maybe if the banks are dodgy could you suggest a bank that there is less likely to be a run on.

3. There are far too many articles for me to read so how can I keep up to speed with it all.

THEN REALITY HIT

I went to get £100 from a cashpoint. (My account was fine by the way) Not authorised. Tried again. Same reply. The next day I lowered the amount to £50.00 and it was approved. I could not figure it out.

I also picked up a leaflet by Shell to pay for your petrol by Paypal from your phone on the same trip as I thought it would be handy. I also use contactless payment a lot. It maybe Doom and Gloom but you’re soooooo right.

I think this sort of thing is pretty natural. Something like a move to ban cash seems ridiculous and far-fetched when you first read it. But once you weigh it up, consider the evidence and look at what’s actually happening… it starts to become a lot more real.

Whether ‘reality hits’ when you’re reading Capital and Conflict or at a cashpoint or down at the bank or whatever, it doesn’t matter. Everyone will have their wake-up call.

But let’s step back for a second. In all the fuss last week to start a petition (work under way on that – expect something from me before the end of the week) we never really considered why the authorities would want to ban cash.

The best way of thinking about it – and bear with me on this – is to imagine a tug of war.

On one side you have the forces of deflation. These include the huge amounts of debt in the economy, businesses that are ‘deleveraging’ (paying down debt and thus taking money out of the economy) and a strong dollar.

On the other, you have the forces of inflation. This essentially means everything central banks have been doing – stuff like zero interest rates, forward guidance, QE (money printing) and, in recent months, negative interest rates.

Central banks are fighting their corner hard. They’re doing everything they can to stoke inflation. That’s because they know deflation is a death sentence for a heavily indebted country. They’re committed to fighting it.

This dynamic pretty much sums up the state of the world economy since the financial crisis. We have two powerful diametrically opposed forces. They’ve almost cancelled each other out. In our tug of war analogy, there’s been a stalemate.

The problem is, over the last year or so ‘Team Deflation’ has started to win out…

The dollar has continued to get stronger. Commodity prices have tanked. Inflation is flat the world over.

That’s bad news if you’re on ‘Team Inflation’.

So the authorities need to come up with something big to save the day. Enter negative interest rate policy (NIRP).

Again, just to recap, the idea of NIRP is to force people to spend their money instead of saving it. In theory that pushes money out of the bank and into the economy as ‘stimulus’.

On a deeper level, it attempts to warp people’s relationship with their savings. It makes not having money more valuable than having it.

To me, that’s perverse. And who knows how damaging it would be to people’s psychology over the long term.

Who knows if it’ll work. But it’s coming. And the move to abolish cash is part and parcel of it.

Category: Economics