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Some thoughts about interest rates, as set by the central bank.
Interest rates, although very low at present, have always been positive. Logically they must be positive, because there has to be something in it for me if I'm going to lend my money. And putting money in the bank counts as "lending my money" because I'm lending it to the bank for them to use.
As interest rates have fallen to all-time lows they have still remained positive, even if only barely. I was recently offered a "checking account with interest" but the interest rate turned out to be 0.01%. To make that live, it means if I deposited $10,000 with the bank in question I would receive $1 in interest per year (and for good measure the taxman would relieve me of some of that dollar). So even though interest on savings fails to keep pace with inflation, at least there is some form of interest available. The rates I've seen on offer for cash deposits with more or less instant access vary from 0.01% to about 0.75% in the US, and range from about 0.1% to 1.5% in the UK (if you've got millions to save you may get more).
Since some central banks are now experimenting with negative interest rates the game could be set to change substantially. As soon as retail banks set negative interest rates on savings accounts it means consumers are charged to keep money in the bank. In simple terms, if your checking account pays -5% it means that if you put $100 in now and don't touch it, in a year's time you'll have $95. So why would anyone keep money in the bank if it means you'll have fewer dollars next year than you have this year?
Enter the war on cash. Recently there has been talk of the European Central Bank doing away with the 500-euro note (which at current exchange rates is worth about $550). There is some talk of the Federal Reserve doing away with the $100 bill. Of course the reasons given sound laudable - helping crack down on illegal trades (drug smuggling, gun running etc), cracking down on money laundering and all sorts of other fine-sounding stuff. But there's a more sinister undertone to it - if banks introduce negative rates that effectively charge people to keep cash, the most obvious response to that is for people to withdraw the cash and keep it at home. Even though inflation will reduce its spending power, if I put $1000 in a sock under the bed I'll still have $1000 in a year's time even if it won't buy me as much. That certainly beats having $950 in a year's time and still having the loss in spending power. A negative interest rate could be regarded as a "wealth tax" except with no limits, and whether your bank balance is $1 or $1bn you pay the same wealth tax (the difference being a billionaire will find ways to avoid it that the pauper couldn't afford to implement)
As it becomes more and more difficult to buy things with cash (a combination of cash transactions over a certain limit requiring extensive checks, banks required to file Suspicious Activity Reports any time large amounts of cash are involved etc) and limits associated with cash transactions being steadily lowered, what is the logical end game of all this? The most obvious end game is the abolition of cash completely. In theory it offers lots of benefits, given the costs associated with handling cash and the security implications of storing it. Cash is a bearer instrument - this means that if you're holding it then it's yours. If I steal a check payable to you I can't do much with it, but if I steal your cash I can spend it as my own without restriction. Because of this it's an obvious target for thieves. The benefit to criminals is that it is untraceable, but this is also a benefit to the average law-abiding consumer. Do you really want the government (or, taking a slightly less conspiracy theorist perspective, your bank) knowing every time you buy a beer, a candy bar, a pack of cigarettes? Do you want it known every single time you buy anything, what you bought, where you bought it? If not, cash is your friend.
Hence the endgame of the abolition of cash should be a concern to all consumers, law-abiding or otherwise. If cash is outlawed there is theoretically no limit to how far into negative territory interest rates may move, and the only option the average consumer would have to avoid it is to move to another bank in the hope of a slower rate of confiscation. It also means that governments or banks could exert a huge level of control over the individual. Think of the times that for reasons unknown your card didn't work in a store, so you paid cash instead. If there's no more cash and your cards don't work you can't buy anything at all. If there's no more cash then person-to-person transactions would have to be done digitally, and if your cards don't work you can't sell. Not only does this remove a basic fail-safe in the economy (the chance to pay with cash in the event of an outage) but it also means that, in theory at least, governments could block the spending of people it considered undesirable. If the only way you can buy or sell then you don't have a whole lot of choice whether or not to accept new card formats, whether they be chip cards, contactless cards, or devices implanted into the individual (maybe in the right hand). Maybe people targetted would be political dissidents, maybe the new version of the "no fly list" would have a much greater reach, maybe it would apply to people who wouldn't worship the political leader of the day? Which leads right into a vision of some 2000 years ago:
Rev 13:16-17 NKJV He causes all, both small and great, rich and poor, free and slave, to receive a mark on their right hand or on their foreheads, (17) and that no one may buy or sell except one who has the mark or the name of the beast, or the number of his name.
Interest rates, although very low at present, have always been positive. Logically they must be positive, because there has to be something in it for me if I'm going to lend my money. And putting money in the bank counts as "lending my money" because I'm lending it to the bank for them to use.
As interest rates have fallen to all-time lows they have still remained positive, even if only barely. I was recently offered a "checking account with interest" but the interest rate turned out to be 0.01%. To make that live, it means if I deposited $10,000 with the bank in question I would receive $1 in interest per year (and for good measure the taxman would relieve me of some of that dollar). So even though interest on savings fails to keep pace with inflation, at least there is some form of interest available. The rates I've seen on offer for cash deposits with more or less instant access vary from 0.01% to about 0.75% in the US, and range from about 0.1% to 1.5% in the UK (if you've got millions to save you may get more).
Since some central banks are now experimenting with negative interest rates the game could be set to change substantially. As soon as retail banks set negative interest rates on savings accounts it means consumers are charged to keep money in the bank. In simple terms, if your checking account pays -5% it means that if you put $100 in now and don't touch it, in a year's time you'll have $95. So why would anyone keep money in the bank if it means you'll have fewer dollars next year than you have this year?
Enter the war on cash. Recently there has been talk of the European Central Bank doing away with the 500-euro note (which at current exchange rates is worth about $550). There is some talk of the Federal Reserve doing away with the $100 bill. Of course the reasons given sound laudable - helping crack down on illegal trades (drug smuggling, gun running etc), cracking down on money laundering and all sorts of other fine-sounding stuff. But there's a more sinister undertone to it - if banks introduce negative rates that effectively charge people to keep cash, the most obvious response to that is for people to withdraw the cash and keep it at home. Even though inflation will reduce its spending power, if I put $1000 in a sock under the bed I'll still have $1000 in a year's time even if it won't buy me as much. That certainly beats having $950 in a year's time and still having the loss in spending power. A negative interest rate could be regarded as a "wealth tax" except with no limits, and whether your bank balance is $1 or $1bn you pay the same wealth tax (the difference being a billionaire will find ways to avoid it that the pauper couldn't afford to implement)
As it becomes more and more difficult to buy things with cash (a combination of cash transactions over a certain limit requiring extensive checks, banks required to file Suspicious Activity Reports any time large amounts of cash are involved etc) and limits associated with cash transactions being steadily lowered, what is the logical end game of all this? The most obvious end game is the abolition of cash completely. In theory it offers lots of benefits, given the costs associated with handling cash and the security implications of storing it. Cash is a bearer instrument - this means that if you're holding it then it's yours. If I steal a check payable to you I can't do much with it, but if I steal your cash I can spend it as my own without restriction. Because of this it's an obvious target for thieves. The benefit to criminals is that it is untraceable, but this is also a benefit to the average law-abiding consumer. Do you really want the government (or, taking a slightly less conspiracy theorist perspective, your bank) knowing every time you buy a beer, a candy bar, a pack of cigarettes? Do you want it known every single time you buy anything, what you bought, where you bought it? If not, cash is your friend.
Hence the endgame of the abolition of cash should be a concern to all consumers, law-abiding or otherwise. If cash is outlawed there is theoretically no limit to how far into negative territory interest rates may move, and the only option the average consumer would have to avoid it is to move to another bank in the hope of a slower rate of confiscation. It also means that governments or banks could exert a huge level of control over the individual. Think of the times that for reasons unknown your card didn't work in a store, so you paid cash instead. If there's no more cash and your cards don't work you can't buy anything at all. If there's no more cash then person-to-person transactions would have to be done digitally, and if your cards don't work you can't sell. Not only does this remove a basic fail-safe in the economy (the chance to pay with cash in the event of an outage) but it also means that, in theory at least, governments could block the spending of people it considered undesirable. If the only way you can buy or sell then you don't have a whole lot of choice whether or not to accept new card formats, whether they be chip cards, contactless cards, or devices implanted into the individual (maybe in the right hand). Maybe people targetted would be political dissidents, maybe the new version of the "no fly list" would have a much greater reach, maybe it would apply to people who wouldn't worship the political leader of the day? Which leads right into a vision of some 2000 years ago:
Rev 13:16-17 NKJV He causes all, both small and great, rich and poor, free and slave, to receive a mark on their right hand or on their foreheads, (17) and that no one may buy or sell except one who has the mark or the name of the beast, or the number of his name.
I do think that the issue of banks needs to be addressed. I think bartering should make a bigger comeback!
