War on cash

Central bankers are moving to eliminate your last vestige of financial security and privacy…

German financial newspaper Handelsblatt reports the European Central Bank (ECB) will soon scrap its 500-euro paper banknote.

ECB President Mario Draghi confirmed the bank is “considering action on that front.”

The total value of 500-euro notes in circulation is around 306.8 billion euros (about $350 billion). Noteholders will have to convert them to the 200-euro note (the next highest denomination) or to credit.


Draghi was quick to say the reason for killing the note is to fight “illegal activities”—everything from money laundering to drug trade to terrorism.

Criminals (and free, law-abiding citizens) like cash since it leaves no “paper trail.”

But anyone who takes Draghi at his word is blind to the powerful interests driving the world’s central banks today…

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  The two great enemies of all central banks (and governments) are gold and paper currencies…

President Nixon cut the dollar’s last link to gold in 1971. Gold restricted the banks’ ability to create money at will. They’ve been on a “printing spree” ever since.

The banks use that easy money to “juice” the global economy whenever it’s bogged down.

But most of this easy “money” is not printed banknotes. It’s digital: credit. The banks just add zeros to their ledgers. Voila.

This increases the available credit they can lend out. Lending stimulates the economy.

But there’s a problem. The banks are hitting the limits of their monetary interventions. Now, even paper money has become a roadblock to their credit machinations…

  Since the financial crisis of 2008-2009, central banks have created trillions in new currency units (through “quantitative easing,” or “QE”) to encourage borrowing.

They’ve lowered interest rates to zero (“ZIRP,” or zero interest rate policy). Now, some central banks have even moved interest rates into negative territory (“NIRP,” or negative interest rate policy).


Negative interest rates mean depositors must pay interest—not earn it—to keep their money in the banks. Central bankers hope to compel folks to withdraw their money and spend it… boosting the economy.

But paper money—cash—thwarts this plan. A depositor could demand his money in cash and just stuff it in his mattress. “Hoarded” cash still stays out of the economy.

The banks cannot allow this. So they’ve decided paper money has to go… and with it, the last vestiges of your financial security and privacy.

  If you think this is sensational fearmongering, think again…

  • Bloomberg reports the ECB is considering a parallel measure to cap all cash trasactions across the entire eurozone. Any cash sale higher than 5,000 euros would be prohibited.
  • Reuters reports a similar cap already exists in France… and it’s going lower. After September, all cash transactions over 1,000 euros are prohibited (down from the current 3,000-euro limit).
  • Business Insider reports 95% of Swedish retail transactions are now cashless. Many Swedish bank branches are now cash-free. Citizens are charged fees for paying bills in cash.
  • The Independent reports Danish law no longer requires businesses to accept cash.
  • Israel Today reports Israel has created a three-part plan to eliminate all cash transactions. This includes a rough $4,000 cap on all cash transactions.

Folks, this is serious. With paper currencies gone, JPMorgan Chase economists predict the ECB could lower interest rates to -4.5%. The Bank of Japan could slide rates as low as -3.45%. And the U.S. Federal Reserve could push rates down to -1.3%. (Last week, Fed Chair Janet Yellen told Congress the Fed has the statutory power to take rates negative.)

  The central banks’ moves toward negative rates (and against cash) won’t surprise longtime Daily readers…

They know these steps are a symptom of what Tom calls “The Great Unwinding”: the largest credit contraction in world history.

Credit (and thereby debt) has expanded since the end of the Great Depression.

But last decade’s “Great Recession” brought on the beginning of the end of this expansion… as the world began hitting its limit of borrowed dollars.

Tom explains why eight decades of debt-fueled growth is ending in the February issue of The Palm Beach Letter

Tom Dyson

For the Fed to keep creating dollars, the global business machine must be willing to borrow dollars. And that’ll only happen if there are decent opportunities to make returns in the market.

But that’s not the case. According to a recent New York University business school study, over 20,000 companies worldwide are no longer able to find worthwhile opportunities for these cheap dollars.

The chart below tells the same story from the perspective of the whole American economy. The line shows the economic return—in terms of GDP growth—from each additional dollar the Fed introduces into the system.


As you can see, the global economy has hit maximum dollar “saturation.” There are just not enough opportunities left for these dollars to go into… hence the shift into a new, massive deflationary trend.

Then, Tom answers the most important question on everyone’s mind…

You’re probably thinking, “Okay, Tom. So, we’re entering a period of credit deflation. What am I supposed to do with my money?”

Two words: maximum defense.

Regular Daily readers know defense means—first and foremost—appropriate asset allocation.

At PBRG, we recommend you divide your wealth between eight unique asset classes. Doing so prevents you from ever taking a substantial hit across your entire net worth.

We just updated our recommended allocations in January’s 2016 Asset Allocation Guide. (All PBL subscribers can access it right here.)

In addition to our 2016 weightings, Tom offers the following advice:

As we’re entering a credit deflation, I want you to beef up your allocations to gold and especially cash.

  Tom listed his full five-step plan for maximum defense—and profit—in the face of “The Great Unwinding” in the February issue of The Palm Beach Letter. Subscribers can access it right here.