GUALFIN, Argentina – September is here. As expected, market volatility is increasing. The Great Zombie War is intensifying. And investors are getting scared. On Tuesday, the Dow lost 470 points – a nearly 3% drop. Bloomberg:
“U.S. stocks joined a worldwide sell-off, after equities’ worst month in more than three years, amid continuing concerns that China’s slowdown will weigh on the global economy.
‘The problem is, as much as China is the catalyst for this, it’s also that we’re seeing weakness in fundamentals here,’ said Matt Maley, an equity strategist at Miller Tabak & Co LLC in New York.
‘A lot of company earnings were hurt by China in the second quarter and it’s only gotten worse. People are losing confidence with the whole situation there breaking down, not just in the stock market but in data as well.’”
Now they even want to do away with the State’s own scrip – because it might help you to escape the depredations of madcap central bankers.
Image credit: Stephen Krow / Getty Images
Yes, investors are losing confidence…they’re probably losing confidence in corporate managers, for instance. Who wants to own stock in companies run by numskulls who buy back shares in their companies at record prices just before a major sell-off?
Or maybe they’re wondering whether the world’s $200 trillion in total debt (roughly 300% of total output) can possibly be paid back? Or maybe they’re beginning to puzzle out how scammy and fraudulent the Fed’s policies are.
But watch out! Reeling from the jabs of the last two weeks, expect a strong counterattack from the zombies and their allies. Some Fed governor will come forth – maybe even Janet Yellen – and tell us not to worry about a return to more “normal” interest rates anytime soon.
We’re way too far into the weird to get anywhere near normal now. And surely Wall Street shills will be in the news explaining how markets become unreasonably fearful from time to time. They will tell investors that it is time to hunt for bargains. Dow 25,000! Why not?
And they may be right. There’s bound to be an inflationary blow-off waiting somewhere ahead. Stocks will soar. But not before they crash.
Retiring Another “Barbarous Relic”
In the meantime, watch your rear: There’s a serious counterattack coming. It will be an attack on our supply lines. The cronies and the feds will attempt to cut off our finances and our line of retreat, trapping us between the anvil of the market’s deflation and the hammer of the Fed’s inflation. There will be no escape, no way out.
Last week, the influential Financial Times newspaper ran an article calling for the abolition of cash. It was titled “The case for retiring another ‘barbarous relic.’” And it claimed that cash causes “a lot of distortion in the economic system.” Can you believe it? Cash causes economic distortions! From the FT:
“The existence of cash – a bearer instrument with a zero interest rate – limits central banks’ ability to stimulate a depressed economy. The worry is that people will change their deposits for cash if a central bank moves rates into negative territory.”
It also repeated the familiar claims that cash also is what finances terrorism, tax evasion, and the black market. Making cash illegal, it says, would “make life easier for a government set on squeezing the informal economy out of existence.”
The FT failed to mention that it will make it easier to make you obey, which would cut down on the subliminal ad costs.
Image via hellasforce.com
You see where this is going, don’t you, dear reader? If the feds are able to ban cash, they will have you completely under their control. You will invest when they want you to invest. You will buy when and what they want you to buy.
You will be forced to keep your money in a bank – a bank controlled, of course, by the feds. You will say that you have “cash in the bank,” but it won’t be true. All you will have is a credit against the bank. (Bank deposits are nothing more than IOUs from your bank to you.)
A Tax on Your Bank Deposits
As it is now, your bank will have some cash on hand in its vaults, but not nearly enough to satisfy all the claims against it. If this new attack succeeds, by law, it will have no access at all to cash. And neither will you…
You will be completely surrounded. If the feds want to force you to spend… or invest… your money, they will simply impose a “negative interest rate.” They will do this by simply imposing a fee, or tax, on deposits greater than the interest rate you receive on your savings.
In 2001 in Argentina, they closed the banks. When they reopened, dollar holdings had been converted to pesos, with a loss of roughly two-thirds! In 2013 in Cyprus, they whacked large accounts with a 50% tax to help recapitalize the banks.
In 2001, Argentina’s citizens thronged the streets in their thousands protesting when they realized they were about to be robbed to save the banks – to no avail.
Photo credit: AP
And in the U.S., JPMorgan Chase recently sent a letter to its large depositors telling them that, as of May 1, it would start charging what it called a “balance sheet utilization fee” of 1% a year. This pushed the net interest rate those depositors were earning into negative territory.
As stocks decline, you can expect more and more people to want to hold cash. If stocks go down 10%, the “opportunity cost” of holding cash goes down by the same amount.
People will want to hold cash. But if this encirclement maneuver works, you will be unable to get your hands on it. All you will have is a claim against some of the most insolvent debtors in the whole economy.
Cut Off from Cash
In 2008, almost every major U.S. bank was on the edge of bankruptcy. But if the feds succeed in cutting us off from cash, that will never happen again. Because the banks will just whack us all – with the full approval of the Fed, the cronies in Congress, and zombies everywhere – to make themselves whole again.
Already, several Diary readers have reported that they have had trouble getting cash from their own accounts. (You can read the most recent account in last Friday’s Mailbag.
Banks stall. They impose withdrawal limits. They want you to come in person, etc., etc. Right now, being unable to get cash promptly is merely a nuisance. But just wait… It won’t be long before new initiatives are announced to “stimulate demand.”
Perhaps negative interest rates will do it. Maybe a more general tax. But sooner or later, the next credit crisis will hit hard…
Consider yourself bailed in, citizen!
Cartoon by Chappate
Then your inability to get cash will be more than a nuisance. It will be a deathblow. You will be locked into a bank account with a bankrupt institution. And the feds and their bank cronies will tell you when and how you can have access to your own money.
The feds will announce a “bank holiday.” They may ban transfers to gold sellers or foreign currency accounts. Or maybe it will just take time – while your money loses value rapidly – to get your money out. If this new campaign succeeds, it will be almost impossible to protect yourself.
The above article appeared at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.