Random Dispatches From the War on Cash

Posted On Apr 13, 2016 By Dave Gonigam

  • Ooooh… the government’s getting tough with the banks! (Not)
  • Tourist alert: Japan seeks to link your fingerprints to your account info
  • Go figure — the IRS strikes a blow for cash lovers
  • Chinese exports pop, U.S. retail sales drop
  • Revenue plunges at too-big-to-fail bank, stock rallies 3.5%
  • A “28 pages” update… readers write about virtual reality… Alexander Hamilton keeping women down… and more!

Here we go with another charade that makes it look as if the government is putting the big banks in their place.

The Federal Reserve and the FDIC passed judgment this morning on the “living wills” put out by financial firms considered too big to fail. Under the 2010 Dodd-Frank Act, each of these firms has developed a plan to wind down operations during a crisis without any bailout money.

Only one of the big four commercial banks made the cut — Citi — and even its plan was found to have “shortcomings.” The plans from Bank of America, JPMorgan Chase and Wells Fargo were found wanting. So were the plans from Bank of New York Mellon and State Street.

The offending banks have until Oct. 1 to come up with better plans or else become subject to stricter regulation.

Whatever. Reminds us of the Fed’s bogus “stress tests” it does each year with the 30 or so biggest banks.

Is there any doubt that in the event of another crisis, the too-big-to-fails will get whatever bailouts they need to stay afloat? Isn’t that the privilege that comes with being too big to fail? Just send the Treasury secretary up to Capitol Hill and tell frightened congress members if they don’t go along, there will be chaos in the streets necessitating martial law. Worked like a charm in 2008.

Next time, though, there might not be bailouts but bail-ins — like Cyprus in 2013, to which we alluded briefly yesterday.

“Bail-ins,” author Ellen Brown reminds us at The Huffington Post, “allow the largest banks to gamble with impunity with their depositors’ money. If the banks make bad bets and become insolvent, they can legally confiscate the deposits to balance their books, through an ‘orderly resolution’ scheme of the sort mandated in the Dodd-Frank Act.”

Not that bail-ins can’t be part of a “living will,” of course. That would be too obvious — heh.

Which brings us back to our recent topic of the war on cash. Bail-ins would be made far easier if cash were abolished: Corral everyone’s money within the banking system. Easy-peasy.

This morning, with the help of Jim Rickards, we have a roundup of new developments in the war on cash. A couple of them you might find surprising…

“The cashless society has jumped the shark,” says Jim.

“Japan is introducing a system where you deposit your confidential account information with the authorities, have your fingerprints scanned and then pay by being fingerprinted at each store, restaurant or venue.”

Fun stuff, eh?

For the moment, anyway, the notion is being peddled as a way to goose foreign tourism — and the system would be applied only to visitors.

“The government hopes to increase the number of foreign tourists by using the system to prevent crime and relieve users from the necessity of carrying cash or credit cards,” says The Yomiuri Shimbun. “It aims to realize the system by the 2020 Tokyo Olympic and Paralympic Games.” The paper says 300 hotels, restaurants, souvenir shops and other destinations will take part in the experiment.

“Under this system,” says Jim, “your financial privacy and physical whereabouts are compromised simultaneously.”

On the other hand, Japan is also relenting a bit in the war on cash: The Finance Ministry is upping its production of 10,000-yen notes — worth roughly $100 at current exchange rates.

“That’s not much,” says Jim, “but it helps.”

As we’ve noted here the last two months, demand for cash in Japan has exploded ever since the Bank of Japan started experimenting with negative interest rates. Folks might not be stashing cash in the proverbial mattress… but there’s been a run on home safes at the country’s major hardware chains.

“The total amount of cash stashed at home,” says the Japan Times, “is estimated to have surged by nearly ¥5 trillion to some ¥40 trillion in the past year, Hideo Kumano, chief economist at Dai-ichi Life Research Institute, said.”

And it’s not just negative interest rates at work: “He attributed the sharp increase to people not wanting their wealth to become known to authorities following the introduction of the My Number common identification system for tax and social security.”

Hmmm…

There’s even a “positive” development in the war on cash stateside — if that’s what you want to call it.

Last week, the IRS announced that taxpayers who don’t have a bank account or credit card can now pay in cash not only at IRS offices but at more than 7,000 participating 7-Eleven stores in 34 states.

“Taxpayers have many options to pay their tax bills by direct debit, a check or a credit card, but this provides a new way for people who can only pay their taxes in cash without having to travel to an IRS Taxpayer Assistance Center,” said a statement from IRS Commissioner John Koskinen.

That said, you can’t just show up and pay your tax bill along with a Big Gulp. “There are several steps involved in the process,” USA Today reports, “including clicking onto the IRS payment page to submit personal information and receiving an emailed link to a payment code.

“Once they’ve paid, taxpayers will get a receipt and the payment should post within two business days.”

Uh-huh. Do not fold, spindle or mutilate. Void where prohibited. Batteries not included.

Stocks are inexplicably in rally mode again today — even with crude prices down a bit.

At last check, the S&P 500 was up more than half a percent, to 2,073 — equal to the highest close this year, which came two weeks ago.

The establishment media attribute the increase to good economic numbers from China — exports priced in yuan surged in March, up 18.7% year over year.

The numbers here in the United States, however, are another story…

  • Retail sales: Down 0.3% in March, way off the “expert consensus” expecting a 0.1% increase. If you throw out auto and gasoline sales, the number turns positive, but it’s still below expectations
  • Producer prices: Down 0.1% in March, another big fat miss relative to expectations of a 0.3% increase. Yes, in a rational world falling prices are a good thing… but we live in the Fed’s world, and the Fed wants inflation.

And then there are the earnings numbers from JPMorgan Chase — one of the aforementioned big banks whose “living will” was found deficient by the feds.

JPM delivered an earnings “beat” this morning — not a surprise. But its first-quarter profit fell 6.7%. Revenue was down from trading and investment banking. And significantly, the firm set aside more money to cover losses from loans made to energy companies.

But all that matter to traders this morning are the bottom-line numbers. JPM shares are up 3.5%. And on the assumption that the “good news” will extend to the rest of the banking sector during this earnings season, XLF — the big financial-sector ETF — is up 1.5%.

Maybe we’re getting closer to seeing what the “28 pages” are all about.

Former U.S. Sen. Bob Graham (D-Florida) tells the Tampa Bay Times he got a call from the White House yesterday. He was told a declassification review is due to be completed in another “one or two months.”

As we’ve mentioned periodically for more than a year now, the Bush administration classified 28 pages of a Joint Congressional Inquiry into the Sept. 11 attacks. The few people who’ve seen the pages say they point to people and groups in Saudi Arabia that funded the hijackers. Events have now reached a critical mass with a story on 60 Minutes Sunday night.

“The decision makers at the White House have realized the public cares about it and there is an urgency to come to a decision,” says Sen. Graham.

“The cable TV Syfy channel’s Caprica (spinoff of Battlestar Galactica) had a complex virtual-reality environment that people could enter and interact together,” a reader weighs in on VR.

“The VR world allowed for clubbing, gambling, sex and violence in a vicarious environment. A person could even participate with an alternate personality. The ultimate escape. Of course, this eventually led to the cyborgs taking over the world — probably tough on their investments too!”

“Loved the recent remarks about VR and virtual business meetings,” writes one of our regulars.

“BUT (of course, since this is The 5) much of human communication is not verbal, much may even be subliminal and/or not yet recognized — a great deal of which doesn’t happen when communications is not face to face.

“One of the worrisome things about the generation raising itself on texting, tweeting and the like is the lack of face-to-face communication, the inability to pick up on the nuances of human communication, or even be exposed to it.

“That said, the coming VR will revolutionize the way many things are done and create opportunities about which we have not yet even dreamed. Thirty years ago, who would have thought that ‘Beam me up, Scotty’ could become a reality (see quantum linkage)? What about ‘Tea, Earl Grey, hot’ — think 3-D printing?

“Can you imagine what Dr. Albert Einstein and the best minds of his time (1930s and ’40s) would have thought if you handed them a scientific calculator you bought at the corner drugstore for $19.95? How about NASA Apollo-era mission control computer specialists if you handed them a common smartphone of today, which is at least a thousand times more powerful than the multimillion-dollar mainframe computers supporting a manned mission.

“VR is only one of many areas that will be game changers in the immediate future. It would be easier if the innovators didn’t forget that the technology is not the only aspect of the technology and could also add in the human element, both known and unknown.

“Painfully, that too will evolve through varying degrees of ‘Oh, s*%t!’ Perhaps the greatest value of the coming technological evolutions is that it may teach us more about ourselves than we directly gain from the technology. How very, very exciting!!

“And after the world’s economies eventually recover from the current, ongoing lunacies, what an extraordinary investment panorama will emerge!”

The 5: Well said, sir. Although it’s our firm opinion that one should not wait for the recovery from the “ongoing lunacies” to seize on VR investing opportunities — for reasons our Ray Blanco spells out here.

One more dispatch from the war on cash, and we’ll put this one on the “positive” side of the ledger as well: The elites’ hostility to cash notwithstanding, it seems many of them are also invested in whose mug graces the $10 bill.

“Exclusive: Concern Grows that Hamilton Euphoria Will Push Woman to Back of the $10 Bill,” says a headline this morning at Time.

Two years ago, a 9-year-old girl from Massachusetts sent a handwritten letter to President Obama, wondering why no woman is depicted on U.S. paper currency. Long story short, the U.S. Treasury announced last summer the ten-spot would feature a woman on the front come 2020 — the centennial of the 19th Amendment granting women the right to vote.

But second thoughts abound. No less than Treasury Secretary Jacob Lew said as much to Charlie Rose last month, suggesting a woman might be portrayed on the back.

“It’s akin to being on the back of the bus,” objects Barbara Ortiz Howard, who heads a group called Women on 20s, who’d rather see Andrew Jackson replaced.

“At issue is the fate of [Alexander] Hamilton,” says Time, “a Founding Father Lew describes as a personal hero who served as the nation’s first Treasury secretary and recently enjoyed pop culture celebrity as the star of a hit Broadway musical.”

What’s more, Time says Hillary Clinton has told Lew she favors keeping Hamilton front and center.

Figures. Secretary Lew is an acolyte of the uber-elite Robert Rubin, Bill Clinton’s second Treasury secretary — who came from Goldman Sachs, the firm that in more recent years paid Mrs. Clinton $675,000 to deliver three speeches.

In the pantheon of the elites’ deities, Hamilton stands tall. And why not? He was the original American crony capitalist. We daresay nearly everything wrong with America today can be traced back to Hamilton… but that’s a story for another time.

Jefferson told Hamilton he revered the Enlightenment figures Bacon, Locke and Newton.
Hamilton replied that Julius Caesar was “the greatest man that ever lived.” ‘Nuff said…

Anyway, the crowd that wants to replace Andrew Jackson on the $20 might get its way in the end… but under Treasury’s redesign schedule, that wouldn’t happen in time for the centenary of women’s suffrage. To be continued…

Best regards,

Dave Gonigam
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