Outlawing Cash

Can ya tell I've had finances on my mind lately? ;-)

As they say, "Money makes the world go 'round," and I believe that to be true.  At least in a modern society, you must have a way of exchanging your work and products for goods and services you need by means other than direct barter.

So we have money.

Without going into a well-deserved rant on taxation, basically everything you buy or sell is taxed at some level.  As government has grown at every level, their appetite for tax dollars has grown as well.  Government keeps finding ways to dig deeper into our pockets.  Like a heroin addict looking for a fix, government is getting "creative" in writing laws designed feed their habit.

I was having a conversation with our employee at the PM shop.  The topic was the federal government gold confiscations of the 1933.  He was worried that it was going to happen again.

I told him my belief was that there wouldn't be an outright confiscation of gold as was done in 1933.  Remember:  We were still on the gold standard back then.  The dollar's value was linked to the value of gold.

The confiscation was done at that time so that the government could - over night - devalue to the dollar.  Once the gold was in the government's hands, FDR raised the price of gold from $20 to $35.  Those paper dollars you had received the prior day from the government for your gold were now worth nearly 75% less.

Thank you very much.

This time around, I don't think gold (and silver) will so much be confiscated, as the the government will attempt to make them worthless.  That brings us back to taxation.

With cash, gold and silver, there is the opportunity to consummate a business transaction without the government getting their piece of the action.  That is an unacceptable situation for government at every level.  So they're working feverishly to fix it.

Most folks have heard about the IRS form 1099 law that was added to the ObamaCare bill.  Starting in 2012, any time a business spends $600 or more with a single entity - be it a business or just a citizen - a form 1099 must be completed and sent in to the government.

There has been an outcry from American business that this will add an undue burden for the record keeping needed to comply with the law.  Imagine that you are the owner of a maid service with a number of cars you lend to your maids to go from house to house.  You give them a cash stipend each day to buy lunch and gas for the car.

Your employees will not only have to retain the receipts for the tax deduction, YOU will now need to keep track of every business to whom your employees paid cash.  In every instance, you will need to get the Tax Payer ID of every single vendor to whom you paid cash.  You will need to track this information from the very first transaction so that you can be sure if the $600 threshold has been reached.  You will need computers and systems to manage this process or be liable for fines from the government.

Through the cries from businesses that this was too onerous of a requirement, I've recently seen a government solution to our problems:  The 1099 requirement will only be enforced for non-electronic transactions.

Hallelujah!  Nanny has provided a solution to the problem they created!

Only the evil, poor-people-hating businesses that deal in cash will have to comply with the new 1099 law.

So, if you as a private citizen, have a pile of gold and silver coins, and you want to convert them into cash, your friendly coin or jewelry shop will have to take your name, address, social security number, thumbprint and probably a blood sample, and keep track of the transaction.  Maybe it will be as simple as just running a wand over that RFID chip implanted in your wrist.  Go over six-hundred bucks, and Uncle Sugar knows about the transaction.

Hey, Joe Public - when you sold that gold to the store, you know that you're required to pay taxes on the profit you made, right?  Just checkin'.....
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If you've been paying attention, starting on January 1, 2011 (dat would be tomorrow), electronic transactions will be reported to the government.  Yep, if you buy trinkets on eBay using PayPal, or buy a vacuum cleaner online from another state, those transactions will now likely be reported to the federal government.

(I say likely, because at the start of this new program, the electronic processors will only be required to report on businesses that do $20,000 in transactions and at least 200 transactions.  Anyone want to bet if those levels will be lowered and eventually eliminated?)

So, the federal government will have this repository of information on who bought products and services electronically.  They'll know that  Bob's Vacuum Cleaner Sales brought in $750,000 from credit card sales last year.  That number had better match the numbers that Bob puts on his tax return.

And let's say you live in California and Bob is in Texas.  You get that vacuum cleaner without paying sales taxes.  Woo hoo!

Wrong.  Most states, including California, require you to pay a Use Tax if you didn't pay a sales tax.  Until now, they didn't have any way of knowing who bought stuff from out of state and then didn't voluntarily pay the Use Tax when they filled out their Ca tax returns.

Now they'll be able to get that information from the credit card processors.  Convenient, huh?

Accept The Challenge

Note:  Just in case anyone with a .GOV email address reads this little ditty, what follows is an academic exercise.  Financial War Gaming, if you will.  I think that's still legal in America.

It is not a suggestion to or by anyone to break the law.
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So, the challenge is, "How do people with gold and silver convert that to cash without the transaction being reported to the government?"

The most obvious answer will be the black market.  Literally, clandestine transactions in dark back streets (or Starbucks, as is done quite often nowadays).  Exchanging real money for some fiat currency.

It's what people now do in Argentina.  You have your inflation hedge - gold and silver - in your possession until you need to buy something.  You then convert your PMs into cash, and buy groceries at the store, for instance.

Still, when you spend that cash here in freedom-loving America, the transaction will need to be recorded.  That's going to lead to more direct purchases of goods and services being done on-the-sly in precious metals.
   
This makes it even more crucial for us to become as self-sufficient as possible so that we can limit our interaction with entities that keep records.

Another answer will be to wait out this phase of our history - to see if we as a society come back to our senses.  Back in 1933, people with gold shipped it overseas.  Still, it wasn't technically legal for Americans to own gold until President Ford passed a law in 1974.

We had 41 years of law breakers.  That's a long time to be a desperado.

Transferring gold is against the law now, unless -surprise!- you report your shipments to the government.  And if you "forget" to do that, we've now got agreements with most foreign banks whereby they have to report your accounts to the US.

It's an ongoing game of cat and mouse.  They zig so we zag.  At a minimum, you should keep paper records of your PM purchases so that you have a tax basis for your purchases.  If you must sell publicly, you will only be liable for the gain between your purchase and sale prices.  Without that documentation, expect to pay income or capital gains taxes on the entire sale price.

Not surprisingly, I am continually reminded of this Ayn Rand quote:

There's no way to rule innocent men. The only power any government has is the power to crack down on criminals. Well, when there aren't enough criminals, one makes them. One declares so many things to be a crime that it becomes impossible for men to live without breaking laws.

They don't outlaw cash, they just make it impractical to use.  Slim difference.

Oh, BTW, Happy New Years.

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