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Friday, May 22, 2015

Buh-Bye Cash

 A good friend of mine sent me an email about the recent flurry of articles on line about the demise of cash in America.

Since I was pondering a post on the subject, I'm going to just post his question and my response for your perusal (with some slight editing), with some final thoughts at the end.

Caution:  I swear a bit.  Actually, a lot less than I expected!

Q:  What's your take on the latest "fad" of the internet doomsayers regarding the outlawing of cash?  Any substance to that theory of which you are aware?

A:  Buckle up - this is gonna be bumpy (and windy).

I've long held that this will eventually happen. When? That's the tough part. Back in my banking days, the fed started this program called Check 21. It's plan was to do away with checks. The rationale was that checks were hard and expensive to process, and by doing away with them, the world would be a better place. Hey, you can buy everything you want with a debit card, so no problem, right?

The real reason is the ability to track - and tax - transactions.

Well, they figured out that checks couldn't quite go away just yet. You had transactions between individuals that didn't fit the mold. For individuals, it's either cash or checks (or Paypal now). So, Check 21 digitized the checks. They are no longer processed as before. They get scanned, and an electronic file - critical data and an image of the check - now replace the paper checks. As a business, you scan the checks, then destroy them. When you as an individual deposit your check at the bank, they scan it, then destroy it. Hell, when I get my check from the gold store, I take a picture with my cell phone using my [bank name] app, then shred the check!

So now there's an electronic trail. Money transferred from one person to another (or to a biz) and that info can be gleaned in a second. No forensic accountants digging thru boxes of checks and statements. Efficient for the tax collectors.

And then there's cash. Big gaping hole. Every government on earth understands that the "off the books" economy is enormous. With cash, there's no way to track it. And if you can't track it, you can't tax it.

Look how the feds stepped on their collective dicks with medical marijuana (and now the legalized variety). To show how big and bad they were, they made federally insured banks (yes, that means all banks) drop the bank accounts of the growers and sellers because MJ was a federally illegal substance. What happened? The pot clubs dealt in all cash. Fucking buckets of it!

The feds soon realized their actions had nipped in the bud (sorry) a great tax source. All that cash went underground. Hmm, I wonder how much of that was declared on tax returns.....

So, the law was changed so that banks with branches in states with legalized MJ could now accept deposits from the growers and sellers. Amazing, huh? Did it out of the goodness of their hearts.

I'm sure you've heard that a number of Euro countries have begun to restrict the value of items you can buy with cash without being reported. France or Spain or one of the other socialist havens dropped the amount from 5000 euros to 1000 euros. Something like that. Soon enough, it will be zero. The rationale will be to fight terrorists or some such horseshit, but it will happen. We've already got our official $10k reporting threshold which effectively limits purchases to under that amount. Hell, it's why we don't do those transactions in the gold store - I don't want to do the reporting paperwork. No other reason.

I guarantee you, these lower limits will happen here as well. For person to person transactions, we will get to the point of needing something like ApplePay or Paypal. Rub two phones together and transfer funds. The technology exists, they just need to keep up the pressure to gain widespread acceptance. They'll use fear ("Only drug dealers, criminals and crooks need cash! You don't want to help criminals, do you?"). They'll throw in a dash of patriotism ("Oh, and terrorists, too.").

Our only saving grace may be that since it's (the money) electronic and not physical, hackers will fuck with it. Hard. Look at bitcoin. That shit is amazingly secure. Trust me on this. Banks dream about this level of encryption. And it gets hit on a semi-regular basis. That's good for the feds, in that, since it's not part of the banking system, if you get robbed, YOU'RE screwed, and don't get your money back like you would from an insured bank.

The next step will be a change the laws on what types of transactions that can't legally be done with cash. They'll include guns and ammo, gold and silver. It's all so they can track who has what and in what quantity. Everyone who owns any of those things will need to so some sort of inventory each year. For gold and silver, I think my store be prohibited from buying or selling for cash within 10 years. Probably have to report who I buy from in the very near future. Could be sooner, depending who gets elected. The amounts will start on the high side - say $5000 or so - and will eventually include everything.

In one of those Euro socialist countries, ALL of your precious metals must already be inventoried and registered with The State. If you transport it, even across the street, without first getting permission, it can be seized!

PMs and cash threaten their control. They don't like that.

When the gold/silver laws raise their ugly head, you'll have two choices: Sell it before the law is enacted, or bury it and wait for sanity to resurface. It's a de facto confiscation. Last time, it took from 1933 until 1974 before you could legal possess gold.

So, to answer your question: Yes.
We saw the attempt to put a squeeze on the sellers of goods when ObamaCare was introduced.  They had a provision that required a business to do a 1099 report for any aggregate purchase of $600 or more, regardless of the source or reason.

It looked good on paper, but once word got out, businesses screamed bloody murder.  1099's are used by the IRS to track when individuals are paid $600 or more a year for services rendered.

With the ObamaCare scheme, ANY purchase from ANYONE - business or personal - had to be reported if it exceeded the $600 threshold.  So, I would have to report when I paid our gas bill, our newspaper ads, our internet service.  If I had a new vendor that sold me $100 in goods, I'd have to first gather all of their business information in anticipation of exceeding the $600 at sometime during the year.  Every time with every vendor.

The burden on small businesses would have be devastating, and it got repealed.

What I see happening is that any kind of business such as my gold store - where people have something of value that they want to sell - we'll have to gather their Social Security Number and report anything we pay them.  What the IRS will do is cross-reference that information to the person's tax return, and see if they reported their gain (or loss).

If not, the IRS will come calling.

"Hey, Mr. Smith, we see you sold some gold to Bob's Coin Shop.  We also see that you didn't report the income you received on your tax return.  What?  You don't have the receipts from when you originally bought the gold, so you don't know your 'basis'?  Sucks to be you!  That means your entire sale is considered profit.  Pay your tax and your penalties.  Have a nice day!"

If cash has been effectively outlawed - and everything must be done via some sort of electronic device - even sales of precious metals between individuals will be recorded.  No, individuals would not likely categorize the transaction as "gold buy", but with a record of the transaction being available, the basis for asking questions is there.

The taxing authorities would now have information on garage sales, lemonade stands, every Craigslist transaction, ANYTHING you pay for with cash.  You'll have no secrecy and no privacy.  And that's the way they like it.

Like all tax schemes, if my predictions come to fruition, it will create a black market.  I believe that trading in gold and silver, in particular, will continue, but it will all be off-the-books, just like buying bread or car tires in the former Soviet Union went unrecorded.

Barter and trade will become much more commonplace.  Get used to it, comrades.

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Copyright 2015 Bison Risk Management Associates. All rights reserved. Please note that in addition to owning Bison Risk Management, Chief Instructor is also a partner in a precious metals business. You are encouraged to repost this information so long as it is credited to Bison Risk Management Associates.


Anonymous said...

So one could then say it would be best to support your local mom and pop stores instead of the big box stores.
If it were to come down to bartering or trading in metals the mom and pop shops would be more likely to deal out the back door with their regular customers.
Costco or Safeway, doubtful.
Oh wait, the Feds are already on top of that by seizing the cash assets from business owners "suspected" of money laundering or drug running. The Feds just never get around to filing charges but still keep the money.

Chief Instructor said...

I'm all about buying where I get the best value. That doesn't always mean lowest price. I've purchased all of my handguns and a couple rifles from local mom-and-pops, but a couple of my rifles from Big 5 Sporting Goods.

For a small biz to compete, they've got to give you a reason to (usually) pay more for similar goods. It usually comes down to better service.

Regarding the asset seizures, it is a disgusting abuse of power. It is one of the primary reasons I'm such a big believer in hiding assets - while you still can. As I've often said, they can't take what they don't know you have.

Obviously, the assets of a business are disclosed via tax returns, so a key is the keep low inventory counts - enough to ensure you've got enough to sell your customers, but not so much that you'll be wiped out if some are seized. We no longer buy large amounts of silver, for instance, "on spec" from wholesalers that we'll sell over time. If we get a large purchase, we'll order it and have it delivered in 2 days. Margins are reduced, but so is risk of theft and/or confiscation.

When our industry was placed on the list of evil industries by the feds via the "Operation Chokepoint", we paid attention. The feds put a red-dot on the chests of gun sellers, ammo sellers, coin stores, check cashing stores - all evil, evil entities - because virtually all of these industries promote individuality and personal choice.

Unknown said...

Once cash is dead....

Thinking out loud: I suspect that gold/silver may have some significant disadvantages compared to Crypto currency, to go along with the obvious advantages.

Crypto currency as a replacement for straight up barter.
upsides - can be free of government fiddling.
Downsides - NSA tracks EVERYTHING whether they're allowed to or not. So anonymous transactions aren't really anonymous - at least not with out work. Depends on the availability of peer-to-peer networking, which depends on the availability of networks, which tap or turn off. Not all that useful if someone uses and EMP device.

You might get around most of this (except the EMP thing) by going with "local" networks. The hard issue would be to control double spending coins, which currently controlled by peer-to-peer voting (more or less). Gotta think about that for a bit.

At the moment, you can't really trust SSL, which the NSA weakened on purpose (really stupid) so they could get in - and for some insane reason they figured no one would figure it out. So there's a patch for Internet Explorer, but not for anything else yet - at least that I'm aware of. Which mean's TOR is compromised. I think PGP is probably fine, so you could encrypt everything manually. Eventually there will be a reliable fix for SSL (at least I hope).

Hmm, I see a lack of sleep in my future.

Chief Instructor said...

I've yet to dabble with bitcoin, but intend on doing so in the future. I'd never heard of the double-spending scam. From the little bit I've now read, it seems like it is usually used with high-value transactions as it's expensive to pull off the ruse.

Still, as your overall post notes, any type of electronic transaction is at risk of being compromised or monitored by others. Instead of the crook needing to stick his hand in your pocket to pull out your cash, they can be across the world on a laptop.

At least with PMs, you can (currently) avoid the monitoring to a large extent. I think you'll be able to do it in the future as well, but it just won't be as easily done.