The Contrarian

“In the investment markets, what everyone knows is usually not worth knowing.”

The War On Cash Accelerates…In India, Venezuela, And Now Australia

First India did it, then Venezuela, now Australia, and Europe may follow, and finally the US. All these governments are conducting a battle which may lead to a deep recession or worse.

What is it? It’s a war on cash. When you eliminate part of the currency from circulation, money supply plunges, especially when the government doesn’t give banks enough currency notes for exchanging the “called-in currency” for currency notes that are still legal, as was done in India and Venezuela. And as all the readers of our WELLINGTON LETTER know, money supply growth is an important determinant for economic growth.

In our award-winning Wellington Letter, now in its 39th year, we described the crazy currency call-in of India. We said this has the potential of driving India into sharp depression. However, the worst part is that a plunge in tax revenues may lead to a debt default of the country, which would then send shockwaves throughout the financial market of the world.

The India call in removed about 90% of the currency most used in India from circulation. Imagine, money supply plunging 90%?! That would virtually seize economic activity. Wall Street isn’t ringing the alarm bells yet. They have to get positioned for the inevitable first, before alarming others.  

President Maduro, the dictator of the socialist paradise of Venezuela, announced that the country’s 100 bolivar bank note would be withdrawn from circulation in three days. After that, they apparently become worthless.

Central bankers globally apparently have agreed to eventually take all currency out of circulation and force people to use “digital” means of transacting business. This makes it possible for central banks to create an infinite amount of artificial digital money in the hope of stimulating or contracting economic activity.

Currently, central banks can only put money into the banking system, by increasing the reserves. But if banks don’t lend it out, as we have seen the past seven years, then there is no stimulus.

What is the excuse for taking currency notes out of circulation? To fight drug smuggling, criminals, etc. who use “high denomination” currency notes.

This may be good propaganda, but it is ridiculous. Drug smugglers and other criminals have used the major banks for years to make money transfers. They don’t have to transport the currency in big suitcases. That’s much too risky. Several large, international banks, like Standard Chartered, have been prosecuted for aiding and abetting these illegal activities.

Standard Chartered paid a $340 million New York State Department of Financial Services (DFS) in a settlement in 2012 for illegal transactions involving Iran.

Then it was prosecuted again two years later over lapses in its anti-money-laundering procedures. It settled that for $300 million.

If the largest banks are complicit in such money laundering, what is the attempted transition to a totally digital payment world, without currency in your pockets, about? We can only guess, but so can you.

We see a number of well-known Establishment economists writing papers about the benefits of a doing away with currency. This is not just an economist ruminating. Nothing happens in the world of geopolitics by chance

President Maduro’s statement on Venezuelan state-run TV, according to Business Insider:

“There has been a scam and smuggling of the one hundred bills on the border with Colombia, we have tried the diplomatic way to deal with this problem with Colombia’s government; there are huge mafias.”

The 100 bolivar note, the country’s largest currency denomination, is worth about $0.02 USD. Venezuela has hyperinflation. Some estimates are of 1000% to 2000% inflation, but no one knows. Imagine, this country was one of the biggest oil producers in the world. Only communism can screw that up.

Read an interesting analysis on the war on cash from DollarVigilante:

It’s hard to imagine that things can get much worse for the poor people of dystopian Venezuela who in many cases have had to resort to killing feral street animals in order to survive. Yes you read that correctly: Some have had to kill and cook dogs, cats and pigeons because of the limited food supply.

What is going on in Caracas, Venezuela is a modern example of the horrors of hyperinflation and the toll it can take on an unsuspecting population.

According to the IMF’s most recent estimation of the country’s inflation, the rate currently sits around 2000% and continues to grow daily – so fast in fact that restaurant owners have to update the prices on their menus almost daily.

Because of the sheer volume of banknotes which are required for daily purchases, many business owners and shopkeepers no longer determine prices based on the numerical value of the currency they receive. Instead they’ve started using scales to weigh the paper money which people carry around in backpacks instead of wallets.

Meanwhile, the currency situation in India is verging on the hardship in Venezuela.  India has now banned 500 and 1000 rupee notes, though the government has also assured the public it would print a 2000 rupee note to replace the smaller denominations. Unfortunately, that has yet to happen and – given India’s track-record – may not happen. Meanwhile, as a result of the currency chaos, poorer people are literally starving.

When it comes to currency, Venezuela is copying India by announcing that it too will issue six higher denomination notes. Thus, both of these countries have eliminated high denomination currency notes under the guise of “fighting crime” and both have promised higher valued notes in the future to fix the problems caused by the elimination of their current high valued bills.

The trouble here is that removing bills doesn’t fight crime. At least one recent study shows countries with the largest currency denominations actually have the lowest crime rates. Take for instance a country like Japan which is praised for its low crime rates and has a 10,000 yen note worth around $85 as of today.

Switzerland is a prime example of the opposite end of the spectrum because not only does it have a 1,000 Swiss franc note worth roughly $1,000 USD and one of the lowest crime rates in the world, but unlike Venezuela where guns are outlawed and violence is rampant, 1 in 2 Swiss people are gun owners.

It’s not difficult to see the correlation when you look closely at the situations in Venezuela and India – and it’s no coincidence that India also happens to have some of the strictest gun laws in the world.

Unfortunately, the reality is that we are living in an increasingly Orwellian world where nearly everything your average person thinks and believes is false.

Exactly how the financial elites want to keep it – so they can keep plundering the masses. Don’t let them ransack your savings. Learn how to keep your money outside their game which is the monetary system and fiat paper.

Two of the best ways to protect yourself and profit are by owning gold and bitcoin.

It’s my opinion that what is happening in Venezuela and India are being used as test cases before rolling out fiat currency cancellations throughout the Western world.

Don’t be like most of the folks in India and Venezuela who waited until the ATMs were shut down and their cash declared worthless before taking action.