King Cash vs. Digital Dollars
Total government surveillance, supervision and control... what could go wrong?
(Irish Summer. The view from Bill’s backyard, looking down over Blackwater River.)
Joel Bowman, checking in today from Youghal, Ireland...
“Where did all the money go?”
Your editor’s wife looked around curiously, as if there might be some kind of conspiracy afoot.
“We haven’t handled a single note or coin since we arrived. It feels... strange.”
Dear wifey is right. Three weeks we’ve been here in Europe... aboard trains, planes and ferries... in taxis and on buses and metros... lodged in capital hotels and rural airbnbs... dining at fancy restaurants and dodgy kebab stands... tipping waiters and street musicians too... and not a single Danish nor a Norwegian krone has passed our mitts.
And now, after a few rowdy nights in Dublin, where we danced a jig at Gogarty’s, bought a bar of lemon soap from Sweny’s pharmacy and enjoyed a gorgonzola sandwich and glass (ok, a bottle) of burgundy at Davy Byrne’s, all in honor of Joyce’s hero, on the centennial Bloomsday celebration... we have found no cause to visit a bank teller, locate an ATM or otherwise procure the legal tender of the land (euros).
Money in Europe is a purely digital affair. Everywhere you go, anything you do. If it costs a quid, “Just tap and pay,” say the friendly drivers, salesmen, barkeeps. We even visited a church, in Trondheim, Norway, where the collection plate was a QR code.
“Render therefore unto Caesar the things which are Caesar's,” we thought as the ‘plate’ passed over our lap, “and unto God the things that are God's... all with a simple tap and pay!”
Moto Cash
All this is a far cry from our day-to-day experience back in Argentina, where cash is still king... and there is nary a challenger to the throne.
Whenever we land in Buenos Aires, after our seasonal meanderings abroad, the first thing we do is retire the plastic to the lockbox. No credit cards. No debit cards. No ID. Not even a wallet to carry them. Instead, we exchange USD for pesos, as needed, and make our way about town with a fold of rapidly devaluing fiat notes.
And when we need more – bills, bucks, bread – we message “a guy we know” and, within the hour, he (or one of his runners) arrives on a motorcycle with a backpack full of cash, ready to exchange. No muss, no fuss. No forms, no trace.
That’s the way it is when people lose faith in their government and its banking institutions. Here’s Bloomberg, with the latest “official” figures from back home:
Argentina’s Annual Inflation Reaches 61% as Investors Worry
Argentina’s monthly inflation slowed slightly more than expected in May, with price gains reaching almost 61% in annual terms as investors worry about the government’s ability to pay its local debt.
Consumer prices rose 5.1% last month from April, just below a 5.2% median estimate of economists surveyed by Bloomberg. From a year ago, inflation climbed to 60.7%, a new 30-year high, according to government data published Tuesday.
The poor ol’ peso has been used and abused with such regularity, ordinary folks prefer to keep their savings in other assets – dollars, euros, gold... even farmland, city apartments and crypto. Anything but pesos!
Then, when they need to transact – to fill up the tank or pay bills, even taxes – they convert the necessary amount, at the last possible moment, and make the payment. The seller then does likewise, immediately converting his pesos to whatever escape hatch store of value he can find, at whatever rate he can secure.
Economists call this phenomenon “Gresham’s Law.” Put simply, it describes the situation where “bad money drives out good.” Sir Thomas Gresham, financial agent of Queen Elizabeth I, was referring to coins bearing the same face value with different metal contents. All else being equal, he observed, people would tend to hoard (save) the coins with the higher metal content and spend those of lesser quality.
Value doesn’t derive from fiat, in other words... but from subjective utility, what man finds useful to help him achieve his own particular ends at a given moment in time. For this reason he has found occasion to trade in cigarettes, cowrie shells, tins of sardines and, of course, gold and silver.
Daylight Robbery
We mention all this only as a kind of cultural curiosity. From land to land, people express differing levels of trust and confidence in their government. Here in Europe, citizens appear content to leave their money in banks... to transact digitally... to never see, touch or hold their hard-earned dough in their own two hands.
They have faith it will be there tomorrow, fully accessible, worth more or less the same as it was yesterday. They are happy to be “in the system,” as it were, with their personal identity connected to their savings.
Never do they imagine that their government might “freeze” their accounts, that they may be convicted of some crime (even without charge) and directly penalized, or that their funds might be made “temporarily unavailable.”
Try explaining that to an Argentine, who takes it as a given that his government is robbing him blind, that the fed’s openly steal more than 60% of the value of his money every year, and that trying to escape the plummeting peso requires all manner of financial acrobatics.
On the subject of using some kind of governmental digital dollar as a tool of financial surveillance (remember China’s “social credit score” system?), Jerome Powell and his Fed cronies have been enthusiastic supporters of a Central Bank Digital Currency. “Trust us,” they say, “it’s for your own good.”
Dan Denning addressed this exact point in his market note to Bonner Private Research members yesterday afternoon. A choice snippet...
[Jerome] Powell had a busy week. After Wednesday’s 75 basis point rise in interest rates, on Friday he spoke to a conference about the future of money. In the controlled demolition of the Middle Class (and the dollar) there will come a point when the old dollar has to be replaced by a new dollar.
Out with the old, tattered garbage, in with a new instrument of surveillance and control. That’s always the game plan in monetary regimes where inflation has done its work. You need a re-set. Powell said that ‘Looking forward, rapid changes are taking place in the global monetary system that may affect the international role of the dollar in the future. Most major economies already have or are in the process of developing instant, 24/7 payments…As the Fed's white paper on this topic notes, a U.S. CBDC could also potentially help maintain the dollar's international standing.’
Strangely enough, Greenspan anticipated this in a speech given 25 years ago. He said:
Along with our other central bank colleagues, we are always looking for ways to reduce the risks that the failure of a single institution will ricochet around the world, shutting down much of the world payments system, and significantly undermining the world's economies. Accordingly, we are endeavoring to get as close to a real time transaction, clearing, and settlement system as possible. This would sharply reduce financial float and the risk of breakdown. Meaningful progress has already been made in this direction.
Maybe Alan Greenspan is Satoshi Nakamoto! Imagine a digital form of money that allowed for real-time transactions, clearing, and settlement. Imagine that money not being controlled by a central bank. Imagine!
Maybe ‘meaningful progress’ has been made for inter-bank payments, or transactions between the Fed and international banks. But not much progress has been made for people with ordinary bank accounts. With inflation and low interest rates on savings, we’ve gone backward.
We should also be very careful about what we call ‘progress.’ A central bank digital currency would be anything but ‘democratic.’ It would open the door to total control of your money, and by extension, your freedom. Maybe Powell knows that when the controlled demolition of the American Middle Class is complete, the authorities will want as many tools of control as they can get their hands on.
In the meantime, keep getting your hands on gold. Have physical cash handy (even as inflation rages, having some cash in your hand is better than counting on the ATMs.)
Perhaps you caught Dan’s special briefing with Jim Rickards this past week? There was plenty on the table during the course of their hour long discussion, including inflation, what it’s doing to working Americans and why the Fed is stuck with its dilemma... either break the dollar, or break the market. It’s the “inflate or die” trap Dan, Bill and Tom have been warning about for months.
Members can now listen to the entire audio recording on the BPR website, along with all our other reports, recordings and market research. There’s also a full transcript, for those who prefer to read than listen. If you’re not already a member, you can become one here...
And now for Bill Bonner’s missives from the past week...
Finally, thanks to everyone who wrote in with questions for Bill...
As mentioned previously, your weekend editor is here in Youghal with his family visiting the Bonners at their country residence. Bill has kindly agreed to field some reader inquiries in a special in-person Sunday Sesh tomorrow.
If you’d like to throw your hat in the ring, simply leave a comment in the section below...
... or write to us directly at bonnerprivateresearch@gmail.com We’ll do our best to work your questions into the conversation.
In the meantime, the kindly neighbor down the hill has invited us all for drinks at 5pm… and it would be rude to be late.
Until tomorrow...
Cheers,
Joel Bowman
Joel, a great comparison of different mindsets. In a way, the Argentines are lucky. An inflating currency is direct evidence of a government that will cheat and lie to its citizens. They have already learned not to trust the government and have adapted. The Europeans, on the other hand, are willingly and happily being led into the “digital slaughterhouse” that Jim Rickards has described.
Here in the good ‘ol USA, I have well to do friends that scoff at cash and don’t carry any, or keep any on hand. When asked about “emergencies”, like power or internet outages, I get a blank look. And these are folks that are otherwise intelligent and old enough to remember the world “pre-digital”. To me, it’s incomprehensible.
While I also use plastic, I shudder to think that Americans will follow their European cousins into that slaughterhouse, especially with the recent examples from Canada and right here at home. But we probably will. Part of me is almost hoping for a cyber war, if only for a well needed reality check.
Joel, Fascinating comments on your travels. The International perspective from Ireland, Norway, Argentina and Wyoming is much more valuable than anything that comes out of U.S. media. Yesterday, our Uber driver was a young Argentinian girl now two years here in Florida. She was lucky to find a husband at home who has an education in technology and it has been a lifeboat for all her relatives back in Argentina. I questioned her about how they got along back home and she said something about government health. Maybe you can talk more about what they do. Meanwhile I paid nearly $1,600 for a radiator and air conditioning parts and labor.