(Except for one tiny pool hall hidden in Berlin.)
I’ve just returned from Jim Rickard’s annual summit in Berlin, Germany. It was an intense three-day conference. Around 40 different people from nine global offices gathered to discuss investing strategies for 2017.
The biggest overall theme coming from the conference was Jim’s Ice Nine idea. He first mentioned it at our Great Repression conference back in October this year.
Jim’s taken the Ice Nine analogy from Kurt Vonnegut’s 1960s book Cat’s Cradle. The idea is that, locked away in a lab somewhere, is a bold chemical experiment that can destroy the Earth’s entire water supply. All it takes is one drop of this Ice Nine chemical, and slowly the entire water supply will freeze over.
Ice Nine does this by affecting each molecule next to it. So, once one molecule of water is infected, it infects the next one and so on. Until slowly…the entire global water supply is a giant block of ice.
It was only when he was going through the notes of a G20 meeting — held in Brisbane, back in November 2014 — that Jim discovered the financial elites were planning their own Ice Nine.
But in order for Ice Nine to work, we must ditch cash and use electronic payments only.
You already know that the European Central Bank has said they won’t continue making the €500 note beyond 2018. And you already know that Indian Prime Minister Narendra Modi declared the 500 and 1,000 rupee notes were no longer legal tender, effective immediately. Modi did replace the notes with 1,000 and 2,000 rupee bills. But it’s been disorderly, and is negatively affecting small local businesses across the world’s seventh largest economy.
Venezuela came next, with President Maduro declaring the 100 bolivar (AU13.8 cents) note illegal tender. It’s not worth much after years of inflation in the country. In fact, many people need a bag full of 100 bolivar notes just to do their food shopping. Still, it’s the largest note in circulation.
Yet, the government did the usual thing when a currency is pretty much worthless.
It decided to cancel the existing one and just add some zeros onto a new note. People can hand their old 100-bolivar note in, but with a catch: The central bank told people they would only accept ‘rational’ amounts of cash. The head of the Venezuelan central bank, Nelson Merentes, said, ‘We won’t accept people arriving with trucks and carts to deposit 100-bolivar notes.’
Boom. Just like that, the government destroys the value of the note, and the meagre savings of many people. Unsurprisingly, there’s been rioting and looting in stores and banks…
Now, as Jim pointed out during the summit, Australia — a developed economy — is joining the call to ditch cash. Jim explains:
‘The war on cash and the closing of banks has played out in Cyprus (2013), Greece (2015) and now India and Venezuela in 2016. For many in the large developed economies, these crises were easy to dismiss. Greece and Cyprus are developed economies but are both quite small. India and Venezuela are larger but are emerging markets.
‘Citizens in large developed economies could look down on these small or emerging markets with the attitude that “It can’t happen here”. But now it’s happening.
‘Australia is a large economy, (13th largest in the world), and one of the richest (ninth richest in the world, with per capita GDP of over $50,000 per person). But Australia is now ground zero in the war on cash.
‘The government of Australia is considering abolishing the $100 note. Since Australia has a parliamentary system, there is a good chance this will become law. Of course, the government makes the usual claims about ‘black money’ and terrorism, but the real reason is to herd savers into digital slaughterhouses at big banks, where their savings can be stolen with negative interest rates, confiscations, and account freezes. If it can happen in Australia, it can happen anywhere.’
Why on Earth would they want to get rid of the $100 note? Pesky tax dodgers are the reason. And naughty criminals. Or at least that’s what they want you to think.
For some bizarre reason, politicians think you are buying this bull dust. The argument to end the $100 note is that it will prevent criminal activity. If people don’t have large dominated notes, it will be harder for them to store two $50 notes instead. Yet the Reserve Bank of Australia recently confirmed that most criminals prefer to use the $50 anyway…
Do you see the thread here? The government spends all this time telling you that cash is useless, and that it only benefits criminals. Eventually, you start to believe them.
If you push the message hard enough, everyone else will start spreading the message for you.
I bring this up because Rickards’ entire team had dinner at a local German restaurant last week, and the back of the menu caught my eye…
‘For safety reasons, we do not accept 500 Euro notes.’
For whose safety? Your safety? Or their safety? Think about it. If people are paying with €500 notes, it actually makes counting up the cash at night easier. Fewer notes to count. Although settling a small bill with a €500 note would drain the float supply.
If it’s about your safety, you are in no more danger carrying five €100 notes than you are carrying one €500 note. If you are mugged while walking the streets, chances are you’ll still lose the entire bundle anyway.
Same goes for the safety of the staff. They are still counting up hundreds of euros worth of bills. The risk factor doesn’t change.
What’s happened here is that government propaganda has filtered through. The German government doesn’t have to repeat themselves anymore. People and businesses are doing it for them.
In a terrifyingly short time, people have accepted the doctrine that cash equals danger. So now they buy the lie that large amounts of cash are dangerous…letting the government herd them into those digital banks accounts.
Are you really believing this? Let’s be honest; if you’re up to no good, you’re not suddenly going to give up a life of crime because you now have to hold two notes in place of one. No. You go on with your illegal business, you just accept that there are more notes involved…or you switch to gold.
It’s such a stupid idea to think that people will just turn their backs on their illegal ways simply because a large-denominated note came their way.
Yet, that’s what the mainstream wants you to believe. The sooner you embrace the cashless society, the sooner they can implement negative interest rates and stimulate inflation. And the quicker people adopt this cashless lifestyle…the easier the Ice Nine solution becomes.
And the best out of three is…
Incidentally, the one place in the developed world the war on cash hasn’t won is in a pool hall called ‘Pool U Cigars’, hidden in the once working-class-and-now-under-the-threat-of-gentrification district called Prenzlauer Berg.
For those of you that spent far too much time in pool halls as a kid, this place is ‘old school’. The sturdy tables have proper three-quarter-inch concrete slabs as a base. The velvet is soft, the cushions have the right amount of bounce, and the billiard balls are heavy. The only thing missing is the haze of cigarette smoke.
It also only accepts cash. The irony is hilarious.
We’d just spent three days discussing the war on cash and keeping your money out of the system. Yet, when we went to buy drinks only to be informed ‘no cards here’, 20 different people just looked at each other, and not one of us had a more than a euro or two on them. Five people were entrusted with numerous bank cards to go look for an ATM…which was a 30-minute roundtrip.
This was the place where Jim and I decided to hold our ‘best out of three’ pool competition. If you’ve been following Jim Rickards and me, you’ll know that this is the final in a globe-spanning series of games held during our conferences.
I didn’t win. In fact, I lost, and ended the game far too early by knocking the eight ball in while I was still on a coloured ball. It still hurts me to recall this memory.
Jim and I have decided this competition between us is far too much fun to give up. It’s going to become a yearly thing.
For Markets and Money
Editor’s Note: This article was originally published in Money Morning.