The Fed's War on Cash: Don't Be Defeated!

by Lear Capital EditorialJune 25, 2015

It used to be sage advice to doggedly save your pennies every month, stash them in a retirement fund, retire with $1 million and you’d have a comfortable living just on the interest, plus a little extra from Social Security. At 4% interest compounded daily, that would be over $40,000 a year. At 5% you would have over $50,000. But you cannot get yields like that anymore just sitting in cash. With interest rates near zero, your million dollars nets you just $2,500 a year.

The Fed is deliberately trying to force you into risk to get any kind of yield at all.

You cannot live on the old advice some of us grew up with. All bets are off because of the Federal Reserve’s war on cash. And the writing on the wall says it’s about to get much, much worse.

Nothing has worked to jumpstart the economy. All QE (quantitative easing) and ZIRP (zero interest rate policy) has really done is inflate the prices of equities into another giant bubble. Other important indicators like GDP and unemployment are not exactly roaring with growth and optimism. Main Street is still struggling while Wall Street is drowning in excess reserves.

Worse, with two crashes in recent memory, retail investors are more risk averse than ever, and while you get little return on your cash these days, at least you won’t lose 20% of it overnight.

So while Warren Buffet whines about gold doing nothing for you but sitting there and staring at you, “sit” and “stay” make for a very well-behaved portfolio to many people these days. Much better than it all running away and breaking your heart.

Nonetheless, the war on cash is real. The Fed desperately needs for you to take on risk with your money. That is what all of their manipulation has been about. If you will just throw all your life savings and net worth at these irresponsible Wall Street firms that nearly destroyed the economy and had to be bailed out once already, then they would in turn invest it wisely this time (they promise) and growth would happen and the economy would be healthy again. It’s all your fault because you won’t gamble again.

Not buying it?

The Fed has few weapons left in its quiver against cash, but they get more and more sinister from here on out. Since ZIRP (zero interest rate policy) giving you no returns on savings hasn’t done it, next up is NIRP – negative interest rate policy. They TAKE money from your savings every day if you won’t spend or invest it. If rates go negative, as they are already threatening to do, your nest egg will COST you money to park.

Will THAT finally make you eager to risk it all in the Wall Street casino? Or would you instead make a hefty withdrawal and keep it under your mattress for free? A lot of people just refuse to gamble. This might be the preferred option.

And that spells serious trouble for the banking system.

The reality is that in our debt-based economy, those digital blips in all of our accounts cannot all translate to actual currency – as in physical bills and coins. In fact only about 1% of the money in the system is actual bills and coins. It would not take much for the banks to run out of money and for all the ATMs to go dry. If this policy was enacted, there would likely be some kind of mass exodus from the banking system, unless it was coupled with some fairly draconian capital control measures. If you wait for that to materialize, it will be too late.

These sorts of things are announced and enacted very suddenly with no notice precisely to prevent bank runs. If you do not anticipate capital control measures well in advance, you lose.

Do you have enough cash reserves already at home to deal with such an eventuality? Beyond that, do you have something besides cash for when they finally do run the dollar into the ground?

Of course, the hope is that the powers that be will figure something out and the worst of all possibles will be avoided. But how do you make trillions worth of debt and obligations just go away? How do you restore faith in a system as broken as this? Maybe they will come up with something we couldn’t even fathom right now. Who knows?

Of course, the hope is that you will have these reserves in place and not need them.

But what if you need them and don’t have them? Then what will you do?

Don’t be caught off guard. Safeguard your future with physical metals. Safeguard your future with gold and silver.

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