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Something happened while we were all sleeping. We assumed that because our world was going digital we were more than likely going to become a “cashless society”. It turned out that credit cards were easy, convenient and work well when making purchases over long distances. So there really was no reason to suspect that we were on the verge of reverting back to a “Cash Society”. Then came the Great Recession.
All of a sudden, we awoke to a mountain of debt that we could no longer pay. By 2008 the average American had 4 credit cards with access to $19,000 – instantly. 60% of people carry a balance on those credit cards. Add in financing for Homes, Cars or Recreation vehicles. Even 2nd homes or equity lines of credit, financed investment properties and ‘options’ trading, it’s really is no surprise that it had to come crashing down – eventually.
But it wasn’t always this way. From a societal point of view, “Credit” is a relatively new concept. Prior to the 1920’s there was no such thing as a “credit line” per se’. Sure, there have been “banking” systems for thousands of years; whereby a person makes a deposit in one location and withdraws the same (or lesser) amounts in another location. But those systems are more in line with that of a “Debit” system.
Just after WWI, America decided it was time to hit the road. Highways were being built all over the place. By 1925 there were over 250 highways interconnecting across the United States. Prior to the 1920’s most people would live their entire lives within 250 miles of where they were born. But now, people were traveling, driving and moving all over the country.
All those people scurrying about needed 3 things: Gas, Food & Lodging.
Soon, the “Chain Store” concept came along. “Standard Oil” had been declared a monopoly and was broken up in 1911. By the 1920’s, the spinoff “baby Standards” began putting up gas stations across the U.S.. Each had their own trade name and brand – and each had their own “Credit Card”. For the first time in America, people could buy now and pay later. Then came the restaurants and hotels/motels. All following the same “Chain Store” and “Credit Card” model. But at this point, it was still a “Debit” type of system.
In 1950, “Diner’s Club” was founded by Frank McNamara, so that people on the go could eat at any of the restaurants who participated in the Diner’s Club program. Diner’s club would reimburse the vendor immediately and then bill the customer for the charges. What separated “Dinners Club” from the others was that they allowed their members to pay back the money, in monthly installments. Eight years later, “American Express” issued their first credit card, and so did “Bank of America” with the “BankAmericard” (Now called Visa). So for the last 60 years, we have been a “Credit Society”.
But times are-a-change’n. We now have a President who is intent on “Socializing” every aspect of our society. To accomplish this goal, [he feels] massive taxes will be required. Businesses will be punished if they have the audacity to grow too large. For the first time in American history, the Government will confiscate over 51% of a person’s labor through taxes. Penalties will be applied if you dare own a company with over 49 employees or earn over $250,000. Government is finding any excuse to tax (apply a fee) to any product they can get away with. They will push – and push – until someone screams bloody murder. Then they will back up, just a bit, and resume pushing in some other area. Liberals are relentless.
But now we have discovered an unexpected side effect to all this Socialism. A “Cash Society”. It seems that the more the people are pushed with taxes, fees and Government intrusion – the more they push back by dropping out of the system all together. And it’s got the Liberal’s in Washington spooked. Why do you think they are pushing for the “value added tax”? They know this is coming, and they want a tax system in place that will not be affected when people start using cash.
We’ve learned that personal savings rates are spiking. While in 2007, just before the Great Recession, they had reached a new record low of (Negative) -0.1% but in 2009, at the peak of the recession this rate had jumped to 8%. (Compare these to the 1940’s savings rate of 25%) But it’s not just about saving money, it’s also about “How” people spend money. Credit card debt is down 20% in 2008-2009, a historic and astonishing pay off of debt. People have apparently gotten the message that “living beyond one’s means” does more harm than good.
But history is not over. Our recession continues. As the commercial real estate market tanks near the end of 2010 or early 2011, more and more people will be forced into the world of cash transactions. When 25% of Americans are out of work, it don’t take long for mass numbers of bank accounts to get overdrawn. In 2006 studies showed that 40% of Americans had no money in their savings and were only 2 paychecks away from Bankruptcy. While banks will profit in the short term from fees associated with overdrawn accounts, many checking accounts will simply be closed – either due to insufficient funds or because customers will no longer tolerate the high fees, and choose to deal in “cash”.
Working class people will begin to demand payment for their services in cash, just as they did during the Great Depression. With so many companies going out of business, and with family needs so immediate, “Cash” is the only form of payment they will accept for their services. This would suit the average “mom & pop” store just fine. Who would welcome the flexibility to show whatever “income” or “expense” that they feel is necessary when tax time comes around.
As the Government demands more money, people will hide more money. Whether it is legal or not is irrelevant. People do what is necessary to survive. And “cash” is the only medium that is non-traceable. To make matters worse – businesses will “game” the system by using two sets of books. An (illegal) process of keeping the “real” accounting in one book – and “reporting” only those expenses/profits that work out to a “zero” (or near zero) profit in the 2nd book. The effect is that the business looks like it is just barely getting by – while the owner pockets the profit (tax free). As part of this system, “cash” is the only way to leave no traces behind.
So at a time when the Government is already collecting less tax revenue (due to unemployment) people will start working under the table. Compounding the revenue losses to Uncle Sam. The end result will be less money moving into the Government coffers. Actually, this wouldn’t be a problem except that “Government”, unlike the private sector, is not designed to shrink when an economy shrinks. Government always increases – good times or bad – until it can no longer support its own weight, and it collapses with a gigantic THUD.
How long this situation continues is a matter of how far the Government is willing to go to keep building up debt. Counterbalanced by how outraged the people get when they find out about it. If there is no consideration of consequence, federal deficits will grow exponentially until finally there are no more nations willing to purchase it anymore. Nations will then begin to peel off and reject the U.S. “Dollar”. First one nation, then two, four, eight – the process will happen quickly over a period of about 3 months. During that time, interest rates will rise faster than at any other time in U.S. history. Inflation begins to reach epic proportions, and if we are lucky – we will top out at just 20%.
So, are we heading for a “Cash Society”?
I fear that all the signs currently point to, “yes”. Just as all of the signs continue to point to a collapse of our monetary system. The two are linked. So if you believe, as I do, that our economy is ultimately destined for destruction, then you necessarily believe we will move to a “Cash Society”. On the other hand if you think things are just fine, and that our economy is not going to collapse, you would likewise follow the belief of a path to a “Cashless Society”.
I hope that I am wrong.