Tuesday, March 10, 2009

Cash and Carry

My great-grandfather didn’t trust banks.  I believe he lived through at least three bank panics in the late 1800s, early 1900s (1907?), and again in the ‘30s of course.  So when he built a house in Florida, he built a secret room to keep cash in (this room subsequently got robbed by one of the contractors – not sure how much was lost).

In any case, one story I heard the other day is that he “accepted a lot of cash” at his practice as a doctor in the Midwest.  Legend has it that his partner who took over the practice once saw my great-grandfather drive off to Florida with a trunk full of cash. 

As you can tell, I love stories about my great-grandfather because he was very prudent (and somewhat hilarious) with regards to money.   I’m sure you can imagine that if he accepted a lot of cash, he also probably didn’t pay a lot of taxes. 

But something else wasn’t happening…. the people he was seeing at his practice weren’t paying him on a credit card.  This was a farm community, so the corn and soybeans they sold gave them money to save for a rainy day, like, for example, having to see my GGF, the town doctor.  Cash, in fact.

A lot of people out there like Mish have been calling for the end of fractional reserve banking.  Others have been calling for a return to the gold standard.  The reality is, we don’t need the gold standard… we just need any standard that requires a physical presence – that includes cash.   So maybe it’s time we instill a little system I like to call cash and carry.

Here’s how it goes:  as a business owner, you require cash.  As a shopper, you pay cash.  How will this fix things?

  • Cash and carry helps to force people to stop living in debt.
  • Cash and carry helps to force people to save.
  • Cash and carry helps to stop banks from irresponsible lending.
  • Best of all, cash and carry is a tax revolt in many ways. 

Right now we are the enablers.  By “we,”  I’m speaking of the legitimate businessmen and savers.  We go to Starbucks and pay a $4 on a credit card for a coffee.  Even if we are the types who never carry a balance on that credit card (I am one of them), we’ve reinforced the system that allows those who don’t have the money to continue purchasing.

We need to start paying cash for these sorts of things.  More importantly, small businesses need to start demanding cash.   If 20% of the businesses you frequented demanded cash, wouldn’t you just start using it more often at the other 80%? 

When enough people and businesses demand cash, it requires that consumers keep more of their money in cash… and banks also have to have cash on hand to distribute.  This means they can no longer count on as much of your money being in their reserves, and their leverage could be reduced.  Furthermore, the income that credit card companies and banks see from credit card usage will be significantly reduced.  Shops pay I think 1-3% per transaction to take a credit card.  This money will be taken off of their books, further reducing the potential leverage they have.  It also means less income overall for the government, since these transactions and income will be much harder to tax.  I’ve never before been in favor of paying employees under the table with cash, but maybe it’s time to do that as a tax revolt.

Lastly, it starts to give back control of our financial system to those who produce.  A person who pays another person with cash pays another person with cash… and so on.  The Federal Reserve and banks have been able to devalue your dollar by using numbers in a computer – i.e. not actual, physical currency.  An economy that forces that system to literally print money, instead of just incrementing numbers in a computer, adds an inefficiency to debt.  It can help take back the debt society we’ve built.

So if you’re a consumer, start taking out hundreds of dollars a week and only spending that way.  If you’re a shopkeeper, consider going “cash only”.  All political roads have been exhausted.  Short of real revolution, this is the only grassroots way we have to take back our economy and stop throwing our money down the governmental drain.

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