Western governments for the most part are bankrupt. US national debt just hit $19 trillion, more than double what it was when the global financial crisis exploded in 2008. A debt that doubles every decade is unsustainable. Where did this madness start? In the 1960’s, really.
I recall as a lad having a discussion with a school teacher. I could not have been more than 8 years old. I could not understand why the government needed to borrow money. When would they pay it back? I was told that they would never pay it back but it didn’t matter. Before they paid it back they would borrow more money and be perpetually in debt. But this was OK because as long as the population increased and tax revenues increased in proportion everything would be all right.
This logic troubled me then and it troubles me now. Some time in that post-war era of quantum growth, western governments changed their borrowing criteria. Up until that time, they were the same as the criteria for everyone else. Before they borrowed, they had to demonstrate that they could pay it back. But since they remained in debt perpetually, the governments together with the banks came up with the brilliant idea that it didn’t matter if the government could pay it back. It was OK to borrow as long as someone else would eventually lend them the money to pay it back. This is circular in nature, and the dangers are obvious.
Imagine you have little income but would like an American Express card with a limit of $10,000. You tell Amex it is OK, MasterCard will lend me the money to pay off the Amex Card. You tell MasterCard that it is OK, VISA will lend you the money to pay off the MasterCard. You tell VISA the same thing about Amex. VISA calls Amex, who tells them no problem, we will lend him the money. Because MasterCard will get the money from VISA who will get it from Amex who will get it from MasterCard. You get the picture. Well, that is how our governments operate. Literally. US government bonds are considered safe not because the US government can redeem them (they can’t), but because everyone knows that someone else will buy them. We know how this will end.
This has led to a sovereign debt crisis. History teaches us that whenever a government becomes insolvent, it goes on a tax hunt. Today this means granting itself the power to electronically scrutinise every transaction and take its “fair share”. It would not occur to them that the root of the problem is their own spending and the sheer size of government which is unsustainable. They have demonstrated the extremes to which they will go. FATCA has cost an estimated £1 trillion to banks worldwide, but has only netted the US government a little over $13 billion, barely 1% of what it cost to implement. They will stop at nothing in their tax hunt and this is the first reason behind the drive to eliminate cash. Cash transactions are anonymous and can potentially escape taxation.
The second reason is negative or near-zero interest rates. Negative interest rates have not come to the US yet, but have begun in Europe. It does not take a genius to figure out that if you have $100,000 in an insolvent banking system that is at risk of bail-ins or bankruptcy, and you actually have to pay them $1000 a year to keep it, you would be better off storing physical cash in a safe in your home. But they cannot allow this to happen. If even 2% of depositors decided to withdraw cash, it would bring down the banking system. To prevent this they must eliminate cash.
So there you go. It has nothing to do with terrorism, money laundering, drug dealing or crime of any sort. The only criminals involved are the politicians. It is a question of capital controls – the practice of preventing individuals from exercising their rights over their own property – and tax hunting – the premise that your money belongs to them, and you can only keep it if they let you.