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Our Cash Ain't Nothing But Trash - The Disgraceful State of American Money Today
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(April 11, 2012) A short look at how cash money has been degraded and stigmatized in ways both subtle and overt. How the physical dollar, from the once-mighty C-note down to the useless penny, has become a disfunctional currency that stinks from top to bottom. How this came to be, and why it matters.
First off, what is cash? Well, today, we use the term very loosely. If you’re buying a car for "cash," you are probably writing a check. If you buy real estate for "cash," you are bringing a cashier"s check or bankwire to the closing. If you"re "paying cash" for medical services because you don"t have insurance, chances are you"re using a credit card.

As to carrying around United States currency (“cash green American”) in sufficient quantity to actually buy anything significant, you probably haven't done that recently, if ever.

Who uses cash anymore? Credit cards are easy and convenient to carry, and almost every retail store or online merchant accepts them gladly. Plus, a lot of credit cards offer rebates, in airline miles, say, or even "cash back." Like the TV ad says, “Who doesn"t like free cash?” Of course, they don"t mean actual currency, just credits to your "account."

In the United States today, cash has a sketchy reputation. Cash is associated with terrorists, smugglers, the underground economy, and tax evasion. Cash is what you pay workers whose citizenship you"re not sure about. Cash is what you hand over to the skeezy-looking guy at the impoundment lot when your car got towed that time. Drug dealers, loan sharks, smugglers, and prostitutes also require cash, so you get the picture.

Besides, carrying actual cash is risky – whatever amount of cash you might carry around is irredeemably gone if your wallet is lost, or stolen.

And if the thieves don"t get it, government agents might. Being caught by law enforcement with even a couple of thousand dollars in cash is an invitation to have that money seized, and often forfeited if your explanation for its presence does not satisfy the police. You do not have to even be suspected of a crime if you are carrying cash in your car, while boarding an airplane, or anywhere that your belongings might be searched. Courts have upheld that cash itself can be considered contraband, and assumed to be related to criminal activity, even if you are never convicted of, or for that matter, even charged with a crime. Cash money to law enforcement agents is simply ill-gotten gains, to be seized and used to supplement the budget of that particular police department, state, or federal agency.

Yet, we still use cash. The Treasury Department prints Federal Reserve Notes in denominations from $1 to $100, and strikes coins for circulation from the lowly cent to half dollars. That seems like a pretty normal state of affairs that we are all used to, but the underlying fact about our money is that functionally, it is a broken system.

Start at the bottom, if you will, with that coin that we commonly call the penny.

The lowly 1c was in the news two weeks ago, when Canada announced it would no longer produce them. Their production costs there, as in the U.S, were higher than their face value, and Canadians, being a practical people, chose to quit making them.

Our U.S. Mint produces billions of cents (and nickels) annually, which end up in dresser drawers, piggy banks, and strewn across parking lots. Although both cents and nickels are made of base metals, they cost significantly more than their face value to produce and, most annoyingly, don"t actually buy anything.

The Mint has actually contracted with a private firm (a $1.5 million study) to examine the viability of making these worthless tokens out of even cheaper materials, but the fact is that the only metal cheaper than the zinc and copper used now is steel. Steel is ugly when new, and it doesn't get any prettier over time.

The next step down the ladder would be to make coins out of plastic, or maybe cardboard. But I ask you, is that what we want our money to look like?

The nuisance value of the cent has gotten so pronounced, that Beth Deisher, the editor of this country"s largest and most respected coin collector"s magazine, Coin World, recently wrote in favor of the demise of a coin beloved by many of her own readers.

Here"s part of what Ms Deisher wrote in an April 16th editorial entitled “U.S. Must Summon the Courage to Retire 1-cent Piece:”

“Why is it no one in the United States government has the courage to stand up and say what is so obvious? The 1-cent denomination is obsolete in 21st century America. It is far too costly to continue to produce. It doesn"t circulate. And it has little purchasing power.”

Should cents and nickels then be eliminated, recalled, or de-monetized? No, nothing so drastic is necessary. Just stop making them. Of the several hundreds of billions of them that our Mint has struck over the past 30 years, most are still around, in closets, dresser drawers, jars, and piggybanks. If no more cents and nickels are produced, those who want will dig them out of their hiding places and spend them. As during previous small change shortages, banks and merchants may pay a small premium to entice them out of hiding. Those who don't want to bother with coins of little value, will have their cash transactions rounded to the nearest dime. A few years from now, we'll all do without them and not give it a second thought.

The more significant, and problematic, question is what to do at the upper end – how large a denomination of currency should the Bureau of Engraving and Printing issue?

In 1960, the Federal Reserve ended the circulation of USA paper currency in denominations of $500, $1,000, $5,000, and $10,000. The reasoning was that, as part of the war against organized crime, having no bill larger than $100 would make it harder for gangsters to efficiently transport their ill-gotten gains. Before then, $500 and $1000 bills had been fairly common, and the $5,000 and $10,000 bills were obtainable by request, but otherwise seldom seen.

In 1960, you could have walked into any automotive showroom in America with three $1,000 bills, and bought pretty much any car or truck you saw, and still had enough money left over to buy gasoline for a year.

But look at what inflation has done: Today, to buy an average $20,000 car for cash, you would have to have two hundred of our largest current denomination, the $100 C-note.

At our local bullion store, for instance, a purchase of ten Krugerrands for cash last year would have involved an average of one hundred and sixty $100 bills. Or, if the buyer had only $20 notes, about eight hundred bills would be involved.

The current use of the $100 bill as the largest currency denomination is the reason that our store has to maintain a currency counter/sorter, a sophisticated marvel that cost us several thousand dollars. If $1,000 bills were still current, we wouldn"t need such machine.

The decision made fifty years ago to make the $100 bill the largest note in circulation has been rendered totally obsolete by inflation. Where is the note that represents big money today, that draws respect for our whole currency system, that makes the "dollar" seem powerful and worthwhile? Today it only exists in museums.

Just to bring our common currency"s functionality up to 1960 levels (three bills buying a car), would require the use of $10,000 notes. It"s not going to happen, because cash money has simply become, at the Department of the Treasury, an afterthought, a nuisance, or worse.

To a great extent, the fact that our cash currency is not practical for the purchase of anything of significant value is by government design and purpose. The war on organized crime that was invoked in 1960 to eliminate larger-denomination bills, was followed by using the same argument for the war on drugs. After 9/11, the rationale (for nearly everything) became the war on terror. Libertarians would today call it a war on privacy. Whatever you call it, clearly the U.S. government does not trust its citizens with convenient sizes of cash.

It's tempting to blame the banks. During our Recent Economic Unpleasantness, American taxpayers committed hundreds of billions of dollars to socializing the banks' losses. The disaster that resulted, and that we are still experiencing, we are told is not nearly as bad as the disaster that could have happened had money not been throw at favored institutions. Really?

The economic crisis wasn"t the beginning of our government's coddling and protecting the banks, but it certainly was a watershed event that brought this close relationship out into the open. There"s a revolving door between the halls of finance and the federal government, especially Treasury, these days. They all know each other - they socialize, their wives and kids get together, maybe they play golf or tennis, or jog together. They treat each other with respect and deference, because that"s what friends do. The term for this is "regulatory capture."

And what possible reward could be given to the banks and financial institutions that provide so much talent, manpower, and counsel to the government? Well, nothing would please them more than to have the full cooperation of the Treasury and the Federal Reserve in the banks" war for rent-seeking participation in all economic transactions, i.e., a cashless society.

Allowing the banks and credit card consortiums to take a cut out of every retail sale made in this country would certainly be viewed with favor by another part of the Treasury Department – The IRS would love to have access to details of all economic activity in this country.

We are not indulging in conspiracy theories when we say that the interests of banks and the U.S. government coincide here – both favor an increasingly cashless world. The benefits for the rest of us are a little harder to see.

To show just how difficult it is to use cash today for large purchases, let"s briefly return to that in-store transaction where our customer wants to buy ten gold Krugerrands for cash, and we have to count either one hundred and sixty $100 bills, or eight hundred $20 bills.

When a customer walks into a bullion store and wants to spend over $3,000 in cash, the store is required under Anti-Money Laundering (AML) statutes to "know their customer." This means, at a minimum, having a copy of their ID on file, and tracking any of his cash transaction which are over $3,000 yet less than $10,000, to make sure that there is not a pattern of smaller purchases ("smurfing" is the federal term for this) which total $10,000 or more in some period of time which is nowhere definitively stated in the law. In other words, to the cash-taking merchant, good luck.

But this particular transaction is $16,000 in currency, so under IRS regulations, our responsibilities are clear: a form 8300 must be filled out by the merchant. This regulation applies when a business sells any kind of merchandise: gold, cars, trucks, racehorses, art, yachts, or whatever, so long as it is paid for with US currency in amounts in excess of $10,000 (a figure set in law thirty years ago). It does not apply to checks or bankwires. The customer is identified, and a W-9 form filled out with his address and Social Security number and signed by him. At the end of the transaction, an IRS 8300 form (Cash received by a business in excess of $10,000) is completed by the merchant, detailing the customer"s information, occupation, what was purchased, and an exact count of the of the bills received in payment, by denomination. This form must be sent to the IRS within 30 days. Also, a letter must be mailed to the customer informing him that this has been done – as if he hadn"t already been told, or figured it out from all the paperwork involved.

But the complications of a cash transaction don"t even end there. When demand for bullion is good, a retail walk-in gold store eventually ends up with more cash than it needs, and must deposit some in the bank to keep the business going. The act of walking into a bank with a business deposit over $10,000 will trigger yet another CTR (Cash Transaction Report) form to be issued by the bank, and sent to the IRS with that person"s Social Security number, occupation, and the count of bills by denomination.

But that"s not all - as of October 2011, our local bank (a branch of a major US Bank) began charging us one-quarter of one percent whenever we deposited currency into our account.

Cash transactions are thus discouraged by banks and the government. Maybe Treasury policy is purposely designed to complicate commercial cash transactions with enough regulations, required procedures, and forms that must be filled out to cause any sane person to think twice about getting involved with cash money. What was once considered normal and legitimate cash business, is now something else entirely.

Today, cash is not illegal, but it certainly is difficult. Cash money is issued in unwieldy denominations, tracked in its travels, discouraged in circulation, and threatens to be driven from legitimate business. Because what respectable business wants to subject their customers to onerous AML regulations, which seem designed to make that customer feel like a criminal undergoing intense federal scrutiny?

Treated thusly, cash will not disappear. It will simply avoid such intrusions, and inevitably enter and thereby enlarge the underground economy. That is the unintended consequence of our current national policies on cash. Is that any way to treat our money? For that matter, is that any way to treat U.S. citizens?


 

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