The phasing out of cash was one of my 2020 financial predictions, which have turned out to be erringly accurate.
Looking back at the piece, before the pandemic lockdowns entered the breakfast table daily vocabulary and disrupted everyone’s life, like no other event in living memory, we also made some off-piste predictions which turned out to be spot-on.
“My financial market 2020 predictions are that the Fed will not hike rates in 2020 we could see further rate cuts,” I wrote happened to be bang on the money.
Indeed, in March 2020, the Fed cuts rates to zero and launched massive quantitative easing in the wake of the pandemic great lockdowns.
More than 12 months on, and here is a list of countries that extended lockdowns to stamp out Delta surge.
We now believe that the phasing out of cash as stagflation bites and monetary policy grows fangs could be the endgame
Despite stagflation, particularly in necessities from utilities to food, any attempt by the Fed to raise rates will be quickly reversed. We do not believe the Fed can raise rates without causing a financial and economic calamity, bearing in mind G7 public debt was at a record high before the great lockdowns, and it has exploded even higher now.
Visualizing the snowball of government debt in 2021, the courtesy visual capitalist is one of the many red flags. Japan tops the list with a debt-to-GDP ratio of 257%, and US debt-to-GDP is 133%, which is higher than the Great Depression 1929 to 1933.
Moreover, the trend to replace humans with fourth revolution technologies from automation, the next generation of intelligent robots, self-driving vehicles, and the digitalization of everything will accelerate going forward.
So, we believe structural unemployment is a macro trend in its infancy.
September’s non-farm payroll huge miss, where economists expected 500,000 but instead posted 194,000, did not come as a surprise to me.
So, the charade of a recovering economy narrative could soon become farcical as visual signs of poverty can no longer be hidden.
What comes next is a Universal Basic Income (UBI) in conjunction with the phasing out of cash
Central Bank Digital Currency (CBDC) will spearhead the phasing out of cash to finance and administer UBI to an economically displaced and increasingly desperate population.
Hot on the heels of the bitcoin model, central banks plan to launch their digital currencies, phasing out cash, thereby taking the monetary policy to a third dimension.
Like bitcoin (and another crypto), the CBDC would be entirely digital, thus furthering the phasing out of cash
For monetary policymakers, this would mean they could monitor spending in real-time, which could improve policymaking.
Currently, policymakers have to forecast where the economy is likely to be in 12 months and then implement monetary policy accordingly. So, it is monetary policy time lag which could be why Fed tightening has trigged recessions in the past.
The Dot-com recession (March 2001 to November 2001), the recession of 1969-1970 (December 1969 to November 1970), and the Post-Korean War recession (July 1953 to May 1954) are just a few historic examples where the monetary policy tightening made the recessions even worse.
So, phasing out of cash and replacing it with CBDC will provide policymakers with a bird-view of what is going on in the economy in real-time.
Currently, the central bank can create currency but has no idea where the currency is going. In other words, the Fed can expand the money supply M2 but if there is no velocity of money then expansionary monetary policy will not be effective because liquidity isn’t flowing in the economy.
CBDC will enable real-time monitoring of the economy and provide policymakers with exact information of where the digital currency is going.
That leads me to why the phasing out of cash which will be replaced by CBDC could be a trojan horse and the beginning of a dystopian future
If power corrupts then absolute power corrupts absolutely.
CBDC is a central bank’s wet dream, it will give the Fed’s secret shareholders, the financial ruling elite unimaginable power over their neo serfs, what was formerly known as the middle class, those working for wages.
“The key difference [with a CBDC] is that the central bank would have absolute control on the rules and regulations that will determine the use of that expression of central bank liability, and they have the technology to enforce that,” according to the BIS.
The phasing out of cash and CBDC is the lock on the neo serfs’ digital chain
Think of all the ways the financial elites will soon be able to control and even hem the sheep through the gates.
Digital cash could be programmed to ensure it is only spent on essentials or goods which an employer or Government deems to be sensible.
So fast forward, the year is 2030 and Jailbird decides to buy some groceries with his UBI, now most people’s source of income is paid in the form of CBDC.
He then receives the following message. “You have exceeded your carbon footprint daily limit due to your recent petrol purchase. Please try again tomorrow. Thank you for your corporation.”
In other words, Jailbird’s freedom to spend money the way he wishes has been denied.
So infuriated with his lack of freedom Jailbird decides to join a protest in the capital. He then tries to buy a train ticket. Petrol vehicles were banned in 2027 in the city.
He receives another message. “Your social credit score has fallen below a permissible level which allows travel outside your 5-kilometer radius, click here on how to improve your credit score.” The links direct Jailbird to the nearest government-run education camp and vaccination center. Jailbird is in digital chains his ability to move has been restricted all due to technology and without needing a prison or guards.
Yes, the phasing out of cash and CBDC could be the endgame where freedom dies and a dystopian future begins
CBDC could have a smart contract element to it where funds are only released when certain conditions are met, for example, evidence of vaccination. Leading the sheep through the gate will be so easy.