The Private Equity for Families Blog

War On Cash Should Start With Penny

In the last several weeks there have been a number of articles about negative yields on 10 year government bonds in Japan and Germany.  In an article by Min Yeng in The Wall Street Journal titled “German Yields Near Zero” Jack McIntyre, a portfolio manager at Brandywine Global Investment Management is quoted about unchartered territory for central planners and economists. “Did your economic textbooks ever discuss negative yields? This is the new normal.”

European and U.S. economists are now talking about strategies to combat negative yields. There is a universal fear among them about cash interfering with their playbook. Charging depositors to hold cash will certainly be unpopular if they can withdraw cash and put it under the mattress. So the central bank coaching staff is starting to talk about  outlawing large denominations of cash. In Europe that is the 500 Euro note which is the equivalent of $558 (USD). In the United States the discussion has been about banning the $100 bill. Suddenly, regulators and economists are keenly worried about criminals and the loss of tax revenues from a cash economy.

Summers And Draghi Are Not Nappers

Can it be true that Larry Summers, former Secretary of the Treasury and key Obama advisor, came out of a Rip Van Winkle nap several weeks ago and discovered for the first time that criminals and terrorists are holding $100 bills? Similarly, European Central Bank President Mario Draghi indicated that he is seriously considering phasing out the 500 euro banknote.  He is quoted as saying, “There is a pervasive and increasing conviction in the world of public opinion that high denomination banknotes are used for criminal purposes. “Did Mr. Summers and Mr. Draghi take a break from the last G7 summit to watch episodes of “Narcos”?  Something is fishy.  Mr. Summers and Mr. Draghi are many things, but they are not nappers.  Who is better than a Harvard professor and the head of the European Central Bank to write the new textbook on fighting negative yields. It all has to start with cash.

Why Benjamin’s And Grants May Be Banned Like Big Euro

So what is the problem with big bills (think Ben Franklins and maybe Grants)? Why would someone who wants to be the next head of the Federal Reserve Bank start a war on big cash and promote alternative currencies like bitcoin? Is it really just to set the stage in the United States for negative interest rates by discouraging cash withdrawals by big depositors?

There is only one plausible answer. The Fed is about to implement Operation Money Penny before it outlaws $100 bills. Just think about how easy it could be to swap $100 bills for any penny bank, no questions asked about the value of the contents.   Next you could mobilize all those Coinstar kiosks by announcing a one month special trade of 100 pennies for a newly printed $100 bill. Every Boy Scout and Girl Scout troop in America will be forgetting cookies and collecting pennies. Recycling bottles and cans in the Northeast will be frenzied and Las Vegas’ penny slots will be running 24/7.  Penny collections will be raided for greenbacks. Fountains all over the world will be drained for the pennies and loafers will become penny free (a good thing).

The Central Bank Playbook

The Fed will get thousands of bushels of pennies, an inflationary money supply ($100:$1), a possible onetime wealth transfer and a weakening currency; just the kind of central bank playbook you would expect from the Fed in an election year. Having “felt the Bern”, socialist candidates like Sanders can retire from politics.

The sheer brilliance of this short term inflationary move is manifest.  Little people get $100 bills for pennies. It is possibly more accretive to the Treasury balance sheet than buying drek in 2008 from Fannie Mae, and certainly a more pervasive stimulant than shovel ready projects spawned by President Obama’s recovery plan. It is just another form of “helicopter cash” advocated by Ben Bernanke as the antidote for deflation.

But what should we do to those terrorists and criminals? The next move has to be exchanging Federal Reserve bitcoin for $100 bills before the announced sunset of the $100 bill as “full faith and credit” currency. Criminals and terrorists cannot show up for the bitcoin swap. Even Hillary Clinton might suspect this is not the Arab Spring when 200 truckloads of $100 bills are dropped off for conversion at the U.S. Embassy in Benghazi.  Since $1.1 trillion of the $1.4 trillion of cash in circulation are Big Bens you can probably permanently wipe out about $1.0 trillion of bad guy cash, inflate the US economy, transfer wealth from bad guys to poor people and then put everyone back on regulated bitcoin within the absolute control of The Federal Reserve System. Also, you get rid of rich crooks and those pesky pennies.

Mr. Draghi and the Europeans missed a big socialist opportunity by narrowing their program to just stimulating spending and defeating deflation by proposing to phase out 500 euro notes as part of their recent negative interest program.

Operation Money Penny is big, bold and audacious and good for everything that ails an indebted America. I have to believe that somehow Dodd Frank gives President Obama the ability to make this happen? Forget Cuban cigars. This could be huge and will probably keep him out of the basement on the Presidential legacy meter. Our Penny President will have his place in history.

Does anyone know if they have penny slots at the Horseshoe Casino here in Cleveland? It will be hard to bring my pennies back from Las Vegas on Spirit Airlines.

Your Insights Are Welcome

Periodically we will circulate this blog to a target market that includes successful families, wealth advisors and middle market business owners.

Please send us emails, articles, YouTube videos, tweets or even old-fashioned means of communication like voicemail’s, mail or a phone call on the topic of Private Equity For Families. All ideas are welcome.


Recent PE4Fams Posts

Rob McCreary

Rob McCreary has more than 40 years of transactional experience as an attorney, investment banker and private equity fund manager, and has spent his career in building entrepreneurial organizations with successful track records Founder and chairman of CapitalWorks, he is responsible for developing and maintaining senior relationships with investors and portfolio governance.

This blog represents the views of Rob McCreary and do not reflect those of CapitalWorks or its employees. This blog is not intended as investment advice. Any discussion of a specific security is for illustrative purposes only and should not be relied upon as indicative of such security’s current or future value. Readers should consult with their own financial advisors before making an investment decision.

Private Equity for Families Blog | CapitalWorks Private Equity Cleveland Ohio

Get Rob's Private Equity and Investing Insights in Your Inbox

See Private Equity Like Rob!

Get on the PE4Fams List

Get a brief email notice whenever Rob shares his insights on investing and the world in the PE4Fams blog (about once every three weeks). 

Share via
Copy link
Powered by Social Snap