Principal, Laveer Capital Management

Read the op-ed from Larry Summers, here

Bloomberg View explores who uses $100 bills

Breakdown of U.S. currency in circulation

Cash: An ObituaryCash: An Obituary

“Some ideas are so stupid that only intellectuals believe them.” – George Orwell

“It’s time to kill the $100 bill” read the title of a Washington Post op-ed penned by former Treasury Secretary Larry Summers.  Larry sets the story that if one were to fight his opinion, then you would be fighting for terror, crime, tax cheats, money launderers, proponents of bank secrecy and corruption.  Larry’s stated premise is to remove the $50 and $100 bill (and all global high denomination currency) from circulation because it supports corruption and crime.  Larry even references the 500 Euro note as the “Bin Laden”.

How can I possibly disagree?

The topic at hand is the concentrating financial power within the context of an increasingly indebted government, the value of your labor and its impact on your ability to save and consume and your economic liberty.

Put aside claims that only terrorists use large denominated bills and consider Larry’s position is the gateway to effectively managing a negative interest rate policy.  While the US has not yet committed to negative rates, other major global central banks have ventured into negative interest rates.  Understand globally there is now $7 trillion, yes TRILLION, of government bonds with yields below zero.  If, or when, the Fed goes down this path of negative interest rates, implementing such policy will be difficult because folks are incented to hoard cash.  Of course, if you make it challenging, or too dangerous to hold YOUR cash, then policy can be more effectively implemented.

With this in mind, the powers that be must begin building the narrative until it has been accepted by the majority.  So it begins with a former Treasury Secretary and an academic paper from the renowned American institution Harvard.  Difficult to debate that credibility, yet I’ll proceed.

The $100 bill represents around $1.1 trillion of the $1.38 trillion of cash in circulation— that’s 80% of all US currency in circulation.  Notably absent in Larry’s commentary is the $100 bills importance as a store of value and your ability to operate outside the present banking system.  Hoarding $20 bills becomes a dangerous nightmare.  By reducing bill denominations the government will eliminate this as a store of value and reduce your optionality.

As I write, JP Morgan Chase began capping ATM withdrawals at $1,000 per day for non-customers.  Typically the limits are set by the bank, NOT the ATM.  Citing the WSJ, “[JPM] cracking down as people started pulling out tens of thousands of dollars at a time…” Editor’s note, whose money is it anyway– JPM or the clients?  As you’ll hear now too frequently, “The bank said there doesn’t appear to be fraud involved. But partly due to heightened regulatory scrutiny, banks are paying more attention to large cash transfers that could be a sign of money laundering or other types of shady activity.”

A digitalization of finance, under the present banking system, reduces your financial optionality.  As cash is removed, you’re pushed to transact via the existing banking ecosystem that is under the scrutiny of an extremely indebted government.  Be advised.

This cannot happen here echoes my millennial peers.

To be sure, similar events have happened in the US before.  In 1933, as an example, the currency was convertible to gold at $20.67 per ounce (otherwise known as the gold standard).  Then claiming his efforts were intended on restoring economic growth, FDR made holding gold illegal with a penalty of up to 10 years imprisonment.  Congress abrogated contracts requiring payment in gold.  Once obstacles cleared, in 1934 the price of gold was increased to $35 per ounce.  If you were forced to trade your gold for dollars, then you have just been materially devalued.  Your labor and savings worth substantially less.

In the current election cycle there is a lot of debate about the value of labor– minimum wage, wealth inequality, anxiety over maintaining living standards, student debt, etc– it is important to keep in mind the rules of the game and its impact on your finances.  Ignore how the game is being played, take Larry’s narrative at face value, or call me a financial curmudgeon at your peril.

In the world we have created, one must empower themselves with a financial education that keeps them ahead of the game.