Posted on 10/11/2017 9:43:03 AM PDT by markomalley
When Hurricane Maria knocked out power in Puerto Rico, residents there realized they were going to need physical cash — and a lot of it.
Bloomberg reported yesterday that the Fed was forced to fly a planeload of cash to the Island to help avert disaster:
William Dudley, the New York Fed president, put the word out within minutes, and ultimately a jet loaded with an undisclosed amount of cash landed on the stricken island...
[Business executive in Puerto Rico] described corporate clients’ urgent requests for hundreds of thousands in cash to meet payrolls, and the challenge of finding enough armored cars to satisfy endless demand at ATMs. Such were the days after Maria devastated the U.S. territory last month, killing 39 people, crushing buildings and wiping out the island’s energy grid. As early as the day after the storm, the Fed began working to get money onto the island,
For a time, unless one had a hoard of cash stored up in one's home, it was impossible to get cash at all. 85 percent of Puerto Rico is still without power, as of October 9. Bloomberg continues: "When some generator-powered ATMs finally opened, lines stretched hours long, with people camping out in beach chairs and holding umbrellas against the sun."
In an earlier article from September 25, Bloomberg noted how, without cash, necessities were simply unavailable:
“Cash only,” said Abraham Lebron, the store manager standing guard at Supermax, a supermarket in San Juan’s Plaza de las Armas. He was in a well-policed area, but admitted feeling like a sitting duck with so many bills on hand. “The system is down, so we can’t process the cards. It’s tough, but one finds a way to make it work.”
The cash economy has reigned in Puerto Rico since Hurricane Maria decimated much of the U.S. commonwealth last week, leveling the power grid and wireless towers and transporting the island to a time before plastic existed. The state of affairs could carry on for weeks or longer in some remote parts of the commonwealth, and that means it could be impossible to trace revenue and enforce tax rules.
Note the deep concern with "trac[ing] revenue" and "enforc[ing] tax rules" — as if making payroll for ordinary people were not the real problem here.
Puerto Rico has been fortunate that the United States, so far, has not attempted to implement many anti-cash measures that have been popular among central bankers in recent years.
Abolishing cash, of course, has become de rigueur among mainstream economists who have long argued that physical cash is an impediment to "nontraditional" monetary policy like negative interest rates. Moreover, advocates claim, physical cash makes it harder to control the flow of money, collect taxes, and control black markets.
This drive to supposedly fight crime and corruption was given as the justification for the disastrous war against cash in India in 2016. Hatched as a scheme to assert more government control over the economy, the Indian government removed mostly large bills from circulation in India, which accounted for 85% of its physical cash by value.
The demonetization badly damaged the economy. The Wall Street Journal reported in December:
Not surprisingly, shock waves from the announcement continue to crash through the economy. The Asian Development Bank cut its growth estimate for India for the financial year ending March 31 to 7% from 7.4%. JP Morgan expects growth to decline by half a percent to 6.7%.
Meanwhile, falling sales have begun to translate into layoffs spanning various sectors, including construction, textiles and jewelry. The Centre for Monitoring Indian Economy estimates the transaction costs alone of swapping out an estimated 14.2 trillion rupees’ worth of currency to be 1.28 trillion rupees, or about $19 billion.
India’s economy will eventually recover from this self-inflicted wound, but there’s no question that demonetization has created doubts about Mr. Modi’s competence. The decision, reportedly hatched in secret with a coterie of trusted bureaucrats, showcases the prime minister’s faith in the command-and-control ethos of the civil service rather than in the “minimum government” he once promised.
One can only imagine how much more grim matters would be for Puerto Rico if most physical cash were made illegal as happened in India.
It's unlikely, however, that any well-known economists — such as Kenneth Rogoff who has deemed physical cash "a curse" — will be recanting their anti-cash views.
If you want to make an omelet, you have to break some eggs, and while some of the "little people" like Indian peasants and Puerto Rican workers might have to suffer greatly whenever the power goes out, we all have to make sacrifices.
Perhaps this is what Richard Thaler — the newly announced economics Nobel-Prize winner — had in mind when he came in out in favor of demonetization in India.
Certainly, abolishing cash is likely to devastate a poor economy more than a wealthy one. A wealthy country, with more advanced and reliable infrastructure, and with greater access to resources in general, is more fully able to weather a shortage of physical cash, and natural disasters. Overall, though, going cashless makes an economy more fragile, and makes ordinary people sitting ducks whenever there is a natural disaster, or even worse disruptions such as wars.
I’ve always felt that a cashless monetary policy was designed so people could not work for cash and avoid taxes.
Which helps keep the rest of us free[er]. Given absolute control, no government would be able to resist the temptation to tyranny. Hell, they flirt with it bad enough WITHOUT absolute control.
Plus rates would skyrocket. When it’s physically impossible to break the law, consent of the governed becomes a quaint anachronism. Smugglers and tax cheats and their methods keep us all freeer by making tyranny difficult.
Or if the power grid is turned off intentionally.
And you’d better hope you don’t say something (or pray to something) they don’t like—all they’ll need to do is just flip a switch and then you’re SOL. Tyranny is so whimsical.
I’ve heard that many people, especially younger people, just don’t use physical cash very much. They use debit cards and credit cards, and use functions such as Google wallet and PayPal.
Since so many just don’t ever use actual cash, they won’t mind if our government ever tried to phase out cash.
Wha yo mean ma EBT card don’t work? Everthang in this store jus’ become free, mein!
My friend is an auditor for a paycheck loan place. He says PR is corrupt from the ground up. That the store there is a joke and the company only keeps it so the brass can have a place to party. One can only imagine what the books will be after this mess.
My credit card was cancelled after someone tried to buy something expensive. Try being overseas when that happens. Having electricity doesn’t help. No such things as travelers checks anymore. Might as well stand on the corner and sing.
I always use cash at restaurants. Too many wait staff into identity theft.
There was a novel back in the 80’s about the aftermath of an American nuclear holocaust called ‘Warday’ that detailed the economic devastation caused by deflation when all that electronic cash is wiped out.
Of all the different categories of money, and there are at least 5, money in motion is by far the most important. Lose control of that and all commerce will immediately stop. If it is not restarted quickly,society as we know it will either replace it with a different medium of exchange or collapse almost immediately. Then bullets and force will become the new medium of exchange.
“Since so many just don’t ever use actual cash, they won’t mind if our government ever tried to phase out cash.”
That’s not true for all people that choose to use cards vs. cash. I use my Amex as much as possible with the points I accumulate (accumulating points only makes sense if you pay it off at the end of every month). I rarely use cash these days for that reason. Couple that with the ease of itemizing all of my purchases and being able to see what gets blown where, it’s a no brainer to use a card as much as possible.
However, that doesn’t mean I want to see the end of cash ... I always have a few dollars on me “just in case” ... I want things to stay that way as cashless is a horrible for reasons mentioned in the replies. If “forced” to choose cash or cashless, I’d be in the cash camp :-) ... still, that doesn’t mean I want to reap the benefits of “cashless”. A hybrid solution would work just fine for society in general I would think. Tyrants don’t like that, but screw them.
“There was a novel back in the 80’s about the aftermath of an American nuclear holocaust called ‘Warday’ ... “
I loved that book :-) ... one of my favorites. I loved the fact that the airport they landed at near Pittsburgh was only a couple of miles from my house at the time.
Cashless = Communist Control.
Those of us who live in Hurricane Land will cut any attempt to outlaw cash.
Fools.
If necessary our states will create our own currencies and cut the stupid Feds out the picture. Texas has already begun that process.
Interestingly, guns & ammo corresponds rather nicely to cash. .22LR is about the same size & value as pocket change ($0.02-$0.25), 9mm & 5.56 & .308 for small bills ($0.50-$2.50), high-power .338 & .50 for larger ($5-$20), magazines ($10-$100), handguns & small rifles ($100-$1000), rifles ($300-$3000).
Ping.
And then they'll be shocked when tyranny slaps chains on them.
I keep several hundred on hand just in case.
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