Written by Derryl Hermanutz
Editor’s note: This essay was written as a comment on “Negative” Interest Rates And The War On Cash by Richard A. Werner.
Prof. Werner’s points are all true, and his description of the effects areaccurate. Central bank policies harm small banks, bail out big banks, and lead to intensified concentration of banking in ever-fewer, ever-bigger and more powerful too-big-to-fail banks. The logical conclusion of this process is the elimination of all commercial banks, and concentration of banking (ie money creation and allocation; and operating the electronic deposit account money payments system) in a single all-powerful bank: the central bank.
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The effects of the present economic lockdown policy are the same. Millions of small businesses are shut down and their 10s of millions of employees sent home. Most small businesses only have enough money (current account balances and cash) to pay their fixed costs – rent, utilities, operating line of credit payments, etc – for 2 weeks. With $0 sales revenues because the businesses are closed, it only takes 2 weeks until small businesses begin defaulting on their rents, bills, and bank loan payments.
“Only the richest 15% of Americans have $10,000 or more money in the bank.”
Most of the furloughed employees only have enough money (checking account balances, savings account balances, and cash) to pay their essential household cost of living spending – mortgage or rent payment, utilities, car loan payment, student loan payment, credit card payment, food, etc – to the end of the week, or a couple of weeks, or a few months at most.
Today 69% of Americans have less than $1000 in savings; 34% have $0 savings; 35% have $1-$999 of savings; 11% have $1000-$4999 of savings; and 5% have $5000-$9999 of savings. Only the richest 15% of Americans have $10,000 or more money in the bank.
$10,000 of savings might pay a household’s essential cost of living spending for 4 months or less, depending on where they live, size of theiir mortgage, and other factors. After that they have no money. Most people have far less than $10,000. After laid-off people and shut-down small businesses have spent all their savings paying their fixed costs, they default on paying their rents, bills and debts. Their incomes were shut down, but their bills and payments were not shut down.
Among the people and businesses who do not declare bankruptcy when they run out of money and default on their bill payments and debts, the cintinuing unpaid bills and unpaid loan payments accumulate as even more debts.
“Many of those millions of shut down small businesses will never re-open.”
These debts will have to be paid out of business profits and employee incomes after the businesses re-open and employees are called back to work. In many cases the businesses and employees could barely pay their current monthly costs out of their sales revenues and earned incomes before the crisis. They will never be able to renew payment of their current monthly costs, and also pay the mountainous debts accumulated after months of $0 income and non-payment of bills and loan payments.
Many of those millions of shut down small businesses will never re-open. The owners are flat broke and have no money to re-open. Their millions of employees will never be called back to work. Permanently closed businesses, and permanently unemployed workers, earn no incomes, and can pay no bills and debts. They are all technically or actively bankrupt, and their creditors cannot be paid. There will be millions of small business and personal bankruptcies and $trillions of losses for creditors who cannot collect their several months’ accumulation of utility service charges, rents, loan payments, etc.
The businesses who survive add re-open once the lockdown is lifted will find a vastly reduced consumer demand for their goods and services. Millions of small businesses and employees who used to spend their incomes buying stuff from other businesses, are broke, and bankrupt, Millions more people who earned no income for several months, will require months or years paying their accumulated back-bills, and paying their current month bills, before they will have any leftover income to spend on discretionary spending. Many of the re-opened businesses will discover that they have far fewer customers, and their much reduced sales revenues are less than their fixed costs of keeping the doors open, so they will shut down in a second wave of business closures and employee layoffs.
“There will be millions of small business and personal bankruptcies”
Meanwhile, the biggest corporations and the biggest banks are being given $trillions of newly created central bank money; while everybody else is allowed to fail and suffer business and household bankruptcy.
This has the same effect as Werner described for central bank interest rate policy re banking corporations: drive the many small players out of business, and consolidate ownership and control in the hands of ever-fewer, ever-richer, ever-more powerful banking, commercial and industrial corporations.
Banks and payments businesses charge fees to merchants for all electronic buy-sell transactions. To preserve their already minimal profits, these merchants have to increase their sale prices to cover the 2-3% the banks and payments businesses charge the commercial businesses who accept “plastic” payments. If cash is eliminated, then the banks and payments businesses will take their cut of every buy-sell transaction, basically imposing a 2-3% “we have a monopoly over money and money payments” tax, on everybody.
The same economic lockdown policies, and central bank policies to bailout Big banks and corporations, are being imposed at the same time, all over the Western world. This is a centrally coordinated transnational action; not the result of individual nations each deciding for themselves what they will do. The policies generate the same outcomes wherever they are imposed.
“If cash is eliminated, then the banks and payments businesses will take their cut of every buy-sell transaction”
Are these anti-democratic, anti-free market outcomes – the creation of powerful monopolies and the destruction of all competitors – an unfortunate oversight of the policy-making authorities? Are the policies causing mass bankruptcies of the small, and consolidation into Big, by mistake? …as an unintended consequence that policy-makers could not foresee? Are policy-makers blind, or stupid, so they can’t see the obvious consequences of their policies?
Or is this being done as a deliberate “conspiracy” by policy-makers to bankrupt the many and enrich and empower the few, which policy-makers know very well they are doing, but falsely claim to be seeking other outcomes, because they know “the public” – the democratic majority – would not accept the outcomes that are being deliberately imposed?
“The many are in fact being destroyed by policy.”
Are policy-makers financially and economically destroying the many by mistake? Or on purpose?
The many are in fact being destroyed by policy. Only the policy-makers know why they are doing it – the outcomes they expect to generate by imposing those policies. Observers can only “theorize” whether the many are being destroyed, and the Big are being saved and enriched and empowered, by mistake or on purpose. “Conspiracy theorists” believe it is being done on purpose.
If conspiracy theorists are wrong, then policy-makers must be blind and stupid to not see the catastrophic “unintended” consequences of their policies.
If conspiracy theorists are right, then they are not conspiracy theorists. They are rational analysts who see that outcomes are being deliberately imposed by centrally coordinated policy-making authorities who are conspiring to produce those outcomes and lying about the reasons they are imposing the policies that directly generate those outcomes.
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