Former Treasury Secretary Urges Government to Kill the $100 Banknote

Release Date: 
Friday, February 26, 2016

Gold and Silver Prices
Gold prices were lower on Friday due to profit taking despite a recent report that the U.S. economy grew at a lower rate than projected. Nonetheless, gold remains on track for its best monthly gain since 2008.

“Gold is heading for the best monthly gain in four years as concerns over global economic growth spur demand for haven assets. Those same worries explain why silver and other precious metals aren’t faring as well… Gold has been the beneficiary as financial-market turmoil, declining crude oil prices and signs of a weakening Chinese economy vex investors, boosting speculation that the Federal Reserve will be slow to raise US interest rates further.

At the same time, the prospect of a slump in manufacturing demand has reduced the appeal of silver, which gets about of its half of demand from industrial fabrication… ‘Gold certainly has done extremely well with uncertainty around the world and with the idea that interest rates won’t be rising. Until global growth comes up, the gold-silver ratio will continue to widen.’” (“Gold price heads for best monthly gain since 2008,” Bloomberg, 2/26/16.)

Gold ended the week down $4.20, closing at $1,222.80. Silver prices closed at $14.77, down $0.65.

Former Treasury Secretary Urges Government to Kill the $100 Banknote
Lawrence Summers, the former treasury secretary and director of the National Economic Council in the Clinton White House, penned an editorial urging the United States to eliminate the $100 banknote.

“Harvard's Mossavar Rahmani Center for Business and Government, which I am privileged to direct, has just issued an important paper by senior fellow Peter Sands and a group of student collaborators. The paper makes a compelling case for stopping the issuance of high denomination notes like the 500 euro note and $100 bill or even withdrawing them from circulation…

“He is surely right that illicit activities are facilitated when a million dollars weighs 2.2 pounds as with the 500 euro note rather than more than 50 pounds as would be the case if the $20 bill was the high denomination note. And he is equally correct in arguing that technology is obviating whatever need there may ever have been for high denomination notes in legal commerce….” (“It’s time to kill the $100 bill,” Washington Post, 2/16/16.)

Mr. Summer’s desire to eliminate the $100 highlights the growing momentum towards a cashless society. But the risks of a cashless society are being largely ignored. Goldline has prepared two important reports on the cashless society and cyber-terrorism that you can receive FREE by calling 1-800-963-9798.

War on Cash May Send Gold and Silver Prices Higher - Reuters
Reuters columnist James Saft explained to readers why the plan to eliminate large banknotes like the $100 bill is likely to send investors to hard assets like gold and silver.

“Like it or hate it, the war on large-denomination cash will have an impact on other markets, as investors and crooks alike look for convenient stores of value. In short, if cash becomes harder to get in large size, look for money to flow to art, wine and precious metals, as investors lawful and of other stripes seek alternatives.

“There has been a sudden chorus of authoritative voices calling for an end to the printing of the highest value bank notes, most notably by European Central Bank chief Mario Draghi who on Feb. 15 said the bank may drop its 500-euro note over concerns about its use in crime. Adding his voice a day later was former U.S. Treasury Secretary Larry Summers, who called for a moratorium on printing new $100 bills, also citing its role in crime… There is also, though Summers downplays it, a connection between getting rid of large notes and making negative interest rate policy (NIRP) run more smoothly…

“Investors are increasingly forced to seek alternative asset classes to insulate themselves in this war on cash. Simply put, very few asset classes can act effectively as an alternative safe haven,’ said Joe Roseman, an investor formerly of hedge fund firm Moore Capital, whose 2012 book argued that extraordinary monetary policy would drive investors to silver, wine, art and gold or, as he termed it, SWAG. (“War on cash to pump up silver, wine, art, gold”, Reuters, 2/25/16)

Gold Rush Is Back As Investors Seek Safety – MarketWatch
MarketWatch reported that “gold is the new black” as the yellow metal enjoys its best start in 35 years.

"Banks and pundits are singing gold’s praises as it leaps in 2016. The chart below [omitted] from The Economist says gold has gotten off to its best start to a year in 35 years. The safety play is up 16% in the year to date as of Friday, helped by haven demand amid dives by stocks, crude oil and other assets...

“Bank of America Merrill Lynch’s latest ‘Flow Show’ note deploys phrases like ‘gold rush’ and ‘gold is the new black.’ Precious metal funds have seen their biggest three-week inflow of investor money since June 2009, says the note dated Thursday…

“The inflows have coincided with the Federal Reserve “talking down” the U.S. dollar and with rising fears that a recession is nigh and quantitative easing is failing, says the BAML note, which was penned by the bank’s global investment strategists, led by Michael Hartnett. A strong buck often acts as a drag on dollar-denominated commodities by making them pricier for holders of other currencies…

“But we’ll give the last word to John Browne, who has written a somewhat hair-raising post over at RealClearMarkets that suggests stockpiling gold and cash… ‘The size and scope of the political, economic and financial problems that now challenge the relative stability and tranquility of developed societies are unprecedented… Should the war on cash prove unsuccessful in its early stages, banks could be closed for long periods. Investors should be aware of such possibilities and consider whether to hold cash and precious metals prudently outside the banking system.’” (“‘Gold is the new black’ as metal nabs best start to a year since 1980,” MarketWatch, 2/26/16.)

U.S. Recession Could Send Gold to $2000 – Walker
During a discussion with three forecasters regarding China’s currency, economist Jim Walker warned of a new U.S. recession and a return to record gold prices.

“Asianomics Group Ltd.’s Jim Walker, who predicted the yuan’s four-year advance would end a month before the currency peaked in January 2014, is forecasting a U.S. recession and says 10-year Treasury yields will plunge to all-time lows. Raoul Pal, publisher of the Global Macro Investor report and a yuan bear since 2012, says European bank shares will tumble by half. John Mauldin of Millennium Wave Advisors, who has argued since 2011 that the Chinese currency should weaken, sees the risk of heightened geopolitical instability in the Middle East as lower crude prices strain the budgets of oil-rich countries.

“While all three forecasters see scope for further declines in the yuan, they’re also emphasizing risks outside the Chinese economy as the outlook for world growth dims and commodities trade near the lowest levels in more than 15 years. Their bearish stance has gained traction in global markets this year, with share prices from New York to Riyadh and Sydney sliding as investors shifted into gold and sovereign bonds…

“When he looks beyond the Middle Kingdom, Walker says a contraction in the American economy will send 10-year Treasury yields to 0.5 percent by the second quarter of 2017, from 1.74 percent on Friday. He predicts gold will surge more than 60 percent to $2,000 an ounce this year as investors flock to haven assets.

“’It’s not looking good for the U.S.,’ he said in an interview in Hong Kong.
Walker’s predictions, like his yuan call in December 2013, are out of step with the consensus. The median forecasters tracked by Bloomberg see U.S. growth of more than 2 percent this year, while they project gold will end the year at $1,115 an ounce and yields on 10-year Treasuries will rise to 2.74 percent by the middle of next year. (“China's Yuan Bears Predict More Trouble Ahead,” Bloomberg, 2/21/16.)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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