Money Market Mooves !

Prime Minister Scott Morrison is very keen to enact a new laws to make it illegal to use cash money above ten thousand dollars in any transaction and this is being resisted by his party members.  The move has the support of the tax office which is looking for ways to defeat the " black economy " and cash laundering is a constant tactic used in the drug trade as criminals try to hide their vast profits.

Cash is already embargoed with sanctions.  Anyone offering cash above ten thousand dollars can expect the tax office knocking on their door with a demand they explain the source of that money. All cash transactions above ten thousand dollars must be reported and heavy penalties exist for any breach of that law.

There is suspicion that this rush to implement cash illegality has more to do with interest rates and the Australian banking system than meets the eye.   The Reserve bank has been steadily lowering interest rates to try and goose the economy and they are now at a low of 0.75 percent.  They would probably have gone even lower has not the bushfire crisis and the Coronavirus burst upon the economic  scene.   The Reserve bank meets on the first Tuesday of every month and the money market awaits in fear of another fall in interest rates.

The problem is the vast array of retired Australians who have accepted their superannuation in a lump sum and have the money invested in a term account with a bank.   They live off the interest it draws and this ever lower official interest rate is squeezing their income and driving them to distraction.  The share market is at a record high of over 7000 but many think that is too risky a gamble and stick rigidly to the term deposit routine.

Economists are unsure of what lays ahead.  Some see another rate cut on the cards and some even think we may descend to the situation that occurred in Europe during the 2008 recession.  The banks there resorted to negative gearing.   They paid no interest on term deposits, and in fact charged customers for minding their money by keeping it in their care.  That is a distinct possibility if rates are abysmally low and we encounter even a mild recession.

What the government fears is those retirees pulling their money out of the bank if negative interest rates apply and buying a safe  or stuffing it under the mattress.  That would be a disaster for the banks.  They are happily writing mortgage business and general lending using the cheap money from our term deposits.  If they were forced to replace that money in the money market their costs would skyrocket and we would have a recession on our hands.

It would be only a short step to move from making cash purchases of over ten thousand illegal - to making it illegal to have money in excess of ten thousand dollars in your home.  This would be justified as a legitimate method of flushing out drug profits held by the crime syndicates. It would also lock retirees into the term deposit option.

When politicians come up with bright ideas it is always wise to look for hidden agendas.