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Janet Yellen.
The following few paragraphs are extracted from our 2015 book âThe War On Cashâ which you can download for free here.
On 17 April 1961, a brigade of 1,400 Cuban exiles with the support of the United States Navy, the US Air Force and the CIA, invaded the swampy coast of Cuba at the Bay of Pigs. Their goal was to overthrow Castro. But nothing went as planned. Four ships were supposed to supply them with ammunition and supplies, but not one of them arrived. Two of them were sunk by the Cuban Air Force and the other two fled.
On the second day, the brigade was completely surrounded by 20,000 Cuban soldiers. By the third day, almost all of the insurgents that hadnât been killed were captured and led off to prison camps.
In his book âGroupthink: psychological studies of policy decisions and fiascosâ, the psychologist Irving L. Janis writes that the Bay of Pigs plan âranks among the worst fiascos ever perpetrated by a responsible government⊠all the major assumptions supporting the plan were so completely wrong that the venture began to founder at the outset and failed in its earliest stagesâ.
How did such a disaster happen? There was no doubt about the technical qualifications of President Kennedyâs policy team that dreamt up the plan. Dean Rusk, Secretary of State, had been recruited by the President himself from acting head of the Rockefeller Foundation. Robert McNamara, the Secretary of Defence, was an expert statistician who had worked his way up the presidency of the Ford Motor Company. The Presidentâs brother, Bobby, the Attorney General, was one of the most influential members of the team. McGeorge Bundy, Arthur Schlesinger, Jr. and Richard Goodwin, were Harvard men of impeccable reputation.
Janis points to six major miscalculations made by the Presidentâs team. The first was that the invasion would never be traced back to the US government. The second was that the Cuban air force could be knocked out completely before the invasion began. The third was that the 1,400 men would be willing to carry out the invasion without any help from US ground troops. The fourth was that Castroâs army was too weak to counter the insurgents. The fifth was that the invasion would trigger support by the Cuban underground and set off armed uprisings that would topple Castro himself (sound familiar?). The sixth was that if the brigade did fail in its primary objective, the men could retreat to the mountains and reinforce anti-Castro guerrilla units. Each assumption was proven wrong.
Groupthink is the means by which humans make their worst mistakes. Because when power is concentrated among a small group their mistakes are bigger and more costly. When power is diffused across the population no one bad decision can lead to disaster.
Janis also identifies the traits common to all groupthink. The groupâs discussions are often limited to a handful of alternatives â there is insufficient choice. The group fails to survey the objectives of the task and the values implied by the favoured plan. The group fails to re-examine the consensus choice in the context of risks and drawbacks never initially considered. And the group neglects courses of action initially considered unsatisfactory. They spend almost no time discussing whether they have overlooked anything. And members of the group make little or no attempt to obtain information from outside experts. Members of the group also disregard information from outside the group. And they spend little or no time considering how the chosen policy might be hindered by bureaucratic inertia, thrown off course by political opponents or derailed by accidents. So they donât make contingency plans that could help them cope with any setbacks.
Beating groupthink boils down to some common sense principles. Nobody is perfect, for example â easy to say, but difficult for a robust group, confident in its own ability, to accept in practice. And the decisions made by groups can be particularly imperfect. The more cohesive the group, the more resistant it becomes to external criticism.
In addition to the Bay of Pigs fiasco, Janis studied in depth four other American policy disasters: Pearl Harbour; Trumanâs invasion of North Korea; Johnsonâs escalation of the Vietnam War, and Nixonâs cover-up of the Watergate scandal. He found that groupthink played a critical role in every one.
Coming closer to home, the history of the euro displays the worst of groupthink. The Delors commission was formed in 1985 and chaired by the most powerful man in Brussels at the time, Commission President Jacques Delors. The aim of the 17 senior officials on the committee was no less than to set out the path to monetary union. To say there was insufficient choice in the project is laughable: its creators never even got beyond Plan A. The eurozone was meant to be a permanent and irrevocable currency union â so there was never any provision for a member country leaving (voluntarily or otherwise).
By 1996, in the words of hedge fund manager and political activist George Soros, the euro had become a âfantastic objectâ, imaginary but still tremendously attractive. Or take the second facet of groupthink as highlighted above in the âBay of Pigsâ example: âThe group fails to re-examine⊠risks and drawbacks never initially considered.â
The euro, probably like many births, was conceived in optimism, without any thought how this nascent currency would survive in a period of extreme financial distress, forced austerity and widespread economic slowdown.
Even now, members of the in-group in Brussels refuse to countenance critics and sceptics on the outside of their clique. âGlobalisation demands more European unity. More unity demands more integration. More integration demands more democracy.â These are the words of ex-European Commission President JosĂ© Manuel Barroso in his 2012 âState of the Unionâ address (note how the fledgling superstate is already modelling its grandiose speeches on those from the Presidency of the United States).
But Barroso was barking up the wrong tree. The rioters in Athens and Madrid were not in pursuit of unity. Demonstrators outside the Greek parliament were shouting âEU, IMF out!â Unity; integration; democracy â when an EU bureaucrat voices these words, they suddenly become meaningless, an Orwellian ramble devoid of substance.
Take the story of Austrian Jew Leopold Kohr, who only just managed to escape from Nazi-annexed Austria in 1938 and who went on to warn about a Europe dominated by big countries. âWe have ridiculed the many little states,â he once wrote, sadly, ânow we are terrorized by their few successors.â
Kohrâs magnum opus was a cautionary tale entitled âThe Breakdown of Nationsâ.
What he warned about is inexorably coming to pass, over half a century later. From âThe Breakdown of Nationsâ:
â⊠there seems to be only one cause behind all forms of social misery: bigness⊠If the body of a people becomes diseased with the fever of aggression, brutality, collectivism, or massive idiocy, it is not because it has fallen victim to bad leadership or mental derangement. It is because human beings, so charming as individuals or in small aggregations, have been welded into over-concentrated social units.â
In the best traditions of groupthink, we can count on the eurozoneâs political class to pursue its grand project until the assets of Europeâs very last taxpayer have been exhausted. But if recent popular protest has been any guide, the euro bloc will have messily disintegrated long before then. Which will ultimately be good news, in the same way that sterlingâs âethnic cleansingâ from the exchange rate mechanism on Black Wednesday in September 1992 ushered in a period of economic revival for the UK, freed from a European fiscal straitjacket and ruinously high interest rates.
One can only hope that peripheral Europe today is as fortunate as Britain was in 1992. But just three weeks after ECB President Mario Draghi appeared to have saved European markets with open-ended bond purchases, the eurozone crisis took another dark turn. Hundreds of thousands of people across Greece and Spain took to the streets. A member of the Spanish governing party, watching the disturbances in Madrid, referred ominously to âan attempted coupâ. The Catalans voted to secede from Spain.
The Spanish prime minister, Mariano Rajoy, bowed to the inevitable and borrowed over 200 billion euros to bail out its banks â taking Spanish national debt to over 90% of its gross domestic product.
This is a triumph of circular logic and magical thinking: a crisis brought about by too much debt is met with more debt. This is like torching your own house rather than have it consumed by a forest fire.
From Dr Gerry Brady at Boom Finance and Economics:
âBANKERS HATE CASH. Bankers hate physical cash. Physical cash costs them money and profits. They are expected to collect it, secure it, account for it, distribute it, and manage the recall of old cash notes and coins. Then they have to return those to the federal mint or the central bank. All this activity generates no revenue for commercial banking. Thus, it generates no profits. It is worse than that. It is a cost centre for the entire banking sector. So itâs not hard to understand that physical cash is the bankersâ enemy.
âAjay Banga has described physical cash as âpublic enemy number oneâ. The public doesnât see Cash as an enemy. So why would he say that? Â That question can be answered by looking at who he is and his background.
âBanga is an Indian by birth and has been a US citizen since 2007. Â He is now the President of the World Bank after being nominated by Joe Biden for the position. He has worked previously for the giant American banking group Citibank and he is a former Chairman and CEO of MasterCard, the global credit card company. He has given many reasons for eliminating cash from an economy explaining why he sees it as âpublic enemy number oneâ. Â Not surprisingly, MasterCardâs âvisionâ for the future has been described as a âWorld Beyond Cashâ.
âBOOM doubts if you will ever see him (or any other banker) discussing the benefits of physical cash. But there are many. Letâs look at the list of benefits of cash.
Cash is sovereign money
Cash is The Peopleâs money
Cash is non-interest bearing at origination
Cash is fungible
Cash is non-electronic
Cash does not require electricity or electrical devices
Cash is anonymous
Cash supply is immediately responsive to increased demand from The People
Cash provides an excellent buffer against the excess creation of interest-bearing credit money (credit money is created as a bank loan and therefore is mostly collateralised against existing assets which re-enforces the Cantillion Effect).
âThe Cantillion Effect was described way back in 1755 by Richard Cantillion in Ireland (it was published long after his death). Â His observation on money supply is historic and one of great clarity. He described how some members of society benefit more from being closest to the origination of fresh new money.
âIn other words, if most fresh new money is created as a bank loan, then that will favour the rich and powerful (who own assets that can be used as collateral) over the poor and the weak. It will, of course, allow those people to purchase yet more assets and thus this effect gives rise to asset price inflation which is a subject seldom mentioned by economists, bankers, or politicians. Presumably, they prefer to keep it a secret.
âImportantly, in most advanced economies of the world, the supply of fresh new money created as a bank loan is now around 97-98%. Thus, cash is only 2-3% of the supply of fresh new money. The âbufferingâ effect of cash to dampen excess credit creation had declined dramatically since the 1960s when the ratio of credit money to cash in the money supply was much more favourable to physical cash.
âTHE SUPPLY OF CASH IS DETERMINED BY ITS DEMAND.  But perhaps the most important aspect of physical cash is that its supply is determined by its demand. Thus, if The People use more cash in their transactions, then the supply has to be increased. In effect, this takes the power of increasing the money supply away from the bankers and transfers it to The People.
âIf the Sovereign does not increase the supply of cash in response to demand, then the consequences can be potentially catastrophic (for the sovereign). Â Historical records tell us what has happened in the past and thus, what is most likely to happen in the future. The People will revolt and soon depose the Head of State or the politician who runs the federal government. In history, if they were lucky, they escaped with their heads intact and their lives. If they were not so lucky, readers can guess what happened.
â[USE OF] CASH IS INCREASING IN MANY NATIONS SIMULTANEOUSLY. Increased use of cash is not just occurring in the UK. There are firm reports of this also occurring in Switzerland, Spain, Germany, Nigeria, Slovakia, Austria, and India.  Austria and Slovakia have enshrined the use of cash in their national Constitutions which enraged the European Commission whose head is the un-elected, Ursula von der Leyen.  Regular readers of BOOM will not be surprised to learn that the European Commission, the top body in the European Union, wants to destroy cash.
âIn the UK, the Post Office has been offering intermediary cash services for banks in recent years. Since the summer of 2022, there has been a sustained increase in the amount of cash being deposited and withdrawn at its branches. In November this year, personal cash withdrawals across the UK Post Officeâs 11,500 branches totalled ÂŁ878 million, the highest amount on record.
âMr BO LI (AT THE IMF) WARNS THE WORLD â CBDCs CAN BE PROGRAMMED TO REWARD OR PUNISH â YOU HAVE BEEN WARNED! Who is Bo Li? And what did he say about Central Bank Digital Currencies (CBDCs)?
âBo Li has been Deputy Managing Director at the IMF (International Monetary Fund) since August 2021. He is responsible for the IMFâs work in about 90 countries as well as on a wide range of policy issues. Before joining the IMF, he worked for many years at the Peopleâs Bank of China (Chinaâs central bank), rising to the role of Deputy Governor. He earlier headed the Monetary Policy, Monetary Policy II, and Legal and Regulation Departments, where he played an important role in the reform of state-owned banks, the drafting of Chinaâs anti-money-laundering law, the internationalisation of the Chinese currency, the yuan, and the establishment of Chinaâs macro-prudential policy framework.
âOn the 15th of October 2022, at a conference organised by the IMF, titled. âCentral Bank Digital Currencies for Financial Inclusionâ. Â Mr Bo Li made the following statements:
âCBDCs can improve financial inclusion through what we call ⊠program-ability. CBDCs can allow government agencies and private sector players to program, to create smart contracts, to allow targeted policy functionsâfor example, welfare payments, consumption coupons, and food stamps. By programming CBDCs, those sums of money can be precisely targeted for what kind of people can own and what kind of use this money can be utilised, for example for food. So this potential program-ability can help government agencies to precisely target their support to those people who need supportâ.
âIt all sounds âFor the Greater Goodâ. It implies the best of intentions. But its message is chillingly LOUD and CLEAR. âWe can cut your access to food if we wish. Do as we say or else.â  Source:Â
https://twitter.com/i/status/1682002080238583808
 [AP added this LINK and a 4-minute (fake?) video from China]
âPHYSICAL CASH IS A VOTING MACHINE THAT CAN BE USED EVERY DAY â THE CASH REVOLUTION HAS BEGUN. BOOM has vigorously supported the increased use of physical cash in many editorials over the last few years. The campaign now seems to be getting through to people all over the planet.
âYour wallet can be used as a voting machine every day especially if the use of physical cash is increased. That sends a very powerful message to bankers and governments who appear to be conspiring to remove cash from circulation. BOOM asks readers to question why this is being done. Letâs consider what has happened over the last 3 years.
âWe now know that the so-called COVID-19 âPandemicâ was not a pandemic of excess death from a deadly virus. It was more a pandemic of exaggerated fear and totalitarian control created by powerful global institutions including pharmaceutical companies, the un-elected so-called World Health Organisation (WHO), the un-elected World Economic Forum (WEF), the un-elected Bill Gates, numerous politicians and governments, and the mainstream media. As a result, people have lost faith in those institutions. The recent disastrous money experiments in India and Nigeria have contributed to a further loss of trust in financial institutions, central banks, and governments.
âBOOM described the Nigerian disaster in his editorial on October 8, 2023 â it was titled âCENTRAL BANK DIGITAL CURRENCIES CANNOT SUCCEED â THEY ARE INTELLECTUALLY BANKRUPT â THE DISASTROUS FAILURE OF NIGERIAâS CENTRAL BANK DIGITAL CURRENCYâ Nigeria jailed the head of the central bank after that fiasco. As far as BOOM is aware, he is still in jail.
âSo how and why are people using cash in reaction to these developments?  UK Finance.org.uk is a lobbying group for the banks in the United Kingdom. It describes itself as âthe collective voice for the banking and finance industry. Representing more than 300 firms across the industryâ. In September 2023, they released a report on payment trends in the UK, showing that cash payments had increased in 2022, for the first time in a decade.
âThe report showed that the number of cash payments had risen by 7% in 2022 from 2021. It attributed this to CPI inflation which had (somehow), âprompted many people to turn back to cash or use it more often than before to help them manage their budgetsâ.
âAnother report released in December by the British Retail Consortium showed the findings of its annual payments survey. In agreement with UK Finance, this survey also found that cash use had increased in 2022 to almost 20% of transactions. The Daily Telegraph newspaper wrote an article on the payments survey.
âQuote: âCoins and banknotes accounted for nearly a fifth of transactions in 2022, according to the British Retail Consortium (BRC)âs annual Payments Survey.
âIts report said: âThis yearâs Payments Survey shows an increase in cash usage for the first time in a decade, up from 15% (in 2021) to just under 19% of transactions (in 2022).
âFaced with rising living costs, cash was a useful tool for some people to manage their finances and track their day-to-day spending.â
âAgain, the explanation was the same, saying that (somehow) the people needed to use cash as a âuseful toolâ to âmanage their financesâ.
âHowever, BOOM does not agree. This is not about inflation and better management of finances. It is about âLoss of Trustâ. 19% of transactions is a large number. And that was the first such increase noted since 2013.
âSomething big is happening in the way that people perceive cash and its importance. Distrust of the financial institutions, the central banks, and governments is the most probable cause.
âIn another recent editorial on December 10, 2023, BOOM showed that the people of Canada have lost almost all trust in their most senior institutions. BOOM wrote â Quote: âThe recent poll commissioned by the Bank of Canada (the central bank) and referenced in a report titled âDigital Canadian Dollar Public Consultation Reportâ, dated November 2023. The survey received a high level of engagement from individuals across Canada, gathering a total of 89,423 responses.
âQuote: âIn the category dealing with âComplete Trustâ, only 4% of Canadians have complete trust in their financial institutions, 5% in the Central Bank of Canada, 3% in the Government, and only 1% in major Technology companies.
âBut the shock is contained in the category âCompletely Distrustâ. Here, 74% of the respondents completely distrust the Government of Canada, 58% completely distrust the Bank of Canada, 46% distrust their financial institutions and 61% completely distrust the major Technology companies.â
âThe numbers are staggering. BOOM strongly suspects that people are moving to physical cash because they can, because it is a protest movement, and because it is a way to remove themselves from the oversight of those powerful institutions that have betrayed their trust.
âLOSS OF TRUSTÂ â The farmers of Germany, France, and The Netherlands have also lost trust in their governments and are at the forefront of this massive change. They are strongly supported by the truckers of Canada. Without farmers and truckers, their economies will grind to a halt. The Cash Revolution has begun.â
2024 as the Year of Revolutions ? Stranger things have happened.
âŠâŠâŠâŠ.
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Tim Price is co-manager of the VT Price Value Portfolio and author of âInvesting through the Looking Glass: a rational guide to irrational financial marketsâ. You can access a full archive of these weekly investment commentaries here. You can listen to our regular âState of the Marketsâ podcasts, with Paul Rodriguez of ThinkTrading.com, here. Email us: info@pricevaluepartners.com.
Price Value Partners manage investment portfolios for private clients. We also manage the VT Price Value Portfolio, an unconstrained global fund investing in Benjamin Graham-style value stocks.
Such a valuable post Tim and it has many helpful elements. The Bay of Pigs and groupthink story has many implications for us as a society and in various businesses. The marketing group at Bud Lite must have supported each other in their campaign to re-launch BudLite without significant dissenting voices.
Great encouragement to us about cash although I am confident that Mr Bo Li has our welfare at heart! Interesting that China has its tentacles in so many areas of the international system, including health.