Heads In a Basket

Posted by straightlinelogic 8 years, 10 months ago to Economics
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Banning cash will make the unsecured liabilities (customer deposits) of a banking system that was insolvent seven years ago—and will be so again—the medium of exchange. While coins and paper money are backed only by promises from politicians not to create too much of them, they will represent Rock of Gibraltar solidity compared to those unsecured deposits trapped within the banks. Look at banking system risks now and imagine the new risks bankers will take when they know money cannot leave the system. It is the ultimate involuntary bail-in, preceding rather than following bank insolvency.

When the economy collapses under the weight of debt, there will be no way for depositors herded into the banking system holding pen to avoid the guillotine. Governments that won’t allow there own coins and paper to be used as mediums of exchange will certainly not allow gold or silver to function as such. However, in the black market that will be the only functioning economy, gold and silver will be accepted—albeit not legal—tender. Which suggests that if you want to keep your head out of the basket, put away some of those time-tested mediums of exchange now. Keeping your stash hidden from the government will be child’s play compared to getting anything of value out of a failed banks.

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SOURCE URL: http://straightlinelogic.com/2015/05/29/heads-in-a-basket-by-robert-gore/


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  • Posted by freedomforall 8 years, 10 months ago
    "put away some of those time-tested mediums of exchange now. "
    No telling what the price of gold will be the minute after cash is banned, but it will surely be a massive increase of the market price.

    No wonder why Morgan Chase now has the largest long position in Gold/Silver in recorded history. The same Morgan Chase that held the biggest short position in silver ever recorded only a few years ago.
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  • Posted by CircuitGuy 8 years, 10 months ago
    Assuming the reserve requirements and FDIC don't protect depositors (it's very possible I'm wrong in my last comment thinking they do), is physical cash (M0) really important?

    If think about this in terms of my family. Most of our modest net worth is in real estate, our businesses, and other businesses (mostly large-cap stocks). Roughly 10% of it is in short-term and intermediate-term corporate and gov't bonds. Roughly 10% of it is in regular FDIC-insured deposits. This is money that will go toward quarterly estimates, employee withholding, and fund to be used for our normal family expenditures. We keep less than 0.1% in currency. We sometimes take out a little more, but then we spend it.

    I did a quick web search and found M1 is in the $4 trillion range. I'm guessing the net worth of the US is in the $100 trillion range. This suggest my family is somewhat near the average. I can't find M0, but even if I could it includes cash held as reserves. I want to know how much cash is held outside of banks. If it's in the 0.1% range, consistent with my family, then why does this even matter.

    I can think of at least two unrelated reasons why physical cash is important. This question is only why it matters for banking credit risk. Thanks for wading through my long questions!
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    • Posted by freedomforall 8 years, 10 months ago
      Over 70% of home "owners" have mortgages, and most of those without mortgages are over 60 years old. 100% of home "owners" have taxes that must be paid on their homes. That is effectively a mortgage payment that is NEVER paid off, a perpetual debt to the government forever.

      If there is no cash, there is no way to pay for anything except through the government/bankster approved system.
      Suppose someone has an argument with a neighbor over a tree on the property line. All it takes in the current political system in the US is for one of the disgruntled neighbors to report the other as a suspected domestic terrorist for the 'authorities' to shut off access to funds of the accused regardless of innocence or guilt. Hey, he will be guitly of SOMETHING, so freeze his funds until he can prove himself innocent. Of course without his funds, he can't hire a lawyer or prove anything. He and his family can't pay for anything: no food, no insulin, no mortgage, no taxes. In months they are evicted and homeless.
      OK, that's only an isolated case.
      Now suppose that the current dictator looter O-lyingsack has had enough of the religious right for opposing his gun-free policy. Using the media he controls and agents he has planted in the religious right, O orders the Attorney General to restrict those who are funding evil groups of gun-control resistors. The funds of the "leaders" of these "domestic terrorists" are frozen, and anyone assisting their families are next to be declared as assisting terrorists, so their funds are frozen. In 6 months you have hundreds of thousands of houses in default. Market prices fall like rain to the gutter and 60% of the homes with equity are wiped out. Only the servile over 60 years old can still justify paying their property taxes.
      All it takes, Cg, is a corrupt power hungry scumbag like O to destroy the economy when no one has cash.
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      • Posted by CircuitGuy 8 years, 10 months ago
        For physical cash to address all those potential issues, it requires people to keep a significant chunk of their net worth in cash. My point is most people don't, so how does physical cash solve those problem?
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        • Posted by freedomforall 8 years, 10 months ago
          It removes that one way that Obidiot will be able to target people the way that I specified. Cash can be found today in an emergency. You can trade your wedding ring for it. You can sell your time for it.With cash banned, anyone targeted will be in a dire situation. How many people would dare speak out against dictatorship without some way to survive?
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          • Posted by CircuitGuy 8 years, 10 months ago
            "Cash can be found today in an emergency"
            The one scenario I can think of is when someone is broke and has a judgment against him. In today's world, he can receive a small check for work or selling something, take it the issuing bank or a check-cashing place, and get cash for basic living expenses. The person does this because if he deposits it, the entity with the judgment may clean out his account. I think dodging this with cash happens today, and I think it's even legal.

            I really struggle to see this scenario mattering if the gov't, rather than someone who one a civil law suit, is after the citizen. In this scenario, the gov't would probably prevent him from selling businesses and real estate, would freeze his domestic bank and investment accounts, and would garnish wages, just as in a civil judgment but with more teeth. So he's literally a financial fugitive. It's hard to see operating in cash helping him. I guess it would buy him the ability to get out of the country and ask for asylum in a country where he has offshore accounts. This scenario seems bizarre and improbable to me.

            It's academic, though, because I think we need cash a) for it's psychological benefit of those bills representing absolute certainty of payment and b) so people don't have to tell the bank about every little trivial purchase. If cash has the power to stop corrupt politicians, which I say it does not, that's a huge bonus.
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            • Posted by freedomforall 8 years, 10 months ago
              Nothing but the grim reaper can completely stop corrupt politicians (sorry, repeating myself), but cash and precious metals offer a last resort, like 100 million hunting rifles in the hands of the militia.
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  • Posted by CircuitGuy 8 years, 10 months ago
    I'm for cash for a different reason, but I'm interested in learning about your reason. Your reason is if the cash is in your hand, it's vulnerable to poor monetary policy decisions, but if it's in the bank it's vulnerable to monetary policy and credit risk (i.e. the bank might lend out too much of the deposits, make risky loans with them, or make long term loans with short-term deposits.). The required reserve ratio protects depositors against excessive lending. The FDIC is supposed to protect against credit risk. Is this not true?
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