Archive for February, 2008

Date: February 10th, 2008, Filed under hoarding, cash

Kenosha, WI
By A.B. Dada
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A few weeks ago, I went to a very large nationally-chartered bank to withdraw some cash. For years I’ve withdrawn a significant amount of cash from this very bank, the very branch. Withdrawals as much as $8000 were rarely a problem, usually a simple nod from a manager and the cash was counted out to me. About 2 years ago, anything over $6000 caused a delay, so I lowered my withdrawal to no more than $6000 in a one week period. Early last year, anything over $4000 caused the delay, so I lowered my withdrawal limit to $4000 so I didn’t have to wait.

Two weeks ago, I waited over 45 minutes for an approval on $2500 of my own money, fully available and on deposit with said bank. 45 minutes for the branch manager to look up my account, very all recent deposits, and then finally approve the teller to redeem the money. At a nationally-chartered bank with hundreds of locations in the Midwest alone. I couldn’t believe it.

I’ve been slowly switching my anti-inflation precious-metals hedge to an anti-deflation/anti-stagflation hoarding-hedge. I still trust gold and silver to retain value in an “exciting” economy, but I have no faith that legal tender will be as easy to acquire as it should be. About 3 months ago, I started noticing difficulty with on local coin shop in exchanging precious metals for paper money, only because the local coin shop didn’t have the on-hand cash for the exchange. They paid in checks, which is fine for me but put me in the “wait at the bank” situation if it was a large amount. The cash seems to be disappearing.

Around the same time that cash became rare at the banks, I started to notice very interesting happenings in the anti-cash economy. First, I saw that Chase offered a United Mileage Plus Rewards DEBIT CARD. This means that Chase takes their minimal transaction profit on the use of the card (somewhere under 1.5% usually) and pays some of it back to the user. Chase wants you to use their electronic currency, rather than actual paper money. I noticed some banks were offering MUCH better deals to direct deposit customers as well — keeping more money electronic. My corporate bank practically begged me for the past few months to switch employees to direct deposit rather than writing them checks (which I think they just cashed at the same bank), to the point of offering lines of credit and better fees if I did.

Cash quantities are getting thin, at the same time that credit card balances (not mine) are moving up. I’m very aware of some friends with credit limits pushing 6 figures who are getting credit limit decreases without any adverse action on their part — they’re not missing payments, they’re not paying the minimums, they’re not running huge balances, but they’re seeing $50,000 credit limits dropped to $30,000. Many old media outlets are reporting that Bank of America is ratejacking perfect-credit credit cards from 14% to 28% with no rhyme or reason. So available cash is dropping while available credit is running out. That’s scary.

I hate cash — it is too easy for the banks to create electronic money out of thin air. The money multiplier effect shows that when a bank takes in a deposit, it can loan it back out electronically in many multiples (eventually) of the initial cash deposit. I deposit my $4000 in cash, and the bank (along with other banks) end up creating something like $30,000 of electronic balances out of it. This causes price increases, but it doesn’t create new money. The banks are hoping that everyone pays off the $30,000 or so in new loans, so the banks just keep the profits and make their electronic new money disappear. Yet it didn’t happen.

It wasn’t just the Federal Reserve who created the housing madness, it was also the fractional reserve banks’ “fraudulent” money multiplication effect between one another in creating massive electronic debt balances. Now people are refusing to pay their debts, or just can’t, and the banks are running scared. If I was the sole depositor of $4000 in cash that became $30,000 in credit to others, and just 15% of the others default ($4,500), the bank has to pay the defaults out of their reserves ($4000). Now the bank has truly lost $500 of real capital, and still has outstanding balances to be paid back ($24,500) over time. Their reserves are gone, and the risk that current loans might default are still high. It’s a bad situation.

I like hoarding now. In fact, I love it. Taking money that I would otherwise spend and putting it in a very safe place (not my home, not a bank’s vaults, and not a bank’s safe deposit boxes) means I have access to that cash. Some people think hoarding is a bad idea, because the chance for monetary inflation causing price increases is high — but the hoarded money actually adds incredible value to my risk portfolio. Consider this:

1. If I get paid (electronically, let’s say) and keep the money electric, the bank can use the new deposit as a reserve towards more loans (to create more fake money). That’s bad.
2. If I get paid (electronically) and withdraw the money in check or electronic form to another bank, THAT bank can now make more loans and more funny money. That’s bad.
3. If I get paid and withdraw the money in cash form and spend it, the person getting it will deposit it in their bank and their bank will make more funny money. That’s bad.
4. If I get paid and withdraw the money and buy gold, the gold dealer will deposit it into their bank and their bank will make more funny money. That’s bad.
5. If I get paid and shove the money in a steal box and bury it, the banks don’t get my money — they can’t make more funny money. That’s good for me.

The amount of electronic balances exceeds the amount of real, printed money by many, many times over. We don’t know the actual figures of total credit versus actual cash, but I know the numbers vary by a huge multiplier effect. This means that just a small portion of the population hoarding money can cause a huge fall in prices (and flatline the economy). Yet the people actively hoarding their money will be the winners in this situation: prices will fall, the dollar will increase in value, and the decrepit banking cartels will learn a valuable lesson: they are not all-powerful.

So I say hoard. Hoard some dollars by withdrawing them and stuffing them somewhere safe. Withdraw some dollars and buy some Euros and hoard those, too. Get some Yen and maybe some Dirhams, and even some Pesos or Swiss Francs. Cash will be king again, even if it has some chance to fall before it gains. Continue to buy gold and silver as your safe bets, but hold tight to the knowledge that your cash could very well be the most powerful form of bartering only because debt will be crazy high for others, and they’ll be desperate for something of value (cash will mean more than credit).

I still feel we’re on the verge of a hyperinflationary economy if the Fed really goes crazy, but when it is hard to actually find cash in use, it means there could be something of value there. I say take advantage of scarcity.

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