The Fed’s Own Fear Scale Soars: Holdings of Cold Hard Cash

Wolf Richter's picture

Wolf Richter

In 1969, notes greater than $100, including the cool $10,000 note  that would still pay for a lot of things, were retired due to “declining demand.” Prematurely, it turns out. Because demand for cold hard cash, despite plummeting use of it for transactions, has surged. Reason: fear.

Modern payment technologies have been taking over transactions. Since 2000, transaction volume via debit cards skyrocketed 18.4% per year, electronic bank transfers 13.5% per year, and credit cards 3.7% per year, reported San Francisco Fed President and CEO John Williams in “Cash Is Dead! Long Live Cash!” Conversely, use of checks dropped by 5.8% per year.

Cash does have advantages: it’s reliable even during blackouts or after earthquakes when nothing works anymore; and it’s anonymous so that companies can’t track you when you by pita bread and hummus, information that years later might lead a promotion-hungry genius at some counter-terrorism office to send drones after you. Because cash is murky, the San Francisco Fed could only estimate transaction volume. And it’s down sharply.

The other reason to hang on to cash is as a store of value, albeit a lousy one as interest income is zero.... Oops, same as most bank accounts! As the Cyprus bail-in debacle has demonstrated, handing your cash over to a bank is nothing but a loan, and when the bank craters, the uninsured deposit, and perhaps even the insured deposit, might evaporate or get a crew cut.

So, in these crazy times of ours, when central banks around the world impose zero-interest-rate policies that force people to lend their money interest-free to banks that are shaky, suddenly cold hard cash that you can move out of harm’s way can be a good option.

And people have figured it out. Since 2007, when the financial crisis started, through 2012, the value of US dollars in circulation jumped 42% to $1.1 trillion, or $3,500 per person in the US. The annual growth rate over those five years of 7.25% is over three times the growth rate of the US economy. Most of it in $100 bills. Over the six months after the Lehman moment in September 2008, $100 bills in circulation jumped by $58 billion, or 10%.

So in 2009, when the Fed tried to bamboozle people into thinking that it solved the financial crisis, or when the Obama administration tried to point at some lonely green shoots, and later when they began hyping the decline in the unemployment rate, and when the Fed bandied about stress-test results to trick people into believing that the TBTF banks were in excellent shape, that their inscrutable balance sheets were sound, and that depositors’ money would be safe and secure... with all these wondrous accomplishments, why did people not return these stacks of $100 bills to the banks?

Cash in circulation does decline, periodically. A small dip occurs after the holiday shopping season at the end of the year. And a much larger dip should have occurred when the Fed and the White House gave the all-clear signal. Instead, the curve of cash holdings steepened. Not exactly a vote of confidence.

There was another culprit. In the spring of 2010, as the Eurozone debt crisis got uglier, holdings of dollars rose sharply. “Economic and political turmoil and uncertainty about the future sent Europeans scrambling to convert some of their euros to dollars,” Williams explains. During that time, the share of dollars held overseas rose from an estimated 56% before the debt-crisis fiasco to nearly 66% by the end of 2012.

Last fall, Eurocrats and Eurozone politicians declared with fake conviction in their voices that they’d vanquished the debt crisis with their bold and wise actions, that all was hunky-dory. People didn’t get it; the curve of cash holdings steepened yet again—because, as Williams writes, “cash holdings tend to rise during periods of political and economic turbulence.”

Terms that defined the Eurozone last fall despite the incessant soothing voices wafting down from the top. Terms that found their meaning in March when the tiny island of Cyprus turned into financial mayhem. And holdings of cold hard cash will surely have spiked again.

Zero-interest-rate-policies expose savers to the risks of lending money to the banks with zero return on their investment, and only an iffy guarantee of their investment. In this arrangement, savers pay for inflation, banks benefit from it. An insidious situation. So in trouble spots around the world, people, motivated by fear and lacking incentives to do otherwise, hoard US dollars as a relatively safe asset, as silly as that might seem, given the Fed’s effort to debase them. Until that curve of dollar holdings inverts, nothing is solved. Meanwhile, those old $10,000 notes would come in handy.

Since 2008, 2.2 million jobs have been lost in the US among the 25-54 year olds, even as their numbers grew by over 3 million. Young people who thought they’d scrimp by until they “moved up” now expect to never have a decent life and are trying to adapt to their new reality. Since 2008, America seems to have failed many Americans. Read....  Broke-Ass America

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aleph0's picture



Cash under the mattress is still cash and not money.

Just wondering ... would they ban cash, once everyone has taken their "cash" out of the banks ?

Gold is money --- JPMorgan 100+ years ago

aleph0's picture


10th. April 2013


Athanasios Vamvakidis, Analyst from Bank of America, has recommended the ECB to take the 500-Euro-Note out of circulation  :

... says the notes are mostly used by criminals.

mannfm11's picture

Note what this article says.  The cash outstanding in 2008 was roughly equal to the entire Federal Reserve money stock, thus the TBTF banks had NO Reserves.  Half the money wasn't even in the country, but in hoards in other countries.  Banks were basically exchanging their own credit.  They had no money.  This is the great secret behind what Bennie is doing now.  Nonsense about the unemployment rate.  Keep banks in cash so they don't have their credit questioned. 

lu86cky's picture

speaking of tracking your transactions, digital advertising has come to your bank statement.  they are now targeting you by your purchase history: 


i spoke to someone from this compnay today trying to understand how using my purchase history isn't a breach of my personal information.  the response was completely circular as you might expect - i.e. we can only target your transactions, not you, so it isn't targeting you, just your transaction history.  


what a relief! and now you can rest easy knowing the banks can send you ads telling you to buy what you can with the currency you have before the government decides to change it.  



are we there yet's picture

Remember the Susan B Anthony dollar coin. Nobody but banks would accept it. They have disappeared from circulation as far as I can tell.

GeneralMunger's picture

The best thing to do is to convert cash into silver or gold.  One way is to buy coins in all denominations, especially smaller pre-1964 coins like dimes and quarters.  I like a nice roll of cash but one must realize that toilet paper will be more valuable as inflation increases and the U.S. dollar eventually gets dumped.

Ned Zeppelin's picture

Why not go to cash and store in safe deposit box - is that not the deal you thought you were getting in the first place?

altgeek's picture

I have a feeling that those boxes will be getting opened for the "crew cut" to come. Perhaps even a buzz cut. Or even shave your account bald. Gold and trinkets? Melted down.

Peter Pan's picture

500 euro notes no longer the in thing for drug and other dealers hence the resurgence of the $100 US bill.

BullyBearish's picture

The Bernank only cares about getting the 99.9% to borrow and spend.  Preservation and deleveraging are his enemies.  While the responsible middle class has hunkered down and is in the process of deleveraging (foregoing many pleasures for the sake of frugality), our government has taken future middle class wealth/services and paid them forward to the poor who spend immediately, and to the wealthy through the inflated stock market who know it won't last and what is coming next so they have kept nearly all of it from falling off their plates.  It's been "Trickle Up" for 5 years. 

logicalman's picture

At the end of the Vietnam war, the destitute in Laos were cooking leaves over banknotes, as said note's only value was their calorific value when burned.

So even then, cash was (slightly) better than digits are on a bank's server.


monad's picture

FRNs are flame retardant. Maybe you can use them for insulation.

kchrisc's picture

I'm nominating my face for the first million-dollar note. I like the idea of people admiring me when they are paying for bread. Is that wrong?!             hujel

AGuy's picture

...Or wiping their butt!


Sun and Moon's picture
The Fed’s Own Fear Scale Soars: Holdings of Cold Hard Cash

The phrase "cold hard cash" originally meant gold and silver coins. Paper money should be called "thin flexible cash". And money in a bank account should be called "stolen cash".

monad's picture

Lead bitchez


Bicycle Repairman's picture

No exiting. Strap yourselves in bitchez. We're all going for a ride together.  You?  You'll be riding in steerage.

Wipewithpaper's picture

Cash on hand, then you better be able to document where it came from, or the DEA will take it as drug money.

Bicycle Repairman's picture

In the spirit of "blocking all the exits" I propose the issuance of a new totally electronic currency.  Current electronic balances get a one for one swap. 

Current physical $?

Two old for one new.  Handling charge.

Got 'too much' old currency?  The ATF takes your entire stash and then you get to argue why you should get any of it back, since it's obvious that you are a crook.

Antifaschistische's picture

When electronic FIAT becomes subjected to random confiscation (Cypress) what we really do is motivate all savers to hold physical FIAT.    This is a very interesting side effect of the war on the 99%.

We took our money to banks, originally, because they had a "SAFE"....that was, "SAFE".   That was the purpose of going to a bank and asking them to hold our fiat, or our coinage, either one.

When the notion of "SAFE" is compromised the entire supporting behavioral system begins to evolve into something different.  

This will be very interesting to watch.

altgeek's picture

I wonder what the deposits-on-hand are in PIIGS countries... Life will be good for cat burglars, except that everyone there is sitting at home without a job!

ebworthen's picture

Yes, definitely working on my "mad money" stash (no Cramer, not in stocks, on my person).

purplefrog's picture

Imagine that!  Cash is in backwardation.

Keynesian Mess's picture

"The other reason to hang on to cash is as a store of value, albeit a lousy one as interest income is zero.... Oops, same as most bank accounts!"

Some unfortunate folks actually can't hold cash and have to pay the Swiss banks .4% per year to hold their deposits.  I'm lucky, $100 bills (and a few bitcoins for fun) work for me.

Fix-ItSilly's picture

N. Korea prints an impressive USD$100 Bill. 

Bagbalm's picture

Pulls BILL out of wallet - folds it a few times and checks it against his cheek. As I remember it is neither cold nor hard. One denominated in ten thousand units is intrensically worth what one marked as a single unit it worth.

Gets a one ounce coin out. Bites it. Perhaps not as hard as many other things, but hard enough. Lays it against my cheek. My, it sucks the heat away from flesh with a refreshing coolness.

Decides either the description of what constitutes money has changed, or some people have let their language get dated.

Rene-Paul's picture

My concern is a currency change. I have written about this before, It did happen when I was in Vietnam with MPC.

Be carefull..

orez65's picture

It's happened in Argentina many times.

Arthur's picture


Just try spending an old Dracmma now or even a Guilder

JimS's picture

Rene-Paul: I was in-country the day that event happened, as well. It was surreal, almost out of a Picasso painting. Vietnamese Nationals screaming in anguish, throwing bundles of MPC over the barbed wire fence, and us, throwing it back. They wanted us to redeem it in the "new" MPC. We couldn't do anything, as their whole life savings were vaporized.

otto skorzeny's picture

start your bank run early-bitchez-because he who panics first panics best. the saying that the worst you can imagine about your govt pales in comparison to reality is never more apt than when it comes to their theft of your money.

de3de8's picture

As I have said before, my orderly withdrawals are progressing as I hate crowds. Need to support argument that gambled away when asked where it is.

covert's picture

debasing a currency is like debasing a hooker.

Oldballplayer's picture

But you can ruin a hooker in a night.

Umh's picture

Exercise makes muscle stronger.

DoChenRollingBearing's picture

Next FRNs due out: President Obama $500s

Fed Chairman Bernanke: $1000s 

We could only wish for THIS acknowledgement of the reality of inflation...

otto skorzeny's picture

the NWO "one currency to rule them all" will be completely digital, trackable and taxable.

stiler's picture

you're both right; one world govt's currency will be all those at first, then will go to a chip, like the star of David jews had to wear as ID, except in reverse; you can buy and sell with it, all else will not be able to legally eat. You'd have to have a pretty strong conviction not to take it. 

andrewp111's picture

The NWO currency is called "the mark of the beast". It was prophesized 2000 years ago.

DavidC's picture

That might be the currency but money will be something else like it was in post war Berlin. Cigarettes, alcohol, sex etc.


JimS's picture

Absolutely, currency and money are two totally different creatures.

Mototard at Large's picture

Can Chairman Bernanke be on the $1000?  I thought he was already on the trillion dollar coin?

Downtoolong's picture

Since they didn't tell anyone they actually minted it, it doesn't count.

madcows's picture

Let's see, I can leave it in the bank, and collect 0.1% interest, or I can bury it in the back yard and get 0% interest?  Hmmm.  It all comes down to risk.  I think it is much safer in my backyard than in the bank.

Of course, I could buy guns and bullets if they were available.  Or, I could by PM's if they weren't so expensive.  Inflation already stole my investable income.

Make no mistake.  What is happening in Europe is going to happen here.  Our deposits are going to be confiscated in some manner.  I have zero trust in the government.  So, I'll keep my money to myself.  FU Ben and Congress.  You are the greatest threat to this nation.  You should be hung for treason.

StychoKiller's picture

A roll ($5) of pre-1965 dimes will only set you back around $150 or so.