Russell Napier Declares November 16, 2014 The Day Money Dies

Tyler Durden's picture

From Russell Napier of ERIC

It is with regret and sadness we announce the death of money on November 16th 2014 in Brisbane, Australia

‘A mark, a yen, a buck, or a pound
A buck or a pound
A buck or a pound
Is all that makes the world go 'round;
That clinking, clanking sound
Can make the world go 'round.’

      “Money” from Cabaret by Kander & Ebb

In the musical Cabaret, Sally Bowles and the Emcee sing about money from the perspective of those witnessing its collapse in value in real terms in the great German hyperinflation of 1923.

Less than a decade later, and a continent away, a young lawyer from Youngstown, Ohio noted on July 25th 1932 how money’s value could also fall in nominal terms:

"A considerable traffic has grown up in Youngstown in purchase and sale at a discount of Pass-Books on the Dollar Bank, City Trust and Home Savings Banks. Prices vary from 60% to 70% cash. All of these banks are now open but are not paying out funds."

      The Great Depression - A Diary: Benjamin Roth (first published 2009)

In Youngstown the bank deposit, an asset previously referred to as "money", had fallen by up to 40% relative to the value of cash. The G20 announcement in Brisbane on November 16th will formalize a "bail in" for large-scale depositors raising the spectre that their deposits are, as many were in 1932, worth less than banknotes. It will be very clear that the value of bank deposits can fall in nominal terms.

On Sunday in Brisbane the G20 will announce that bank deposits are just part of commercial banks’ capital structure, and also that they are far from the most senior portion of that structure. With deposits then subjected to a decline in nominal value following a bank failure, it is self-evident that a bank deposit is no longer money in the way a banknote is. If a banknote cannot be subjected to a decline in nominal value, we need to ask whether banknotes can act as a superior store of value than bank deposits? If that is the case, will some investors prefer banknotes to bank deposits as a form of savings? Such a change in preference is known as a "bank run."

Each country will introduce its own legislation to effect the ‘ bail-in’ agreed by the G20 this coming weekend. The consultation document from the UK’s Treasury lists the following bank creditors who will rank ABOVE depositors in a ‘failing’ financial institution:

  • Liabilities representing protected deposits (in the UK the government guarantee protects 100% of deposits up to the value of GBP85,000)
  • any liability, so far as it is secured
  • Liabilities that the bank has by virtue of holding client assets
  • Liabilities arising with an original maturity of less than 7 days owed by the banks to a credit institution or investment firm
  • Liabilities arising from participation in designated settlement systems
  • Liabilities owed to central counterparties recognized by the European Securities and Markets Authorities… on OTC derivatives, central counterparties and trade depositaries
  • Liabilities owed to an employee or former employee in relation to salary or other remuneration, except variable remuneration
  • Liabilities owed to an employee or former employee in relation to rights under a pension scheme, except rights to discretionary benefits
  • Liabilities owed to creditors arising from the provision to the bank of goods or service (other than financial services) that are critical to the daily functioning of its operations

The above list makes it clear that deposits larger than GBP85,000 will rank ahead of the bond holders of banks, but they will rank above little else. Importantly, both borrowings of the banks of less than 7 days maturity from other financial institutions and sums owed by banks in their role as counterparties to OTC derivatives will rank above large deposits.

Large deposits at banks are no longer money, as this legislation will formally push them down through the capital structure to a position of material capital risk in any "failing" institution. In our last financial crisis, deposits were de facto guaranteed by the state, but from November 16th holders of large-scale deposits will be, both de facto and de jure, just another creditor squabbling over their share of the assets of a failed bank.

Interestingly, HM Treasury uses the word ‘failing’ rather than "failed" in its consultation document and investors could find their large deposits frozen for a prolonged period in any "failing" institution while the courts unpick the capital structure and decide exactly where any losses should fall.

If we have another Lehman Brothers collapse, large-scale depositors could find themselves in the courts for years before final adjudication on the scale of their losses could be established. During this period would this illiquid asset, formerly called a deposit and now subject to an unknown capital loss, be considered money? Clearly it would not, as its illiquidity and likely decline in nominal value would make it unacceptable as a medium of exchange.

From November 16th 2014 the large-scale deposit at a commercial bank is, at best, a lesser form of money, and to many it will cease to be money at all as its nominal value can fall and it could cease to be accepted as a medium of exchange.

Fortunately, the developed world’s commercial banks are flush with central bank reserves and these are instantly convertible into the banknotes which they may need to meet demand from depositors. While the huge level of reserves on the balance sheet is a buffer, the funding of fractional reserve banks is still very negatively impacted by a shift from deposits to bank notes. With deflationary forces gathering momentum, this further impediment to the extension of commercial bank credit would be another factor preventing central bank monetary largesse translating into growth and inflation.

As the world’s smartest lawyer Charlie Munger is fond of saying, "Show me the incentive and I will show you the outcome." Some simple mathematics reveals that the November 16th announcement will create a very major incentive for investors to change deposits into banknotes.

Consider that the standard pallet measures 1 metre by 1.2 metres and will take 84 piles of Euro 500 banknotes. The UK’s Health and Safety Executive recommends that the height of a pallet should not exceed the widest side of its base. A 1.2 metre high pile of banknotes contains 11,000 notes and thus each pallet can safely hold 84 piles of 11,000 banknotes. A pallet of safely stacked 924,000 Euro 500 banknotes is therefore worth Euro462m.

There is a small warehouse for rent near Newry, at the foot of the Mourne Mountains in Northern Ireland. Given its dimensions (16.5m x 9.0m x 5.6m) one could stack 468 pallets of 500 Euro notes representing Euro 216bn. At the current bank deposit rate of minus 50bp per annum, the cost of carry to have Euro 216bn on deposit with a commercial bank would be Euro 1,081m. The annual cost of the warehousing space is around Euro 7,000!

Now clearly this warehouse will need significant private security, but in Northern Ireland there is an over supply of such security due to a structural change in market conditions, and prices are reasonable. Anyway, just how much security could you afford if you charged clients 20bp to hold their Euro 216bn, and generated an annual fee of Euro432 million, with an annual saving to your clients of about Euro 648 million?

This represents both a yield improvement and a significant improvement in capital risk compared to bank deposits, as bank notes cannot be "bailed in." There is therefore an annual profit of around Euro432 million for the manager with a warehouse and friends in low places. Anyone for the "Mourne Or Newry Enhanced Yield Banknote Actively Guarded Security", or MONEY BAGS for short?

As ever, there is a first-mover advantage. There are only about 600 million 500 Euro notes available, though sizeable arbitrage profits still exist on warehouses full of 200 Euro notes. As the function of such warehouses is focused on the role of money as a store of value, a role no longer fulfilled by the large-scale deposit, one should expect a premium to develop, and potentially a secondary market in note-filled, well-protected warehouses. For warehouses full of German Euro notes --- those are the ones with a serial number beginning in X --- a particularly high premium may arise due to risks of a future Euro break-up.

Irish legend tells of an X at the end of the rainbow marking the position of a pot of gold. In our post- Brisbane world, investors may be content to find just a bundle of paper marked with an X.

Oh, Mary, this London's a wonderful sight
With people here working by day and by night.
They don't sow potatoes nor barley nor wheat,
But there's gangs of them diggin' for gold in the street


At least when I asked them, that's what I was told,
So I just took a hand at this diggin' for gold,
But for all that I've found there, I might as well be
In the place where the dark Mourne sweeps down to
the sea.’

      Percy French 1854-1920

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stant's picture

Martin Armstrong has it in oct 2015

booboo's picture

Nickels butchez or is it knuckles bitches, now I'm confused.

achmachat's picture

money won't die! it can't die!
Currency is dying!


hedgeless_horseman's picture



Some simple mathematics reveals that the November 16th announcement will create a very major incentive for investors to change deposits into banknotes gold, bitchezzz!!!

NoDebt's picture

So far the sheep have shown an amazing level of passivity to these kinds of provocations.  You would think Cyprus would have started bank runs all over southern Europe, but no.  Everyone perfectly happy to remain seated on the railroad tracks.

I say nothing happens.  No bank runs, no preference for "bank notes" over "bank deposits."  The sun will rise in the East, the day will pass without a single memorable event and everyone will go to bed utterly unaware of anything having changed at all.  Then it will happen the next day, and the next, and the next and the next. 

zerozulu's picture

this is not a news. We all knew that.

Publicus's picture

Bitcoin is the rebirth of money.

Badabing's picture

Sunday the 16th your money will be safe as long as you watch football

OW My Balls's picture

as long as you're not taking the Oakland Raiders & the points.

N2OJoe's picture

So the thought process is:

The bank cannot be trusted so I'll shift my bank promise from a deposit to a note, but still keep my stored life hours and labor wholly inside the banking system?

Makes perfect sense. Sheep exist to be sheared and the FED is the self-appointed shepherd.

MiguelitoRaton's picture

So "excess deposits" rank behind OTC derivatives...I can't imagine THAT being a problem </sarc>

Keyser's picture

No such thing as depostis any longer... And it's gone...

Lore's picture

Is that the most-plugged blog on ZH?

HardlyZero's picture

Since 2008 all attempts at European Federation or Confederation, and Lisbon Treaty, have failed, and ECB can not legally pay for bank insurance or government bailouts.

Draghi and EU leaders have not been able to wrangle a legal framework from tissue and cloth, the law did not 'fall' on their side, and probably nerver would.

This will be the first legal backward step, and re-definition/re-certification of a non-Federated EU.  Now each will be alone.

This will define the law so that no future ECB or EU or political votes for bail-out or bail-in (e.g. Cyprus) will occur going forward.

Each EU country and bank are on their own, as it was originally agreed when the EU was first formed.  Not strength in numbers, but survival of the fittest.

No Federation.


Each will fall individually without any EU savior going forward.

Next will be significant reductions in depositor insurance in EU and possibly all G20 countries, and US.

Keyser's picture

Ran across this article this morning.... 

All ATM machines for all banks in Thailand will be offline on 11/14/2014... Things that make you go hmm...


Bag Of Meat's picture

Actually bank notes can be bailed in, and it's much simpler: just press print.

SilverIsKing's picture

When do I have to stop using the line, "it's like money in the bank?"

mkkby's picture

None of this is news.  The only difference between now and the 1930s is deposit insurance.  Large depositors know this.  That is why they use short term gov bonds.  Yes, still paper, but at least a single bank isn't your counterparty.

Is anybody stupid enough to think they have your money in a safe somewhere?

Anusocracy's picture

The typical man on the sofa is seldom aware of the dangers that he is not wired to be aware of.

zerozulu's picture

Typical man on the sofa is at the internet watching this

BigJim's picture

Man that is large. That's got to be over the UK's 85k limit, fo sho.

metaforge's picture

The typical man also doesn't have much more than $0 in savings, let alone $100k.

silverer's picture

Sad, isn't it. Did you see the article here where millenials have a -2% savings rate? WTF!

Lore's picture

Latest mouse trap to be promoted by the enablers:

RBC Tests Nymi Wristband, In Hopes You'll Tap Your Wrist To Pay (HuffPo, 9-Nov) TORONTO - You've heard of paying retailers with the tap of a smartphone, but Royal Bank thinks shoppers are ready to take another big step: wearing payment options on their wrist. The bank has paired with Toronto-based technology developer Bionym to test a wristband called Nymi (pronounced Nim-ee), which identifies owners through their unique heartbeats when charging purchases to their credit or debit cards."

Check the photographs, and you'll notice that they give this fucking thing a gold-colored finish, like your 'golden' credit card.  Bankers have a very glib sense of humor.  They might at least offer a solid 14K bracelet. 

eishund's picture

Dog collars. woof woof.

Lore's picture

The name is another inside joke.

1. Phonetically:  /’e-n?-m?/  = ENEMY

2. NM = GNOME (as in Swiss Gnome)

3. And KNOW ME (tracking, monitoring and profiling the cardholder)

There's more...

yogibear's picture

Bitcoin is the same Ponzi garbage, except worse because the banksters will atack it.

silverer's picture

My thoughts exactly. It's like filling your car with cash and thinking you're safe driving around Detroit every night. The concept of Bitcoin is right on, but there are too many chinks in the armor. To paraphrase Ann Barnhardt: If you can't take it, and put it in a pile on the ground, and stand on top of it and defend it with an AK, then you don't really have control over it, do you? The more I thought about that, the more I realized precious metals are the only reliable wealth holder. (Aside from truckloads of toilet paper).

TheReplacement's picture


Dats ray's cyst.

Edit:  Rectum? 

Edit:  Damn near killed 'em.

mygameon's picture

Silverer, I love Ann B. My wife dressed like her for Halloween. Button shirt, tie, big front back combed hair, neon pink toy assault rifle. Only ONE person recognized the outfit and he quoted your quote. We were struck by how many sheep there truly are in the world while we nursed our hang overs the next morning.

Tall Tom's picture

I love Ann B. also. I pray that God Almighty gives her protection and guidance...even if she is a Roman Catholic.


She is a woman of great honor. She is very real.


BTW...I heard a Radio Ad for something to day. I usually do not pay attention to ads which I do not like and pay attention to the commercial advertisements of other words...the music..."Buy my album"


In this ad, for what I do not know, this boy was talking about "Happy Money"


Then his father interjected, and I quote, "Money is not happy. It is something which is got by the sweat of one's brow, by hard work, or by the OCCASIONAL PONZI SCHEME..."


The ad was aired on a Tijuana, Baja California Norte, Mexico Radio Station, 91-X, which plays "Alternative Music" for a San Diego County, California audience.


I did not even identify who the ad was played for as I was too busy laughing my ass off in shock.


But I think that it is rather apparent at this point. That ad was a glimmer of hope.

IndyPat's picture

Chinks in the armor.

Is that just another way of saying Chinese hackers?

Escrava Isaura's picture



I met a very influential, and wealth business man in Baltimore.


He told me; “It’s over”.



OW My Balls's picture

He probably came to that decision after reading your posts on ZH

conscious being's picture

Really no offense, but that was funny on more than one channel.

Escrava Isaura's picture



This family has thousands of people working for them in America.


He (the family) has business, and investments in Europe and South America as well. Not sure about Asia and Africa.


Anyway, it was a very brief meeting. I want for him to consider something in South America, a crisis/business hedge while attracting additional ‘Asia’ investors; as well as Americans.


Think Like A Crook's picture

So he said, "No thanks. It's over..."

Escrava Isaura's picture



The best way I can describe my point was to be hedged in different nations. Have some physical presence in South America.


He told that his brother is already there, in Brazil. I said I didn’t think Brazil—I am Brazilian by the way—was the best place.


He didn’t go into details but he said it’s over.


Keep in mind this gentleman is about 60 years old. He gets the pulse of things because he’s global, and he’s big. This family is big. I heard they were involved with TV stations, as well.


Anyway, he knows that’s over. And I think he said that to me, because he thought I would grasp it….


And I told him that, it’s almost over.



Think Like A Crook's picture

Ok, that's interesting. I think I understand your point. It's hard on here sometimes decoding stuff bc of contextual type stuff etc...

He may be right. I certainly feel that way. But i often wonder if that isnt more a reflection of our time spent on earth and our perception of what is to come. I'm only 43 but I feel I'm an aged 43. No telling my perception of things by the time I'm 60 (if I make it).

nuke ISIS now's picture

or does he get the pulse of things because he is a 60 yr old stoned on oxy?

"Say Winfred, may i have anothr pill please...

Cornfedbloodstool's picture

Did he say that after he came in your mouth.

Escrava Isaura's picture



No, because I was dealing with a gentleman.

I am afraid I can’t say the same about you.


Tall Tom's picture

Some here have not figured out that you are a lady.


They thought that they were insulting you and calling you gay. That is an emasculating insult to any real man. It is a verbal castration.


At times we can be classless dicks.


Of course, at times, you women can be bitches. (Not this time however. That was a class response.)


I will hope that forgiveness of ignorance is in your heart.


But you can be assured that I will call you out if you behave as a bitch.


I am certan of that as I expect that you will call me out for being a dick.

Tall Tom's picture

Cornfedbloodstool wrote...

Did he say that after he came in your mouth.



So you beat up on ladies?


(I have previously given FlakFRAU a beatdown as she was pretending to be a man and, as such, she deserved a man's beatdown.)


Are you a fucking fag? Your username suggests that you have been a Wide Receiver.


Go and suckle upon your own penis as I doubt any other fag will let you suckle upon their or, much more, will suckle upon yours.


Remember the rules of Fight Club.

slipperyPete50's picture

Wealth? Baltimore? Maryland? Huh?