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Russell Napier Declares November 16, 2014 The Day Money Dies
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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So let me guess. With all of the 'market crash' talk we're setting up to suck Santa's cock off with DOW 18k and roll into the new year right over the top of the average citizen crushing them under the weight of stupidity.
wary when others are exuberant
Sorry for dumb question but where do bank deposits currently rank in banks capital structure? Non-insured deposits are already been bailed-in in Cyprus.
Where they currently rank is not the issue.
Ranking only becomes an issue when the toilet bowl hits the fan.
SO this story can go along with this http://www.zerohedge.com/news/2014-07-23/gates-are-closing-sec-votes-thr...
and this http://www.zerohedge.com/news/2013-06-05/slamming-money-market-%E2%80%9C...
Deposits used to buy debt?
A redemption fee on every withdrawl?
Do I have to report all my bank/ATM withdrawls on Schedule D?
Think of the reporting nightmare for income tax filing.
Can i claim a capital loss every time I pay a bill?
CRAP!
My fear is that the next step could be gold confiscation. HTF do we prevent or dodge that ?
A cash warehouse would be easy pickings for a Balloonion attack.
Nobody sees this for what it is a lot ditch effort to push the last of the currency in the world into the markets where it can be much more easily vaporized.
Endeavor to persevere.... https://www.youtube.com/watch?v=rsL6mKxtOlQ
What happens to the dollar when the yuan is included in the SDR bucket?
Happens in September 2015, right?
Canada already bailed out of USD to swap directly with the yuan.
More currency swap agreements with China coming?
"I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. . . . corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed." ~ U.S. President Abraham Lincoln, November 21 1864
Perfect example of they "they" killed the guy. Same type of thing happened with JFK almost immediately after he had the Treasury issue "silver certificate" currency to compete with "federal reserve notes".
Sounds like a warning that either the Government and/or the Banks are just going to steal your money without notice. What's yours is thiers and what's theirs is theirs.
It did sound like a threat, didn't it?
There is no middle ground between QE infinity and gold.
All or nothing arguments smell of tyranny.
Well said.
How does bitcoin work when there is no electricity/internet/etc?
Can anyone explain this simple concept, bitchezz?
When there's no electricity or internet etc, your bitcoin will be about as useless as your credit cards or your bank deposits. And remember, the cash registers in the stores won't work. And the ATMs won't work. Keep some cash on hand. Also some water and food etc. Diversify.
Give ya a Zucchini, for an ounce of gold.
https://www.youtube.com/watch?v=qAbJlm7vdYY
everyone start growing your food forests
Zucchinis are subject to rot and decay. They are perishable.
On the other hand Gold does not rot and is tangible.
Futhermore you will not be the only person with Zucchinis in a Post Collapse World.
You will actually have to compete to sell your produce...or watch it rot.
IMO your business model is lacking.
Armies will be paid for...in Gold.
And I do not care how many small arms that you have. Generally you will be overrun by the hoards. They may even have superior weapons.
If I were you then I would have Gold, also, to purchase a defending force while feeding them.
Loners will not do well in a Post Collapse World. They will fall as the first casualties.
I am not wishing that evil will befall you. If I were then I would not even comment and just simply withhold the facts.
Well said.
On a preppers list guns should not be higher than 5th, or else preppers will become part of the problem; shooting those of us who have food, water, gold, bicycles ect..
Nothing a little welfare + warfare can't fix.
No bank run on Nov. 17th and absolutely no bank failures for a while.
All is fixed. We are in the recovery of their own imagination and nothing can stop their creativity.
These are the best times ever. If you're hungry, just imagine that you're not. Presto Bingo!
The time to start burying your dollar bills is the time to start digging up your guns.
You may want to bump up your handle a bit. 300 win mag is a better choice against these bankers. Besides you can use it far enoungh away where the "Splatter Don't Matter". Just sayin......
Please send the corpses to me and I'll dispose of them properly.
The bar-b-que will do
Cannibalism?
Now that is fucking disgusting.
Out in Las Vegas there is a Pig Farm.
That is what the Crime Bosses do. They feed the bodies to the hogs.
Although Napier doesn't mention it, this is insanely bullish for gold if one thinks it through. The government could always devalue bank notes - not only by traditional inflationary measures, but also by decree. For instance, some of the more insane Keynesian and monetarist bien pensants recommended in 2008/9 that government's should arbitrarily make banknotes with certain numbers worthless, so as to "spur spending". Well, there's no government decree that can possibly make gold worthless. It might be subject to confiscation, but it cannot be subject to a decreed loss of value.
Awh its only fake money anyhow.
How can this be? RUSSELL NAPIER HAS BEEN DEAD FOR OVER THIRTY YEARS! I ought to know, I attended his funeral.
Too bad I can't bet against this assertion. Of course Russell will get some notoriety for this and in the Internet world of today no one will give a shit if he is wrong and if by some extreme outlier this passes he is set for life even if he continues to make piss poor prediction after piss poor prediction. Kind of like the evangelicals who pick a date the world is going to end, it doesn't, and then they just backtrack and waffle on it.
You dont have to bet against it, you just have to be aware that it could happen; and if it does, make or don't make your bet.
Fiat isn't money. Only gold [and silver] are money. As such, money cannot die. Or to be more exact, the natural fission and fusion processes that occur in nature will not make gold or silver "die" (become something else) for quadrillions of years. These are quite stable atoms, gold and silver.
The quality of money reflects the quality of bank, government, society, people, ...
And money is like blood circulating through the body of the economy ...
We have this so called 'money' which is toxic and multiplying itself fast ...
Surely it's easier to just buy a short term treasury note if you have a deposit in excess of €100k? Less convenient to transact with of course but certainly easier than handling mountains of bank notes.
An honest question for us plebes. Although we have nowhere near a large deposit at a commercial bank, we indirectly do. Money Market accounts are chock full of CD's, our pension fund has money parked there, our school district, state local municipality. Do those deposits go poof!?
November 16? Hold your horses..."what Carney announced on Monday is a set of draft proposals. These are open to comment until February and won’t be implemented in full until 2019"
Nice, but irrespective of the way, the big thief will break through. the government will have the company cough up the names, and impound the cash and count it as a "tax credit" . the brown matter will hit the fan anyway, since just now it's more convenient to hold money at home than in the bank, and this in Italy with its (relatively) high yield govvies. the real unspeakable truth is, no government can bar anybody from keeping its wealth at home in banknotes, without setting fire to some second order effects of unspeakably damaging effects. "full faith and credit" means exactly that. So, if there is a run on the banks, ti will not come from the big players: they can always be bribed, and some are already. BUT it may come from the lay people, taxpayers in good standing, who simply go to their bank and withdraw most of their wealth. in cash. To name some examples of the underhanded dealings of the governments, here in italy there's a law banning the use of cash on transactions over 1.000 EUR, either one off or as the sum of a number of like payments. that would oblige my daughter to open a bank account, but she's a minor. no law says tough that i cannot act as my own custodian and keep the money at home, and deposit some of the money when I need to do a transaction.
This is all very timely to meet with the new Bank of England plastic notes - making the old ones worthless unless swapped within a period of time.
Those who say however that the value of cash in hand will be more than in the bank are wrong - when they devalue currency, it affects everything, including those printed notes.
http://www.bloomberg.com/news/print/2014-11-13/cash-under-mattress-may-be-better-than-g-20-bank-opening-line.html
With the G-20 summit coming up this weekend in Brisbane, Australia, it might be worth wondering when or whether you can have too much money in the bank.
Citing information from uber-analyst Russell Napier, the blog Zero Hedge writes that Napier is declaring Nov. 16 as “the day money dies.” (That’s their headline, anyway.)
According to Zero Hedge, Napier says the G-20 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,” and as such, following a bank failure, “a bank deposit is no longer money in the way a banknote is.”
If this is the case, depositors with more on account than would be covered by deposit insurance would find themselves in line with everyone else trying to recoup what they can from an insolvent institution.
“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,” Zero Hedge writes.
The solution? Basically, stuff your money in a mattress. Or in this scenario, a warehouse. The blog helpfully measures the size of 500-euro note, measures the size of a standard shipping pallet, locates a typical storage warehouse in Northern Ireland and measures it, too. After crunching the measurements and comparing the cost of the deposit rate in Europe to the cost of renting the warehouse, well, you get the idea.
I'TS A HUGE SHIT SANDWICH, AND WE'RE ALL GOING TO HAVE TO TAKE A BITE..........JOKER