Submitted by Charles Hugh-Smith of OfTwoMinds blog,
When the phantom wealth evaporates and risk assets go bidless, cash will once again be king, for the simple reason there will be so little of it.
Occasionally it's a good idea to step away from the daily grind to consider the larger issues we all face--for example, the future of the money we earn and the bits we invest in something we hope holds or increases its value.
At present, cash is trash: cash earns almost no yield, and in some countries it now earns a negative interest rate, meaning it costs you to park your cash in a bank.
Even cash equivalents such as one-year Treasury bonds pay almost nothing.
Those who avoided debt and risky assets since 2009 have seen their cash lose value when adjusted for inflation, while those who borrowed to the hilt and bought risk-on assets such as stocks, junk bonds and high-end housing have skimmed monumental gains for doing what the central banks incentivized: borrowing money and buying speculative risk-on assets.
Correspondent Kevin K. recently sent me a link to a home in the San Francisco Bay Area that was purchased around the crash era (2008-09) for $1.4 million, and sold last year for $2.1 million.
Assuming a conventional 20% down payment of $280,000, the savvy buyer borrowed $1.12 million at historically low rates and offloaded the house 6 years later for a cool $560,000 profit (assuming a 6% sales commission and closing costs).
That's a 200% return on the $280,000 cash down payment--a healthy reward for borrowing to the hilt for a mere 6 years.
Anyone who margined to the hilt in 2009 and rode the stock market higher with borrowed money easily earned returns in excess of 200%.
Yet how many people did so? Consider this chart of the wealth of U.S. households before and after the Global Financial Meltdown and Great Recession.
By the look of it, even the top 5%--individuals earning taxable incomes of $120,000 or more, according to the Social Security Administration, or households with total incomes around $350,000, according to the U.S. Census Bureau (Table F-3. Mean Income Received by Each Fifth and Top 5 Percent of Families, XLS file)--have yet to regain the value of assets owned in 2007, before the Global Financial Meltdown/Great Recession.
If the top 5% had borrowed/margined to the hilt and dumped all that dough into risk assets, their net wealth would have skyrocketed. Clearly, few did so.
This suggests those who did margin/borrow to the hilt were in the top 1% or .1%. 95% of 2009-2012 Income Gains Went to Wealthiest 1%: Average inflation-adjusted income per family climbed 6% between 2009 and 2012, the first years of the economic recovery. During that period, the top 1% saw their incomes climb 31.4% — or, 95% of the total gain — while the bottom 99% saw growth of 0.4%.
What would have to happen for cash to be transformed from trash to "cash is king"? The basic answer is: all the risk-on credit/asset bubbles that have richly rewarded those who have speculated with borrowed money will have to implode and be impervious to central bank attempts to re-inflate the bubbles.
What conditions would have to be present for credit/assets to implode and not recover?
We are in uncharted territory in terms of the global bubble in credit and risk-on assets, so the answer isn't immediately clear. Here are some possibilities:
1. Credit growth falters.
2. Borrowing dries up (despite abundant credit).
3. A global scramble for cash to pay debt and the costs of lavish lifestyles triggers the liquidation of risk-on assets.
4. The risk-on assets go bidless, i.e. nobody wants luxury yachts, super-cars, estates, etc. at any price because the value is plummeting.
5. As phantom wealth evaporates, everyone realizes the collateral propping up the mountains of debt is either impaired or non-existent.
When the phantom wealth evaporates and risk assets go bidless, cash will once again be king, for the simple reason there will be so little of it. When the opposite of the present dynamic is "impossible," then the "impossible" becomes not just likely but inevitable.
It sounds like they're going to ban it anyway in favor of microchips and crapple pay.
physical cash will be illegal, along with gold, in favor of digidollars. because they can't be controlled and manipulated by corrupt elites.
Their existence ensures liberty and free commerce, So they can't be tolerated.
....and we still have not got any good answer from ZH readers about their love/hate affair with the Fed and their paper rectangles. Seriously, you people are your own worst enemies.
Welcome new MDB, less than a month? You're a youngin'
fonestar was not troll account. Was pissed off account. You all whine and b*tch about how much you hate the Fed, then continue using their cotton rectangles, do nothing to advance or promote the use of silver in daily transactions, attack working alternatives like Bitcoin, actively promote the hoarding of cash and bonds. Again, your own worst enemy.
I seriously doubt bitcoin is a real alternative:
http://debtcrash.report/entry/bitcoin-an-e-dollar-beta-test
Hey RU GAY, yes U R.
name is about the gayness of the crap here
You're the main source of gayness by far... You're also one of the lamest trolls ever to polute this blog (even the anti-Putin potato boyz are more fun than you !)
If you like cash, you could take some type of ethical stance like only accepting US Treasury Notes and not the Fed notes. But we know you won't do that either....
The Fed does not own the FRN, they belong to the Treasury and the Fed must back each note it gets with specified assets of equal value to the notes received.
The reason the Fed's name is on them is because they are accountable for them and to distinguish them from the U.S. notes that were in circulation at the time.
If the Gov. ever disbanded the Fed, the Treasury would take control of the notes and all the assets used as backing.
At least there would finally be deflation. That alone would be worth what ever happens.
Rick Santelli then sums it all up perfectly... "deflation is clearly the boogeyman... and the only thing that will save the middle class."
It's all that's going to be offered going forward after a certain date. Trust me the alternatives aren't in anyone's best interests. You can however keep your paper and credit fiat and bonds if you want, just makes good kindling for a big fire. Save money on nails and window glass just getting it all done at once I think. I promise to bring the marshmallows.
Why should I use PM's in my daily transactions Now? I've been moving to physical assets for a long time and as long as they take magic money I'll be glad to trade it in and don't assume that PM's will be instantly the master exchange medium when things crash. I'm willing to bet that in a lot of places a pound of beans will have a much higher value for the first year or so.....
word. Thank you for replying to fonestar so I didn't have to.
Charles when you print 9 trillion plus dollars, of course cash is trash.
According to the article, individuals making over 120k a year are now the top 5%. I guess that's the new rich. Welfare mom getting 60K a year in gov benefits must be the new middle class.
Yeah, but how leveraged are they? That's where the real problem lies. When your up to your neck in debt, it doesn't take much to drown.....
Max2205 Illustrates the prevailing ZH reader misconception about cash. The $9T was not printed currency. It was no more that credit entry in a ledger. The point of the article stands that "cash" (printed currency) is very rare and due to these credit entries, actually more and more rare. It's all about cash flow and the ambition to end paper money is a very real desire by TPTB. The unscannables will not be able to transact in "Western Civiilization".
I have to agree with Fonestar's new account RU Gay above who challenges the readers here to take a principled stance on Bradbury pounds or Greebacks (debt free currency issued by the Congress, as is their exclusive power under the Constitution.)
I've heard no love. This is the best explanation of the mess we're in:
http://debtcrash.report/entry/history-and-introduction
*because they can't be monitored and manipulated by corrupt elites
Fixed it for yah
They can stop printing cash or force the halt of gold mining whenever they want.
The sheeple will accept anything. Real men (and women) will revert to gold and silver and wait out the inevitable collapse of society. Those that don't learned the lessons of history are doomed to repeat them.
"physical cash will be illegal, along with gold, in favor of digidollars. because they can't be controlled and manipulated by corrupt elites."
I agree except for the last part, and gold won't be illegal it'll just be taxed at 90%. The welfare states are going bankrupt, the only reason they are going full electronic is gov can't tax the plebs if it can't monitor all their transactions. See Greece as the future of the entire west.
Fortunately, I will not be selling gold, per se. Rather, I'll be selling avant-garde art: my interpretation of what the fukushima cores look like (i.e. molten metal cooled into puddles).
Because the 0.1% collect art, I'm expecting favorable tax treatment.
rappers wid cash gonna rule da world
Cash is nothing of itself. You need it for beer and chips. If you don't need anything that cash buys, then it is worthless.
The fed fucks simply play with it so you think you need moar to be happy. They will keep destroying wealth so that when you need something important like a house or car, that you have to borrow from them so they can make their vig and then some with fractional reserve lending which is staight up printing. Surprised this ponzi game has lasted this long.
Gold has no real value even to buy anything with. You would have to transfer ii into currency. It's value is only implied and for making jewelry.
Before the Great Depression everyone used and held gold. It was part of our psycology. It is government that conditioned us to look away from gold so they can rob us with inflationary fiat money. Gold is still and always be money. Silver was demonitized because of the growning industrial applications combined with the desire to turn the citizenry from real money. Its in the constitution and it will return. Gold to store value or wealth and silver to transact.
Cash will always be king. Ask Zimbabwe
... It sounds like they're going to ban it anyway in favor of microchips and crapple pay.
Sure, let's make everything electronic. Then, just wait for the EMP strike...
I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.globe-report.com
King-for-a-Day, or "what's cash this week?"
That's a very broad question, rubles or yuans?
Deflation is default.
Amazing how few people see that. Nearly every financial institution requires some inflation in order to generate positive yields. A deflationary spiral is the death of the financial sector. It will also take the credit based money with it but for awhile cash will look pretty good. The only thing you will have a hard time buying with cash will be real money ....gold. All that has value based on easy credit will be available at fire sale prices.
Count on the financial authorities to come up with a scheme to devalue cash so that the debt held by financials can continue to be serviced.
" It will also take the credit based money with it but for awhile cash will look pretty good. The only thing you will have a hard time buying with cash will be real money ....gold. "
I doubt that is correct. Lots of stores and business refuse to accept cash. Part of its because business don't trust their employees handling cash. I think will see more automation at retail stores where people use kiosks to pay for goods and those machines will only except credit and debt cards. I see businesses like fast food restaurants, Vehicle repair, and other service oriented business switching over to only-electronic payment systems over the next 3 to 4 years. This is to help reduce labor costs. Cash accepted business will only continue at small business looking to be paid under the table to avoid taxes. The Bigger companies can't do this and will look to use electronic systems to reduce labor and theft.
You are overlooking the fact that automated payment systems already accept cash. I use the self-checkout at the supermarket and insert my bills into a slot. The machine calculates and dispenses my change.
"You are overlooking the fact that automated payment systems already accept cash. I use the self-checkout at the supermarket and insert my bills into a slot. The machine calculates and dispenses my change."
That is going away. It takes labor to remove the cash, and there is the risk of theft. The majority of new payment kiosks will be switching over to only electronic payment. I also see machines that support cash also have little notes attached to them: "Cash not accepted, electronic payments only". Cash is a hassle for businesses unless you are trying to avoid taxes. Its too risking for business with multiple employees to cheat on taxes because there is the risk that a discruntled employee\former employee will report you.,
Same old argument that was proffered in 2008 Charles... But at that time, U.S. global 'trading partners' weren't making arrangements to trade in other currencies like they are today. Funny how seemingly 'unimportant' matters like that become important - like breathing, to a nation completely dependent on the confidence and willingness of those same global trading partners to continue 'playing along', isn't it...? It's all about Foreign Policy now, Charles Hugh Smith. It's time to re-think your $USD-centric worldview...
CHS should brush up on supernotes.
No government would ever tolerate this. All it would have to do is print more and give itself the advantage. It is after all just a fiat currency. It is just a symbolic item for commerce. Fiat will never deflate....never has, never will. If things get as tight as described there will be howls, even from the Tea Party to print more and relieve the suffering. This is how fiat dies (one way anyway)
Fiat always dies with hyperinflation. It's the human condition.
Fiat is defined as "governmental decree." The fundamental problem isn't paper or PM, but government's monopoly over the medium of exchange. Even fucking barter is outlawed in many places.
Cash. Money. Currency. Or Gold ??????
Silver and gold will be king when the fiat currencies collapse...
Even beyond silver and gold, your skills and possessions will be valuable in bartering. A can of beans that you can buy for 50 cents today could become very valuable in trade if you can no longer find any more beans. Likewise, gun repair or hydroponics or home repair or car repair would be valuable skills to barter with for any products you need.
"Silver and gold will be king when the fiat currencies collapse"
It looks like its going to be quite a while before that happens. All of the industrialized nations are doing the same gimmicks, and they are all basically backing each other up (in order to preserve their export market).
The risks is that PMs will very likely be made illegal in the future and the powers that be will probably be able to hold onto power for a considerable period (look at how long the socialists have maintained power in Argentina). The US will slowly morph into a "full" totalitarian state, and this form or gov't can sustain for long periods into a poor economy. Second Big totaliarain\socialist nations always end in a bang. When the gov't can't obtain the resources needed to support thier authority, they send the masses into war. If you haven't noticed the US is leading the world into WW3. PMs won't do you very much in a full irradiated planet.
FWIW: The best plan is to distance yourself from the lunatics, get out of major population centers and become self-reliant to avoid dependancy on a deterioting system. Jobs are going bye-bye, taxes are going up & up and liberties are vanishing. It really does make sense to hold the fort suburbia or near regions where jobs are readily accessible and stacking PMs. Trying to stay in the rat-races has become a fools errand. Planning for a quick collapse and reset doesn't seem likely. There are too many people willing to cling on holding up the system for a quick collapse to happen. If a quick collapse was going to happen it would have already happened between 2008 and 2014.
"PMs won't do you very much in a full irradiated planet."
No, and nothing else will either.
As for .gov making PMs illegal, I will continue to post this link until morale improves:
http://www.zerohedge.com/news/2015-03-05/gold-prices-and-real-interest-r...
The article starts off wrong. Mainly it states "the U.S Dollar". What we are referring to as the u.s dollar is a private banks money denominated in dollars. The actual U.S constitutional dollar is valued somewhere around 16 - 17 FRB Dollars at the present value of silver.
As for government making PM's 'illegal', well that depends on the People. If they continue to behave irrationally and accept anything that bunch we jokingly call representatives pass off as law then you are correct. (Obama Care) If they flip off government as they did during the prohibition then the PM's would eventually survive as money once again.
We as the People need to start seriously resisting to the extent necessary any immoral, unjust and/or unconstitutional law as just that. This "It's the Law" shit passed by imbeciles must be stopped or it's curtains for sure. Telling us what type of toilets to what kind of light bulbs we can use is BS. What's worse, this 'Law" shit is rolling downhill to the local and state governments. Trying to cap and/or tax what kind of drinks you can buy to outlawing 'offensive' language are starting to make their appearance. In Topeka Kansas the 'law enforcers' want everyone they pull over for any reason to put their hands up.
I for one think this kind of crap has reached the boundary of insanity or some other form of mental disease.
Guess I got a little off topic,,, apologies.
CHS says "This suggests those who did margin/borrow to the hilt were in the top 1% or .1%. "
Umm...yeah...it's almost as if they knew something huh? Hello?
institutional cash = treasury bills + treasury bonds
cash will once again be king, for the simple reason there will be so little of it - at least for the short time until the Fed truly prints moar!
There, fixed it for ya.
what's wealth to a starving child? I only see insane people who we call wealthy, they are all nuts.
munger and buffet are sick minds doing perhaps few good things with billions held just for the sake of a bank account number - why do they take another breath?
Personal anecdote....
Bought a condo in Brooklyn in 2010 for $660k. Used a 4% down FHA loan ($100k down in total). Sold it exactly 2 years later for $1.05mln. A 400+% return in just 2 years.
Rinsed and repeated on another condo between 2012 and 2014.
I'm out now. Long land and house in Costa Rica (unlevered), physical gold, and a ton of puts on the XLF.
While I've been fortunate to have been in a position to benefit from our reckless fed policies, it sickens me that our leaders have pillaged the wealth of our nation for the benefit of the small portion of society with the means to benefit from it.
This country is so far beyond fucked. My biggest decision to make now is just when to pull the plug, move to CR, and renounce my citizenship (before our desperate country starts wealth taxes and other blatant asset grabs)....
Good luck with renouncing citizenship and moving to PR. The IRS won't let you leave with your wealth intact. Being a US Citizen is just like being a member of the Mafia. You can't resign and walk away.
A note of caution on your XLF puts. When interest rates begin to rise banks will be prime beneficiaries. You are sitting in a trap. Better to allocate this position to cash for now.
Bullets will be king moron.
Eventually you will be correct. In the mean time, until most debt is wiped out along with the central banks, dollars will be king regardless of form, paper or digital.
But I'm stocked up on some ammo and food for your correct point.
And the author of this article Hughes is way behind. Cash is currently the king.
Ahem: banks launder cash for drug cartels and other organized crime "folks". It's a very good business. Therefore cash will never be made illegal.
It'd make crime, of all kinds, too hard to commit.
You assume illegal drugs will remain illegal.
Cash is a poor substitute for fresh water when you are thirsty, fresh eggs and ham when you are hungry, shelter and warmth when you are freezing.
Personally, I do not want a single US FRN above what we need to keep the county from auctioning off our property and the few consumables that are not cost effective for us to produce ourselves yet.
All the fiat money in the world is no substitute for knowledge, skills, personal integrity and motivation.
The author is assuming they will allow a deflation, the least likely outcome. Inflationists make the same mistake and discount deflation, both are possible but nations normally follow the inflation route.
lt depends on whether derivative markets implode.
http://www.investopedia.com/video/play/derivative/
Cash is awesome right now. But post collapse it will only have value in the near term. Once the world drops the dollar as the reserve currency the domestic value will have a lifespan of a few months before silver/gold trumps it.
Feel free to chart the likely fluctuations in currencies over the next 60 months and you'll see that this juggling act can go on indefinitely. Those waiting for the detonation have been and will continue to be disappointed.
The average Joe has an opportunity to take advantage of these fluctuations.
Pay down debt, streamline finances, pare down the bullshit, stash cash, and yes stack food and metal
Cash is king......until it isn't. Remember when the silver certificates were devalued??
http://www.antiquemoney.com/value-of-1-silver-certificate/
Most people here don't seem to understand what fiat means. The USD is not fiat. Fiat is a currency in which the government or ruler sets the value of. Value by decree. The US government does not tell us what the USD is worth.
That is not the definition of fiat money. It has nothing to do with a decree on its value. Fiat money is simply a token, legal tender money that is no longer backed by a market-chosen commodity. Historically it was usually a money substitute (a receipt for actual commodity money) that has been declared money by government fiat. It is you who has no idea what fiat currency is. See "The Theory of Money and Credit", part one, chapter3, The Nature of Money, for details
Shame on all of you goldbugs and alarmists, always trying to scare people with your stories of Weimar, Zimbabwe and Argentina. Their circumstances and their currencies had no similarity to the USA's circumstances and currency. Those countries had all defaulted on their debts, the new governments were "revolutionary", they didn't have bond markets, etc. so no one would lend them money or assist them.
The USA has the deepest bond market on the planet (and due to this, it will remain the only real safe haven for domestic and foreign money for a very long time); its stock and commodity markets are also huge; it has a powerful military; it has huge natural resources; it has the best geographical defense location; it still has technology; it still has productivity potential; it is still the world's reserve currency and still the dominant currency for investment and trade (although investment is soooo much bigger than trade); etc. etc. It will be a long time before confidence drops in this country and in the rest of the world for the USD and it begins to lose its status. This will not happen over night. (None of this is to say that I am in agreement with the US government's policies and behaviour.)
You goldbugs want everyone to be in the same bed as you are. I hope that doesn't happen. Look how much money people have lost investing in gold over the last 10 years or so (on top of that it doesn't even spin off any cash flow or give anyone any tangible advantage or benefit). With our corrupt and deperate government, when our currency crisis comes, gold will never be used as legal tender (you won't be able to pay taxes with it), it will be highly taxed and it could even be confiscated. Gold hoarders are going to get creamed in the future when we have our currency crisis.
Over the past 15 years gold outperforms the S$P 500 index by a HUGE margin, in spite of the bear market of the past three years. No-one can possibly have lost money in gold "over the past 10 years". 10 years ago, the gold price was at $450 - it is still up nearly 200% since then.
Gold vs. SPX: http://stockcharts.com/h-sc/ui?s=$GOLD:$SPX&p=D&yr=15&mn=0&dy=0&id=p40925089521
The idea that gold hoarders "will get creamed in a currency crisis" is ludicrous.
Sorry, I was trying to respond to AlfBell's post to thank him for the honesty and balance of his post. It is wise to beware, just as much, propaganda on all sides of the spectrum.
Cant happen they will go batshit printing them like they did for the Bush Republicanism bank collapse.