Negative Interest Rates and the War on Cash (4)
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AlfredEisenstaedt View of Midtown Manhattan NYC 1939 This is part 4 of a 4-part series by Nicole Foss entitled “Negative Interest Rates
[See the full post at: Negative Interest Rates and the War on Cash (4)]Excellent and timely; many thanks!
“Indeed they seem to feel secure enough of their own consolidated control that they do not even bother to try to hide the fact any longer.”
Always a big mistake. What Toynbee calls “the dominant minority overstepping their bounds.”
Thank you for a very accurate summation of the impending situation, without trying to sell me gold [which will be worthless in a cashless society] and or a book depicting the world economic collapse and how to survive it [buy gold].
I think if you have some land and resource under your own control – such as cash, firewood, food growing etc. and you have any spare time right now – it is worth allowing for arrangement s whereby friends and family can be accommodated. If there is more than one family or interest on site productive work goes up and so does the security of the assets on site. As the trust horizon shrinks it is worth approaching these abstract concepts from a permaculture perspective and treat relationships in a zonal framework. Zone 1 – trusted (family / close friends) is like the veggie garden and the lemon tree – keep it close and interact often. The government – least trust (zone 5) is like the wildlife corridor which has access through the property (rates and taxes) but steered away from important aspects like vegetables that need protection (which in the case of this concept maybe privacy and personal communication for example).
Or am I just trippin’ coz this new article has blown my mind – yet again.Banks are like foxes; and netting to protect the chickens (family) is essential. I have noted that during very dry times foxes will even dig deep into dry mud to look for yabbies and they have scat filled with insect skeletons. The point is they do whatever it takes and they are out there in the shadows watching your shit and working out ways to steal and devour it!
It’s not drought, it’s climate change, say scientists (SE Australia 2009)
Record September rain floods SA
It is a shame that they never admit when they were wrong.
I don’t think the central banks are even trying anymore. QE seems to be thinly veiled looting of the system. It makes no sense, has no logical structure that suggests it might stimulate the economy. It seems to be on the order of prayer, if we shovel money to the top of the economic chain, maybe people will spend money again. Let’s face it, we have ‘grown’ into every nook and cranny of the planet. Max finance, max exploitation, max pollution, nothing left but to circle the drain.
Jim Rickards talks about the use of the IMF’s Special Drawing Rights to function as a global central bank, issuing debt to buy up the bad assets of the Central Banks. That would keep the game going longer. It isn’t part of this scenario, so does that mean you reject it?
Just as electronic money can be confiscated, so will land be. Best to travel light and be able to change directions in a moments notice. With .gov by emergency, property rights go out the window, along with other rights and liberties.
Agree, there Tulsa. QE will ultimately lead to a breakdown of the supply chain. And when that happens there will be shortages, leading to a massive money supply chasing too few goods. Velocity squared will be the result. Think Venezuela on a mass scale.
Deflation is what comes after, not before, the destruction of the currency.
Guess the poor will always be with us,,,as will the black markets,,,,whatever they use for currency.
https://mises.org/library/how-government-forces-poor-black-markets
I know we will have structural change when the dust settles but all land confiscated….? I guess they did it to indigenous cultures the world over but that was a lot of peoples and their power structures versus very few people. I am inclined to agree with Nicole that there will be political and financial upheaval in the event of these sort of controls. Or alternatively it just gets harder and shitter by increments every. single. day.
Interestingly, what you describe as “the worst financial collapse in history to date (…) the bank crash of the 1340’s, which decimated the human population, was cause by one country: England, which defaulted on its debt.
regionswork et al
The issue of SDRs was the topic of Christopher Balding’s latest (Debt Rattle Sep 7). Where Rickards and others see SDR issuance as a sign of Chinese strength (and of impending end of USD), Balding concludes the opposite. I don’t know about Nicole, we haven’t discussed this, but I would certainly agree with Balding. A new Goldman report estimates annual growth in Chinese debt/GDP at 30-40%, on top of a recent IIF estimate of total debt/GDP of 300%. Claims of Chinese strength are greatly exaggerated.
Why China Isn’t a Financial Center
..it doesn’t want to let the yuan’s value float freely, which would be a prerequisite to its becoming a true reserve currency. China saw SDRs as a way to split the difference, to create a competitor to the dollar and maintain a fixed exchange rate at the same time. The problem is that there’s almost no conceivable reason to use them. SDRs were created as a synthetic reserve asset by the IMF decades ago, under the Bretton Woods system. No country uses them for normal business, and no government is likely to issue bonds denominated in them except for political reasons, as the World Bank is doing. Companies won’t use them either. If a firm wants to borrow to build a plant in Japan, it will issue a bond in yen so it can repay in yen.
What’s a poor boy to do?
Need to get out of equities, they’re in an unsustainable bubble. Need to get out of bonds, they’re in an unsustainable bubble. Need to get out of real estate, it’s in an unsustainable bubble. Need to get out of bank deposits, they’re vulnerable to bail-in confiscation. And there’s a war on cash. Phew!
The least bad option (in the UK) seems to be very short-dated gilts (1 year or less). Yeah, you’re guaranteed to lose a little because consumer prices are going up faster that the interest rate paid … but that seems to be the least bad thing one can do at the moment. Thoughts?
By the way, hoarding cash is certainly not a robust response to the war on cash. They can just re-issue new set of notes and declare the old ones null and void. You have to take your old ones to the bank to change them into new ones (at an extremely unattractive rate) or, in the event of a cash ban, you have to take your old notes to the bank to convert them into bank deposits.
The first one was done in Russia and Poland in the nineties. I was there, I saw what it did. Ordinary people were wiped out.
@ the3rdhorse
Thank you for a very accurate summation of the impending situation, without trying to sell me gold [which will be worthless in a cashless society] and or a book depicting the world economic collapse and how to survive it [buy gold].
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Well, 5,000+ years of history would prove you dead wrong. You would be well served to read David Graeber’s; Debt, the first 5,000 years.
It’s quite an eye opening view of the store of value throughout the very recent history of human “finance”; and barter is a myth that continues to perpetuate with no historical evidence.
There is no limit to human’s propensity for self delusion and mythological belief…There is so much questioning of what to do, questions I have long asked myself.
Any answer must evaluate baseline assumptions, such as immediacy and mobility, “fungibility” of assets, places and people.
The fungibility is what has to be removed in a time where the elites will commandeer everything which can be taken away.
Don’t merely have a very small farm/homestead on fertile soil with access to water, but grow sweet potatoes, not wheat or corn. An army will take wheat and corn from you.
One (really a small, coeherent working group) must also maintain a foot in the other camp, or simply be evicted and the homestead given to somebody who does support the system.
Where should such a place be located? Not Phoenix, Arizona.
Any “solution” to such a complex and pervasive threat becomes extremely constrained. We need to be close enough to the worlds we are part of to maintain the value of those ties.
https://www.johndayblog.com/2016/07/liberty-garden-central-texas-climate.html
The picture at this link is of me in the garden 7/4/16, which was a smallish back yard of a duplex unit, until 3 years ago. It’s not a “solution”. It’s a step.
The article describes a 3-bed and 5-bed succession/rotation growing system for Climate Zone 8A (sub tropical, modest freezes), which is a partial-solution.Here is something instructive, “Nutrition in Neo-Peasant Wessex”, where a small farmer across the Atlantic from us yanks works out what can reasonably done to subsistence-farm 10 hectares in Wessex.
For those who may be wondering why I haven’t mentioned gold in this article, here’s my take on gold: https://www.theautomaticearth.com/2015/09/gold-follow-the-yellow-brick-road/
Seychelles, I completely agree about “the dominant minority overstepping their bounds”. They are over-confident and think they have far more control than they actually do. They have a tiger by the tail, so to speak.
Regionswork, I don’t think the SDR proposals will work. However you slice it, there’s simply too much bad debt in the world to shovel under the carpet at this point. It’s a very large multiple of global GDP. No lender of last resort can absorb that.
Professor Locknload, indeed property rights will be threatened, land and other things can be confiscated. There are no risk-free options. People need to decide whether they want to invest in a fixed location and make the best of it, or opt for maximum mobility. Both options have advantages and disadvantages, so there’s no one right answer. Different people will make different choices.
As for your view on hyperinflation, I disagree completely, as you know. We have had the inflation in the form of credit hyperexpansion. Deflation comes next. Only in places such as Greece, with currency re-issue on the cards, and Japan, which is at the other end of the cycle from the rest of us, is currency hyperinflation a threat in the relatively near term. For most of the developed world, credit collapse is going to send economies into a long-lasting deep-freeze, along the lines of Dante’s Ninth Circle of Hell.
QE has monetized only a tiny fraction of outstanding debt, and has done nothing to stimulate the economy. All it has done is inflate asset bubbles, setting up the asset owners for a price collapse. Where those assets are leveraged, they will be lost and the debt added to the overall leverage burden acting as a millstone round the neck of the economy. The velocity of money will be very low, as it always is in an economic depression. People will be trying to sell all manner of consumer goods in order to buy essentials like food and fuel, but there will be no buyers. Think of the photos from the 1930s of bankers trying to sell off fancy cars for next to nothing and still finding no buyers.
The price of essentials (as opposed to consumer goods) is likely to rise in real terms, even as they fall in nominal terms (at least initially). A much larger percentage of a much smaller money supply will be chasing them, and providing relative price support.
Beanny, England defaulting on its debt was only one aspect of the banking crisis of the 14th century. The full picture is far more complicated and multi-dimensional. Here’s an article I wrote some time ago on the early stages of that crisis – looking at the great credit crunch of 1294.
Chemical Kev,
Indeed there are few places to hide stores of value that confer freedom of acton in the future. I wouldn’t touch equities or long term bonds, and I wouldn’t trust the banking/brokerage system at all. Short term government bonds are a cash equivalent for the time being, and therefore a least-worst option, along with cash itself. There aren’t any really good options, only balance of risk calculations for each possible choice.
The risks for cash and short term bonds are currency re-issue and short term bonds being recategorized as long term (to be defaulted upon later). These risks vary in significance depending on where one is located, but in general terms are lower than the risks associated with equities and most debt instruments. Currency re-issue is a major problem for the eurozone. For other places it may happen, but probably not soon. Cash is in any case a short term option to ride out the deflation, before moving into hard goods prior to the bottom. Holding cash initially, but getting out of it in favour of hard goods as prices fall, seems one of the best options. I discussed this point in the article (noting the Russian experience).
As for real estate, the risks are illiquidity and price collapse. Real estate makes sense if one can purchase it with no debt, if it can provide for the essentials of one’s own existence, if it can be a focus for community and if one doesn’t have to be concerned about its falling value in financial terms. For some people it will make at lot of sense, but for others no sense at all, depending on individual circumstances. In general, young people will be better off focusing on mobility and flexibility.
Hi Nicole, I read your response above re: gold.
I agree with most but not all of what you said; first I would say owning physical gold is the only option (in what ever form one chooses). IMO, gold should not be considered an investment, period; but strictly a store of value and it should be bought, regardless of price, whenever one can afford it. By afford I mean just like buying stocks or gambling in a casino (bad analogy, I know), spend only what one can afford to lose.
A true anecdote; my mother and father in law were Ukrainian, released from their prison camps with the fall of Germany (WWII; Stepan fought in the Russian army), bread, in Germany, could not be bought with paper money; the bakers would only accept gold.
I have the impression many think “the coming collapse” will look like that. I have no idea; I’ve been listening to the doomers for decades and obviously, due to many factors, their views are wrong. Yes, things are deteriorating across the board, but almost slow motion, including the violence.
There are many options still; but I see borders closing and the day may come when U.S. citizens will be denied freedom to travel/move abroad. Record numbers of U.S. citizens are renouncing their citizenship (it went from $400+ to almost $4,000 USD). The borders are closing…
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