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Title: The Day the ATMs Run Out...
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Published: Feb 24, 2015
Author: Bill Bonner
Post Date: 2015-02-24 17:00:08 by BTP Holdings
Keywords: None
Views: 236
Comments: 12
The Day the ATMs Run Out... by Bill Bonner Please remember this warning when you go to the ATM to get cash… and there is none! While we were thinking about what was really going on with today’s strange new money system, a startling thought occurred to us. Our financial system could take a surprising and catastrophic twist that almost nobody imagines, let alone anticipates. Do you remember when a lethal tsunami hit the beaches of Southeast Asia, killing thousands of people and causing billions of dollars of damage? Well, just before the 80-foot wall of water slammed into the coast an odd thing happened: The water disappeared. The tide went out farther than anyone had ever seen before. Local fishermen headed for high ground immediately. They knew what it meant. But the tourists went out onto the beach looking for shells! The same thing could happen to the money supply: Cash could evaporate suddenly and disastrously – just before we drown in it. Here’s how… and why: If you look at M2 money supply -- which measures coins and notes in circulation as well as bank deposits and money market accounts -- America’s money stock amounted to $11.7 trillion as of last month. If you look at M2 money supply, America’s money stock amounted to $11.7 trillion as of last month. But there was just $1.3 trillion of physical currency in circulation -- about only half of which is in the US. (Nobody knows for sure.) What we use as money today is mostly credit. It exists as zeros and ones in electronic bank accounts. We never see it. Touch it. Feel it. Count it out. Or lose it behind seat cushions. Banks profit -- handsomely -- by creating this credit. And as long as banks have sufficient capital, they are happy to create as much credit as we are willing to pay for. After all, it costs the banks almost nothing to create new credit. That’s why we have so much of it. A monetary system like this has never before existed. And this one has existed only during a time when credit was undergoing an epic expansion. So our monetary system has never been thoroughly tested. How will it hold up in a deep or prolonged credit contraction? Can it survive an extended bear market in bonds or stocks? What would happen if consumer prices were out of control? Our current money system began in 1971. It survived consumer price inflation of almost 14% a year in 1980. But Paul Volcker was already on the job, raising interest rates to bring inflation under control. And it survived the “credit crunch” of 2008-09. Ben Bernanke dropped the price of credit to almost zero, by slashing short-term interest rates and buying trillions of dollars of government bonds. The world’s total debt now stands at $200 trillion – up $57 trillion since 2007. But the next crisis could be very different… Short-term interest rates are already close to zero in the US (and less than zero in Switzerland, Denmark and Sweden). And according to a recent study by McKinsey, the world’s total debt (at least as officially recorded) now stands at $200 trillion – up $57 trillion since 2007. That’s 286% of global GDP… and far in excess of what the real economy can support. At some point, a debt correction is inevitable. Debt expansions are always – always – followed by debt contractions. There is no other way. Debt cannot increase forever. And when it happens, ZIRP and QE will not be enough to reverse the process, because they are already running at open throttle. What then? The value of debt drops sharply and fast. Creditors look to their borrowers… traders look at their counterparties… bankers look at each other… …and suddenly, no one wants to part with a penny, for fear he may never see it again. Credit stops. It’s not just that no one wants to lend, no one wants to borrow either – except for desperate people with no choice, usually those who have no hope of paying their debts. Just like we saw after the 2008 crisis, we can expect a quick response from the feds. The Fed will announce unlimited new borrowing facilities. But it won’t matter… House prices will be crashing. (Who will lend against the value of a house?) Stock prices will be crashing. (Who will be able to borrow against his stocks?) Art, collectibles and resources – all will be in free fall. In the last crisis, every major bank and investment firm on Wall Street would have gone broke had the feds not intervened. Next time it may not be so easy to save them. The next crisis is likely to be across ALL asset classes. And with $57 trillion more in global debt than in 2007, it is likely to be much harder to stop. Are you with us so far? Because here is where it gets interesting... In a gold-backed monetary system prices fall. But the money is still there. Money becomes more valuable. It doesn’t disappear. It is more valuable because you can use it to buy more stuff. Naturally, people hold on to it. Of course, the velocity of money – the frequency at which each unit of currency is used to buy something – falls. And this makes it appear that the supply of money is falling too. But imagine what happens to credit money. The money doesn’t just stop circulating. It vanishes. A bank that had an “asset” of $100,000 in June may have zilch by July. A bank that had an “asset” (in the form of a loan to a customer) of $100,000 in June may have zilch by July. A corporation that splurged on share buybacks one week could find those shares cut in half two weeks later. A person with a $100,000 stock market portfolio one day, could find his portfolio has no value at all a few days later. All of this is standard fare for a credit crisis. The new wrinkle – a devastating one – is that people now do what they always do, but they are forced to do it in a radically different way. They stop spending. They hoard cash. But what cash do you hoard when most transactions are done on credit? Do you hoard a line of credit? Do you put your credit card in your vault? No. People will hoard the kind of cash they understand… something they can put their hands on… something that is gaining value – rapidly. They’ll want dollar bills. Also, following a well-known pattern, these paper dollars will quickly disappear. People drain cash machines. They drain credit facilities. They ask for “cash back” when they use their credit cards. They want real money – old-fashioned money that they can put in their pockets and their home safes… Let us stop here and remind readers that we’re talking about a short timeframe – days… maybe weeks… a couple of months at most. That’s all. It’s the period after the credit crisis has sucked the cash out of the system… and before the government’s inflation tsunami has hit. As Ben Bernanke put it, “a determined central bank can always create positive consumer price inflation.” But it takes time! “A determined central bank can always create positive consumer price inflation.” And during that interval, panic will set in. A dollar panic – with people desperate to put their hands on dollars… to pay for food… for fuel…and for everything else they need. Credit may still be available. But it will be useless. No one will want it. ATMs and banks will run out of cash. Credit facilities will be drained of real cash. Banks will put up signs, first: “Cash withdrawals limited to $500.” And then: “No Cash Withdrawals.” You will have a credit card with a $10,000 line of credit. You have $5,000 in your debit account. But all financial institutions are staggering. And in the news you will read that your bank has defaulted and been placed in receivership. What would you rather have? Your $10,000 line of credit or a stack of $50 bills? You will go to buy gasoline. You will take out your credit card to pay. “Cash Only,” the sign will say. Because the machinery of the credit economy will be breaking down. The gas station… its suppliers… and its financiers do not want to get stuck with a “credit” from your bankrupt lender! Whose lines of credit are still valuable? Whose bank is ready to fail? Who can pay his mortgage? Who will honor his credit card debt? In a crisis, those questions will be as common as “Who will win an Oscar?” is today. But no one will know the answers. Quickly, they will stop guessing… and turn to cash. Our advice: Keep some on hand. You may need it. Regards, Bill Bonner for The Daily Reckoning Poster Comment: Look out if the water recedes unexpectedly. When the cash disappears, you had better head for higher ground. ;)
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#1. To: BTP Holdings (#0)
15 uses of the words could or may in that piece.
Nothing is certain in the economy these days. ;) "When bad men combine, the good must associate; else they will fall, one by one." Edmund Burke
True, but we could pen a million what-if pieces. I personally think that when the shit does hit the fan that it's going to be many times more horrific than the vast majority of Americans even fathomed, including many of the preppers. I think that most are going to find that their preparations, or 80% of their preparations, are moot.
23 uses of the verboten "you". The 2 best times to keep your mouth shut are when you’re swimming & when you’re angry. “Anti-semitism is a disease–you catch it from Jews”–Edgar J. Steele “The jew cries out in pain, as he strikes you.”–Polish proverb “I would like to express my heartfelt apologies for the unfortunate and tasteless quotes I published in my tag lines. I am very sorry and ashamed. I never wanted to offend anyone, or to encroach human rights."- Hmmmmm
What do you mean by the verboten "you"?
It's time for everyone to start funding their own, personal, at home Cash Caches. Screw the ATMs. “The most dangerous man to any government is the man who is able to think things out... without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane, intolerable.” ~ H. L. Mencken
The old fool doesn't like to see the word you in print. The 2 best times to keep your mouth shut are when you’re swimming & when you’re angry. “Anti-semitism is a disease–you catch it from Jews”–Edgar J. Steele “The jew cries out in pain, as he strikes you.”–Polish proverb “I would like to express my heartfelt apologies for the unfortunate and tasteless quotes I published in my tag lines. I am very sorry and ashamed. I never wanted to offend anyone, or to encroach human rights."- Hmmmmm
#2. To: Katniss (#1)
15 uses of the words could or may in that piece.
#3. To: BTP Holdings (#2)
(Edited)
#4. To: Katniss (#1)
15 uses of the words could or may in that piece.
#5. To: Hmmmmm (#4)
#6. To: Katniss, 4 (#3)
#7. To: Katniss (#5)
What do you mean by the verboten "you"?
#8. To: BTP Holdings (#0)
The Day the ATMs Run Out...
-Alex Kurtagic
#9. To: Lod (#6)
If you study the value of the Dollar since the inception of the FED, you will see that it has lost 97% of its value. This, in a mere 100 years. Precious metals are still the best way to go. Buy more if you can. BTW, several of the big banks are under investigation for manipulating the precious metals markets. Do you know what fractional reserve banking is? A bank may lend out 90% of what it has on deposit in its books. This, besides the Federal Reserve scam of paying the cost of printing paper money, and then loaning it to the U.S. Government at face value plus interest, are the two biggest scams the banksters have going. ;) It's time for everyone to start funding their own, personal, at home Cash Caches
"When bad men combine, the good must associate; else they will fall, one by one." Edmund Burke
#10. To: Katniss (#3)
I was watching Glenn Beck a couple of weeks ago. He outlined the political problems in Europe. First, he showed the relation of the Caliphate in Africa, and how Europe related to the new Russian Empire. He said that if NATO continues its push to expand Eastward, that it may precipitate a war, with Russian missiles targeting the warehouses that contain the tanks that the U.S. has dispatched there already. The President of China has said that a war between the U.S. and China would benefit neither. There must be a distinct geo-political gain to be had for starting ANY war. Otherwise the treasure and human capital expended would be much too great to take any such risk. BTW, Obama has spent the U.S. into greater debt than all the other Presidents COMBINED. This is part of his plan to bring down America as the chosen one of the Rothschild's. Not to mention that Obama has tried to finance his debt using short-term bonds, sold mainly to China. The Chinese are refusing to buy more bonds (and are liquidating what they own), and this may lead to a collapse of the U.S. Dollar. ;) True, but we could pen a million what-if pieces.
"When bad men combine, the good must associate; else they will fall, one by one." Edmund Burke
#11. To: BTP Holdings (#10)
I'm no economist, thank God, but I believe that our printing presses will continue running 'till we run out of paper and ink for them.
“The most dangerous man to any government is the man who is able to think things out... without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane, intolerable.” ~ H. L. Mencken
#12. To: BTP Holdings (#10)
He said that if NATO continues its push to expand Eastward, that it may precipitate a war, with Russian missiles targeting the warehouses that contain the tanks that the U.S. has dispatched there already. The President of China has said that a war between the U.S. and China would benefit neither. There must be a distinct geo-political gain to be had for starting ANY war. Otherwise the treasure and human capital expended would be much too great to take any such risk. BTW, Obama has spent the U.S. into greater debt than all the other Presidents COMBINED. This is part of his plan to bring down America as the chosen one of the Rothschild's. Not to mention that Obama has tried to finance his debt using short-term bonds, sold mainly to China. The Chinese are refusing to buy more bonds (and are liquidating what they own), and this may lead to a collapse of the U.S. Dollar. ;) Beck has said a lot of things over the years, some right some wrong. He's typically late to the party with info only taking the side of controversial issues once there's a critical mass already over the line, and IMO does it only for the publicity. He's on the same general network that carries Limbaugh. As to Obama, I'll say it again, none of that gross spending would have been possible without what his predecessor did. If you don't understand that you cannot possibly grasp the bigger picture. Pointing fingers at Obama as if things will improve, in any way, shape, or form whatsoever, even if he were to be removed from office tonight, is to miss reality completely. It's disturbing and disheartening to see how many people simply cannot figure this out, just one more reason why they'll never figure it out to correct things. I was watching Glenn Beck a couple of weeks ago. He outlined the political problems in Europe. First, he showed the relation of the Caliphate in Africa, and how Europe related to the new Russian Empire.
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