Financial Martial Law.

[Cyclone 10]

[/b]

The State, the banks, the Judiciary, the Elite, the Establishment; they're all the same to me. They work together. They have way too much control.

 

Keep cash.

 

THe judiciary and the state are SUPPOSED to have power.

[Anna B 1,417]

Are you familiar with the concept of devaluation?

 

It's driven by "The State, the banks, the Judiciary, the Elite, the Establishment" (and other assorted lizards).

 

Pursuant to which, e.g. the £1 coin in your pocket today is worth about 20% less, than that same £1 coin in your pocket was worth 10 months ago.

 

Now, have a wonder how much lower it could go over the next few months and years

 

Don't keep (just) cash. Invest. In gold if you have to.

 

I mean keep physical cash going as an entity, rather than make it all electronic banking as I believe the banks would like.

[Obelix 11]

It's an interesting concept, but as obelix and others have said, negative interest rates on consumer and probably business accounts isn't something we can expect to happen soon. I can easily see government interest rates being set negatively though in the near future but they only directly impact on government lending and bank to bank lending (LIBOR) and not on our personal accounts. However, never say never but it'd take a hell of a lot of law changes to make it happen without people pulling their money out.

 

Hypothetically speaking...

 

Say we were in a severe deflationary spiral. Say 5-10% a year. At that rate people will make do and mend to quite a lot - why spend £20k on a new car when you can wait, make do and mend the current one and spend £18k on a car next year and have £2k for fuel for the next year as well...

 

So people don't spend and the money doesn't go round and you stagnate.

 

Now lets wander off into the realms of fractional reserve banking (apologies if this is teaching people to suck eggs but bear with me)

 

The narrow money supply, M0 is the physical cash, coin that is about. The M1 supply is current accounts because these are not coin in a bank vault...

 

Say you have £1000. You deposit that in the bank. The bank then uses that as collateral to lend to others. Say that Basel IV means they have a reserve requirement of 10%. So they lend out until they have just 10% of your thousand pounds as reserves.... So the bank has £100 in the reserves and £900 lent out.

 

Now that £900 is deposited in other banks that lend it out - keeping 10%. So they lend out £900 keeping £90 in reserves... and that 900 is depositing in more lending out 800 keeping 80.... etc etc.

 

So the narrow money supply is M0. It "supports" an M1 system of current accounts, and "near cash" things like travellers cheques that is ten times it's value.

 

Behind that M1 supply there is less liquid things like fixed savings, bonds, these are M2

 

So getting back to it all...

 

If you have a country which is suddenly faced with all the banks imposing a negative interest rate - whats that to be? People will start withdrawing it, and they get to take out cash until the supply of cash runs out. That's going to be about when 10% of the accounts value is gone.

 

After that - theres no physical cash left lying about. So you cannot withdraw it.

 

This gives rise to interesting consequences. Peopple can pay in cash. They wont want to - but cash will have a value premium because it won't deflate like the bank account will. So people will demand a discount for paying by cash - because that will cost them more.

 

Once all the cash is removed from the economy people will spend more. They have no way of getting rid of the bank balance - and it's depreciating. So if it's depreciation at a reasonable amount more than inflation - like say 15% instead of 10% they will buy that car now rather than wait. So we get the economy moving again.

 

But what if theres nothing you want? Well you can spend that money on convertible items. Precious stones will go up in value as people move into them and "destroy" the M1 money supply. Ditto gold, oil, commodities, wheat. This is good - it gets things made and the economy moves. When they get sold they could well be passed on an exchange and it moves to barter....

 

Severe deflation is interesting mainly because it's not happened much - and the effects are not known. But it's like the apocryphal proverb - may you live in interesting times....

[dangerousedd 10]

you forgot to add all the cashless transaction fees.

[sgtkate 10]

Thank for that post obelix, that was interesting and I learnt something I understood the basic premise but you've explained it in a much clearer way.

[Obelix 11]

We've not even scratched the surface of what happens with debt in deflation either...

[spilldig 190]

Is he referring to the difference in exchange rate since Brexit? £ v $ and £$ v Euro?

£ is much weaker these days about 14% since Brexit. That has happened naturally through the markets.

 

A devaluation is deliberate government action to make it so.

 

O'k 999. I only heard 10% for that, which is about what it was the last time I looked at the exchange rates.

[Cyclone 10]

A

 

Pursuant to which, e.g. the £1 coin in your pocket today is worth about 20% less, than that same £1 coin in your pocket was worth 10 months ago.

 

That's not really true is it.

 

Bread, milk, gas, petrol, new car, you name it, hasn't gone up by 20%.

 

So if I can buy most things for the same price I paid before, then the £ is worth exactly the same. Foreign holidays, they've gone up though. But overall inflation, about 2.5% isn't it, so that's how much less the pound is worth.

[L00b 441]

That's not really true is it.

 

Bread, milk, gas, petrol, new car, you name it, hasn't gone up by 20%.

 

So if I can buy most things for the same price I paid before, then the £ is worth exactly the same. Foreign holidays, they've gone up though. But overall inflation, about 2.5% isn't it, so that's how much less the pound is worth.

I was talking about the inherent value of the coin, not its purchasing power, since the purchaser is not buying in an ideal (unfettered) market: companies hadn't passed most of the uptick between import cost and retail price over the period -hence disappointing results reported in recent news- but have at last started to do so recently -hence inflation rate increase and customer confidence falling-.

 

The inherent value point takes its meaning in your caveat about foreign holidays, wherein the true value of that £1 coin matters, when it is directly exchanged at the material time against a foreign good/service in a different country at that country's currency with its own -distinct- inherent value.

Edited May 11, 2017 by L00b

[Cyclone 10]

It's all getting a little bit esoteric, but I'd say that the true value is measured by what it can buy in the corner shop, what I can buy in France or New Zealand doesn't have any impact on me in any real sense, and it fluctuates considerably.

 

If the zimbabwe economy strengthens and the £ falls against the Z$, the pound isn't worth less in any meaningful sense, although a holiday to Z will now cost more.

[L00b 441]

It's all getting a little bit esoteric, but I'd say that the true value is measured by what it can buy in the corner shop, what I can buy in France or New Zealand doesn't have any impact on me in any real sense, and it fluctuates considerably.

The true value of a £1 (or a €1 in the €zone, or a $1 in the US, or <...>) at any given time is determined by FOREX markets from a myriad monetary-related variables, as always.

 

What that £1 can buy in the UK corner shop (€1 in the Dublin shop, $1 in the NY shop, <...>) at time T0 is its purchasing power at that time T0, subject and relative to a myriad non-monetary -related variables variables such as the cost of the goods to that corner shop, the margins practiced by that corner shop, <etc.>

If the zimbabwe economy strengthens and the £ falls against the Z$, the pound isn't worth less in any meaningful sense, although a holiday to Z will now cost more.

We're talking about the (fluctuating-) intrinsic value of UK cash hoarded by Anna in the UK.

 

Not the (fluctuating-) intrinsic value of foreign cash hoarded by Anna's Zimbabwean alter ego in Harare.

 

Now, if Anna used her UK cash to buy Z$ in the UK, and Z$ then appreciates relative to £...

Edited May 11, 2017 by L00b

[petemcewan 27]

Apparently, one in six keep their cash at home. Long live the cash economy.