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Several points... 1. Cash does not necessarily have to be
Posted on: August 28, 2016 at 14:06:40 CT
JeffB MU
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debt based. That is a function of the fractional reserve banking system, not of cash itself.
Gold and silver coins (among many other options) could be used as cash without any banking system whatsoever. Even paper money was originally used as a one to one substitute for real money and was not in any way debt based.
It wasn't until some crooked banksters realized that not everyone wanted the money that they were holding for them at the same time and began issuing more paper than the actual cash reserves that they were holding that the first examples of fractional reserve banking came into play.
2. Holding cash... rather than depositing it in a bank in exchange for digital money actually reduces the maximum debt based money supply, all other things being equal.
If there is a 10% reserve requirement the bank could loan out $90 for every $100 you deposit... and for the people who took out their loans and deposited that money, or if the people who took that money from them in exchange for goods or services deposited that money... the banks could loan out another 90% of whatever they deposited, and so on.
So those who hold cash hold back the debt based, fractional reserve money supply. If everyone withdrew all of their "cash", the banking system would come to a screeching halt and the money supply would crash... along with the economy, of course.
3. Very little of the money supply is in physical cash... Probably 1% or less. The vast majority of "cash" is really "X"es and "O"s in computers. If demand for cash went up significantly the Treasury would have to go into true "money printing" overdrive. It would be a logistical nightmare for them to have to print & distribute enough physical cash if a true "run on the banks" ever happened again here.
4. Because of the ongoing devaluation of our currency, the cost and true value of physical coins like pennies and nickels are higher than their face value. A couple of years or so ago it was costing the treasury about 60% above the face value to coin pennies & nickels.
It was because of devaluation of our currency that they stopped using silver to make coins years ago. It is also why they stopped using all copper pennies, but began using cheaper metals instead... but as the devaluation continues unabated even these cheaper metals are worth more than face value of the coins.
Those coins would be expensive & a hassle to store & safeguard but look like a pretty good investment to me. What else can you buy for 60% below market value and that can never go below the nominal value in dollars that you paid for it?
5. The banks also hate it because of the loss of control:
A. Capital controls were instituted in several European countries during their financial crisis. People were only allowed to take out small amounts of cash each week.
B. They also could not take or move much money out of the country.
C. The banks gave depositors "haircuts", which they called "bail-ins". If you had $100,000 in their bank this morning, they might keep $15,000 to help keep the bank solvent and you now only have $85,000.
If you had that money buried in your back yard they wouldn't have such easy access to it.
D. The government doesn't have you by the balls. They could seize the assets in the bank very easily and then dole out whatever they want to you whenever they feel like it... if they ever happen to in fact feel like it.
E. The government can also track what you spend, where you spend it and on what you spend it. They can track your movements as well. Bought some gas in Columbia, MO at 10 am, then in K.C. at 12:15 pm, then...
F. The government can make sure they are getting their cut in taxes on every purchase or sale you make.
Edited by JeffB at 14:07:59 on 08/28/16
Gold and silver coins (among many other options) could be used as cash without any banking system whatsoever. Even paper money was originally used as a one to one substitute for real money and was not in any way debt based.
It wasn't until some crooked banksters realized that not everyone wanted the money that they were holding for them at the same time and began issuing more paper than the actual cash reserves that they were holding that the first examples of fractional reserve banking came into play.
2. Holding cash... rather than depositing it in a bank in exchange for digital money actually reduces the maximum debt based money supply, all other things being equal.
If there is a 10% reserve requirement the bank could loan out $90 for every $100 you deposit... and for the people who took out their loans and deposited that money, or if the people who took that money from them in exchange for goods or services deposited that money... the banks could loan out another 90% of whatever they deposited, and so on.
So those who hold cash hold back the debt based, fractional reserve money supply. If everyone withdrew all of their "cash", the banking system would come to a screeching halt and the money supply would crash... along with the economy, of course.
3. Very little of the money supply is in physical cash... Probably 1% or less. The vast majority of "cash" is really "X"es and "O"s in computers. If demand for cash went up significantly the Treasury would have to go into true "money printing" overdrive. It would be a logistical nightmare for them to have to print & distribute enough physical cash if a true "run on the banks" ever happened again here.
4. Because of the ongoing devaluation of our currency, the cost and true value of physical coins like pennies and nickels are higher than their face value. A couple of years or so ago it was costing the treasury about 60% above the face value to coin pennies & nickels.
It was because of devaluation of our currency that they stopped using silver to make coins years ago. It is also why they stopped using all copper pennies, but began using cheaper metals instead... but as the devaluation continues unabated even these cheaper metals are worth more than face value of the coins.
Those coins would be expensive & a hassle to store & safeguard but look like a pretty good investment to me. What else can you buy for 60% below market value and that can never go below the nominal value in dollars that you paid for it?
5. The banks also hate it because of the loss of control:
A. Capital controls were instituted in several European countries during their financial crisis. People were only allowed to take out small amounts of cash each week.
B. They also could not take or move much money out of the country.
C. The banks gave depositors "haircuts", which they called "bail-ins". If you had $100,000 in their bank this morning, they might keep $15,000 to help keep the bank solvent and you now only have $85,000.
If you had that money buried in your back yard they wouldn't have such easy access to it.
D. The government doesn't have you by the balls. They could seize the assets in the bank very easily and then dole out whatever they want to you whenever they feel like it... if they ever happen to in fact feel like it.
E. The government can also track what you spend, where you spend it and on what you spend it. They can track your movements as well. Bought some gas in Columbia, MO at 10 am, then in K.C. at 12:15 pm, then...
F. The government can make sure they are getting their cut in taxes on every purchase or sale you make.
Edited by JeffB at 14:07:59 on 08/28/16
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Several points... 1. Cash does not necessarily have to be - JeffB MU - 8/28 14:06:40