Goldtent TA Paradise

GLOBAL COMPUTER CRASH PROVES PHYSICAL CASH IS ESSENTIAL TO ANY ECONOMY

1. Fullgoldcrown says:

   July 27, 2024 - 9:53 pm at 9:53 pm

   BOOM reported this on 13th August 2023: “In the West, there is a decline in the population of willing borrowers due to their declining working age populations. To ensure a return to economic growth and controlled CPI inflation, Western governments will have to quickly issue increased volumes of non-interest bearing, physical cash into their economies and encourage people to use it as much as possible. In other words, Western governments will have to take back the control of their money supply which they have effectively surrendered to private (retail and commercial) bankers over the last 400 years and especially over the last 50 years.”

   Bankers create fresh new credit money when they issue loans to willing borrowers.

   BOOM went on to explain that under our current debt-based western money system: “if borrowers become either reluctant or shrink in number from disease, demographics or warfare and the Government does not increase physical cash in circulation, then the economy becomes starved of fresh newly originated money. The result is economic stagnation.”

   Of course, there is a third option available if the money supply weakens sharply and that is Quantitative Easing (QE) where fresh new money is created in the banking system without external borrowers and spent into the real economy via asset purchases. Central banks are reluctant to use QE because it can distort asset markets, leading to asset price inflation or it can trigger higher rates of CPI inflation. They are particularly reluctant to use large volumes of QE because of those potential adverse consequences.

   So – the best option is to permanently increase the volume, velocity and availability of physical cash. The real economy should be incentivised to use physical cash at all times and adequate quantities must be made available with easy access.

   Only a foolish nation abandons its currency, either in a currency union (such as the Euro) or in the form of physical cash. Any central bank that cannot see this is also foolish in the extreme. And any government that cannot see this is worse than foolish. It is arguably acting in treason against its own people.

   This can be summed up easily as a matter of economic principle – Physical Cash must always be readily available in any economy and its use encouraged. No foreign currency must be allowed to circulate.

   CASH IN SOUTH AFRICA

   Cash is especially popular in South Africa. A recent survey there showed that roughly 65% of South Africans withdraw over 40% of their monthly income as Cash. Only 8% said they withdrew less than 20% of their income.

   Despite being a highly banked population, a recent report by payments provider Stitch found that many South Africans still withdrew a significant portion of their salaries to transact in cash. “As many as 95% now have a salary paid into a bank account each month, but many of them withdraw all or most of its as cash for day-to-day transactions,” Stitch found.

   “Even as digital payment methods have grown in popularity in recent years, cash remains dominant. Our research found that South Africans use cash regularly, typically on a weekly or even daily basis.”

   BOOM doubts if you will ever see bankers discussing the benefits of physical cash. But there are many. Let’s look at the list of benefits of cash.

   BENEFITS OF PHYSICAL CASH MONEY

   Cash is Sovereign money,

   Cash is the Peoples money,

   Cash is non-interest bearing at origination,

   Cash is fungible,

   Cash is non-electronic,

   Cash is anonymous,

   Cash supply is immediately responsive to increased demand from the people,

   Cash provides an excellent buffer against excess creation of interest bearing credit money.

   By comparison, Credit money is created as a bank loan, is kept on an electronic banking ledger and therefore is mostly collateralised against existing assets which re-enforces the Cantillion Effect. The Cantillion Effect was described way back in 1755 by Richard Cantillion in Ireland (it was published long after his death, by the way). His observation on money supply is historic and one of great clarity. He described how some members of society benefit more from being closest to the origination of fresh new money. In other words, if most fresh new money is created as a bank loan, then that will favour the rich and powerful (who own assets that can be used as collateral) over the poor and the weak. It will, of course, allow those people to purchase yet more assets and thus this effect gives rise to asset price inflation – which is a subject almost never mentioned by economists, bankers or politicians.

   GOVERNMENT DEBT TO GDP RATIOS AND EXCESSIVE RISK TAKING

   BOOM never recommends other economic commentators. Why? Because BOOM is unable to find anyone, anywhere, who is worth reading or paying any attention to. Most belong to obscure economic religions and simply regurgitate the dogma of whatever “school” of economics they adhere to. Sadly, economics is largely an intellectual wasteland, devoid of curiosity.

   The subject of Government debt is a typical example. There are seemingly endless numbers of articles on the matter and the authors almost always refer to the ratio of Government debt to GDP as if it is a proven indicator of economic doom. And yet, this ratio never seems to bear any predictive success.

   BOOM knows why. The ratio compares 20 – 30 years of government bond issuance (“debt”) to just one year of GDP. It is a ridiculous comparison. The debt will mature at many different maturity dates over many different years in the future. The annual GDP is an assessment of past total transactions that have occurred in the previous year.

   BOOM cannot understand why the ratio exists. And the numerous articles written about it are of little to no value. So why are they written?

   The issue of excessive Private Debt is far more consequential to any economy. However, it is avoided like the plague by economic commentators. BOOM cannot understand why this is ignored but suspects that the banking system has undue influence on the “profession”, either via surreptitious control of the education of economists or via power over their employment prospects.

   Excessive amounts of private debt distort asset prices (causing asset price inflation). Such excess cannot exist without irresponsible bankers making poor decisions regarding bank loans. If bankers extend too much debt money to borrowers who are overly optimistic, the money supply blows out. And that debt is usually based upon excessive valuations of assets (most often of real estate). All of this is symptomatic of unwise and excessive risk taking both by bankers and borrowers.

   Those excessive valuations have a knock on effect in the CPI inflation pressures inside the real economy. The result is a roller coaster ride of difficulty in controlling the subsequent CPI inflation.

   The central bank then says “gee whiz, how did that happen” and they pull on their only lever of control, interest rate settings. Money volume management is simply largely ignored. And the central banks have no direct money volume control mechanisms, preferring to have blind faith in their “monetary policy”.

   Again, BOOM suspects that this is all left unattended to because the roller coaster ride benefits the profit potential of the retail and commercial banks. Banking should be much more akin to a public utility and it is the politicians who need to understand that. If the banking system is dominated by shareholder owned banks focused on “shareholder value” and dividends, then the roller coaster is inevitable. The solution is to have a mixed ownership model for the banking system. Community owned, mutual banks which do not issue dividends are extremely important. And Government owned banks need to be operated that return profits to the taxpayers. Also, the importance of physical cash must be understood. Lastly, there must be significant incentives extended to entrepreneurs who seek to build private businesses and family wealth. Western advanced economies now do the exact opposite with public servants earning ridiculous salaries for taking no personal financial risk whatsoever. If these matters are well understood by the political class, economic stability will be the result.

2. pedro_deleon says:

   July 27, 2024 - 10:44 pm at 10:44 pm

   RS is from So Afr — they don’t have reliable power. Any place that doesn’t would be foolish not to rely on cash.

   “the authors almost always refer to the ratio of Government debt to GDP as if it is a proven indicator of economic doom. And yet, this ratio never seems to bear any predictive success.

   BOOM knows why. The ratio compares 20 – 30 years of government bond issuance (“debt”) to just one year of GDP. It is a ridiculous comparison.”

   BULLSHIT … see Rogoff and Reinhart on what happens when public debt exceeds GDP (ratio over 100). Its not instantaneous, no.

   Yes, Debt to GDP is stock to flow. That is not ideal. But its the debt service (to GDP) that matters, and probably growth of GDP too. The problem come when debt service costs grow faster than GDP. But the debt stock sets that table.

   “The solution is to have a mixed ownership model for the banking system. Community owned, mutual banks which do not issue dividends are extremely important. ” He’s reading Ellen Brown.

   “And the central banks have no direct money volume control mechanisms, preferring to have blind faith in their “monetary policy”.

   Well “money volume” gets decided by BANKERS. Expand loans or contract them?
   But Fed does Operation Twist etc. to skew the incentives there. No, not direct.

   Right now the big MISS in monetary analysis is the same one I picked up on in grad school. Fed this Fed that. No, central banking is global, and money is fluid. Use T2 (the global money supply) that only Bloomberg terminals seem to reveal. And watch PBOC. They are steering the global monetary boat.