Posted on 09/13/2009 2:19:29 PM PDT by Signalman
After years of selling cheap goods to debt-fuelled Western consumers, China now has $2 trillion dollars of foreign exchange reserves. That's 2,000 billion – a reserve haul no less 25 times bigger than that of the UK.
By Liam Halligan
Published: 6:05PM BST 12 Sep 2009
In a world of systemic instability, reserves mean power. Reserves mean you can defend your currency, stabilise your banking system and boost your economy without resorting to yet more borrowing – or, worse still, the printing press.
More than half of China's reserves are denominated in dollars. So when the dollar falls, China loses serious money. When you're talking about a dollar-reserve number involving 12 zeros, even a modest weakening of the greenback sees China's wealth takes a mighty hit.
In recent years, America has run massive budget and trade deficits, both of which put downward pressure on the dollar – so devaluing China's reserves. Beijing has remained tight-lipped, worried less about diplomatic niceties than the financial implications of voicing its concerns. If the markets thought China would buy less dollar-denominated debt going forward, the US currency would weaken further, compounding Beijing's wealth-loss.
[snip]
Let me say to everybody, the one thing that is guaranteed to *not* happen, is for everything to go “paflooey!” all at once.
People look at the start of the Great Depression as starting exactly on October 29, 1929, and assume that everything went to heck all at once. And they would be wrong. Most of 1930 wasn’t particularly a bad year, and it looked like the stock market might recover at least half a dozen times. In fact, so far, 2009 has looked a lot like 1930.
But this doesn’t mean things won’t get bad. What it *does* mean is that things will go bad one thing at a time. But one after another after another. With days, weeks and months in between.
So what is the likely first “little trauma” that could affect most people? A “bank holiday”. This means banks are closed during the week, and you cannot access the money you have in the bank.
Importantly, this could happen soon, within days to the last week of this September. No guarantees, mind you. But it would be very good if you had a thousand or two dollars in cash, at home in a safe place.
Such a bank holiday would be caused by a backlog of banks that have to close, and close faster than the FDIC can get money for them to cover their savings holders. Banks have been closing at a rate of between 3-7 a week since the beginning of the year, but so many banks are now called “zombie” banks, waiting in line to die, and at risk banks, totaling over 1,800 banks in the US.
And many will have to close before September 30th, the last day of the federal fiscal year.
So keeping some cash at home is a relatively low-risk way of not being terribly inconvenienced if you have to buy something and the banks are closed.
Cash will also be good to have because a bank holiday will unnerve a lot of retailers. So likely signs that say “cash only” will start to pop up. And a lot of people will want cash, but the US does not have very much paper money at all. Only enough to cover 5% of US daily retail.
So there will likely be a severe cash shortage. Another very good reason to have some cash money at home.
people can hord gold...they're aint' much of it in the world anyway realistically.....but who are they going to sell it too?.....
silver might be different...its more affordable and does have some industrial uses.....
will there be extra time to get bills in without penalty?...
I know you don't know but you probably have a guess...thx
You clearly see the problem. In effect, what happens is a “currency split”, with electronic money having a different value from cash money.
But this split has always been there, in that only paper money says “This note is legal tender for all debts, public and private”. A saying that packs a punch.
Electronic money is dependent on two things—that it is voluntarily accepted as currency for debts, and that it is transferable. If it fails in either regard, it is worthless.
In a bank holiday, you might have a million dollars in the bank, but not be able to buy a piece of gum. But this situation can be made worse.
That is, if a bank holiday is declared, there will be a “cash run” on bank savings deposits. But with only a tiny amount of printed money available, the banks will be stripped of cash in an hour. So even if they are open, all you can do is either move your electronic money around, or spend as much as you can.
Just to maintain this bare minimum 5% of printed money in the US, the two high security US Bureau of Engraving and Printing offices, in Fort Worth and Washington, D.C., have to work at 100% capacity.
Almost all the bills they print are $1 bills. They print only a small number of $100 bills. Because of this, they can’t print higher denomination bills anymore, because there aren’t enough $100 bills to make change for them.
This is why it would be a very good idea to have cash on hand. A bank holiday is a monkey wrench in the machinery of commerce. During the Great Depression, there were hundreds of bank holidays on particular banks, lasting from 3-300 days.
Here is the unofficial list of problem banks in the US:
http://www.calculatedriskblog.com/2009/08/problem-bank-list-unofficial-aug-21.html
Here is the current FDIC failed bank list:
http://www.fdic.gov/bank/individual/failed/banklist.html
The numbers are believable if you look at it as a hyperinflationary dollar collapse.
Check Wal-Mart: They’ve been carrying a brand called “Blazin’ Brass” in 9mm and some others - pretty inexpensive.
Instead, they will only realize the truth when the economic future unfolds to the blueprint of those of us the media labels as “gloom and doomers” because we base our predictions on reality instead of fantasy and lies.
(OT) Off Topic ... this affects everyone.
Bump!
Keep your head below the sand box rim; its safe down there.
.
I have a buddy who operates one of the cranes down at Long Beach and unloads the ships. I swear the guy works 2 days a week now, it’s that slow.
Yea, we know. Except we got our FDR in early. Scary isn't it?
bump
I suggest stocking up on beans bullets and toilet paper.
And candles, why?
Because its almost time for many companies to start their seasonal layoffs, maybe not all across America but where I live in Alaska its the norm to get laid off if you work construction from the end of october to as late as may.
Though I may draw the line at candles in my household we are preparing to hunker down and wait for winter to pass, of course I will have to draw unemployment benefits and may have to cancel part of my auto insurance and cut back on some Dishnetwork add-ons because last year I was unemployed from nov 4th to the end of march and spent all my safety reserve, of which right now has hardly been replenished.
Ramen bowl of noodles and tuna make a tasty healthy meal and of course oatmeal is required for breakfast.
Winter is coming, time to prepare for a possibility of even worse times coming.
I know there's things I haven't thought of...
Makes me glad I live in the South,,,
We won’t starve or freeze to death...
ping
You have the right mindset is all I can say, but to many people with monthly expenses its going to be a real shock when they find the cost of almost everything that WAS inexpensive is now suddenly higher.
I am forecasting a Chinese problem in the very near future, that goods from China will increase. A trade war is on the horizon and though China will lose money they can also stop ALL shipments to America.
Utilities will increase, especially any that are coal fired, because Obama will tax them to oblivion.
Fuel costs are not going to come down much from the summer high, if anything there will be higher fuel taxes.
The Federal Government will tax anything it can think of, mark my words.
Cut back utility usage at home, carpool and be prepared to not drive at all, trim the fat from the monthly overhead and be prepared to suspend some services like extra cable channels, cell phone extras or buying the double espresso at $5 or more, buy bulk and learn to create a healthy meal with more affordable goods, there is nothing wrong with rice, or baked beans.
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