Posted on 05/20/2010 7:35:12 AM PDT by Neville72
You didn’t think that through. To start with, this posits a currency split, in which electronic money becomes very difficult to spend, because retailers refuse it, possibly with national bank holidays lasting weeks or months. A million dollars in the bank is worthless.
In that situation, cash is already deflated by 95% solely by shortage. There just isn’t more cash and coins, nor can there be in short order. So a 1 for 10 cash redenomination-deflation is only going to relieve the de facto shortage, while plastic coins can be minted to take up the slack.
The problem in the Great Depression was that there was no cash or coins, either, and considerable inflation was needed just to get it into the marketplace. The government needed to literally, not just figuratively, print money. But they did not for far too long.
Right now, the vast majority of US paper money is $1 bills, about 45% of all US paper money. But most people’s typical retail is in the $10 - $100 range. With an official 1 for 10 deflation, this makes a $50 purchase cost $5, and means a lot more people can make purchases just because there are far more $1 bills.
In effect, it is redenomination, to counter deflation. It buys time until electronic transfers can be reestablished to some extent, likely in the form of debit instead of credit.
Why would electronic money become difficult to spend? Why would retailers refuse it?
A combination of factors. To begin with, bank holidays, cash runs, and the failure of credit card bond issues.
There was already one issue failure, last November, which unnerved the cc companies. Without these bonds, there is no way the cc companies could underwrite the vast amount of monthly debt from cardholders. A few failures in a row would force them to cancel millions of cards.
Unfortunately, millions of people are dependent on their credit cards, and live a “month behind” in their income. Being instantly broke, yet still owing their debt, there would likely be a huge jump in bank check overdrafts.
One or both, joined with bank failures and holidays would almost certainly cause a cash run on the banks, stripping them of cash in minutes or hours, so they could only do electronic transfers.
Very few businesses have automatic check withdrawl, that along with overdrafts would quickly force them to abandon credit cards and checks.
Unfortunately, out of several possible cascades resulting in this catastrophe, real causative factors are less important than public panic, which is far less predictable. But because there is such a profound physical cash shortage in the US right now, we are facing an instant crisis, much like the almost catastrophe on Sept 15, 2008.
People are using less cash, not more and more electronic money, not less. And why would there be bank holidays?
There was already one issue failure, last November, which unnerved the cc companies.
I hadn't heard that. Who had an issue fail?
A few failures in a row would force them to cancel millions of cards.
How would that make my electronic money worthless?
so they could only do electronic transfers.
Yeah, electronic money.
Very few businesses have automatic check withdrawl
What's that?
that along with overdrafts
Customer overdrafts?
would quickly force them to abandon credit cards and checks
I think they'd be more likely to accept credit cards (debit cards too, electronic money again).
But because there is such a profound physical cash shortage in the US right now
It sounds like you imagine a time in the recent past when physical cash was above some magical % of all money when all was well. What was the magic % and what year was the last when there was no such "shortage"?
Kanjorski's unsubstantiated story?
The credit card bond failure was in November, 2008.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aajOmDkW3xeE
As far as the rest of your questions, they almost look automatically generated. Not my problem.
How would that work?
Not my problem.
LOL!
Ping me when we have the first bank holiday. Then maybe your fantasy will come true.
But because there is such a profound physical cash shortage in the US right now
It sounds like you imagine a time in the recent past when physical cash was above some magical % of all money when all was well. What was the magic % and what year was the last when there was no such "shortage"?
Maybe you can automatically generate an answer to this? LOL!
October 2008.
That's all you have? CC companies couldn't sell bonds at the height of the panic? When no one could?
That's why electronic money will become worthless?
That's funny.
Wonder if I should just pull out what’s left of my 401k and pay the penalty...or just loose it all,,,,
There are plenty of us wondering just that...
Click on my name to see my dogs.
btt
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