How to "get into cash" ??

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barrt's picture
barrt
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How to "get into cash" ??

Hi all, im hoping to start a disussion on how to manage cash, please let me know your thoughts

Chris, and many others, are predicting a period of deflation and to me that sounds about right, sure looks like it at the moment! The accepted smart thing to do in the face of deflation is to;

1 Sell stocks
2 Sell gold (while perhaps holding on to a little to hedge against the possibility of inflation/ hyper inflation later on)
3 Hold cash (with a view to jumping back into gold when inflation comes later and much later on, back into stocks)

Ok, so ive done the first 2, no problem. I now have a fairly large cash balance in the bank! YIKES!

So, what ive done is to spread it around a bit between a few different banks so that im covered by the goverment bank deposit insurance. But, im starting to feel a bit worried about that, the Govt cant pay everyone back if many/ most banks go under which is certainly possible. The 2 banks i have savings with BOTH look shakey now!

So, whats my options here? somehow walking out of the bank with a suitcase of cash and hiding it in the back yard doesnt seem like a possibility, but i cant think of anything else!

Mesaage to Chris;
Hi Chris, please hurry with the final part of the crash course!, we need to know some sensible precautions we can take and we need it fast, the whole system is circling the toilet bowl now and we dont wanna go down with it!

How can we protect our savings? any ideas anyone?

Surely its not piles of cash under the mattress time, there must be an alternative no?
HOW CAN I PROTECT MY BANK BALANCE???????

Good luck everyone!

switters's picture
switters
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Not everyone (including Chris) would agree on selling gold

There are many, many experts out there who believe gold and silver are a good way to preserve wealth in both deflation and inflation.  In Chris's recent post predicting a deflationary collapse, he mentioned at the end of the article that he still recommends holding gold.  I've read several articles over the past few days by financial experts suggesting the same thing. No one is selling physical gold at current prices, and that's one reason there's almost no supply whatsoever.  

I'm taking cash out of the bank and hiding it, but I suspect you have a lot more to hide than I do.  I have more of my money in precious metals, also well hidden.  

Chris suggests keeping 1-3 months living expenses in cash at home, and spreading the rest of your money across 2-3 very highly rated banks.  You can use Bankrate.com's "Safe & Sound" ratings as a starting place; I believe Chris mentioned another rating system but I don't remember which one.

 

barrt's picture
barrt
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Thanks for the Bankrate tip

Thanks for the Bankrate tip switters, but does anyone know an equivalent rating system for UK banks? its getting VERY scarey over here now. (7th October) Royal Bank Of scotland is down 30% today and they have half of my savings!!

Deflation isnt very easy to understand, for me anyway. Not like inflation which we have all grown up with. But doesnt deflation mean that even your gold is going down in value? so in a deflationary period the only thing to hold is cash? I too have read 'experts' saying to buy gold,, ive also read others saying GET INTO CASH which seems right as everythign is going down down down, silver is way down and gold is only going sideways. If the 'buy gold' call was right then it would be going up now, this is the time for gold to be shooting up no? deflation looks most likely to me

If i wasnt worrying about deflation, i would have perhaps up to 70% of my savings in gold, instead im at about 15% in bullion with the rest in banks! scarey, which way to run?

Looking forward to some good advice, at last, from the last instamment of the crash course, any news Chris? and keep up the good work :)

barrt's picture
barrt
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doh! how did that post go
doh! how did that post go above your reply? Frown
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csadvisor
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Article on Deflation

 

The link below gives a good explanation to the issue of deflation.  The way I think of deflation is to consider you are airing up a tire that has a leak in it, as long as you keep pumping (expanding available credit) faster than the leak (decreasing available credit) the tire continues to inflate.  When you stop pumping (money isn't loaned/nobody borrows) the tire (economy) delates.  Check out the link to a pretty good article on deflation and its causes.

 http://www.elliottwave.com/deflation/

 

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switters
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There seems to be a 50/50

There seems to be a 50/50 split between analysts who are predicting deflation and those who are predicting inflation.  Mike Shedlock over at Mish's Global Economic Analysis blog is absolutely certain we're entering a deflationary period and that all Fed attempts to avoid this through printing money will be unsuccessful.  He argues that no matter how much money the Fed prints, they can't force banks to make loans or consumers to want them, and if loans aren't being made the money supply decreases.

Others predict a mixture of inflation and deflation, and still others predict hyperinflation from the get-go.  Nobody really knows what will happen, but many seem to agree that the long-term result (even if we have deflation for a couple of years) is hyperinflation and a big decline or total collapse of the dollar.

barrt's picture
barrt
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i think we can agree on one

i think we can agree on one thing, that its not clear as to whether we are going to suffer deflation or inflation. Its probaly wisest to accept that fact in my view.

Keep your options open and dont allow yourself to convince yourself if there is no real way of knowing

 it still doesnt answer my original question thouigh of How to get into cash? sell everything sure, but that just leads to a larger bank balance, which is not cash, its a liability of the banks and in the current situation is a big problem, yor cash could dissapear

so how do i turn it into cash? walk out of the bank with it in a plastic bag/ small suitacse?

 before this trouble banks would only allow you to withdraw 500 of your own money, would they now allow you to walk out with 5,000? 10,000? in a bag? i cant see it soemhow

 so, how do i protect my savings? anyone?

 

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EndGamePlayer
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Adding it all up . .

So I go shopping and realize - I just paid 6.5% tax on what I bought.

I pay 15% income tax and just saw a new tax pop up on the gas I bought to get there (2%). I pay taxes on my house ($1,000+) a year and I pay 6% on my home loan

15% on my credit cards (more than that if there are no late fees) and when I use my credit card to buy something, the retailer has hidden a 4% transaction processing fee in the goods I buy. 

THAT'S 48.5% of my money going to taxes, interest and hidden fees - So how the H_LL can these people NOT HAVE MONEY?!!!

 

 

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PeasantFarmerCFP
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Stealthy cash withdrawals

 

I’d be nervous walking out of my bank with a duffel bag full of cash, too. Fortunately my net worth is all tied up in my highly leveraged house. If I were you, I would go to the bank weekly (or however often they’ll let you) and withdraw as much cash as you can fit neatly in an envelope. Small business owners with merchant account do this all the time, why shouldn’t they let you? I talked to a manager at my WaMu branch and he said they were dispensing up to $8,000 per client per day before the takeover. For stealthier withdrawals:I’ve been telling friends/family to use debit cards for everyday transactions and ask for cash back on every purchase. At least here in Seattle, you can go to any supermarket, buy something and then debit your account for up to $100 in cash back per day per account. If they’ve got a self-checkout with a cash dispenser, you won’t even attract attention from the store employees. Do that every day for a month (or forever, until they shut down the banks) and you're building an emergency fund without having to walk into the bank and pull out stacks of cash in front of curious onlookers.  Now, if you can figure out, how I can get my house to start dispensing $100 in cash per day---while still allowing me to live there---I will bake you a dozen chocolate chip cookies.

 

ladamski99's picture
ladamski99
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You can also see about
You can also see about getting your ATM/Debit limit upped. Just call the bank and ask, can't hurt. In my younger, crazier days I asked my bank to raise my limit to 3000 daily for a trip to vegas and they never put it back down. Now you might have to visit more than 1 atm, but it could still work.
logBurner's picture
logBurner
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Whoa!

Do I get this straight?

Debt is the last thing to be seeking at the moment surely???

If things definately collapse over say the next year then fine good advice. However, surely these banks find a way to merge and live to see another day, in which case you are walking straight into their game plan? If you own property or have a mortgage then you would kiss good bye to that, go find another house?

 Am I missing something here?

S197's picture
S197
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I'm sorry but this thread

I'm sorry but this thread is ridiculous. If you're within the FDIC limit, your cash is safe. Keep a few thousand bucks around the house if you like in case of a short-term disruption but that's about all you need.

 

The FDIC will not fail. It can't. If it does, it will be the mother of all bank runs and a complete collapse of the financial markets. The government will print the presses until no end before they allow the FDIC to fail. And if it does? All that money you hid in your backyard or behind the dry wall will still be worthless.

 

If things get that bad, a bag of paper (dollars) and some shiny round metal discs (gold) won't save you. You'd be better off with a 12 gauge and some MRE's. This is about being prudent but I think the chicken little syndrome has gone to extremes. People need to take a deep breath and think rationally for a second. This isn't the end of the world. And even if it was, do you honestly believe a stockpile of fiat paper is going to save you?

 

PS. Not directed at any specific poster, just the general theme of this thread.

mainecooncat's picture
mainecooncat
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Leap of faith

Good Morning S197

Most of the infrastructure that girds the world's economy is illusory and is structurally sound only because everyone agrees that it is sound but not because it is. That's why the optimists refrain that our current problems are really crises of confidence and not real quite tragically misunderstand how economies function. Since nothing is real, confidence then is all there is. So therefore crises of confidence are as real as any economic crisis could be.  

I consider it a great leap of faith to adamantly believe that the FDIC represents some God-like entity that can never fail. Why could it never fail? Certainly not indirectly because the economy it insures is sound. Certainly not because they actually have the funds on hand to actually insure what they supposedly insure, because they don't.

The great illusion regarding banks and the FDIC -- and one held by an overwhelming majority of Americans -- is that your money or insurance funds backing your money are actually in them, somewhere, physically existing in a physical space. But this is not the case. Your money is long gone, and banks only survive because everyone doesn't need their money at the same time. The simple truth is that if everyone who has money in a bank were to ask for their money back at the same time (this should be a reasonable proposition) the bank would go belly-up. The FDIC can only function consistent with its original intent if a very, very tiny percentage of insured deposits need backing. If a large percentage need backing then it crumbles or, like you said, they run the presses, which is just as bad.

The question that is begged by this is where, then, is your money, and why is someone else using your money for purposes that are completely opaque and beyond your governance. Well, your money is actually being used by financial wizards (I employ this term pejoratively) to enrich the denizens of Wall Street culture while the individual holders of these accounts are hit with a galaxy of usurous fees (By the way, even Bernanke points this out. He specifically says overdraft fees are bogus). Welcome to the hallucinated 20th century American financial house of cards.

Our entire economy, our entire way of life really, is based upon a vague, almost culturally programmed, tenuous acceptance that this is how things work. But our system doesn't work, has never worked, and the unraveling of its death-spasm machinations (bailouts, "infusions" of hundreds of billions into the system) is finally bubbling to the surface for all to see. I think we're really now, in 2008, just seeing the first faint image of the tip of the iceberg. Those who speak of bottoms. God help them.

switters's picture
switters
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S197,The FDIC can absolutely

S197,

The FDIC can absolutely fail.  It's guarantee is only as good as the system behind it.  And as we're seeing, that system is about as stable as a house of cards.

The failure of the FDIC would not mean the end of the world as you describe.  Humans lived for a very long time without anything like an "FDIC", and they will continue to live for a long time without it if it fails here and in other countries. Eventually the fiat currency system will fail (as Chris's Crash Course suggests) and we will likely return to barter and local currencies. 

Now this probably won't happen overnight and there will be many steps in between.  But there's nothing "solid" about the FDIC that would prevent it from failing in massive global financial crisis.  People who take steps to mitigate some of the losses they'd incur if this happened are certainly no more delusional than those who insist that it could never happen.  I'd argue, in fact, that history is on the side of those who are prudent. 

Regardless, I don't think failure of the FDIC is the focus of this thread.  It's extremely likely that some banks will fail and others will not.  So wouldn't it make sense to try to figure out which banks are least likely to fail and then put your money there?  Why wouldn't a smart person do that?

Also, even if the FDIC remains completely functional, a string of bank failures will stress the system to say the least and people with deposits in those banks will probably not get their money back right away.  Again, why wouldn't a smart person try to avoid this hassle?

Finally, Chris has said and many agree that a "banking holiday" is possible in the next several weeks or months.  Having some cash on hand in the event that this happens just makes sense.  

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Maldek
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barrt & others

Hi,

the reason why "experts" cant decide on deflation vs. inflation is the simple fact that we will have both.

At first the collapse of virtual money and virtual values (stock prices, banks...) will give a deflationary pulse - at the extreme level of banks not opening, credit cards and ATMs not working for some time.

During this period you do NOT need any gold/silver nor do you need cash on any bank account. You do need to buy food, gas and for that you need cash on hand. Best IN your hand. For this period i do advice people to keep 3 months worth of cash in stock along with some reserves in water and food. It is not wise to be financialy save but having to exchange your gold coins into potatoes because you are starving. This is even more true in cities where shortages are likely to happen at least for some time.

Our goverments in the 1. world countries are kinda efficient in what they do. I am serious folks ...they ARE efficient, they just have other priorities than what you think. As a small hint - your personal well beeing or that of your family and friends is not top ranked - that is YOUR responsibility. This is to make this point perfectly clear - if you dont prepare for your beloved no one else will. period.

 Ok back to topic the goverment is efficient and they dont like deflation at all so they will make sure there is enough money around. In old days they would print money 24/7 and even rent extra printers to keep up. Nowadays it is just a matter of hitting "0"s into a computer so even many Billions or even Trillions are nothing that would cause "Heli-Ben-Bernake" much sweat to produce out of thin air. Its his day by day job after all and he got enough practise by now.

So after about 3 months deflation is gone and we start seeing hyperinflation. And now THAT is the point when gold/silver is going to shine. This is when you have gold or wish you had bought some earlier. To make this perfectly clear it is of NO importance what 1 oz of gold at that time will cost because the primary use of gold is not to convert it back to papare....it is to BUY you things. Valuable things like companies or big houses and the like.

If you have seen the whole crash course on this site (what you should, its excellent) you know by now that i am NOT talking about a time 10 years in the future ...this is going to happen until 2010. And yes i am very specific at this point - you will see this until 2010 at the very latest.

All the best

 PS:  Since i might not be there to answer your questions later i am going to read your mind a little:

"How the hell can he know the magic 2010 number?" Well this is basic maths + basic economic data. Big amounts of new fiat money take 12-18 months from the time they come into beeing by waving a magic stick until the impact prices on a consumer level. So the inflation you have seen until now (13-18% real in the US and ~15% in EU) is NOT what thappened since august 2007 when the housing bubble started to burst, no yet. This will come to you soon and the massive inflation created since march 08 you will ask? Bear stearns, fanny mae, freddy mac, AIG, "paulsons-self-bail-out" (did you know he is holding 700,000,000 U$ of stocks on wall street banks, not few of it on margin?" yes he NEEDED that bail out badly) what about that.....go figure when this will hit YOU. There is a little bit more to it but that can wait.

 

 

 

 

 

S197's picture
S197
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I think some of you are

I think some of you are missing my point.   I'm well aware of the reserves (or lack thereof) of the FDIC.  I also said keeping some cash on hand for short-term disruptions (like the bank holiday) would be a good idea.  I read guys like Roubini on a daily basis, so I'm well aware of the worst case scenario.

 My point is not that the FDIC will never fail, my point is that if the FDIC fails, your dollars will be good only as firewood (see Zimbabwe).  The second a banking institution fails and a person walks out with anything less than their $100,000 check, there will be a massive run on every bank in the US.  Everything will collapse.  The government will do everything in its power (ie. run the printing presses non-stop) to prevent this from happening. 

 What will your $100,000 buy in this scenario?  Probably not much, but you'll get your check.  I bring this up only to illustrate that if the FDIC fails, our fiat currency whether in Wells Fargo or buried under the dog house will be virtually worthless.  So you may as well leave it in an institution with government backed insurance.  You get no insurance digging a hole in your backyard.

 I think people should prepare for this like you would for a hurricane or other natural disaster.  Have some non-perishable food on hand, some cash, and any other necessities you need.  Fear leads to irrational behavior, I just didn't want to promote any more of that than we need.

G's picture
G
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Indeed

If the FDIC fails to pay out then the system is doomed anyways so you might as well leave the bulk of your money in the bank and try to contribute to the liquidity of the entire system. Take out what you need for a month of expenditures in cash.

Fear and panic are only going to hurt everyone, if there is a mass run on the bank then things will be very bad. So stay cool, hard times are here and will stay for a while. However we all have a chance after the short term issues settle some to affect appropriate change, i.e. like reducing our individual and national debt.

I do not owe any debt. I am NOT rich, I work full time in health care and so does my wife, we have two kids. We save a good percentage of our income and we save for what we want. Neither of us even has a REAL credit card. I do not buy what I can not afford, we have always lived this way. To bad the American people in general are so much in debt. A lot of people out there bought to much house, had to have that large screen TV, had to have a SUV when a compact would do, and put it on a credit card or took out a loan. America's citizens bear as MUCH responsibility as the government for our buy first and pay later, deficit minded society. How can you ask your governement to be fiscally responsible if the citizens are not and visa versa?

Now everyone wants handouts, banks, corporations, and citizens. And I am and you are paying for it.

The whole thing makes me freaking sick. So before anyone points a finger at corporate America, the government, or anyone or anything else, you better get real about your own lifestyle, because nothing will change unless we change and then force change on the government.

Socialism is coming, heck its here, the government will soon own a little bit to much. Should just let the greedy corporations, investors, banks, and citizens fail, that is the ONLY thing that would teach them the necessary lessons they failed to learn previously.

 We need a return to TRUE free market economy, free of unnecessary government regulation, with prudent and safe guarding regulations, the cessation of a central bank, and money that is backed by something tangible. If we do not do change and we actually recover from this debacle then it will only happen again and one of these times it will truly be the end.

Ah I feel better,

G

mainecooncat's picture
mainecooncat
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Just a thought here

I'll be super brief, if that's possible.

The financial meltdown actually has nothing to do with any of the following: the FDIC actually having no power to carry out its purpose, crazed Wall Street greed, irresponsible consumers living beyond their means, deregulation, opaque and exotic financial mechanisms. You know, the usual suspects.

But it has everything to do with two main issues: our debt based, inherently flawed, unsustainable monetary system simply finally imploding due to the price of oil.

Isn't that the unconnected dot here. Peak oil is causing all of this. Does anyone believe the world would be in this same situation if oil was still ten dollars a barrel.

 

G's picture
G
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@maincooncat

nice pen name by the way...

I agree with you in large part, this has some correctness " ...our debt based, inherently flawed, unsustainable monetary system simply finally imploding due to the price of oil."

But Americans were oblivious to those facts, borrowed large sums of money they could not repay, owe credit card debt, car debt, house debt the list goes on. They lived imprudently no matter what kind of money system we have/had, examples are multitudinous in history, EVERYONE was greedy everyone.

Change is hopeless unless there is a fundamental change in the desires and actions of our citizens in general.

I believe I pointed the finger everywhere.

G

Golden Age's picture
Golden Age
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You can move cash without going to your bank/credit union

if you have the option of banking on line.  Move some cash from savings to checking and write a check.  Take the check to your broker and invest in http://www.centralfund.com/, ticker CEF.  Central Fund of Canada invests only in physical gold and silver and the metal is held in a vault in Canada.  The ratio is about 55% gold to 45% silver.  They do not hedge any of their holdings, the metal is kept in a vault in a bank in Canada. 

IMO, this is a safe way to hold some cash away from the bank.  The stock is very liquid and you can cash out when you choose.   The price of the stock today is 11.55.  I learned of this stock from Howard Ruff.  Howard is one of the most respected financial advisers around.

Maldek's picture
Maldek
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S197

2001 in argentina this banking holiday did last a few MONTHS...not days.

This was done to prevent brank-runs.

"My point is not that the FDIC will never fail, my point is that if the FDIC fails, your dollars will be good only as firewood (see Zimbabwe).  The second a banking institution fails and a person walks out with anything less than their $100,000 check, there will be a massive run on every bank in the "

The result was they lost 2/3 of value when banks did re-open due to inflation. All pay-checks also have been reduced to 1/3 in their purchasing power. Cost of living on the other hand didnt get cheaper. Thats how you transfer a first world country into a 3. world country. Think about it.

 

S197's picture
S197
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Maldek

[quote=Maldek]The result was they lost 2/3 of value when banks did re-open due to inflation. All pay-checks also have been reduced to 1/3 in their purchasing power. Cost of living on the other hand didnt get cheaper. Thats how you transfer a first world country into a 3. world country. Think about it.[/quote]

 Yes, I'm aware of that which is why I said:

 "What will your $100,000 buy in this scenario?  Probably not much, but you'll get your check.  I bring this up only to illustrate that if the FDIC fails, our fiat currency whether in Wells Fargo or buried under the dog house will be virtually worthless.  So you may as well leave it in an institution with government backed insurance.  You get no insurance digging a hole in your backyard."

 The question was asked where to park Cash.  My response was in an FDIC insured account.  Why?  Because whether you have it in a bank or under your mattress it will be devalued either way should the FDIC fail.

 Yes, Argentina had a very long banking holiday.  And it costs over $50 billion Zimbabwe dollars to buy a loaf of bread.  But we're talking about the US so maybe some apples to apples comparisons would be more helpful?   

1440 minutes's picture
1440 minutes
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S197

If the dollar suddenly lost one-third of its value in order to cover massive runs on the banks, then I could see why that might suddenly transform the USA into a third world nation, but I don't think that we would be at the point of burning dollar bills to keep warm.  Am I missing something? 

Good point that the FDIC probably would shift the printing presses into overdrive in order to cover deposits in case of a major run on the banks.  However, shouldn't we assume that the bureaucrats would screw this up (Katrina, Iraq, etc.)?  If so, then how long would the banking holiday need to be for the bureaucrats to get it right?  Days?  Weeks?  Maybe repeated holidays as more and more screw-ups emerge?  If the banks were going to be closed repeatedly and/or for quite a while, then wouldn't that be an argument to keep some cash outside of the bank?

 

And what if there were frequent rolling energy blackouts (or worse)?  ATMs, computers, etc. wouldn't work.  Probably the branch offices of banks would close along with every other business establishment.  Wouldn’t that be a reason to keep money outside of banks in addition to having energy backups in our houses?  As long as people saw the power restoring intermittently, then wouldn’t cash come in handy?

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