The Day the ATMs RUN OUT!

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“Please remember this warning when you go to the ATM to get cash… and there is none! While we were thinking about what was really going on with today’s strange new money system, a startling thought occurred to us.

Our financial system could take a surprising and catastrophic twist that almost nobody imagines, let alone anticipates. Do you remember when a lethal tsunami hit the beaches of Southeast Asia, killing thousands of people and causing billions of dollars of damage?

Well, just before the 80-foot wall of water slammed into the coast an odd thing happened: The water disappeared. 

The tide went out farther than anyone had ever seen before. Local fishermen headed for high ground immediately. They knew what it meant. But the tourists went out onto the beach looking for shells!

Here’s how … and why:

If you look at M2 money supply – which measures coins and notes in circulation as well as bank deposits and money market accounts – America’s money stock amounted to $11.7 trillion as of last month. But there was just $1.3 trillion of physical currency in circulation – about only half of which is in the US. (Nobody knows for sure.)

What we use as money today is mostly credit. It exists as zeros and ones in electronic bank accounts. We never see it. Touch it. Feel it. Count it out. Or lose it behind seat cushions. Banks profit – handsomely – by creating this credit. And as long as banks have sufficient capital, they are happy to create as much credit as we are willing to pay for,” states Smarter Analyst.

“After all, it costs the banks almost nothing to create new credit. That’s why we have so much of it. A monetary system like this has never before existed. And this one has existed only during a time when credit was undergoing an epic expansion.

So our monetary system has never been thoroughly tested. How will it hold up in a deep or prolonged credit contraction? Can it survive an extended bear market in bonds or stocks? What would happen if consumer prices were out of control? 
 

Currency in circulation: inflating at warp speed since 2008, via Saint Louis Federal Reserve Research

Less Than Zero

Our current money system began in 1971. It survived consumer price inflation of almost 14% a year in 1980. But Paul Volcker was already on the job, raising interest rates to bring inflation under control.

And it survived the “credit crunch” of 2008-09. Ben Bernanke dropped the price of credit to almost zero, by slashing short-term interest rates and buying trillions of dollars of government bonds. But the next crisis could be very different…

Short-term interest rates are already close to zero in the US (and less than zero in Switzerland, Denmark and Sweden). And according to a recent study by McKinsey, the world’s total debt (at least as officially recorded) now stands at $200 trillion – up $57 trillion since 2007. That’s 286% of global GDP… and far in excess of what the real economy can support.

At some point, a debt correction is inevitable. Debt expansions are always –always– followed by debt contractions. There is no other way. Debt cannot increase forever. And when it happens, ZIRP and QE will not be enough to reverse the process, because they are already running at open throttle. What then?

The value of debt drops sharply and fast. Creditors look to their borrowers… traders look at their counterparties… bankers look at each other…

… and suddenly, no one wants to part with a penny, for fear he may never see it again. Credit stops.

It’s not just that no one wants to lend, no one wants to borrow either – except for desperate people with no choice, usually those who have no hope of paying their debts. Just like we saw after the 2008 crisis, we can expect a quick response from the feds.

The Fed will announce unlimited new borrowing facilities. But it won’t matter….

House prices will be crashing. (Who will lend against the value of a house?) Stock prices will be crashing. (Who will be able to borrow against his stocks?) Art, collectibles and resources – all will be in free fall.

Never go into free-fall without the proper attire.

The NEXT Crisis

In the last crisis, every major bank and investment firm on Wall Street would have gone broke had the feds not intervened. Next time it may not be so easy to save them. The next crisis is likely to be across ALL asset classes. And with $57 trillion more in global debt than in 2007, it is likely to be much harder to stop.

Are you with us so far? Because here is where it gets interesting …

In a gold-backed monetary system prices fall. But the money is still there. Money becomes more valuable. It doesn’t disappear. It is more valuable because you can use it to buy more stuff. Naturally, people hold on to it. Of course, the velocity of money – the frequency at which each unit of currency is used to buy something – falls. And this makes it appear that the supply of money is falling too.

But imagine what happens to credit money? The money doesn’t just stop circulating. It vanishes. A bank that had an “asset” (in the form of a loan to a customer) of $100,000 in June may have zilch by July.

A corporation that splurged on share buybacks one week could find those shares cut in half two weeks later. A person with a $100,000 stock market portfolio one day, could find his portfolio has no value at all a few days later.

All of this is standard fare for a credit crisis. The new wrinkle – a devastating one – is that people now do what they always do, but they are forced to do it in a radically different way.

They stop spending. They hoard ……..Read the rest of the story at GramsGold.com

On the other hand, you could protect some of your money in gold, as that always holds it purchasing power. I believe in the next crisis that gold will be the last man standing, and will not only hold it’s purchasing power, but exceed it, as everyone will be flocking to buy it. 

Get some now while it’s still available. Because when you really need it, there won’t be any left.