Scrooge McDuck’s Vault

As I hope I’ve made clear in past discussions, the primary economic utility of Ur Cow Tokens (or Yap Island stones) is as a medium of exchange. It’s much easier to give someone a few pressed lumps of dirt than it is to move an actual herd of cows from one place to another particularly if these are future cows (call them calves) based on the speculative fertility of bulls.

Likewise other commodities most of which do not have even the fertility of bulls or their valuable by products like manure and milk and meat. They are ornery and smelly and don’t have very good shelf life. Want an example? How about Oil? It’s lost over half its value (as a medium of exchange) in 10 years and it’s positively toxic to store, eating away at metal containers (like ships and oil tanks) at an alarming rate. About the only solution that doesn’t cost an arm and a leg is to pump it back into the ground.

Money is no “store of value” whatever definition you put on value, at least in the long term.

In terms of what is happening now, central banks have unleashed a flood of what’s called “liquidity” but is actually large chunks of cash into the economy. The hope was that this would stimulate demand. That their largess has been wildly ineffective is based primarily on how it has been distributed- to the wealthy who already have all the money they can spend and are highly unlikely to change their purchasing behavior except by increasing the amount they apportion to gambling on the next tulip bubble.

Back in the olden days of the Templar Knights, they used to charge you to take your gold, jewelry, and other bright and shiny objects that you used in ordinary exchanges to buy manure and milk and meat and turn them into letters of credit you could easily fold up in your pocket and transport someplace else where you could again purchase manure and milk and meat and other bright and shiny objects. We do the same thing today only we call them bonds or T-Bills.

While this recently was considered a favor the wealthy bestowed it is traditionally and always has been in reality, a service. Central Banks have gone from paying for money (and why not? They can print as much as they like.) to charging you. This is called negative interest.

And it’s a good thing. The economic effect is intended to be that you are discouraged from hoarding large piles of cash and encouraged to invest it in productive enterprises.

But it hasn’t worked and why is that?

Fundamentally it’s that we have so much extra capacity (Supply) that merely marketing your created object (Demand) can’t support the rates of return you can get from crossbreeding rare hybrids, which are pretty to look at for sure and smell nice until they rot in a vase and you have to pitch them on the midden of history.

Conservative economists keep pushing the string of Supply, more is always better, right? What you have to do is pull the levers of Demand and unfortunately that means dealing with the inequality gap.

They are trapped by the Calvinist notion that wealth equals virtue. And virtue of course means delayed gratification, pie in the sky by and by, by and by, which is of course simply an excuse for why God (if you believe in such a thing) allows evil to persist.

I am taken by a scene in Hitchhiker’s Guide to the Galaxy where the Earth is about to be destroyed (and it is, spoiler) and Ford Prefect takes all his money out of his pockets to pay for 6 Pints of Lager. “Good luck. You have exactly 5 minutes to spend it.”

How bad is it? This bad.

Banks look for cheap way to store cash piles as rates go negative
Claire Jones and James Shotter, CNBC
Tuesday, 16 Aug 2016

After the European Central Bank’s most recent rate cut in March, private-sector banks are paying what amounts to an annual levy of 0.4 per cent on most of the funds they keep at the eurozone’s 19 national central banks.

This policy, which has cost banks around €2.64bn since ECB rates became negative in 2014, is intended to spark economic growth by incentivising banks to lend money out to businesses instead of holding on to it.

European central bankers say they could cut rates again should economic conditions worsen, but private bankers and insurers are already thinking of creative ways to avoid those charges altogether.

One way is by turning the electronic money they keep at central banks into cold, hard cash. Munich Re has experimented successfully with storing a double-digit million sum of euros in cash at what the insurer describes as a manageable cost. A few other German banks, including Commerzbank, the country’s second-biggest lender, have also considered taking the step.

But when a Swiss pension fund attempted to withdraw a large sum of money from its bank in order to store it in a vault, the bank refused to provide the cash, according to local media reports.

If this practice becomes widespread, it would have big economic implications. If banks are not paying central bank interest charges, then they won’t be as affected by further official interest rate cuts. They therefore would not be spurred to lend out more money.

At the moment, there are euro notes worth €1.087tn in circulation. Banks have almost the same amount (€988.1bn) that they could demand from the central bank.

The national central banks stockpile banknotes, and the ECB has measures in place to supply them on short notice if demand soars. A spokesperson for the ECB said: “Rest assured that the ECB and the eurosystem will continue to make all necessary arrangements to ensure a smooth functioning of cash as a means of payment and a store of value.”

The German banker said it is unlikely that cash hoarding would become a widespread practice. Rather, it is a good way of registering banks’ protest over the impact of negative rates. “It would be sensible for two or three banks . . . to make clear that there is a lower bound for interest rates,” he said. “I don’t think the Swiss National Bank will be able to cut rates again without insurers and banks trying to hoard cash.”

“[Hoarding cash] is in nobody’s interests. It would cost banks a lot and would clearly mean that central banks can’t really do anything to lower interest rates at the moment. Every side wants to avoid it.”

“It would be sensible”? For who you arrogant asshole? The notional “value” of your hoarded electrons is as faith based as your theology which worships Mammon, not Jesus. What would be truly sensible is regulation to limit the light years of exposure financial interests gamble with every day.

Oh, and give people some money too. That would increase Demand and return productive enterprise as the investment of choice instead of tulip futures.


  1. THIS is hilarious!

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