Author Topic: Stuffing cash in the mattress  (Read 4647 times)

my2c+61

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Stuffing cash in the mattress
« on: October 23, 2016, 01:32:16 AM »
Came across an article that touched on local bank cash rate at zero or negative rates.

With bond rates in negative returns, what would you do if you where to loose money on savings accounts or term deposits if domestic bank hit negative returns.

http://www.smh.com.au/business/markets/currencies/how-phasing-out-cash-could-help-the-economy-20161020-gs6mpr.html

Then if people started to stash cash under the mattress what would that mean for bank liquidity.

Metric Mouse

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Re: Stuffing cash in the mattress
« Reply #1 on: October 23, 2016, 01:39:02 AM »
I think the article touched on the point that it would be better to borrow at negative interest rates.  Why worry about cash earning zero when one could borrow money and be paid for the loan?

alsoknownasDean

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Re: Stuffing cash in the mattress
« Reply #2 on: October 23, 2016, 02:10:23 AM »
Also if cash is in a savings account it's unlikely to be lost in the case of fire or theft.

I can't remember the last time I saw a $100 note, but apparently there's heaps of them in circulation. Obviously some people like to hoard the stuff.

Isn't use of cash declining anyway?

Another thing I seem to recall was that 500 notes had a reputation of being commonly used to finance terrorism because how easy it was to transfer large quantities of cash.

http://www.wsj.com/articles/500-euro-banknote-being-phased-out-1462381987
« Last Edit: October 23, 2016, 02:30:10 AM by alsoknownasDean »

BigHaus89

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Re: Stuffing cash in the mattress
« Reply #3 on: October 24, 2016, 02:55:22 PM »
Freakonomics did a podcast about the use of cash. Basically, the largest notes are used primarily for illegal things(drugs and such). I recommend checking it out.

Reynold

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Re: Stuffing cash in the mattress
« Reply #4 on: October 24, 2016, 03:35:56 PM »
Freakonomics did a podcast about the use of cash. Basically, the largest notes are used primarily for illegal things(drugs and such). I recommend checking it out.

Although one of those illegal things is increasingly at risk of becoming "because I don't want banks to charge me for holding onto my money".  Even in places like Japan and Europe where there are negative interest rates at the Reserve Bank level, I don't think those rates have been passed along to depositors yet very often, but there has been increasing discussion of making that happen.  Note that the main argument discussed in the OP's linked article is that cash needs to be removed to allow "unconstrained" negative interest rates to force people to spend money when the government decrees it.  The Wall Street Journal had an article a couple of months ago arguing the same thing.  I'm not sure if a Mustachian should support government polices to make people spend more money. 

marty998

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Re: Stuffing cash in the mattress
« Reply #5 on: October 25, 2016, 01:29:28 AM »
If you are going to do it, just make sure you ask for actual cash and not a cheque.

If you are left holding a bank cheque you go into the queue as an unsecured creditor of the bank, behind everyone else except for equity shareholders.

Story in Australia about 15 years ago when there was an unfounded rumour of one of the smaller banks going under. Little old ladies didn't want to be caught carrying wads of cash and run the risk of being robbed so they asked for cheques that could be redeposited back into another bank at a later date.

A cheque is worthless in that scenario.

Monkey Uncle

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Re: Stuffing cash in the mattress
« Reply #6 on: October 25, 2016, 04:32:35 AM »
Freakonomics did a podcast about the use of cash. Basically, the largest notes are used primarily for illegal things(drugs and such). I recommend checking it out.

And craigslist transactions.  If you're buying an old car from a stranger who doesn't trust you, you're going to need a wad of Benjamins.

Syonyk

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Re: Stuffing cash in the mattress
« Reply #7 on: October 25, 2016, 09:23:21 AM »
Ah, yes, the "Well, consumers gotta spend money or our economy will crash, so we gotta make them spend money!" approach, assuming, of course, that "consumers" are an endless money pit to be tapped.

That few thousand in savings that people have?  Why, they're basically terrorists for keeping that away from the Almighty Economy.

With bond rates in negative returns, what would you do if you where to loose money on savings accounts or term deposits if domestic bank hit negative returns.

Speed up my rate of spending on productive property improvements to improve my ability to provide for my family and, ideally, my local community when the next big crash hits.  Probably also invest in some equipment to work with gold/silver so I can work on alternate local currency that's backed by something reasonable.  I didn't have space to pick up some fractional silver presses a number of years back, and I kind of regret not doing so at this point.

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Then if people started to stash cash under the mattress what would that mean for bank liquidity.

Zero.

Also if cash is in a savings account it's unlikely to be lost in the case of fire or theft.

Right.  It's just somewhat likely to be lost to bail-ins, negative interest rates, etc.  Or just inaccessible for whatever emergency happens.  Pick your risks.

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I can't remember the last time I saw a $100 note, but apparently there's heaps of them in circulation.

Huh.  It's actually weird to me that I don't have a few of them on me - need to run to the bank at some point.  They're useful to keep around, and are generally accepted most places.

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Another thing I seem to recall was that 500 notes had a reputation of being commonly used to finance terrorism because how easy it was to transfer large quantities of cash.

The horrors of people wanting to transfer value without government inspection...

I expect the negative interest rate folks will grab the bitcoin article headers soon.  "Cash, a form of money commonly used to purchase drugs, child pornography, and finance terrorism, has..."

...I don't think those rates have been passed along to depositors yet very often, but there has been increasing discussion of making that happen.

They won't be - not directly.

You'll be earning 0.01% interest on your "savings" account, with an 0.2% monthly account maintenance fee.  Waived if you spend enough on their credit card or whatever.

And craigslist transactions.  If you're buying an old car from a stranger who doesn't trust you, you're going to need a wad of Benjamins.

Seriously.  The last guy I bought a vehicle from was rather surprised (happily) that I showed up with a wad of cash.  He'd said "cash," so I took it literally, and brought an envelope with a lot of cash.  Apparently a lot of people brought cashier's checks and the like when he was selling things.

=======

Nothing good comes out of banks having to rewire things so they can force negative interest rates.  It'll only kick the can a few more years.

gp_

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Re: Stuffing cash in the mattress
« Reply #8 on: October 25, 2016, 11:17:04 AM »
on the fence with this...

i read a story about 5 years ago, where this woman in israel had been saving money in her mattress for most her life. her son surprised her one day by buying her a new mattress and throwing away the old one - not knowing she stored all her money there! the woman said the mattress had over $1mil cash. the article said they scoured the garbage dump for the old mattress. unsure if it was ever found.

i doubt i'd ever have that problem, but it points to one of the many variables which exist for it disappearing.
« Last Edit: October 25, 2016, 11:22:24 AM by gp_ »

DA

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Re: Stuffing cash in the mattress
« Reply #9 on: October 25, 2016, 11:39:32 AM »
I think the article touched on the point that it would be better to borrow at negative interest rates.  Why worry about cash earning zero when one could borrow money and be paid for the loan?

But individuals are not getting negative interest rates on loans, are they?  Anyway, leveraging up can greatly improve profits, but it increases risk as well.  TNSTAAFL. 

soccerluvof4

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Re: Stuffing cash in the mattress
« Reply #10 on: October 26, 2016, 05:23:11 AM »
They do make fireproof safes last I checked so forget the mattress concern.

Having some cash around is good for deals that come up now and then that you can save 10,20 30+ percent on.

my2c+61

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Re: Stuffing cash in the mattress
« Reply #11 on: October 26, 2016, 07:13:23 PM »
Stuffing it in the mattress was used as a figure of speech. My point was to physically hold cash rather than let is whither away in an institution at near zero rates.

I feel the black economy talk is overstated these days. It is still there but in an electronic world it is getting harder.
The amount of tax revenue lost to black market cash transactions is a drop in the ocean compared to corporate tax manipulations and avoidance.
It's easier to kick a tradie than take on the corporate big boys.

With bank liquidity, Australian banks have to hold cash to balance their loan books. At the moment they are constantly juggling their numbers to keep within government guidelines. It doesn't take much to start a run on the banks as seen with St George years ago. Again an unlikely scenario but possible.

The skeptic in me thinks that by getting rid of cash the government is handing the banks and financial institutions a new industry to prop up their business models.

Yes I have a wad of the green ones.

Metric Mouse

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Re: Stuffing cash in the mattress
« Reply #12 on: October 26, 2016, 07:36:25 PM »
They do make fireproof safes last I checked so forget the mattress concern.

Those are the first places thieves check!!

How much, in general, is it ok to keep in cash 'on hand'? $250? $2000? More?

Syonyk

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Re: Stuffing cash in the mattress
« Reply #13 on: October 26, 2016, 07:57:16 PM »
You can bolt a safe down to the house such that it would be rather difficult to remove.

But, yes, theft is one such risk of keeping cash on hand.

Theft is also a risk of keeping cash in a bank account - either through bail-in, inflation, fees, or whatever.

Personally, I believe in hedging in a variety of different places and methods.  So not everything crammed into index funds...

soccerluvof4

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Re: Stuffing cash in the mattress
« Reply #14 on: October 27, 2016, 08:41:10 AM »
To hide some cash in a safe and put it where thieves wouldn't find doesn't take much.

What is your fear of having your money in all index funds? just curious



Syonyk

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Re: Stuffing cash in the mattress
« Reply #15 on: October 27, 2016, 10:02:14 AM »
To hide some cash in a safe and put it where thieves wouldn't find doesn't take much.

Seriously.  Even if it is obvious, you can secure it to the studs and floor to make it non-trivial to remove, and a small firesafe that you can hide is easy enough to obtain.

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What is your fear of having your money in all index funds? just curious

Well, right now, I don't have much in index funds because I bought a house, and it turns out "I'm going to take a few months off work to work on the property and get an office built" means "No, you can't have a mortgage, you bum."  Even if you can pay cash.  With a signed employment contract.

In general, though, I suspect I'm a good bit more conservative with my investments than many here.  I have the usual LendingClub and Betterment accounts (the second of which has been nicely losing money for me since I got it), but I also keep a good bit in various hedges - Bitcoin, metals, physical cash, etc.  I'm interested in how to hold at least some value through substantial catastrophic events.

Why?  I expect there's a decent chance that within my life (probably a good bit shorter), there will be an ongoing set of assorted "unrelated" shocks that mean index funds and the like aren't going to keep going up.  At some point, we run into the limits of exponential growth on a finite planet, and I expect we're going to be hitting those sooner rather than later.

I've also been working towards "productive investment in my property."  Gardens, greenhouses, solar, chickens, rainwater storage, etc.  I see those as paying off regardless of which way things go - and, I'd add, I'll have some idea as to what's going into my body.

I'm aware this isn't a particularly popular approach around here, and that's fine.  You make the decisions that make sense with your expectations of the future, I'll make those that make sense with mine.

I don't really expect to ever "retire" fully - I just expect to have the freedom to work on whatever I feel like instead of what other people tell me to do, and that tends to generate income for me.

If I'm doing what is standard on this forum and shoving a lot into the markets and the markets break catastrophically, I'm hosed.  If I do what I'm looking at, I still have a good bit of stored value I can use, and can provide for my needs, the needs of my family, and to an extent the needs of my local community.

If the markets do what people here expect and keep going up?  Well, then, I have a lot of income to play with and do interesting things with on my property.  And I still eat well.