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  1. #11
    Senior Member Gerbah's Avatar
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    Quote Originally Posted by JHBowden View Post
    My ISTJ father, a huge Democrat, has always wanted to do this here in the States. Outlaw cash and just have government approved money cards, so everything gets officially taxed. He thinks all wealth belongs to the government for some reason.

    Funny, a country is actually trying something very close to this lunatic idea!
    Cash is already only about 2% of the money supply.

    You could try telling your father that the same government he would give his financial independence to is keeping him comfortable for the moment (that's the only reason I can imagine he would think this is a good idea), but labourers in the third world are the ones paying for it. When China and everyone else dumps USD and America becomes a third world country the tables will be turned and the system will be knocking on his front door.
    the shoheen ho of the wind of the west and the lulla lo of the soft sea billow - Alfred Graves

  2. #12
    IRL is not real Cimarron's Avatar
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    Quote Originally Posted by Gerbah View Post
    The bank is not a storage holder. If the bank goes bust, they are not legally obliged to give it back to you. So when they prevent people from using cash, they are essentially refusing to convert what you gave them into currency. As long as your money is just digits in a computer, they don't have to make good on their debts to people. If there's a bank run, the bank will collapse because they don't have the cash to pay all their customers back.

    In these times, I would keep a good amount of cash at home in case banks suddenly close for a "holiday".
    True, and I was floored when I learned this in school, because this is the only proper purpose a bank has for me.
    You can't spell "justice" without ISTJ.

  3. #13
    Senior Member alexx's Avatar
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    I just read a couple days ago a little tiff between Greece and Germany getting creative to be included in the Euro. Their economy is apparently totally jacked up right now.
    Last edited by alexx; 02-19-2010 at 02:34 PM.

    89% Extroverted ~ 68% Intuition ~ 84% Feeling ~ 89% Perceiving
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  4. #14
    pathwise dependent FDG's Avatar
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    There's also another more subtle reason: Greek banks will need to hold less excess liquidity reserves, thus will need less greek bonds to act as guarantee with the European Central Bank (the ECB gives intraday money for free, as long as banks give bonds as guarantee. The lowest accepted rating is A-; if Greece's rating were to be lowered to BBB+, there would be huge problems for this part of the market).

    The bank is not a storage holder. If the bank goes bust, they are not legally obliged to give it back to you. So when they prevent people from using cash, they are essentially refusing to convert what you gave them into currency. As long as your money is just digits in a computer, they don't have to make good on their debts to people. If there's a bank run, the bank will collapse because they don't have the cash to pay all their customers back.
    This is wrong, they are indeed legally obliged to give it back to you. If a bank fails due to a bank run, state-owned agencies will takeover (at least, overe here) and try to get back the loans given by the bank, in order to repay the holders. There's a difference between saying "they will not be able to give it back to you" and "they are not legally obliged to". Obviously, nobody likes this scenario, since it's an economic earthquake (firms will obviously encounter huge problems if they're required to suddnely pay back loans they were used to constantly rollover).

    When China and everyone else dumps USD and America becomes a third world country the tables will be turned and the system will be knocking on his front door.
    What exactly does it mean? The worst could happen is that the USA will need to pay higher interest rates on their debt.
    ENTj 7-3-8 sx/sp

  5. #15
    Senior Member Gerbah's Avatar
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    Quote Originally Posted by FDG View Post
    This is wrong, they are indeed legally obliged to give it back to you. If a bank fails due to a bank run, state-owned agencies will takeover (at least, overe here) and try to get back the loans given by the bank, in order to repay the holders. There's a difference between saying "they will not be able to give it back to you" and "they are not legally obliged to". Obviously, nobody likes this scenario, since it's an economic earthquake (firms will obviously encounter huge problems if they're required to suddnely pay back loans they were used to constantly rollover).
    Yes, of course legally they should give it back to you in principle. I meant that in practice, because money deposited in a bank is no longer your "property" and becomes your "asset", if the bank goes bust the person who deposited the money doesn't have first dibs on getting their money back and has to stand in line with other creditors, maybe getting only a fraction of their original deposit. That's what I meant when I said they're not legally obliged to give your money back.

    So technically there is a legal difference between giving a bank money under terms where the money is property that is transferred to the bank, becoming its liability so that it can use it as part of their working capital, and giving a bank something, (e.g. diamonds to be kept in a safe deposit box) that is only a safekeeping arrangement. It depends on what you're signing. In the second case, the bank cannot use your property and is only keeping it safe and if the bank fails, it must return it to you in its entirety. I think that is the key difference. Whatever the legal obligation is or what you expect, the government may not always be able to cover the loss in worst-case scenarios and then you're stuck with very little or nothing. A nightmare if it happens to your pension.

    Quote Originally Posted by FDG View Post
    What exactly does it mean? The worst could happen is that the USA will need to pay higher interest rates on their debt.
    This can't go on forever though. The interest payments would kill off the economy. It's mathematically not sustainable. This is how third world countries are crippled and enslaved by debt. You can't run forever on fake money and fake production. It is a debt bubble and will eventually burst. Every fiat currency ever created has died. It's not only the US. Things aren't looking good for the Euro either. In the end, Germany can't bail out everyone without crashing itself. The fault is the whole money system itself. As I see it. Of course, no one can predict the future. But I am more persuaded by this view.
    the shoheen ho of the wind of the west and the lulla lo of the soft sea billow - Alfred Graves

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