# "Literally, Your ATM Won’t Work…"



## BillS (May 30, 2011)

http://www.zerohedge.com/news/2015-06-06/literally-your-atm-won’t-work…

By Bill Bonner Of Bonner And Partners

Literally, Your ATM Won't Work&#8230;

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!

The same thing could happen to the money supply&#8230;

There's Not Enough Physical Money

Here's how&#8230; and why:

It's almost seems impossible. Hard to imagine. Difficult to understand. But 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.

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?

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&#8230;

Short-term interest rates are already close to zero in the U.S. (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&#8230; 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&#8230; traders look at their counterparties&#8230; bankers look at each other&#8230;

&#8230;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 as 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&#8230;.

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 we be in free fall.

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&#8230;

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. As collateral goes bad, credit is destroyed.

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 cash. But what cash do you hoard when most transactions are done on credit? Do you hoard a line of credit? Do you put your credit card in your vault?

No. People will hoard the kind of cash they understand&#8230; something they can put their hands on&#8230; something that is gaining value - rapidly. They'll want dollar bills.

Also, following a well-known pattern, these paper dollars will quickly disappear. People drain cash machines. They drain credit facilities. They ask for "cash back" when they use their credit cards. They want real money - old-fashioned money that they can put in their pockets and their home safes&#8230;

Dollar Panic

Let us stop here and remind readers that we're talking about a short time frame - days&#8230; maybe weeks&#8230; a couple of months at most. That's all. It's the period after the credit crisis has sucked the cash out of the system&#8230; and before the government's inflation tsunami has hit.

As Ben Bernanke put it, "a determined central bank can always create positive consumer price inflation." But it takes time!

And during that interval, panic will set in. A dollar panic - with people desperate to put their hands on dollars&#8230; to pay for food&#8230; for fuel&#8230;and for everything else they need.

Credit may still be available. But it will be useless. No one will want it. ATMs and banks will run out of cash. Credit facilities will be drained of real cash. Banks will put up signs, first: "Cash withdrawals limited to $500." And then: "No Cash Withdrawals."

You will have a credit card with a $10,000 line of credit. You have $5,000 in your debit account. But all financial institutions are staggering. And in the news you will read that your bank has defaulted and been placed in receivership. What would you rather have? Your $10,000 line of credit or a stack of $50 bills?

You will go to buy gasoline. You will take out your credit card to pay.

"Cash Only," the sign will say. Because the machinery of the credit economy will be breaking down. The gas station&#8230; its suppliers&#8230; and its financiers do not want to get stuck with a "credit" from your bankrupt lender!

Whose credit cards are still good? Whose lines of credit are still valuable? Whose bank is ready to fail? Who can pay his mortgage? Who will honor his credit card debt? In a crisis, those questions will be as common as "Who will win an Oscar?" today.

But no one will know the answers. Quickly, they will stop guessing&#8230; and turn to cash.

Our advice: Keep some on hand. You may need it.


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## bkt (Oct 10, 2008)

True, it's always wise to keep cash on hand. And while this article is pretty good, it doesn't take the problems to the next level: distinguishing between money and currency. People may want currency but what happens when it becomes clear to people that the currency is backed only by debt? What happens when the Treasury department prints and mints an absurd amount of currency to meet demand? The value of the currency will fall. We've seen that happen many times.

So yes, keep some currency on hand. But also keep some silver and gold on hand as a hedge against losses. If you have a 401k or pension or other cash-based savings and the value of currency falls, at least you would have some cushion - some store of wealth - to fall back on.


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## jnrdesertrats (Jul 3, 2010)

I hope this just serves a a reminder and is not really news to anyone here. Just in case I would like to say hi to all the new peeps.:wave:


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## bigg777 (Mar 18, 2013)

Another fact of boom and bust economic cycles is that wealth gets redistributed differently in each part of the cycle. During economic expansion, wealth is distributed to the less well-heeled through job creation and increase in earnings per hour worked. During economic recession, wealth is distributed to the more well-healed through acquisition of devalued assets.

The lower economic classes acquire goods and property during the expansion phase, with funds they have earned through work, while the upper economic classes purchase the same goods and properties during a recession from the lower classes at prices below the original purchase amount, using funds from savings, investments.

I am not trying to foment class strife, merely pointing out the truth. If you want to move above the economic class you are currently in, YOU MUST LIVE BELOW YOUR MEANS and save and invest now, not later. The money you put to work for you now will be more valuable when the next recession invariably occurs. 

I am not recommending any asset classes, that is your responsibility to figure out, however, I will tell you that diversifying your investments is always wise.


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## biobacon (Aug 20, 2012)

How can interest rates be less then 0%? Do the banks pay you to borrow money?


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## Caribou (Aug 18, 2012)

biobacon said:


> How can interest rates be less then 0%? Do the banks pay you to borrow money?


I believe that they are referring to the interest on your bank deposits. The way they drop below zero is by charging fees that are greater than any paid interest.

Another way to view this is, for example, if you borrow money at five percent when inflation is 11% you are paying back your loan with dollars that are worth less saving you 6%. I'm not a proponent of this plan but it is a valid viewpoint.


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## Magus (Dec 1, 2008)

Good article. I try to keep some folding money in my BOB at all times.


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## mosquitomountainman (Jan 25, 2010)

bigg777 said:


> Another fact of boom and bust economic cycles is that wealth gets redistributed differently in each part of the cycle. During economic expansion, wealth is distributed to the less well-heeled through job creation and increase in earnings per hour worked. During economic recession, wealth is distributed to the more well-healed through acquisition of devalued assets.
> 
> The lower economic classes acquire goods and property during the expansion phase, with funds they have earned through work, while the upper economic classes purchase the same goods and properties during a recession from the lower classes at prices below the original purchase amount, using funds from savings, investments.
> 
> ...


Another thing to remember is that you need to have some cash reserves on hand. One reason the rich can buy back all of that stuff at low prices is because the "lower classes" can't pay their bills. They need cash for things that they cannot barter for.

If you put every cent you have in survival supplies then the crunch comes how will you make a rent or home payment? How will you purchase gasoline or energy to power your home?

As you plan for creating your own electricity and stockpiling food and other necessities you must also plan for your cash needs. Everything we have is paid for but we still need cash to pay our property taxes. We have had a year's property taxes set aside for many years just in case. We still need cash for transactions where barter isn't possible.

You should also have a plan for purchasing cash alternates like precious metals. But again, have balance in your preps. Precious metals may not allow you to keep or heat your home or get to work on time. (Assuming you still have a job or employer.)

Many SHTF situations will still call for using cash. Stockpiling some should be a part of your survival preps. Keep things in proportion and work on all aspects of prepping ... not just stockpiling food, guns and ammo. If you can't pay off your mortgage then at least be sure you have an alternate plan for having a home (such as a piece of land yo own outright or maybe a camp trailer or even a *good *tent and camping gear).

If all of your reserves are in precious metals and the tax collector won't accept them then what are your options? If you have to sell them for cash and the rich are the only ones with cash then they get to name the price. You need to maintain balance in your preps.

I knew a guy whose father went through the depression. The bank where he had his savings folded and he lost all of his savings. Then they took his farm away because he couldn't make the payments on it to the very same bank! He had enough money in his savings account to pay for the farm but that didn't matter to the bank. It was quite common during the Depression yet you seldom hear of it. His son didn't remember why his dad kept the savings account instead of just using the money to pay for his land.

Try to prepare for every scenario you can think of. If a major catastrophe hits cash may be useless. But many very serious problems on a national and world scale will not bring about the total breakdown of our system of dollars and cash. In many instances our government may still be in control and while things may be very, very tough, and the cash supply is short, cash will still be essential.

One final note: We had a bank close years ago due to a previous financial meltdown. It scared people so bad that they simply quit spending money for anything but essential items. Even the people who still had money cut back on spending it. The problem wasn't the cash supply or even credit. The problem was fear and uncertainty of what the future held and those with cash were holding onto it very tightly.

Now think of being a business in that small town during the two months it took for things to get back to normal. Some folded and others dug deep into their cash reserves to keep rents and employees paid and to pay for stock items that they had in the store. And that was in a small town in Kansas that still had one bank in operation. Imagine it on a nationwide or world scale.

Do your best to add a cash reserve to your preps.


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## readytogo (Apr 6, 2013)

To much credit has bankrupt this country and many others, we humans have never learn our lessons, just open your wallet and see all the plastic in it.


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## mosquitomountainman (Jan 25, 2010)

readytogo said:


> To much credit has bankrupt this country and many others, we humans have never learn our lessons, just open your wallet and see all the plastic in it.


Let's see ...

two library cards
VA card 
driver's license
"savings" cards from two different grocery stores
three debit cards
True Value card
Auto Zone card
Phone calling card
and gas company credit card

Gas company cards give us a big discount on gasoline and they are paid off every month. They are also for emergency use should we need to evac to home if TS is about to HTF.


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## Freyadog (Jan 27, 2010)

We pay our bills each week and what is left leave enough to keep account open and rest goes here and about.


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## Tweto (Nov 26, 2011)

Keeping cash on hand should not be news to any serious prepper. I keep enough on hand to pay all our bills and to survive for 6 months and I keep enough spending cash for any expenditure under $100 in my wallet. And if necessary, I have excess to physical gold and silver. And each of my cars has at least $50 in cash in the glove box.

I was raised by Great Depression Grand Parents that even at their death had cash in the freezer, laundry bag, behind walls, and in dresser drawers. It was not a small sum of money, almost every place we found money the totals were over $20,000 and this was in the 60's. What this tells me is how serious it was back then to influence them for the rest of their lives.

IMO what's coming will be much larger then the Great Depression.


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## LastOutlaw (Jun 1, 2013)

biobacon said:


> How can interest rates be less then 0%? Do the banks pay you to borrow money?


No, they will charge you a percentage of your deposits


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## LastOutlaw (Jun 1, 2013)

bkt said:


> If you have a 401k or pension or other cash-based savings and the value of currency falls, at least you would have some cushion - some store of wealth - to fall back on.


Where is your money that is invested in your 401k? The stock market or worse yet the bond market.
Don't you think that if there are runs on the bank that the market would have already crashed?
Any money invested in stocks would have been lost.
The stock market is propped up right now. When they pull the crutches it will collapse.
If they raise interest rates the market will fail. There goes your 401k. It will disappear before your deposits.

DON'T COUNT ON YOUR 401K


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## bkt (Oct 10, 2008)

LastOutlaw said:


> Where is your money that is invested in your 401k? The stock market or worse yet the bond market.
> Don't you think that if there are runs on the bank that the market would have already crashed?
> Any money invested in stocks would have been lost.
> The stock market is propped up right now. When they pull the crutches it will collapse.
> ...


I agree 100%.

I'm inclined to take the tax hit and empty my 401k and other mutual funds, get out of the stock (and bond) markets entirely, and keep my wealth off-grid so to speak. But I'm reluctant to recommend that for others since everyone's situation is different and I'm far from an authority on the subject.


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## hiwall (Jun 15, 2012)

Nothing wrong with having some of your money in a 401k/IRA's. As long as you also have some in cash/PM's. It is just hedging your bets. Even though it sure looks like really bad times are coming soon none of us know that to be a fact. We are only speculating (or hoping in some cases).


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## Tweto (Nov 26, 2011)

I have money in several IRA's. I'm comfortable with leaving it so that I don't have to take the tax hit. But, what I have done is to keep the money in different locations and banks and to be almost completely out of debt and have enough cash and PM's (outside of the IRA) so that if the worst happens the wife and I can live with a reasonable amount of comfort. 

If I did see a impending immediate financial crisis coming I would pull everything out and if I couldn't see it coming, so be it.


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