12 comments on “The Austrian Way: Why we hate cash in the bank

  1. JL
    June 27, 2013 at 9:29 am #

    Amen. A business that makes nothing but money is a poor business.

  2. tim hubbard
    June 27, 2013 at 11:11 am #

    Not well thought out. Depositors are protected up to the £85k limit so what;s the problem with banks being levered? If they fail you won’t lose as adepositor. No-one lost any money in the UK in the banking crisis as the government guaranteed all deposits.

    The best reason not to keep cash in the bank is the net real return which is negative.

    So own shares…in banks!
    Oh and nowadays there are strict rules on capital reserves.

    • Apparent bigot
      June 27, 2013 at 12:08 pm #

      Markets believed the governments’ bluffs in 2008. They won’t again and sovereign yields are now on the up. Good luck to you if you believe the UK can really honour all those insured deposits!

      • tim hubbard
        June 27, 2013 at 4:08 pm #

        Umm yes Iwould guess they can honour them since they can just create more money. systemic failure is not that hard to avoid for a sovereign central bank, since money is made of paper and sovreign bonds are deeply liquid.

    • Simon Roberts
      June 28, 2013 at 8:38 am #

      “so what;s the problem with banks being levered”

      The problem is that deposit insurance does not apply in all circumstances.

      Look at the recent issues with banks in Cyprus. These weren’t bank failures but instead were “bailouts”. This is why depositors money was seized. The bank had not failed, therefore deposit insurance did not come into effect.

      In the end they only stiffed people with more than 100,000 Euros on deposit but originally they wanted to get everyone’s money.

      Don’t think that other governments weren’t watching this with interest. This will be how they handle “bailouts” in future – just don’t call them failures.

      • tim hubbard
        July 2, 2013 at 8:41 am #

        Yes that’s Cyprus, sitting on a shedload of hot foreign capital, in a desperately undercapitalised system. The UK is different. But yes, if you’re worried then spread your deposits around. Better still buy stocks and dont bank the money.

  3. silverminer
    June 27, 2013 at 3:38 pm #

    Bankrupt governments propping up bankrupt banks so they can buy bonds to prop up other bankrupt governments who are propping up their bankrupt banks. Sounds like a Ponzi scheme to me. Get out of the system before everyone realises.

  4. Apparent bigot
    June 28, 2013 at 9:46 pm #

    @Tim,

    Goverment could issue vast amouts of debt to finance insurance of deposits when it was most needed. The instant size of selling pressure would be devastating for our bond market. Not great for holders of GBP.

    They could also issue an instantaneous tsunami of GBP and create unlimited money as you put it. Also not great for GBP.

    Central banks and governments maybe big players but they’re not bigger. Debt, currency and derivatives will have their way. Speaking of bond vigilantes; I think they’re waking up…

    • tim hubbard
      July 2, 2013 at 8:38 am #

      bond vigilantes will always get slapped down by the Fed et al. You may not have noticed but we have seen issuance of a tsunami of debt and yields are at all time lows. Your forex argument fails too because although issuance is negative for GBP all other currencies are being pushed lower at the same
      time so GBP doesn’t experience a catastrophic devaluation.

  5. Oliver Jamieson
    July 2, 2013 at 11:55 am #

    My reading of monetary history is that central banks do not get their way forever. They can bully markets for a while, but markets can also overwhelm them.

    I’d suggest today’s environment of low yields, monster debt issuance is not normal and a temporary situation just waiting to change. A balloon looking for a pin if you will.

    I’m looking at Japan as the bell-weather nation here.
    http://www.cnbc.com/id/100762194

    • tim hubbard
      July 2, 2013 at 4:04 pm #

      In Japan they have the highest debt to GDP ratio in the world which is crying out for fiscal prudence. Rates at zero. Yet…the yen is high, and contrary to what you might expect Abe caved and splurged money. Stock market went up 100% Nov-May 2013. Deflation can be a worse enemy than inflation.
      Of course in the long run it is right to say that paper money suffers in terms of its purchasing power and nations suffer from high national debt but the effect on asset prices is not straightforward, at least in terms of markets. We have been deficit financing for 40 years or more but bonds have been in a bull market for 30 years, which shouldn’t happen.

Trackbacks/Pingbacks

  1. Where we keep our hard earned, out of the banks | Bogpaper.com - July 2, 2013

    […] Last week we vented about how badly depositors are rewarded for capitalising much of the banking system. In case you missed it, take a look here. […]

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