Most of us have been there. Load all the groceries into the trolley, a massive queue of people behind and the card doesn’t work. Embarrassing isn’t the word, especially when you have forgotten the pin to card number two and card number three has expired.
Likewise, I remember arriving in Nepal with some Western trekkers. All traipsed along to the bureau-de-change to get some Rupees so we could have dinner. One man wanted to know where the cash machine was. I showed him. Unfortunately, there was one of the normal, pre-monsoon, 12 hour power cuts. (Kathmandu relies on hydroelectric power when there isn’t seasonally, any rain for six months.)
I said, surely he had some cash. A few dollars? A pound or two? Nothing. There he was, coming to a less developed country that has about five cash machines outside the capital city and he had no cash.
Governments worldwide are trying to get rid of cash. India recently caused havoc by banning 500 (£5.62) and 1000 (£11.24) Rupee notes and managed to collapse the economy by a staggering 6.1%. The stated aim was to stop corruption and the black market. The real reason is rather more ‘big brother’ like controls and the monitoring of private individuals.
After the runaway, hyperinflation in Zimbabwe, people start using anything but Zimbabwean cash – other currencies and an entirely cashless system known as Econet. This was not entirely surprising given that even in 2015, you needed 35,000,000,000,000,000 to buy $1 or 70 pence.
Around this time, the currency was effectively abandoned.
The only problem was that in July this year, Econet stopped working for a full two day period. The entire country stopped. Those supermarket trolleys again had to be left at the cash desk – but not just mine, the entire country’s.
You can read about a country closing down because of no cash here and see some trollies full of abandoned food.
Cards are vulnerable. Bank accounts are vulnerable, not only to hackers, but to greedy and totalitarian governments. The Cypriots know this only too well. They were given what is euphemistically called a ‘haircut’ in banking terms. Some depositors lost a staggering, 47.5% when the government just decided that it would ‘have’ some of those savings, during the last financial crisis.
The omen of course, is, be wary of cash-strapped and increasingly totalitarian governments.
This week, Turkey had to be bailed out by Qatar to the tune of $15 billion. That will pay their supermarket bill for a few weeks. The European central banks advised European banks to try to stop people selling Euros for dollars. In South Africa, another country in deep political and financial crisis, the Rand sold off very heavily. Argentina will be next, but the big one is the Euro. The Italian popularists (the new and so far honest politicians on the block) have just warned that the Euro might break up if it were not supported.
This is the beginning of a worldwide monetary and bond market crisis.
Always in financial crisis, a few things happen. The first is that it takes far longer to start than is ever anticipated. Everyone warns and warns for ages. The same thing happened in 2008. It was obvious that there were liar loans and housing was a massive bubble but it took five years or more to start. The same thing has happened with government debt. Everyone has been warning for the last 10 years in this case. Once the needle on the record gets stuck, everyone stops listening.
It is just at the ‘stop listening’ point that the crisis strikes.
And once that crisis hits, it is far worse than anyone could ever have anticipated. Far more contagion, far deeper, far longer and most importantly, far faster.
And finally, financial crisis never hit in the same place twice. 2008 was stock markets and American housing. This time it is public debt and currencies – but particularly bonds and interest rates. (This will of course have a knock-on effect on housing).
Stock markets are likely to soar not collapse as there is a massive swing out of government debt and into private assets, as I said here:
I leave you with the thoughts of Herbert Hoover in his memoirs of the great depression.
Capital acted like a loose cannon on the deck of a ship in the middle of a hurricane. It went from one currency to the next. They couldn’t figure out where it was going next.
The really big trend that is happening in the world is a total loss of confidence in governments worldwide.
Hold onto your hats and keep some cash under the bed!