March 02, 2008

One more time, for the newbies: Cash is King

"The final phase is a self-feeding panic, where the bubble bursts. People of wealth and credit scramble to unload whatever they have bought at greater and greater losses, and cash becomes king"

- Manias, Panics and Crashes, the HP Bible

And no, "cash" or "money" has not meant and will never mean owning one specific currency. "Cash" or "money" take many forms. "Liquidity" is what Kindleberger was getting to. And so should you.

Money is any token or other object that functions as a medium of exchange that is socially and legally accepted in payment for goods and services and in settlement of debts. Money also serves as a standard of value for measuring the relative worth of different goods and services and as a store of value.

Market liquidity is a business, economics or investment term that refers to an asset's ability to be easily converted through an act of buying or selling without causing a significant movement in the price and with minimum loss of value. An act of exchange of a less liquid asset with a more liquid asset is called liquidation. Liquidity also refers both to that quality of a business which enables it to meet its payment obligations, in terms of possessing sufficient liquid assets; and to such assets themselves.


Anonymous said...

I can never get tired of this quote Keith.

Read it here first in HP.

Appreciate it.


Anonymous said...

BS Keith. Hard assets are king. Cash, as in ANY currency is trash. This is because Berneke and other global CBers are about to demonstrate that they have a lot of bullets left through CB intervention in the global economy. Indeed, BB has been sitting in his ivory tower cooking up what, 14 schemes, to solve the "zero bound" problem? There WILL be liquidity. The buyer of last resort will take up the bad debt and anyone sitting on cash is going to be suprised...

-Matt C

Holy Schlitz said...

The big question is what will be of value after a big crash? When the Soviet Union crashed, there were reports of vodka being a medium of exchange....

keith said...

Gold is cash

Corn is cash

Euros are cash

Oil is cash

Silver is cash

Baseball cards are cash

Shiny beads are cash

If it's liquid and can be used as a payment mechanism between willing parties, it's cash

What else is cash?

What's not cash?

I'm wondering how much longer the US dollar will be cash

Anonymous said...

Decent American Whiskey, and quality firearms/ammo are always cash equivalent.

I expect to make change with 38 special bullitts when I buy flour and salt in the near future.

Guns beat gold in the insanity that will be post constitutional America. The laws are no longer a constant, so the masses will find the next lower level of mutual exhange, until its armed negotiation. Think in terms of the old west of the 19th century, with a Post Soviet - Chechneyan social undertone attrributable to the millions of illegal Mexicnas wandering around in their "New Dominion's of California, Texas, and Arizona. (I exclude New Mexico, since even illegal's have a certain common sense to avoid that rodent infested place, as they seek an economic system that improves their lot, and New Mexico is right down there with Guatemala as to government, economics and culture>)

Lady Di said...

As one of my favorite financial advisors, Jim Sinclair, said:

During this economic downturn, you must remove all financial intermediators that stand between you and your assets.

Which means: First, get out of debt, then stock up on cash (Swiss Francs are my favorite. I believe they are still backed by gold), gold, silver, other hard assets, firearms and ammunition (a rifle and pistol per family member is the standard to shoot for).

Then, I think you are good to go... said...

But a house is always a GREAT investment!!


Ammo is cash. Glad I bought a new jumbo stand-up safe.

Anonymous said...

This is so true because didn't Warren Buffet brag about how much he made in 2007 and this year (so far it only the beginning of March) his profits have gone down on his Birkshire Hathaway 18 percent. I never did think Goggle was worth 600 bucks a share and I see others agree at the beginning of the year it was 600 a share now it what 450 or around there somewhere. As I said before it is only the beginning of March. Wait until the technology starts to tank again because people don't have extra money to keep up with latest gadgets and programs and the cost to maintain them companies are going out of business and no one is buying business programs or the latest technology to replace workers. I see a lot of restaurants going out of business because I see it being hard to pay 8.00 for a super burrito or 6 for a burger add in the fries and a drink 10 bucks. Now the investors are figuring out that they can keep making money on a necessary commodity being gasoline and they have to keep up with a fast and furious lifestyle it's not the explosions at refineries that are determining price it's investors. What's gonna happen when people just can't do that anymore either. When I was in the military in 1976 (US ARMY) the guys used to say the Republican's always start a war to keep the economy moving well it didn't work this time with Bush and now the government really has nothing left to offer. You are on your own.

Anonymous said...

What else is cash?

Good Pot

Budvar said...

"Guns beat gold in the insanity that will be post constitutional America"

Have you seriously thought this through?
1oz of gold for roughly $1000, 200 krugerands in your pocket and you have $200k. Now take that $200k and turn it into 2000 SKS's at $100 a piece, and try shove them in your pocket, how you going to move them hi-jack a fuckin train?

Another thing to think on, is if there's running battles in the streets, as you think, guns wont be worth shit, as you wont be able to cross the road without falling over the things as the dead and dying don't take their weapons with them.

Anonymous said...

Ready or Not...

Rumor has it that the next US President WILL NOT RENEW Bernanke's appointment as Fed Chief and will appoint a Fed Chief who will DRASTICALLY RAISE THE INTEREST RATE to save the US Dollar and terminate with extreme prejudice crippling debts.



Obama and Clinton insiders have been talking to Mr. Paul Ruben former UST Secy in Clinton/Gore White House and former Citigroup CEO and former Goldman Sachs Vice Chairman as possible replacement for Bernanke.

I highly recommend his book,"A World of Uncertainty."

Anonymous said...

Two mutual funds that I have and recommend for the current and future economic environments:


PERMANENT PORTFOLIO FUND(www.permanentportfoliofamilyoffunds)

Both invest in gold bullion, gold stocks, Swiss bonds,Singapore Dollars,Central Fund of Canada,and
3-month US T-Bill.

I also recommend Vanguard Treasury Money Market Fund ( to open:3,000.Minimum checkwriting amt.250.00

US Global Investors US Treasury Securities Cash Fund ( to open:
1,000.Minimum checkwriting amt.No minimum!!

Both of the above invest 100% in the 3-month US Treasury Bill considered to be safer than cash since cash itself are Federal Reserve Notes that can be disavowed by the US Treasury at any given moment via "force majeure" meaning US Treasury will no longer pay interest on the debt to the Federal Reserve by switching to another form of currency:paper or digital. In other words the Treasury will honor the 3-month T bill but will not honor cash dollar bills of any amount.Google/Search PROTOCOLS FOR ECONOMIC COLLAPSE 2008 BY AL MARTIN
It will shock you!!

I am now looking into E-GOLD,the very first 'digital gold' exchange.You can open an account at any amount and your balance is determined by the price of gold and number of ounces in your acct.Use one of their approved vendors and you can access your account from any ATM in the world.They claim that their bullion holdings are in London,Nevis,and Dubai.Do not use an unapproved vendor such as GOLDXCASH. Read up on E-Gold on

Anonymous said...

We are in a mess. Even the people with "cash" are freaking out. The news that the PPI rose 1% in January ( 12% year inflation) at the producer level means that not only do we have core inflation but monetary as well. The Fed is bailing the housing market by making your existing dollars worth less. Yikes.

Idiots... said...

Americans have forgotten the meaning of "money" or "cash". Properties of Money: medium of exchange, store of value, measure of value, fungible.

FRNs do well as medium of exchange, poorly as store of value and measure of value because of inflation.

Gold/Silver do well as store of value and measure of value. Except during the past 50 years, they both did well as medium of exchange.

Corn fails on store of wealth - it spoils. Fails on medium of exchange - bushels of corn are tough/expensive to transport.

Baseball cards are not fungible - you can't cut a card in half and have it retain half it's value. Don't do well as a store/measure of value. You need a market to determine value - which is why debt based securities are failing today.

FRNs aren't really money - they only do well as a medium of exchange. Same for all other debt instruments.

I'll agree on whiskey, but not whisky.

Anonymous said...

In some mediterranean countries, olive oil was once as good as cash........

satan is a republican said...

An old guy who lived through the 1930's depression told me they had instances where they used persian rugs to exchange for what they needed. This is in Greece though I'm sure it happened everywhere.

We're about to get a 'living history' lesson and we won't like it.

Anonymous said...

Women will be able to exchange what nature gave them no matter what. I think I will be a suburban Madam, and pick up REO McMansions in various cities, and run brothels staffed with the better endowed former used house sales women.

Anonymous said...


Google/search PBS/FRONTLINE and go to their 'watch online' menu and pull the AMERICAN PORN episode. It goes into great detail about the economics of the porn industry and you will be shocked as to who the major investors are.