Why Bankers Hate When You Hold Cash - Vivek Kaul's Diary
Free Reports

Why Bankers Hate When You Hold Cash

Apr 6, 2016


In an extraordinary turn of events, last week we were contacted by our local bankers.

Since we were turned down for a mortgage in 1982 (our business finances were thought to be 'too shaky'), we have had little truck with them.

We pay cash. They mind their own business.

But for the first time we can recall, not just one but three suits came to visit. Personable and intelligent, they were worried when they saw how much cash we were keeping on hand.

No kidding. They came to visit to propose ways we could 'put it to use'.

Too Much Cash?

'You really should take some of that cash and invest it in municipal bonds' was the motion on the table.

'What if the municipalities can't pay?' we asked.

'Don't worry about that. Historically, the odds of default are extremely remote,' one of them answered.

'But what if interest rates turn up? Wouldn't the default rate go up?'

'Well, maybe. But we keep the maturities short and invest only in the most creditworthy municipalities. The risk is very low.'

'Oh...but what if we just need some cash.'

'No problem. We'll give you a line of credit.'

'Let me get this straight. You're proposing to put me into debt so that I can keep my money invested in somebody else's debt?'

'Uh...well...yes...and we'll charge you less interest than you will earn from the municipal bonds.'

'Wait. You can earn a fee for putting my money in bonds...and earn another fee for lending me money...and I still end up ahead?'

'Yes. We just try to find ways to help clients with their financial needs.'


 Modi 2016: An Agenda For Revival
 The Modi Report The landslide victory of 2014 handed Modi more than just a clear mandate...It handed him immense responsibility of a nation dreaming of great progress.

From the euphoria of Achche Din the mood in India has swung to cautious disappointment and now we are in 2016...

Who will answer the question how Modi can turn this ship around and get India back on track?

Vivek Kaul has the answer and he has put it all down, along with his deepest thoughts on the challenges India faces, in our latest special report titled - Modi 2016 - An Agenda For Revival.

And the best part is that he wants to give you this special report for free!

So, don't delay...Click here to download this special report right away!

Worse Off

Little by little, day after day, year after year, we connect the dots.

At first, it is difficult to make out what we're looking at. But gradually, after much straining and guesswork, two things are becoming clearer and clearer...at least to us.

First, nobody knows anything.

Second, nobody has any real money.

Yesterday, we mentioned our persistent puzzlement over the failure of the US economy to make the typical working American richer after accounting for inflation.

For all its conceits, swindles, booms, busts, hustles, patents, technologies, investments, PhDs, and central bank chicanery...there seems to be little to show for it.

You can test that assertion easily. All wage and inflation numbers are a little fishy. So, let's keep it simple.

The basic transportation for a working man 40 years ago was the Ford F-150 pickup truck.

In 1976, that truck, the SuperCab model, had a manufacturer's suggested retail price (MSRP) of $4,600. That was when the average working stiff earned $9,300 a year. So, it took 25 weeks of work to pay for the truck.

Today, the F-150 is still the preferred working man's wheels. And today, it has a MSRP of $26,600 - or 5.7 times as much. But the average person doesn't earn 5.7 times as much. The median wage today is $43,600. So now, a prole earning the median wage has to work 30 weeks to pay for the truck.

This man is not better off. He's worse off. And he's been made worse off by advanced American crony capitalism.

And here are more dots...to be connected!

What do we see...?

Harder to Get Ahead

We are not sure how up to date the following figures are. But we doubt that they have changed much. From MarketWatch:

  • Approximately 62% of Americans have no emergency savings for things such as a $1,000 emergency room visit or a $500 car repair, according to a new survey of 1,000 adults by personal finance website Bankrate.com. [...]
  • What's more, only 39% of respondents reported having a 'rainy day' fund adequate to cover three months of expenses, and only 48% of respondents said that they would completely cover a hypothetical emergency expense costing $400 without selling something or borrowing money.

If you follow mainstream news media, you might believe that the 'recovery continues on track'. Or that earnings are increasing. Or unemployment is falling. But keeping your eyes on these data points blinds you to what is really going on.

People have always struggled to make ends meet. But as the money system changed...so did the typical family's household finances: It got harder to get ahead.

Yes, most people live better than they did in the 1970s. Technological and commercial progress has improved the quality of the things we live with. There are more choices in the supermarkets...in Walmart...and online.

Today's F-150 is better, in many ways, than the F-150 from 40 years ago. Houses are bigger and more comfortable. Air conditioning is more widespread. Communication channels and entertainment are better than ever.

But though life is easier and more agreeable for most people, few people have more real money.

They have more things. And more credit. But they are deeper in debt...more vulnerable to a downturn...and more dependent on the government and the credit industries.

'Debt Makes Sense'

Your editor recently took up the subject with a recruiting agency.

'I place a lot of accountants and bookkeepers,' began the recruiter.

'Naturally, their employers want a credit check. They want to know how you handle your finances. They also want to avoid people whose financial situation sends up flags. Desperate people are not ideal new hires for the accounting department.

'The people we place earn $60,000 and up. Usually, husband and wife both work, and often they both have MBA or other advanced degrees, so you're looking at some substantial incomes.

The recruiter continued:

'Usually, they have some student debt, auto debt, and mortgage debt. And they usually have a revolving line of credit, too. These are prudent, well-educated people we're talking about. They use credit wisely, when they need to make a big-ticket purchase...or pay for private schooling.

'What we look for is a clean report. No late payments. The level of debt doesn't bother us. I mean, the banks wouldn't lend if they thought there was a problem.

'Besides, everybody uses debt now. It makes sense. With rates this low, it's better to borrow than to use your own money. Debt is just a financial tool.'

Is that all debt is? A handy tool? We don't think so...

More to come...

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Recent Articles

A Darkness Is Spreading Across the US August 22, 2017
Today, we are attacked by one preposterous thing after another, each of them even more absurd than the last.
Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working August 21, 2017
Most Indians who cannot find jobs, look at becoming self-employed.
Trump Takes a Beating August 18, 2017
Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.
Which Gods Will Bring Down the US Empire? August 17, 2017
Mr Trump is in the White House and the gods are in their heavens; what's not to like?

Equitymaster requests your view! Post a comment on "Why Bankers Hate When You Hold Cash". Click here!

2 Responses to "Why Bankers Hate When You Hold Cash"

Hariharan Nageshwarab

Apr 7, 2016

Hi Vivek , really enjoyed reading your matter of fact analysis. You do keep it short and crisp.

Hello Bill, your piece on debt and what it means is very thought provoking. I have delayed changing or upgrading my car and rented accommodation for the past few years. I would like to know if this was a prudent decision or are we as much a fool as anyone else. Waiting for your follow up article to know the answer. Thanks matey. Regards hari



Apr 6, 2016

Hi Bill,

I am a long time reader of your newsletter - back then it was called `The Daily Reckoning by Bill Bonner' - now renamed as `Vivek Kaul's Diary' here in India. This is my first comment.

I read with interest your regular musings about the average American not having beaten the inflation when it comes to his earnings. I think you should look at this phenomenon in a global sense. There was a time Britain moved up the value chain due to loot of colonies and industrial revolution; overall Europe gained from this and its population quickly raised value of its labour. After second World War, this mantle was picked up by the U.S.A.

Gradually innovation gains start having diminishing marginal utility. It appears that stage has arrived in the U.S. Lot of labour value moved over to China in the last 2-3 decades, where people improved their standard of living and per capita income. Where did that come from? Well ... the developed world, of course. Perhaps it is India's turn now.

In an overall sense, developed economies erected labour barriers in the form of immigration controls. However, technology slowly leveled physical infrastructure disadvantages of developing countries, by improving manpower productivity.

In my view, to look for perpetual growth in U.S. labour earnings seems an anachronism.

Equitymaster requests your view! Post a comment on "Why Bankers Hate When You Hold Cash". Click here!