Banking is a service, […] and a service has a cost associated with it. Modern banking has all kinds of fees and charges associated with it. But depositors are often charged for keeping too low a balance in their savings or checking accounts, not too large a balance. What’s going on here?
Central banks have created this monster via the regimen of ZIRP (Zero Interest Rate Policy). This is a way of implementing Keynesian stimulus, but central banks have run up against the liquidity-trap wall: interest rates cannot fall below zero. Monetary policy stops working at the zero-interest boundary.
For central banks, the problem is that in a slow-growth economy (or actually a recessive one) a paradox arises where rational behavior on the part of savers leads to bad results: consumers save their money out of concern for the future, but the economy — starved of the cash that fuels it — slows still further. This is the argument behind Keynesian stimulus; inject more (newly-printed) money into the economy until people stop being scared and start spending freely again (with their own money and borrowed money). The danger of inflation looms, however, so central banks try to implement various regimes to keep it under control (with varying degrees of success).
This theory founders on the shoals of reality, alas. It’s rational for people to save money, particularly during bad times, because people believe their currency stock to be an appreciating (or at least a constant-value) asset. But when a sovereign inflates (devalues) its currency to solve a short term economic problem, they run the risk of damaging confidence in the currency itself. Inflation may inject some nitrous oxide into the engine of the economy for a short time, but the outcome may be a blown engine (i.e., a ruined currency, as it was during the Weimar era).
When people lose trust in a fiat currency, it’s nearly impossible to restore confidence in it. Trust is all a fiat currency has — without trust, fiat currency is just worthless paper. This is really the core of the sound-money argument: deflation is bad because it can stall an economy and make debt servicing murderously difficult, but inflation is worse because it wrecks the currency itself. Hard-money currency regimes may be somewhat prone to deflationary cycles, but at least they never go to zero value; they always retain some value. Fiat currencies can go to zero.
Monty, “DOOM: The Wrath of Draghi”, Ace of Spades H.Q., 2014-11-06.
November 12, 2014
September 20, 2014
I’ve seen this CBC link mentioned several times by US commentators:
American shakedown: Police won’t charge you, but they’ll grab your money
U.S. police are operating a co-ordinated scheme to seize as much of the public’s cash as they can
On its official website, the Canadian government informs its citizens that “there is no limit to the amount of money that you may legally take into or out of the United States.” Nonetheless, it adds, banking in the U.S. can be difficult for non-residents, so Canadians shouldn’t carry large amounts of cash.
That last bit is excellent advice, but for an entirely different reason than the one Ottawa cites.
There’s a shakedown going on in the U.S., and the perps are in uniform.
Across America, law enforcement officers — from federal agents to state troopers right down to sheriffs in one-street backwaters — are operating a vast, co-ordinated scheme to grab as much of the public’s cash as they can; “hand over fist,” to use the words of one police trainer.
July 24, 2014
People who understand high finance are of two kinds: those who have vast fortunes of their own and those who have nothing at all. To the actual millionaire a million dollars is something real and comprehensible. To the applied mathematician and the lecturer in economics (assuming both to be practically starving) a million dollars is at least as real as a thousand, they having never possessed either sum. But the world is full of people who fall between these two categories, knowing nothing of millions but well accustomed to think in thousands, and it is of these that finance committees are mostly comprised. The result is a phenomenon that has often been observed but never yet investigated. It might be termed the Law of Triviality. Briefly stated, it means that the time spent on any item of the agenda will be in inverse proportion to the sum involved.
C. Northcote Parkinson, “High Finance, Or The Point Of Vanishing Interest”, Parkinson’s Law (and other studies in administration), 1957.
June 25, 2014
… it is a mistake to use “money” and “wealth” as synonyms. Money is not wealth (though it is often a signifier of wealth). Wealth is a concept far greater, deeper, and more complex than mere money can encompass. Money is a tool; wealth is a state of being, an environment, a continuum in which we conduct our lives. When the left speaks of inequality in purely monetary terms, they are engaging in a puerile and futile kind of reductionism.
Consider a man with a wife and three teenage daughters, who lives in a house with only one bathroom. This man wouldn’t need a million dollars to feel wealthier; he’d just need a second bathroom. A chance to have a hot shower in the morning and have a clean space on the sink for his shaving gear. Wealth to this man is not the money it would take to build the extra bathroom; wealth is the time and comfort the new bathroom brings. Wealth is comfort he gains, his improved state of mind, the increased peace in his household, his improved quality of life. The marginal utility of the additional bathroom is great indeed (the utility of additional bathrooms would be less). The wealth of that additional bathroom is much greater, proportionally, than if this man and his family lived in a huge mansion with fifteen bathrooms. (In fact, the huge house might decrease his happiness due to the expense of upkeep and maintenance. Who knows?)
You don’t make a poor person wealthy by giving them money; history is full of lottery winners who ended up just as poor as when they started, and many’s the dissipated scion of a rich family who frittered away the family fortune. Wealthy people tend to have a lot of money because money is correlated with wealth (but does not cause it). Income, investments, assets — all can generate money for a wealthy person.
But wealth is more than just stuff. A loving spouse and healthy, happy children are treasures. Running a successful business can mean more than just the profits it generates; there is deep satisfaction in conducting a successful enterprise. A deep love of art or music can enhance and enrich a life. The company of good friends is truly priceless, and something that wise people learn to value more as time goes by.
Money gives access to some of those things, but all the money in the world can’t buy an appreciation of those things.
But to speak of wealth even in this broadened sense is misleading, for in America even “poor” people are wealthy beyond the dreams of people in many places in the world. And compared to people in most ages of the earth prior to the 20th century, there are no poor Americans. It’s amazing to consider how much better life for an average person is now compared to past times. We have food in amazing abundance and variety. Every house has a big-screen television, central heating and air-conditioning, and a refrigerator and range. Everybody has at least one car. Everybody has a cellular phone, and most people have a computer. Few of us work more than eight hours a day to afford all these things, leaving plenty of free time to relax. Medical technology has extended our lifespans, and made our tour upon the earth far more pleasant than in former times. We live healthier, more active, more stimulating lives than at any point in our history — wealthier lives.
Monty, “Wealth as an end and wealth as means to an end”, Ace of Spades HQ, 2014-06-24.
June 12, 2014
In The Atlantic, Conor Friedersdorf makes an argument that it’s time the United States put Martin Luther King on the $20 bill:
During the 2008 election, Thomas Chatterton Williams wrote an article for Culture11 about the significance of a Barack Obama victory. “On television screens from Bedford Stuyvesant to South Central Los Angeles, images will be broadcast of a black family — a father, a mother, and two little girls — moving into the White House,” he wrote. “Whatever you think of policy, the mere fact of electing a black man president, sending him to live in the nation’s most iconic, so far whites only house, would puncture holes through the myth of black inferiority, violating America’s racial narrative so fundamentally as to forever change the way this country thinks of blacks, and the way blacks think of this country — and themselves.”
I still think Williams had a point. Today’s six, seven, and eight-year-olds have no memory of an America with anything other than a black president. What seemed improbable to us as recently as 2007 is, for them, a reality so normal that they don’t even think about it. Yet these same kids are still growing up in a country where the faces celebrated on the paper currency are all white. I don’t want to overstate the importance of that. There is a long list of suboptimal policies that are vastly more urgent to remedy. Still, the lack of diversity in this highly symbolic realm is objectionable, and improving matters would seem to be very easy.
Martin Luther King, Jr. is a universally beloved icon who led one of the most important struggles for justice in American history. When Gallup asked what figure from the 20th Century was most admired, MLK beat out every single American, and was second overall in the rankings, placing behind only Mother Theresa. Putting him on money would not be a case of elevating a man simply for the sake of diversity. Yet it would address the fact that, but for racism, our money would’ve long been more diverse. The only loser here would be the historic figure kicked off of a bill.
MLK is the best symbol of the civil rights movement, but many preceded him in that long struggle. They ought to be featured on $20’s flip side. Perhaps it could include a timeline stretching from Harriet Tubman to Rosa Parks, putting them in the company of Susan B. Anthony and Sacajawea, the women featured on U.S. coins. I suppose Jackson might be upset at my judgment that he is less deserving of our esteem than those figures. Then again, he might well support my plan. After all, few men in American history were as adamant about their hatred of paper money.
April 12, 2014
As I’ve said before, I don’t follow US college football — which is why the pre-draft churn of names and teams in NFL coverage moves me very little — so my knowledge of how the NCAA organizes and manages team sports is pretty low. I do know that a lot of university student athletes are given scholarships with many nasty strings attached which force them into emphasizing the sport over their education. The scholarships are tied to team performance, so that what should be a great opportunity for a kid to earn a degree that otherwise would be out-of-reach effectively turns into four years of indentured servitude, followed by non-graduation. The students are also forbidden to earn money from activities related to their sport (signing autographs for a fee or selling an old game jersey can get you thrown out of school). Gregg Easterbrook regularly points out that some “powerhouse” football schools have terrible graduation rates for their students: the players are used up and discarded and nobody cares that they leave college no better off — and in many cases much worse-off — than when they started.
That’s one of the reasons I’m fascinated with the drive to introduce unions at the college level: even if the students don’t end up with a salary, they should at least be able to count on their scholarship to keep them attending class regardless of the whims of their coaches.
However, if the allegations in this story are true, the situation is even murkier than I’d been lead to believe:
The Bag Man excuses himself to make a call outside, on his “other phone,” to arrange delivery of $500 in cash to a visiting recruit. The player is rated No. 1 at his position nationally and on his way into town. We’re sitting in a popular restaurant near campus almost a week before National Signing Day, talking about how to arrange cash payments for amateur athletes.
“Nah, there’s no way we’re landing him, but you still have to do it,” he says. “It looks good. It’s good for down the road. Same reason my wife reads Yelp. These kids talk to each other. It’s a waste of money, but they’re doing the same thing to our guys right now in [rival school’s town]. Cost of business.”
Technically, this conversation never happened, because I won’t reveal this man’s name or the player’s, or even the town I visited. Accordingly, all the other conversations I had with different bag men representing different SEC programs over a two-month span surrounding National Signing Day didn’t happen either.
Even when I asked for and received proof — in this case a phone call I watched him make to a number I independently verified, then a meeting in which I witnessed cash handed to an active SEC football player — it’s just cash changing hands. When things are done correctly, there’s no proof more substantial than one man’s word over another. That allows for plausible deniability, which is good enough for the coaches, administrators, conference officials, and network executives. And the man I officially didn’t speak with was emphatic that no one really understands how often and how well it almost always works.
This is the arrangement in high-stakes college football, though of course not every player is paid for. Providing cash and benefits to players is not a scandal or a scheme, merely a function. And when you start listening to the stories, you understand the function can never be stopped.
“Last week I got a call. We’ve got this JUCO transfer that had just got here. And he’s country poor. The [graduate assistant] calls me and tells me he’s watching the AFC Championship Game alone in the lobby of the Union because he doesn’t have a TV. Says he never owned one. Now, you can buy a Walmart TV for $50. What kid in college doesn’t have a TV? So I don’t give him any money. I just go dig out in my garage and find one of those old Vizios from five years back and leave it for him at the desk. I don’t view what I do as a crime, and I don’t give a shit if someone else does, honestly.”
“If we could take a vote for these kids to make a real salary every season, I would vote for it. $40,000 or something. Goes back to mama, buys them a car, lets them go live like normal people after they work their asses off for us. But let’s be honest, that ain’t gonna stop all this. If everyone gets $40,000, someone would still be trying to give ‘em 40 extra on the side.”
This is how you become a college football bag man.
March 17, 2014
In the Washington Post, George Will says that we’ve learned nothing about helping the poor since Daniel Patrick Moynihan’s day:
Between 2000, when 17 million received food stamps, and 2006, food stamp spending doubled, even though unemployment averaged just 5.1 percent. A few states have food stamp recruiters. An award was given to a state agency for a plan to cure “mountain pride” that afflicts “those who wished not to rely on others.”
Nearly two-thirds of households receiving food stamps qualify under “categorical eligibility” because they receive transportation assistance or certain other welfare services. We spend $1 trillion annually on federal welfare programs, decades after Daniel Patrick Moynihan said that if one-third of the money for poverty programs was given directly to the poor, there would be no poor. But there also would be no unionized poverty bureaucrats prospering and paying dues that fund the campaigns of Democratic politicians theatrically heartsick about inequality.
The welfare state, primarily devoted to pensions and medical care for the elderly, aggravates inequality. Young people just starting up the earnings ladder and families in the child-rearing, tuition-paying years subsidize the elderly, who have had lifetimes of accumulation. Households headed by people age 75 and older have the highest median net worth of any age group.
In this sixth year of near-zero interest rates, the government’s monetary policy breeds inequality. Low rates are intended to drive liquidity into the stock market in search of higher yields. The resulting boom in equity markets — up 30 percent last year alone — has primarily benefited the 10 percent who own 80 percent of all directly owned stocks.
March 7, 2014
Self-described Bitcoin detractor Colby Cosh explains how “Newsweek” got conned by “Satoshi Nakamoto” (yes, both sets of scare quotes are ‘splained):
Newsweek’s Satoshi is a 64-year-old Japanese-American living in Temple City, California. “Satoshi Nakamoto” is the name on his birth certificate, although he goes by Dorian. Mr. Nakamoto has a physics degree and has done computer engineering for a number of military-industrial firms, as well as one online stock-price provider. Much of his work history is shrouded in official secrecy, or perhaps just the habitual truculence of defence-tech professionals. He is known to have a libertarian streak, has had some run-ins with the financial system, and is thought by friends and relatives to capable of cooking up something like Bitcoin.
But it is now looking as though he had the square root of bugger-all to do with it. Newsweek concluded its investigation of Dorian S. Nakamoto with a police-supervised doorstep interview in which the gentleman is supposed to have said “I am no longer involved in that and I cannot discuss it. It’s been turned over to other people.” Dorian has now told the Associated Press that when he said “no longer,” two words on which Newsweek hung an entire feature, he was referring to the engineering profession generally. He denied being involved in any way with what he repeatedly called “Bitcom,” explained the work he had briefly done for a financial-information company, and read the Newsweek piece to himself, displaying increasing confusion and annoyance as he did so.
I have to say, having read New Newsweek’s article, that it does appear to rest on a fairly slender foundation. Aside from that “no longer,” the evidence that Dorian Satoshi Nakamoto equals “Satoshi Nakamoto” amounts to the obvious coincidence of names and a bunch of quotes from the man’s semi-estranged family. Unfortunately, neither “Satoshi” nor “Nakamoto” are uncommon names for individuals of Japanese ancestry; the article acknowledges that there are several more just in the United States. The Bitcoin-inventing “Satoshi” clearly does not much want to be found; the name is obviously a pseudonym, has always been taken to be one until now, and was probably chosen precisely for its red-herring flavour.
Okay, so Satoshi Nakamoto is probably not “Satoshi Nakamoto”, but why is Newsweek actually “Newsweek” in scare quotes?
A lot of people are asking how something like this could happen to Newsweek, not realizing that the Newsweek nameplate has basically been asset-stripped and repurposed in order that the remaining credibility and familiarity might be squeezed out of it. (This will happen to Maclean’s someday — two years from now, or 200. I’m hoping it’s 200.) No one expected this cred-squeezing process to happen quite so quickly and powerfully, but IBT Media, buyer of Newsweek, seems to have blundered into a singular piece of ill luck: the wrong reporter matched at the wrong time with the wrong story, one in which an informed intuition about any number of subjects might have saved the day.
March 5, 2014
Adrianne Jeffries talks about a Bitcoin-like currency that the Lakota have adopted as their official currency:
The programmer and Native American activist Payu Harris raised a gavel Monday night and vigorously banged the bell to open trading at The Bitcoin Center, a meeting space for virtual currency geeks that looks like an empty art gallery in the middle of New York’s Financial District.
Harris was there to promote MazaCoin, a cousin of Bitcoin that is now the official currency of the seven bands that make up the Lakota nation. After an hour of questions, Harris thanked the small crowd and was promptly accosted by a tall man and a woman in red who wanted to buy some MazaCoin, which Harris was selling for 10 cents apiece. The two trailed him around the room as he hunted for a printer so he could issue the digital currency on paper. MazaCoin is a month-old cryptocurrency based on the same proof-of-work algorithm as Bitcoin, the virtual currency that approximates cash on the internet — but no one in the room was equipped to make a digital trade.
There have been a slew of copycats since the rise of Bitcoin in 2009. The first wave attempted to improve on the basic Bitcoin protocol. The second wave, which includes the meme-based Dogecoin and the Icelandic Auroracoin, are catering to specific groups.
February 26, 2014
I haven’t been following the Bitcoin situation too closely — although if I’d had extra money lying around over the last year or two, I might have dabbled — but it’s hard to figure out what really happened from the media reports. At Samizdata, Bruce Hoult explains the details:
What has happened is that people who bought Bitcoins on MtGox thought they owned them. They did not, according to the Bitcoin system. MtGox did. MtGox kept their own records of who ‘owned’ what. And MtGox were incompetent.
Which should have been apparent from the start: MtGox learns Bitcoin
The proper way to use Bitcoin is to keep your wallet of Bitcoins on your own computer. And back it up. Several times. Print it on paper if you want — it will likely fit on one side of A4 in not very small print. Keep it secret. Keep it safe. It is a bearer certificates. If you lose your wallet or forget the password then those Bitcoins are gone out of circulation forever.
That is not what happened with MtGox. They gave Bitcoins that people thought they owned (but did not) to other unauthorised people. It is theft. Just like a bank robbery. Those Bitcoins still exist, just in other hands.
This has absolutely no effect on people who keep their Bitcoins on their own computer (or phone). There are the same number in circulation as before. Bitcoins still can’t be counterfeited or inflated.
If you want/need to use a place similar to MtGox to turn normal money into Bitcoins then DO NOT LEAVE THEM IN YOUR ONLINE WALLET THERE. Make yourself an identity and wallet on your own computer and make a payment from your account on the Bitcoin exchange to your own identity. Then you are perfectly safe.
Well, you are if you do your backups diligently.
Or, if you want to turn normal cash into Bitcoins, find someone who has Bitcoins and wants cash, agree a price, have them do a transfer of Bitcoins from their wallet to yours (using the actual Bitcoin system, not an exchange), and hand them the cash.
February 24, 2014
I rarely find much of interest in Paul Krugman’s blog, but he’s pretty good in this brief analysis of Scotland’s monetary future in a post-independence scenario:
Whether it’s overall a good idea or not, however, independence would have to rest on a sound monetary foundation. And the independence movement has me worried, because what it has said on that that crucial subject seems deeply muddle-headed.
What the independence movement says is that there’s no problem — Scotland will simply stay on the pound. That is, however, much more problematic than they seem to realize.
In fact, Scotland-on-the-pound would be in even worse shape than the euro countries, because the Bank of England would be under no obligation to act as lender of last resort to Scottish banks — that is, it would arguably take even less responsibility for local financial stability than the pre-Draghi ECB. And it would fall very far short of the post-Draghi ECB, which has in effect taken on the role of lender of last resort to eurozone governments, too.
Add to this the lack of fiscal integration. The question isn’t whether Scotland would on average pay more or less in taxes if independent; probably a bit less, depending on how you handle the oil revenues. Instead, the question is what would happen if something goes wrong, if there’s a slump in Scotland’s economy. As part of the United Kingdom, Scotland would receive large de facto aid, just like a U.S. state (or Wales); if it were on its own, it would be on its own, like Portugal.
As Stephen Gordon points out, this is “another analysis where you can substitute Qc/RoC for Scotland/UK”.
February 21, 2014
He spends just about as much time trying to persuade Scots to stay as he does in winding them up:
Anyway, here are my ten reasons why I think Scotland and England are much better together than apart.
3. Deep Fried Mars Bars.
As every Englishman knows, these are the staple diet of inner city Scotland*, usually served with a side order of deep fried pizza, washed down with Irn Bru, and followed with a heroin chaser, which makes them vomit it all up again, as seen in Irvine Welsh’s hard-hitting documentary Trainspotting. (*Although we of course are aware that outside the cities, you subsist on haggis and whisky)
Some Scots like to claim that this a grotesque caricature which is typical of the contempt in which they are held by the snide, ignorant, condescending English. But then, the feeling’s mutual, isn’t it? In any international sporting event, the Scots will always support whichever foreign team is playing England.
And isn’t that exactly what’s so wonderful about our relationship? All the best marriages are based on partial loathing: look at Anthony & Cleo; Taylor and Burton; Petruchio and Katherina. It’s the spark that keeps it all alive.
4. The Pound.
As Bank of England Governor Mark Carney has made perfectly clear, an independent Scotland is not going to keep the pound. Why not? Well look at what Greece did when — with a little book-balancing sleight of hand from its friends at Goldman Sachs — it snuck into membership of the Euro.
So if you want a future where you travel abroad, my Scottish friends, or indeed where you want to be able to be able to import anything at all, it’s very much in your interests to maintain the Union. Otherwise you’ll have to find a currency more in keeping with your new global status: the Albanian Lek, perhaps, or the West African CFA franc, as used by your economic soul-mate Burkina Faso.
5. The economy.
Let’s be blunt: apart from the whisky industry, and what’s left of the tourist industry that hasn’t been wiped out by Alex Salmond’s wind-farm building programme, Scotland doesn’t really have one. It is a welfare-dependent basket case, with near Soviet levels of government spending and a workforce who’d mostly be out of jobs if they weren’t sucking on the teat of state employment.
For various historical and emotional reasons, the English taxpayers who bankroll most of this welfarism — e.g. through the iniquitous Barnett Formula, whereby around £1000 more per annum is spent by the government on Scottish citizens than English ones — have decided generally to be cool about this.
But when we hear about Scotland’s plans to go it alone economically, we’re about as convinced as the parents of stroppy teenage kids are when they threaten to leave home right this minute. The difference is that when in ten minutes’ time we get the phone call “D-a-a-d. Will you come and pick me up? I’ve run out of pizza money” we’re not going to come running.
February 18, 2014
In Maclean’s, Stephen Gordon assures you that there is no mastermind at work, determining what happens to the Canadian dollar:
The Canadian dollar fell from 97 cents US to below 89 cents US in the weeks following the Bank of Canada’s decision to shift its monetary policy stance away from a tightening bias. (It has recently rebounded to hold steady at around 91 cents as I write.) These developments have provided additional fodder for those pundits who are in the habit of offering their views about where the dollar should go and/or where it will go (the two are separate issues). These views fill up media space, but they shouldn’t be taken too seriously. The foreign exchange market is one where the “semi-strong“ form of the Efficient Market Hypothesis holds: movements in exchange rates cannot be predicted using publicly-available information.
If everyone really believed that the Canadian dollar will end up at (say) 85 US cents, then everyone would sell CAD at its current price to buy USD, wait for the price of USD to increase – which is the same thing as waiting for the CAD to depreciate – and then sell at the higher price. But if everyone does that, the CAD would be bid down to the point where it is no longer profitable: 85 cents. This is why you should take predictions about foreign exchange movements with a grain of salt: if you could actually predict them, the last thing you’d do is tell anyone.
This doesn’t mean that exchange rate movements are completely random: some of the fluctuations can be ascribed to variations in the ‘fundamentals’. But what really drives these movements are the unexpected changes in the fundamentals. And unexpected changes are, by definition, unpredictable. The most reliable forecasting model is a random walk: the exchange rate next period is the current exchange rate plus a white noise error term. The best prediction for where the exchange rate is going is where it is now.
February 10, 2014
At Ace of Spades HQ, Monty gives an introduction to Say’s Law:
Jean-Baptiste Say, an 18th-century economist and follower of Adam Smith, recognized one of the most fundamental laws in all economics: the entirely common-sense observation that consumption requires production. This axiom is called Say’s Law of Markets.
However, this axiom is often mis-stated as “production creates its own demand”. This is incorrect — production is necessary for consumption to take place, but production anticipates demand, it does not cause it. Production is speculative in this sense. The simple act of producing some good or service does not, in and of itself, create demand for that good or service. (This is true even for basic commodities.)
What Say’s Law really says is that production is the source of wealth. Market-driven production creates value and provides choice to consumers. Inventors and innovators bring new products to market, and as consumers are exposed to these new products, demand rises with the utility or desirability of these new products. New markets are opened by innovators who are able to tap into needs and wants that consumers didn’t even know they had until a new product or service is offered.
And he explains why money is not wealth:
So what is “wealth”, really? (I could write a whole book on the difference between “wealth” and “money”, but I’ll try to boil it down.) Wealth is options. Wealth is choice. Wealth is variety. Wealth is agency — being able to do what you want to do when you want to do it. Wealth is surfeit — having more than the essentials of life. It is comfort, leisure, ease — or at least the agency and option (those words again) to avail oneself of leisure. Simply put, wealth is stored value that can be drawn down in various ways, only some of which involve the exchange of money for goods and services. And how is wealth created? Through production, because production must necessarily precede consumption.
Money correlates with wealth because money is a medium of exchange and a store of value. Rich people have a lot of money because they are wealthy, not the other way around. Wealth allows us to buy a bigger house or better car or nicer furniture. It pays for a nice dinner for two at an upscale restaurant. Note well: wealth buys these things, not money per se. Consumption is the draw-down of wealth, not the simple expenditure of money.
Money is the oil in the machine of an economy, but money is not in and of itself wealth. If I am stranded on a desert island with a thousand gold coins, I am just as poor as if I were a homeless vagrant living in an alleyway somewhere, because I cannot exchange my gold for things I want or need. It does not give me options or variety or comfort. My gold facilitates neither production nor consumption absent a market mechanism that makes use of it.
January 27, 2014
HSBC has irritated some of their British customers with a new requirement for justifying why large cash withdrawals are necessary before authorizing them:
Stephen Cotton went to his local HSBC branch this month to withdraw £7,000 from his instant access savings account to pay back a loan from his mother.
A year before, he had withdrawn a larger sum in cash from HSBC without a problem.
But this time it was different, as he told Money Box: “When we presented them with the withdrawal slip, they declined to give us the money because we could not provide them with a satisfactory explanation for what the money was for. They wanted a letter from the person involved.”
Mr Cotton says the staff refused to tell him how much he could have: “So I wrote out a few slips. I said, ‘Can I have £5,000?’ They said no. I said, ‘Can I have £4,000?’ They said no. And then I wrote one out for £3,000 and they said, ‘OK, we’ll give you that.’ ”
He asked if he could return later that day to withdraw another £3,000, but he was told he could not do the same thing twice in one day.
He wrote to complain to HSBC about the new rules and also that he had not been informed of any change.
The bank said it did not have to tell him. “As this was not a change to the Terms and Conditions of your bank account, we had no need to pre-notify customers of the change,” HSBC wrote.
As you might imagine, this new policy drew strong criticism, so the bank issued the following statement yesterday:
As a responsible bank we must track all financial transactions. Cash presents more risk, and in particular financial crime risk, than other payment methods. It also leaves customers with very little protection if things go wrong. Therefore, we need to monitor particularly closely movements of cash in and out of the banking system. This is why we ask our customers about the purpose of large cash withdrawals when they are unusual and out of keeping with the normal running of their account.
Since last November, in some instances we may have also asked these customers to show us evidence of what the cash is required for. However, it is not mandatory for customers to provide documentary evidence for large cash withdrawals, and on its own, failure to show evidence is not a reason to refuse a withdrawal. We apologise to any customer who has been given incorrect information and inconvenienced.
H/T to BenK for the links.