Sunday, Dec 06, 2009

Form an orderly queue

Daily Mail: Britons are keeping £50 notes under the bed because they have 'lost confidence in banks' says UK's chief cashier

Panicked bank customers are hoarding £50 notes because they have 'lost confidence' in the system.
His remarks highlight the dramatic loss of confidence in the banking system which has resulted from the extraordinary events of the last few years.
Before Northern Rock, which lead to shocking scenes of savers queueing round the block to withdraw money, most people believed their money was safer in a bank than it was anywhere else.
Today, many people believe that it is safer under their mattress

Posted by devo @ 11:03 PM (2879 views)
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1. devo said...

I've started paying for my shopping in cash.

Yesterday I got a funny look from the cashier, who then proceeded to count my money three times before sticking it in the till.


Sunday, December 6, 2009 11:32PM Report Comment

2. stillthinking said...

I think I probably posted this anecdote before, but by chance I had an unknown foreign note, which I thought was Swedish because I went there once. It turned out to Icelandic money, I must have been slipped it somewhere. So I whip this out at the Post Office and I wait because the PO lady isn't sure that they accept them.
Not that the exchange rate is bad. Just whether they accept them at all. When Iceland popped holding kronors in cash wouldn't have been much use, and I don't see that holding sterling 50s in cash will be much use should the UK go belly up also.

I think these hoarders are confused with the consequences of capital controls, in which case just holding a treasury note won't be of much use. Anyway, no point being full of borderline crazy pessimism.

Sunday, December 6, 2009 11:45PM Report Comment

3. general congreve said...

£50 notes burn very well I so I here, so they'll be of some use in a year or two's time at least.

Some might say that they could always buy some gold with them while they're still worth something, but hey, gold doesn't burn does it, so it's practically useless anyway. No, that would be a foolish idea indeed.

Monday, December 7, 2009 12:05AM Report Comment

4. general congreve said...

@3 - drunk. should read: 'so I hear'.

Monday, December 7, 2009 12:07AM Report Comment

5. crunchy said...

1. devo said...'I've started paying for my shopping in cash.'

I have always payed for most things with cash out of my wallet, it's a man thing. (controversial)

Us old timers know what (on the never, never) status credit use to have back in the hard cash days. I may offer a Krugerrand the next time I supermarket shop for personal amusement, but fear police arrest would surely follow. No wonder they don't teach finance at schools.

What would they do with no overdafts? : (

Monday, December 7, 2009 12:57AM Report Comment

6. crunchy said...

3. general congreve.... Try a fire blanket in a metal box if you have no safe!

Monday, December 7, 2009 01:17AM Report Comment

7. drewster said...

Actually. if the government decides that banks aren't Too Big To Fail then it makes sense to take your money out. If there were a run on the bank, the bank would freeze withdrawals. Your cash would be locked up until the bank decides it is ready to hand it back.

Monday, December 7, 2009 02:07AM Report Comment

8. Robh said...


Are you really an old timer. I would have guessed 35. Perhaps if you are a city bod that is an old timer?

My brother pays with cash out his wallet... a man thing, I pay with American Express... a 'cashback' thing :)

Monday, December 7, 2009 08:20AM Report Comment

9. tenant super said...

The problem with banks is that you have to use them. Most people cannot get their wages in cash and utilities like to be paid by direct debit (so they're in the driving seat).

This was the flawed logic in the recent 'bank charges' ruling. The supreme court argued that when people opened a current account they 'agreed' to these charges. But this argument fails if you have to have a current account to survive and all of them charge the same high penalty charges. The ratio decidendi implied freedom in choosing this product whereas in reality, there is none.

The only alternative to a bank account is a Credit Union and these generally do not offer particularly good value. As I never incur penalty charges, I enjoy 'free' banking but would have to pay about £60 per year to bank with my local CU.

As far as hoarding cash goes, since the biggest risk is sterling devaluation, this isn't a particularly clever strategy, not to mention the security risk...silver bullion in the eaves cupboard might be safer!

Monday, December 7, 2009 08:28AM Report Comment

10. Burt said...

tenant super
"As I never incur penalty charges, I enjoy 'free' banking"

You're lending them your money - of course it should be free!!!!! This distorted nonsense being put out by the money-swindlers really annoys me - It always used to be free, so why shouldn't it be free now? - Oh that's right, they're entitled to big profit margins otherwise they won't attract the talent.

Monday, December 7, 2009 08:43AM Report Comment

11. mrmickey said...

I remember getting paid in cash it was great a lovely feeling at the end of the week and it taught you how to manage money, once it was gone it was gone and you had no contact with banks only maybe a building society account to put your savings in. This mess were in started once everyone was forced to have a bank account in order to get paid now people can spend spend spend and the banks just keep on extending the credit and bank charges.

Monday, December 7, 2009 09:00AM Report Comment

12. stillthinking said...

The risk for the banks is that you don't have to use them, in my opinion, and the UK is that people chose sounder money, i.e. switch to a euro bank account which is fairly easy in the UK, and switch salary out on a monthly basis.

Recently I read about the roll-over debt funding risk the UK faces between now and 2015, starting next year. This is so pervasively reported as banks lending money from deposits that it is easy to forget what is actually happening. The banks created pure credit above and beyond (to the sky) their capital base, without sufficient working capital the only way to proceed was to tie up the equivalent deposit, achieved by getting the deposit in terms of a short dated (not as long as the loan) financial instrument. The coming debt roll-over is required because, still, insufficient capital. These tied up deposits have funded our trade deficit so they are held abroad as well as domestically.

What the roll-over means is that these hands-tied depositors have a freedom that they lacked before, and a choice, either to place the money into a new UK banking financial instrument, tying it up, and thereby relieving the UK banks of a capital base requirement. Or, looking at the UK, losing confidence, and deciding to switch to a euro bank. All this does it switch the requirement to hold a UK financial instrument to the euro bank at that current level of exchange. In effect this is mass selling of sterling. Had this occurred in 2007, and had the euro banks a crystal ball showing the 20% devaluation, the euro banks who have liabilities in euros(!) would have required 10% interest just to avoid taking a loss.

For next year, the starting roll-over represents hot money which will potentially either force interest rates up(big problem) or sterling down(big problem), should confidence in the UK be lacking, as the government now covers UK defaulted debts. Unless our terms adjusted for risk are as favourable as just dumping sterling, but because there is a real risk for the UK, we effectively have to pay a top up.

Which is why so many are eyeballing one another at the moment, but holding treasury notes is NO GOOD as a safety measure. Holding euros, or aussie dollars, or norwegian money YES. Paper UK notes no. Although dumping sterling does sound like a disaster, and is, I sometimes wonder if the consequences would ultimately be in our own long-term interests, through preventing continuing government borrowing and collapsing the still supported housing bubble.

Monday, December 7, 2009 09:33AM Report Comment

13. crunchy said...

Fractional reserve banking and the illusion of wealth.

Which party is the most guilty, the fisherman, the fish or the man that looks after the lake?

'Deliver us from temptation'.

Monday, December 7, 2009 09:34AM Report Comment

14. crunchy said...

The lake owner of course. It is he that collects for the fishing permits, whilst at the same time feeds the fish just enough to remain hungry.


Monday, December 7, 2009 09:51AM Report Comment

15. tenant super said...

stillthinking @ 10

This is what I do - I get paid into a sterling account, take out my spending money as cash, leave enough for my direct debits and a 'prudent reserve' and then move the rest into a Euro savings account in Ireland. Mr. tenant super is Irish so we spend a lot of time over there and opened an account some years ago. This isn't even necessary - you can open an Euro Bank account from any Irish bank branch in London (British banks charge for a Euro account).

But whilst this is an option, the vast majority of people just don't understand the risks to the currency (and whilst there are risks to all fiat currencies, sterling and usd are particularly vulnerable). You do still have to have a UK account though you don't need to keep money in it, this would sound too complicated for most folk. I don't think enough people would see the benefit in this to be a threat to the banks. Sadly.

Monday, December 7, 2009 09:52AM Report Comment

16. str 2007 said...

Tenant Super
As far as hoarding cash goes, since the biggest risk is sterling devaluation, this isn't a particularly clever strategy, not to mention the security risk...silver bullion in the eaves cupboard might be safer!

Just had an email from Bullion Vault and you will be able to hold Silver from early January in their London Vault.

It costs 10 or 15% + VAT to physically extract it, but if it came to needing to extract it that would be the least of your worries I guess.

Might be safer than the eves of your house.

Monday, December 7, 2009 09:58AM Report Comment

17. tenant super said...

For small fish like me, who have savings of a few tens of thousands rather than hundreds of thousands, you can shop around and slowly build up a little stash of second hand silver bullion (which, unlike buying new, escapes vat). Whether you risk keeping it at home depends on whether you have an appropriate hiding place as household insurance won't cover it. 10-15% + vat to extract from a vault is a bit off-putting!

Monday, December 7, 2009 10:21AM Report Comment

18. crunchy said...


A bird in the hand or two in the bush? Decisions, decisions.

The house option does have a cosy warmth and privacy about it, but an 'institution' seems much more legit. I'm split on this one!

Too many, what ifs.

Monday, December 7, 2009 10:22AM Report Comment

19. sold out said...

Buy a decent safe (fireproof) and bolt it somewhere in your loft and put all your stash in there.
As an insurance against being burgled, buy another cheaper safe, fill it with useless tatt and a few weighty items ( bricks etc) and fix into a more obvious position, your wardrobe maybe.
oh and don't mention to anyone about buying gold, silver, euros etc.

Monday, December 7, 2009 10:59AM Report Comment

20. crunchy said...

We can't have people having it off all over the place (now can we.) It's just not British.

Monday, December 7, 2009 11:02AM Report Comment

21. crunchy said...

17. sold out.... The only things we have learnt from the last decade is DIY and Location, Location.

Monday, December 7, 2009 11:14AM Report Comment

22. matt_the_hat said...

Open your history books ladies and gents - don't move to early the weimar rep had its golden period - stay in 'cheap' equities then when everyone and his dog is there move to commodities - don't follow the herd

Monday, December 7, 2009 11:14AM Report Comment

23. stillthinking said...

I see it more in terms of bank credibility and exposure. If you have a deposit and you want to spend, then the only way the bank can honour that is if one of their debtors comes good for the money and foregoes their consumption on your behalf i.e. they don't spend, they pay down their debt, you reduce your savings by an equivalent amount.
So not just euros, but euros and specifically ->banks with reliable debtors<-. For me I think the safer banks are in the more traditional euro block, German/France. I am not so sure about Irish banks because of their housing bubble, and Ireland itself is in a similar situation to the UK.

Monday, December 7, 2009 11:26AM Report Comment

24. tenant super said...

Yep, Irish banks are in a more parlous state than ours and their stability is questionable. We deposited with National Irish Bank (which is part of the Danish Danske group).

Monday, December 7, 2009 11:34AM Report Comment

25. kruador said...

Hmmm, the Bank's own figures don't really seem to back this up. The amount of note and coin always grows (inflation, and all that) but the rate of growth has been higher over the last 20 years and started falling back over the last few months:

The value plotted is the annualized figure: what we're actually seeing here is a large jump from September 2008 to March 2009 of 0.8% - 1.1% for each month, month-on-month. Current rates are 0.3% and 0.4% for the last two months. This figure shows 3-month annualized rates:

It's possible that some of this growth is hoarding, but actually I don't find that very likely. What we haven't seen is the very low growth from the last recession in 1991 - but this recession is more about credit contraction than anything else, and the amount of money loaned - on the order of £2,500 billion - dwarfs the £55 billion of notes and coins.

Monday, December 7, 2009 11:36AM Report Comment

26. kruador said...

BTW if you're interested in the Bank's statistics, you can find them at Charts above taken from Narrow Money (Notes & Coin) and Reserve Balances, and the amount of lending from Analysis of bank and building society deposits from and lending to UK residents (see the Table B 'Further Breakdown' PDF).

Monday, December 7, 2009 11:39AM Report Comment

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29. Screwsnutsandbolts said...

The larger gold buyers often payout in £50s. On the occasions I have received them they seem a little sticky, i.e. for some reason they stay at home longer than £10s or £20s would. Probably a result of assuming lots of shops won't accept them. I wonder whether this is an influencing factor...

Monday, December 7, 2009 02:11PM Report Comment

30. afrobaggie said...

He rose to his feet.

“If,” he said tersely, “we could for a moment move on to the subject of fiscal policy …”

“Fiscal policy!” whooped Ford Prefect, “Fiscal policy!”

The Management Consultant gave him a look that only a lungfish could have copied.

“Fiscal policy …” he repeated, “that is what I said.”

“How can you have money,” demanded Ford, “if none of you actually produces anything? It doesn’t grow on trees you know.”

“If you would allow me to continue …”

Ford nodded dejectedly.

“Thank you. Since we decided a few weeks ago to adopt the leaf as legal tender, we have, of course, all become immensely rich.”
Ford stared in disbelief at the crowd who were murmuring appreciatively at this and greedily fingering the wads of leaves with which their track suits were stuffed.

“But we have also,” continued the Management Consultant, “run into a small inflation problem on account of the high level of leaf availability, which means that, I gather, the current going rate has something like three deciduous forests buying one ship’s peanut.”
Murmurs of alarm came from the crowd. The Management Consultant waved them down.

“So in order to obviate this problem,” he continued, “and effectively revalue the leaf, we are about to embark on a massive defoliation campaign, and … er, burn down all the forests. I think you’ll all agree that’s a sensible move under the circumstances.”
The crowd seemed a little uncertain about this for a second or two until someone pointed out how much this would increase the value of the leaves in their pockets whereupon they let out whoops of delight and gave the Management Consultant a standing ovation. The accountants amongst them looked forward to a profitable Autumn.

“You’re all mad,” explained Ford Prefect.

“You’re absolutely barmy,” he suggested.

“You’re a bunch of raving nutters,” he opined.

Douglas Adams, The Restaurant at the end of the Universe.

Monday, December 7, 2009 07:21PM Report Comment

31. tenant super said...

Thanks for that afro... I often think of that little Adams gem when I read about current fiscal policy.

Monday, December 7, 2009 11:00PM Report Comment

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