*****Banks Pretend To Have Billions In Vault Cash*****

The CUNA CFO council reports about generating income through ATM funding.

(emphasis mine) [my comment]

Generating Income through ATM Funding
thePoint
December 29, 2004

Banc Investment Group has launched a first-of-its-kind ATM funding program to help independent banks generate fee income from excess liquidity on their balance sheets. ATM Cash Advantage enables banks to advance up to $400 million in currency to more than 17,000 nonbank ATMs around the nation, including those based at convenience stores, airports, gas stations, and casinos. In return, member banks can generate fee
[interest] income equal to 50 basis points above the Federal Funds rate.

Banc Investment Group, the broker-dealer unit of the Pacific Coast Bankers' Bancshares (PCBB) of San Francisco, matches local ATMs with participating regional banks to keep the machines stocked with cash.


"Before banks had to struggle to use their liquidity," says Chris Nichols, who is a co-CEO, along with Steve Brown. "The beauty of this flexible program is that banks can make a good spread. Bank ABC takes their money and puts it in 25 ATMs in their area. The ATM provider keeps the surcharge, but they also get charged a fee [interest] to use the cash."

And
if Banc Investment Group has its way, these banks may soon be allowed to reduce their own vault cash balances under Regulation D. PCBB recently requested the Federal Reserve to review the regulation. The program may also help banks comply with the Community Reinvestment Act under the service-test provision, say PCBB officials.

Banc Investment Group and PCBB will raise cash from participating banks and manage the partnership with Palm Desert National Bank, which supplies cash and management services to more than 10,500 ATMs nationwide. PDNB's local and national operations use its proprietary ATM Trakker, which tracks activity at each of its ATMs. PDNB has ATM service centers in California and Louisiana. PCBB handles collection of assets from individual banks, which is transferred electronically, provides on-line access to accounts, and generates monthly reports to member banks. Palm Desert National Bank manages the program's operational issues, as well as armored car and ATM security issues.

All 12 of the banks signed up for the ATM program have been enthusiastic, says Nichols.
"They all think it's great," he says. The participating dozen include Pacific Capital Bank in Santa Barbara, California, and Butte Community Bank in Chico, California.

"ATM Cash Advantage unlocks frozen assets on the balance sheet without [by] incurring credit risk and enables banks to generate fee income in this challenging environment," says Nichols. "By pooling money from many institutions, Banc Investment Group is creating a powerful syndicate of independent banks that can provide substantial liquidity for ATMs, while giving bankers a low risk opportunity to increase revenue." By leveraging the collective network of independent banks, the program allows "owners of ATMs to take advantage of immediate economies of scale," points out Kevin McGuire, chairman of Palm Desert National Bank, in Palm Desert, California. PDNB declined to discuss how Palm Desert is compensated.

Participating banks retain the title and interest to their cash, which can legally be treated as an asset until it is dispensed from the ATMs. They can also monitor cash disbursement, check advance status, and get individual ATM reports on-line. PDNB's software predicts when certain ATMs will run out of cash, based on past behavior at that machine. And since the biggest risk in keeping ATMs stocked with cash is that of theft when the delivery trucks are on the road and the handlers are doing the actually filling, tapping local banks makes a lot of sense.

ATM locations will vary by geography, vendor selection, and type to offer the greatest diversification and the lowest risk possible, says Nichols, who notes that the program's risk is similar to that of banks' in-house ATM programs and can be summarized in terms of settlement and insurance. To mitigate operational risk, the program has multiple layers of insurance from AAA-rated national insurance carriers and uses PDNB's proprietary software platform, which provides near real-time reconciliation of ATMs, armored carriers and cash vaults. In addition, the program uses technology from vendors like Concord EFS, Genpass, Fiserv, Brinks, Loomis, Bantek and Premium-EF Mark.

"Casino ATMs are some of the most highly transacted machines," says Nichols. "They carry a lot of money, and before one bank would have to take the risk in the event of earthquake or whatever. But this program helps spread the risk throughout the financial system."

Cardtronics provides a sample ATM vault cash agreement.

EXHIBIT 10.3
ATM VAULT CASH AGREEMENT

THIS ATM VAULT CASH AGREEMENT ("Agreement") is entered into as of February 1, 2001 between First Bank and Trust ("FBT"), a Louisiana financial institution and Cardpro, Inc. d/b/a Cardtronics, a Texas Corporation ("ATM Owner").

RECITALS:

A. ATM Owner leases, owns or otherwise controls various automated teller machines.

B. FBT is a contractual party to agreements with regional and national organizations that establish rules for the placement, settlement and transmission of automatic teller machines and their data (the "Networks").

C. ATM Owner desires to enter into a cash arrangement with FBT pursuant to which FBT will place vault cash of FBT in certain automated teller machines of ATM Owner (the "ATMs").

D. Columbus Data Services, LLC. ("CDS") may act from time to time as an independent contractor on behalf of FBT with respect to FBT's agreements hereunder.

THEREFORE, in consideration of the premises, ATM Owner and FBT agree as follows:

1. Vault Cash.

(1) ATM Owner agrees to allow FBT to place FBT's vault cash ("Vault Cash") in the ATMs [lend cash to ATM owners/managers] from time to time in such amounts as FBT may desire. FBT shall arrange for Vault Cash to be delivered by FBT's designated carriers to specific ATMs at specific locations as agreed to from time to time by FBT and ATM Owner. FBT shall approve all designated carriers, and such approval will not be unreasonably withheld, that will handle FBT's Vault Cash and will approve the location of any ATMs subject to this Agreement.

(2) ATM Owner agrees that at all times the Vault Cash shall be the property of FBT [Complete BS], and ATM Owner agrees to indemnify and hold harmless FBT for any damage to, or loss of, Vault Cash delivered to any ATMs until the Vault Cash has been successfully returned to FBT or its designated carrier.

(3) At all times FBT shall have the full ownership, title, use, rights and benefits to all Vault Cash located in any ATM. [This is COMPLETELY ABSURD. The key aspect of ownership is the right to dispose (sell, give away, dispensed, etc...) of an asset. 3rd party ATMs are allowed to dispense "vault cash" provided by banks without obtaining permission of those banks, which means they have ownership of that cash. Banks can't give away ownership (right to dispose of an asset) while at the same time claiming full ownership.
]


(4) ATM Owner agrees that all Vault Cash can be retrieved from any ATMs by FBT at FBT's sole discretion and option and without consent from, or notice to, ATM Owner.

(5) All Vault Cash placed in any ATM shall at all times be the sole property of FBT and shall not be subject to any manner of set off rights, lien, security interest, attachment, seizure or other process or agreement by or relating to the property of ATM Owner. ATM Owner shall take all necessary steps to identify and protect FBT's ownership rights in the Vault Cash.

(6) All Vault Cash placed in an ATM pursuant to this Agreement will be considered "vault cash" of FBT for the purposes of reporting pursuant to Regulation D of the Federal Reserve Board (12 CFR 204) until such time that the currency may be dispensed from an ATM [If "vault cash" can be dispenced from an ATM, without a bank loan]. ATM Owner shall not report, treat or consider such currency as "vault cash" for any reporting purposes or otherwise.

(7) ATM Owner shall furnish such assistance as FBT may reasonably request in order for FBT to comply with any regulatory, record keeping or reporting requirements applicable to FBT with respect to the ATMs or the Vault Cash. [Translation: ATM Owner will help FBT pretend that the ATM loan isn't a loan.]

...
10. Audits.

ATM Owner shall allow FBT and its designees, including any regulatory or supervisory body to which FBT may be subject, at ATM Owner's cost and expense to examine any books, records and ATM facilities that FBT or its designees may deem appropriate in order to determine compliance with the terms of this Agreement and applicable laws and regulations. ATM Owner shall allow FBT or its designees access to any audit reports conducted by ATM Owner or its agents with respect to the ATMs. FBT shall have the right to perform such inspections and audits as FBT, in its sole discretion, deems necessary, and ATM Owner shall bear any and all expenses associated with the audits. In the event of any financial discrepancies, FBT's records of amounts of Vault Cash placed in an ATM or disbursed to a designated carrier, amounts received by FBT and amounts owed by ATM Owner to FBT shall be conclusive and binding, absent manifest error in computation.

11. Term and Termination.

This Agreement shall be effective for four (4) years from the date set forth on page one hereof and shall be automatically extended for successive annual renewal terms, unless either party shall deliver written notice to the other party of cancellation at least sixty (60) days prior to the end of any term; provided that FBT may cancel this Agreement for cause or regulatory need upon twenty-four (24) hours notice.

This Agreement shall be automatically terminated immediately if its continuation would result in a violation of any law or regulation, or if a regulatory authority determines, through staff opinion or otherwise, that currency placed in an ATM or with a designated carrier(s) pursuant to Section 1 of this Agreement is not "vault cash" as defined in 12 CFR 204.2(k) of Federal Reserve Regulation D.

SEC filings of Global Cash Access Inc show that, like deposit reclassification, all major banks are involved in this regulatory fraud.

FORM 10-Q
GLOBAL CASH ACCESS, INC.

...
ATM Funding Agreements
—The Company obtains all of the cash required to operate their ATMs through various ATM Funding Agreements described in Note 3. Under the terms of these agreements, neither the cash utilized within the ATMs nor the receivables generated for the amount of cash dispensed through transactions on the ATMs are owned or controlled by GCA [GCA has cash in its possession and is legally allowed to dispense without the consent of the bank supplying the cash. For all intents and purposes, GCA owns the cash in its ATMs, whether it admits it or not]. Therefore, these amounts have been excluded from the unaudited condensed consolidated balance sheets.

...
3.
ATM FUNDING AGREEMENTS

Wells Fargo Vault Cash Custody Agreement— On November 17, 2003, the Company entered into a Vault Cash Custody Agreement [These agreements are legal fraud] (the "Agreement") with Wells Fargo Bank, N.A. ("Wells Fargo") to provide the currency needed for normal operating requirements for all the Company's ATMs [Right here, Well Fargo, by transferring the right to dispose /dispense cash for "for normal operating requirements" of "all the Company's ATMs", is transferring control and ownership to GCA]. This agreement provides up to $300 million in the Company's ATMs [This is a substancial amount. Considering that all major banks have signed several of these agreements, the total amount of loaned "vault cash" is undoubtedly in the tens of billions], and replaced the existing Bailment Agreement between the Company and First Data. As part of this agreement, the Company agreed that Wells Fargo shall have absolute control over all of the cash and the settlement receivables resulting from ATM transactions at all times [This is a FUNDAMENTAL CONTRADITION. Wells Fargo can't transfer control and ownership of cash to GCA while at the same time retaining "absolute control over all of the cash".]. Under the agreement with Wells Fargo, GCA was to pay a monthly funding fee [ie: monthly interest fee] to Wells Fargo equal to average daily dollars outstanding in all ATMs multiplied by the average Federal Funds rate published by the Federal Reserve Bank of San Francisco for the month plus a margin of 30 basis points multiplied by the number of days in the calendar month. [This is a interest-charging cash loan, no matter how you look at it.]

On March 4, 2004, the Company amended the Agreement with Wells Fargo to provide the currency needed for normal operating requirements for all the Company's ATMs. Under terms of this amendment, Wells Fargo agreed to not exercise their right to terminate the Agreement for a period of 120 days and the interest rate utilized in the monthly funding fee computation was changed from average Federal Funds rate for the month plus a margin of 30 basis points to LIBOR plus 300 basis points. Until the services were terminated, the Company was also required to maintain a $5.0 million letter of credit as security for the performance of GCA's obligations under the Agreement. Services under terms of this agreement and the letter of credit securing GCA's obligations were terminated in June 2004.

Bank of America Amended Treasury Services Agreement—On March 8, 2004, the Company entered into an Amendment of the Treasury Services Agreement with Bank of America, N.A. that allowed for the Company to utilize up to $300 million in funds owned by Bank of America to provide the currency needed for normal operating requirements for all the Company's ATMs [Again, Bank of America is giving up control and ownership of cash to GCA]. For use of these funds, GCA pays Bank of America a cash usage fee [cash usage fee = interest] equal to the average daily balance of funds utilized multiplied by the one-month LIBOR rate plus 25 basis points. The cash usage interest rate in effect at September 30, 2004 was 2.03% [See? Even GCA's FORM 10-Q admits that the "vault cash" is being loaned with its use of the term "cash usage interest rate" (interest is only charged on loans).]. The transition of the ATM funding from Wells Fargo to Bank of America was completed June 8, 2004.

TRM Corporation is a consumer services company that provides convenience ATM services in high-traffic consumer environments. TRM's ATM customer base is widespread, with retailers throughout the United States. TRM operates one of the largest non-bank ATM networks in the United States.

Below is TRM Corporation's Consolidated Balance Sheet. Notice the ridiculous restricted cash TRM Corporation has listed as an asset.

TRM Corporation

Consolidated Balance Sheet

(in thousands)

(unaudited)

December 31,

March 31,

Assets

2007

2008

Current assets:

Cash

$3,859

$4,896

Restricted cash

3,073

2,675

Accounts receivable, net

2,611

2,115

Inventories

50

50

Prepaid expenses and other

369

1,019

Deferred financing costs

172

1,121

Restricted cash - TRM Inventory Funding Trust

61,805

63,905

Total current assets

71,939

75,781

Equipment, less accumulated depreciation

and amortization

4,222

3,863

Goodwill

16,748

16,748

Intangible assets, less accumulated amortization

585

617

Other assets

795

760

Total assets

$94,289

$97,769

Liabilities and Shareholders' Equity

Current liabilities:

Accounts payable

$6,099

$6,104

Accrued expenses

9,929

8,973

Income taxes payable

36

25

Term loan

2,051

-

TRM Inventory Funding Trust note payable

58,505

61,520

Total current liabilities

76,620

76,622

Term loans and other debt

-

3,138

Settlement agreement due after one year

3,009

2,699

Total liabilities

79,629

82,459

Minority interest

1,500

1,500

Shareholders' equity:

Common stock

136,181

137,267

Additional paid-in capital

63

63

Accumulated deficit

(123,084)

(123,520)

Total shareholders' equity

13,160

13,810

Total liabilities and shareholders'

equity

$94,289

$97,769

Problems with ATM Vault Cash

ATM Market Place reports that East Coast armored carriers on strike.

East Coast armored carriers on strike; ATMs could run out of cash over holiday weekend
— 02 Jul 2004

[Liquidity risk: banks may lose access to their "vault cash"]

PHILADELPHIA -
Armored carriers who service the majority of the ATMs in Pennsylvania, New Jersey and Delaware are on strike, which may affect consumers' ability to get cash from ATMs over the July 4 holiday weekend.

According to an NBC10 report, Loomis Fargo & Co. and the union representing workers ended talks on July 1 without a deal; no talks are scheduled over the holiday weekend.

Workers are on strike over contract issues including driver safety, wages and health care.

Union members say it is unsafe for workers to travel only in pairs. They are requesting three-person crews when handling cash from ATMs.

Unable to reach an agreement with company officials, the union warns ATMs may run out of cash over the busy weekend.
Clients include U.S. Bank, Bank of America, Fleet and Wachovia [more evidence that all major banks are involved in ATM funding], as well as area casinos.

Loomis Fargo officials say there will not be a cash shortage. "We are confident our operation will be 100 percent by this weekend," a company spokesperson told NBC10.

ATM Market Place reports that ATM vault cash provider files suit against armored carrier.

ATM vault cash provider files suit against armored carrier
— 03 Jan 2003

[Credit/default risk: Those who borrow "vault cash" from banks may not return it.]

AMARILLO, Texas -- Herring National Bank, based in Amarillo, filed suit on Dec. 31 against Dallas-based armored car company Mobile Express Corp., claiming the firm failed to return more than $2 million in cash recovered from ATMs, according to a report in the Amarillo Globe-News.

According to the suit, Herring, a vault cash provider for ATMs owned by third parties, contracted with Mobile Express to provide armored car services and stock the machines with cash. Under the contract, residual cash remaining in the ATMs was supposed to be returned to Herring.

The suit claims Herring recently became aware that the armored car company was not returning cash from ATMs on a consistent and timely basis. On Nov. 17, Herring prepared a reconciliation of amounts Mobile Express owed to Herring because of the bank's concerns about missing ATM cash.

According to the Globe-News report, the reconciliation determined Mobile Express failed to return large sums of Herring's cash that was removed from ATMs. After Herring made repeated attempts to collect the money from Mobile Express
["attempts to collect" is what banks do on loans that have defaulted. The fact that a bank has to "attempts to collect" its "vault cash" is a joke.], the bank on Dec. 30 made a formal request for Mobile Express to return about $1.8 million in cash.

"Despite MEC's acknowledgment that residual cash is unaccounted for, MEC failed and refused, and has continued to fail and refuse, to return the cash due and owing Herring," the suit states.

The suit claims Herring provided Mobile Express with more than $2 million in cash that was not returned. The bank is seeking damages, court costs and attorney fees in its suit.

According to its report, the Globe-News attempted to contact officials from Mobile Express for comment, but the company's telephone had been disconnected.

The Economic Times reports that ATMs empty as bank stir sparks higher withdrawals.

ATMs empty as bank stir sparks higher withdrawals
7 Aug 2009, 0710 hrs IST, TNN

[Systematic risk: Since all banks now share ATM vault cash, all banks will run out of cash together in the face of higher withdrawal rates.]

NEW DELHI: A number of ATMs ran out of cash in the city. While ATMs of PSU banks that are on a two-day strike went dry early in the day, some ATMs of private banks too ran out of money towards Thursday evening as PSU bank customers made a beeline for them.

''It's a new [completely predictable] situation for us,'' said a private banker. ''Now that a ll ATMs are linked and a customer from any bank can withdraw money from the ATM of any other bank, there was huge pressure on the ATMs of banks such as ICICI Bank and HDFC Bank.''

The banker said the problem would be temporary. ''All ATMs are monitored electronically . As soon as they run out of money, the bank sends out personnel to replenish them,'' he said. Private banks noticed higher withdrawals on Thursday and were replenishing the ATMs more frequently.

On Day 1 of the two-day strike, around 10 lakh employees of government owned banks, which control almost 70% of banking operations in India, struck work. These banks had filled their ATMs with cash on Wednesday night. But by afternoon, they went dry.

The situation is likely to worsen on Friday. Although private and foreign banks are not participating, banking functions like cheque clearances and current account operations have been hit as PSU banks control 70% of these operations.

My reaction: Banks are lending billions of dollars to ATM owners/managers and pretending they still own it for reporting purposes.


[I will expand this later today.]



Banks making a mockery of the English language:

Giving someone money and then charging them for the use of the money is called making a loan. However, because banks want to treat the cash loaned to 3rd party ATMs as their own "vault cash", they refuse to acknowledge these loans, conjured up all types of terms to hide what their vault cash really is:

Vault cash in 3rd party ATMs = cash loaned to 3rd party ATM owners/managers
ATM vault cash provider = Banks who lend money to 3rd party ATM owners/managers
ATM Funding = ATM Lending
Cash usage fee = interest fee
Monthly funding fee = monthly interest fee

Loaning VS Custodianship

When possession of an asset is unilaterally (ie: no payment, not a sale) transferred from the owner to a 3rd party, the transaction establishes either a lender/borrower or custodian relationship.

Lender/borrower relationship:

1) 3rd party has the right to dispose of asset (sell it, spend it, dispense it, etc...)
2) 3rd party is charged an interest fee for use of asset
3) Examples: Credit card cash advances, securities lending, cash loaned to ATM owners/managers, etc...

Custodian relationship:

1) 3rd party doesn't not have right to dispose of asset.
2) 3rd party charges owner a storage fee
3) Example: Precious metals held at Goldmoney or Bullionvault, stock certificates held at custodian bank, etc...

Then banks could only legitimately call cash held at 3rd party ATM as "vault cash" if:

A) 3rd party ATMs owners/managers were not allowed to dispose of cash (no withdrawals from ATMs) and
B) 3rd party ATMs owners/managers were charging banks storage fees for holding cash

However, since banks are charge interest on and allowing withdrawals of cash provided to 3rd party ATMs, they are indisputably making loans. Money in these ATMs has no business being treated as "vault cash". Regulators allowing this accounting fraud to occur are either corrupt or incompetent.


Conclusion: Vault cash is supposed to be 100% safe (ie: cash in a banks vault). Assets listed as vault cash for reporting purposes should:

A) have no liquidity risks (ie: no possible loss of access to cash)
B) have no credit risks (ie: no possibility of default).
C) be fully owned and controlled by bank (ie: no 3rd party should have right to dispose of a bank's vault cash).
D) not be earning any income (there is no way "vault cash" can be a legitimate "earning asset" for banks)

"Vault cash" provided to 3rd party ATMs fails all these tests. What banks are doing with ATM Funding is fraud.


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16 Responses to *****Banks Pretend To Have Billions In Vault Cash*****

  1. James says:

    Hi Eric,
    I'm kinda of a newb but I just observed recently that everytime the stock market goes down the USDX shoots up.
    Can you explain why this is so when you get a chance.
    Thanks

  2. dashxdr says:

    Spelling in title again -- "Pretent" -> "Pretend".

  3. Sorry to break your drift pal, do not get carried too far away.
    Banks actually pay the fee to the ATM operator, so your beutiful interest is negative. So banks do not lend it, otherwise they are not bankers, but some charity. Let's get it straight: you have no clue what to hang on them. You can easily find some better hints in SEC filings btw.

    For your info: the vaults at ATM have all needed certificates. Some of them can for example render the whole content unusable e.g. sprinkling it with resistant ink.
    The cash in the ATM's vaults belongs to the bank allright, upto the moment of cash-out. Were it not the case, the two-way terminals were outlawed. The new ones can take the cash in and make transfers, just like on website (the same software). As it looks like you did not see such a new terminal I break some new secret: the expensive model has a night-tresor, i.e. you can leave yor cash for some days. All automatic, all electronic, 24x365, full service. Do not be riducule claiming the bank providing this operation actually does not own the money. Of course they own it all the way, as always was the case. The ATM operator provides only machines and service. It works all over the world FYI, some 10 years or so :)

  4. Robert says:

    I have mixed feelings about these stories.

    I'm pretty sure zezowaty is wrong about the direction of the 'cash usage fee' payments - the banks do pay a fee to the ATM operators but that's a totally separate issue from these 'cash usage' payments which are payed by the company managing the ATM cash to the bank for usage of their cash.

    I have two main feelings about this;

    Firstly the regulators could see this as a loan from the banks to the ATM operators because it is a lot like one (and presumably that's exactly how these kinds of transactions originally started)- but the ATM operators aren't doing anything with the cash either - it's just sitting there in the ATM's 'vault' until it gets dispensed so in that way it's a bit unlike a loan. I don't think there's anything in the banking laws that says the cash has to be in YOUR vault.

    Calling the ATM a 'vault' isn't that crazy. It's probably secure enough - and the very fact that the cash is split up between so many different 'vaults' makes it more secure. No single thief is going to be able to knock over more than a few ATMs.

    As for whether or not the bank could theoretically get their cash back or not - I'd guess that they might theoretically be able to shut down the ATM and send armored cars to retrieve the cash. If this were really the only sticking point it would probably make sense for the ATM cash management companies to make some provisions to allow banks to theoretically shut down the ATM's dispensation and get their cash back. I doubt very much that anyone would ever be inclined to do this but it might help them to make it less even less like a loan.

    I'm also not sure how much cash matters anymore. Credit and Debit cards are nearly ubiquitous so if there ever was a shortage of cash people could probably get by without for long enough for the fed to print up a new batch of notes.

  5. Robert, I'm pretty sure you don't understand the origin of the two-way payments between ATM operator and the bank. How come the bank pays the operation fee (as a lumpsum plus pecentage of cash flow) thus negative interest, and in parallel receives payment from the operator as cash usage fee, thus positive interest? WTF is the reason? Should the one not be discounted against the other?

    The reason is simple, my dear plot-hunters. The ATM operator needs full-cover insurance policy and for that effect needs to be "in posession" of the cash. The lease agreement for the cash covers that. For the insurance company the ATM operator is in posession of the money, but it is not it's owner. The bank owns the cash all the way, the service guys have the cash in posession and everybody's covered with 100% first-class insurance. Don't look for trouble where none is. Really, it is as clean as that.

    More to that, there are ATM chains servicing multiple currencies, how is that for a surprise?

  6. Numonic says:

    This blog article is right up my alley. I'll start by replying to the last comment though.

    I'm also not sure how much cash matters anymore. Credit and Debit cards are nearly ubiquitous so if there ever was a shortage of cash people could probably get by without for long enough for the fed to print up a new batch of notes.

    I have to agree that this is true to a point but if you're suggesting replacing the paper Federal Reserve Notes with credit/debit cards, doing this creates a bigger problem for the credit/banking system. You have essentially just replaced physical paper cash with physical plastic cards. Now ask yourself which one is harder to produce, the physical paper Federal Reserve Notes we use or the plastic debt/credit cards we use? The answer is the latter: the physical credit and debit cards we use are harder to create/produce and take more scarce material. The truth is the currency has to be physical/tangible, you can't escape it. Whether it's gold, silver, copper, paper, plastic or the ink used to put a mark on your hand the money has to be physical and the best thing for a credit/banking system is to use the physical form of money that is most easiest to create. There is nothing more easier to create than the paper currency which is why I believe credit is seeing it's final move as there is no other form of physical currency to run to. Any other physical form of currency has been harder to create. So if you think the credit/banking system can survive by replacing cash and everyone owning a credit card instead, think again. It's allot harder to create/produce credit cards with the material in credit cards than it is to create the paper Federal Reserve Notes we use today. The banking system works best with things that are easy to produce, other wise defaults will be difficult to prevent/bailout. And I believe the case we have today is a situation where the enormous amount of debt has turned what was once considered easy to produce in to something scarce and difficult to produce. With the massive amount of new people with access to this physical cash, the physical cash has become scarce in relation to the amount of people with access to it and the govt. is having trouble fixing this which is why we are deleveraging(destroying/removing debt/contracting credit), reducing the amount of people with access to this cash, even though the govt. is trying everything in it's power to stop this deleveraging with the printing press. The govt. is failing and allot of people who used to have access to this cash will loose that access as banks and debt continue to default.

  7. Numonic says:

    possession is 9/10ths of the law.

  8. Numonic says:

    Oh and for the umpteempth time if anyone asks, the massive defaults are inflationary as it raises the cost of the world's most used commodity: credit.

  9. stibot says:

    Now ask yourself which one is harder to produce, the physical paper Federal Reserve Notes we use or the plastic debt/credit cards we use?

    I didn't catch it.. Once people have cards, they do not need to receive another cards to enhance credit. It becomes matter of key strokes then.

  10. Robert says:

    zozowaty,

    There are two separate transactions.

    Whether the transactions are netted or indeed whether the net transfer is in favor of the banks or the ATM operators is not relevant.

    These articles are only looking at the loan/cash fee transaction. The other 'operation fee' transaction is not under discussion.

  11. Robert says:

    Numonic, I'm afraid I don't agree. Debit/Credit cards usually last for a few years. If there are around 300million americans and each card lasts for 3 years then they need to print 100million cards per year to keep all of america supplied with money. I'm not sure how any fed notes they print in a year but I bet it costs more than printing 100million cards.

    Anyway I don't think there is any danger of a long term cash shortage. It would be a transient phenomenon triggered by some brief crisis or other. We'd be talking about at most a week or two before cash machines could be restocked. Perhaps impose lower withdrawl limits and publicly appeal to everyone to make more use of their debit cards if possible.

  12. Updated entry. I will updated once more later when I have time.

  13. Numonic says:

    I think allot of people will be against a cashless society. Which is why there are still people using physical cash and why we have the problem we are having today. If you think physical cash doesn't matter today and could be solved in an instant then why is California issuing IOUs that can't be cashed in until October? The reason behind this entire banking/credit crises is the fact that physical cash is in shortage. We are witnessing the effects of a shortage of physical cash and it's not a simple little problem as you're making it out to be Robert.

    I sometimes wonder what people think is the reason for what is going on right now as far as the credit crunch and stock market falling. I'm surprised some people don't realize that the basis of this problem is the shortage of physical cash.

    There are privacy issues with credit/debit cards. I think some people are against that which is why they'd rather use physical cash. No paper trail.

    It's obvious from what's going on now that people are choosing physical cash over credit/debit cards.

    If someone can please try to give another explanation of what's behind the crisis we have other than the shortage of physical cash, I would like to hear it but so far the only logical explanation to this crisis is that there is a shortage of physical cash. What i mean is that there are more people demanding physical cash than what is available. The inability to deliver this physical cash is decreasing the value of debt as that debt was a promise to deliver this physical cash and that promise was broken which is the reason the value of debt is going down and the cost of borrowing is rising.

  14. Anonymous says:

    Numonics said:
    If someone can please try to give another explanation of what's behind the crisis we have other than the shortage of physical cash, I would like to hear it but so far the only logical explanation to this crisis is that there is a shortage of physical cash.

    Things get confusing, what with printing money ,vault cash for fractional reserve banking purposes etc The bottom line is that physical cash is indeed needed.as numonics says.

    Its seems to me that there is money of account. Keeping track in the books.

    And there is real world money even the paper dollar still has a relationship to gold and silver ( and oil priced in dollars )for real world value comparison.

    In my opinion a labour based value .Gold requiring labour time to dig it out and exchanged at its labour created value.

    International Banks A.B and C get together in a circle (BIS) and exchange/balance out their debts to each other . That’s the blips on the screen stuff cancelling out and paying debts that can be balanced out.
    For accounting purposes cancelling out a debt a blip is as good as book entry .But it has also to have a real world basis.

    No physical dollars are needed if mutual debts cancel each other out so ships with shitloads of money are not endlessly crossing backwards and forwards over the oceans .

    Its only the debts that are not cancelled out in mutual settlements of accounts that requires cash
    so the physical amount of FRN circulating may be trivial in comparison to the whole thing.

    But that’s the bit that HAS to be real and physical to be used in exchange for real commodity wealth.
    That’s the bit it seems to me Numonics is talking about ?

    The yanks want their real cash back ( not unbacked by value blips that’s for suckers)
    So the Chinese and others need to have that CASH amount from trade selling real things for the paper being worshiped as real value.

    Now they are finding they were putting their savings into fools gold in the form of paper titles to real world wealth.

    (annoyingmaos)

  15. Numonic says:

    Anonymous and James let me say something. The only reason the US dollar has been able to hold on is because it has been printing to make good on it's bonds/debt/promises. The great credit contraction will intensify and more banks will require this paper the Fed is printing. Right now allot of people assume that this paper is in infintie supply but it's only available at the speed it can be printed. And the fact is as the credit contraction intensifies, the credit contraction will outpace the printing of this paper and there will be a failure to deliver this paper. Proof is in the Cali IOUs and depletion of FDIC funds and mounting bank failures. And like our bonds of the past failed to deliver physical gold and subsequently lost value, our bonds of today, our ATM/Debit cards will fail to deliver the physical paper it promised and if you can't buy paper with your ATM/Debit card you won't be able to buy anything more rare than paper with it either. The fact that we have a shortage of FRNs is proof that we are in hyperinflation. That means there is more money chasing paper than there is supply of paper. Surely there are allot more things on earth more rare than paper. If all this money is causing paper to be in shortage, when that paper shortage is revealed by the inability to redeem paper for your ATM/Debit card, this event will cause the price of things more rare than paper to skyrocket. And how many things can you say are more abundant than paper?

    Get gold and silver now, we are headed for a crash. Crashes don't take time, they happen in an instant. When you get in a crash, you don't have time to open the door and step out the car in the middle of the crash without getting hurt. A crash can bring a car from mint condition to totally totalled in an instant. I see the object we are going to crash in to getting closer as bank failures rise, FDIC funds dry up, States issue IOU's and unemployment benefits run out. Prepare to not be able to buy paper(FRNs) with your bonds(ATM/Debit cards) just like they were not able to buy gold with their bonds when the demand for gold out paced the supply for gold. And paper is allot more rare than gold so when this default on paper happens prepare for the collapse of the dollar. During the Great Depression, there was a default on gold but being that gold is allot more rare than allot of other things, this didn't hurt the dollar much(although it did hurt the dollar as the price of gold rose) but there are very few things more rare than paper. So when the bond fails to be able to buy paper(whcih is the same as an inability to withdraw FRNs), the bond(or dollar) will loose value against anything more rare than paper. Many other countries/nations are going through the same thing(global quantitative easing) and the ones who aren't(i.e. China) will have their credit expansion outweigh the supply of things they can buy with that credit essentially putting them in the same position as those nations who's debt defaulted.

  16. Numonic says:

    I meant to say that there are very few things more abundant than paper.

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