Future Fractional Fiat Demand?

[beauanderos]

I'm watching and reading as much as possible, while building a cash position, so as to protect present positions and potentially profit from what many see as a coming
period of depression (lower asset prices, all classes) followed by a hyper-inflationary period that will boost metals on that stratospheric trajectory we have long
been awaiting.

There are those - Bill Bonner, Harry Dent, and Mike Maloney come to mind - who posit that when a banking holiday ultimately ensues, that credit cards will fail to
find vendors who will continue to accept such payments. In that milieu, cash would become king, and possibly for a short period be the "go to" asset class. After all, who
would accept a check in payment for silver or gold if the trust in banks to cash them has been broken? Or if funds in those accounts have been bailed in?

So here's my question. I am not challenging the wisdom of holding cash "outside the system." What I'm wondering is this. There is a premium paid for fractional
precious metals, all forms, related to their size. You cannot purchase ten 1/10 oz gold pieces for the same price as an ounce. To a lesser degree, the same principal
applies to silver. So... when TSHTF... will hundred dollar bills have less utility than smaller denominations? If merchants are out of currency, how would they make
change? Is it possible that fiat currency will develop premiums for smaller denominations akin to what we see in gold? Might it someday be that two fifties would be
worth $105? Five twenties be worth $110? Ten tens be worth $120? Twenty fives be worth $130? One hundred ones be worth $150? Will the day come in the future
where a prescient "investor" in currency could work this arbitrage to their advantage?

Nothing to be lost by trying, I say. Personally, my emergency funds are bundled into $100 "bricks." Each one consists of two twenties, two tens, six fives,
and ten ones. I think that when the dust clears after the eventual bank runs... small currency denominations will be in short supply.

What think you?

I have found while doing this that both my banks almost seem to resent (I'm constantly being asked "are you a merchant?") turning over banded bundles of ones... and most of those they do pass out are ratty looking; tattered, torn, or stained... and most all have many creases.

[IdahoCopper]

When the SHTF all bank notes, regardless of denomination, will be worth less than toilet paper. But only because TP is softer.

[Market Harmony]

In the hypothetical world which you created, the inflationary forces would strip any value from the currency and value would exist with some other asset that would become currency.

Fractional precious metals cost more because of affordability to more people for smaller quantities (demand-based), and that there are increased costs to produce 10 tenths rather than 1 whole which are passed to the consumer.

[nero12345]

I'm not sure if there will be a premium paid on smaller bills, but liquidity in having smaller denominations could easily come into play. We've discussed in the past how having nice 10 ounce bars of silver while beautiful to look at stacked in your safe may become problematic to get rid of if the price were to go too high. And also why keeping smaller coins such as dimes would be easier to barter or straight up use as money of value. I'd believe that in the event we are talking about that the average person, store owner, etc. will still consider fiat money as the only trading currency regardless of its value, until the government comes up with a new one, or tells them what to do, regardless of the loss of faith in money or the government itself.
Just my 2 cents

[JadeDragon]

I'm not seeing any reason there might be a premium on small bills. Even in countries which use US dollars as an unofficial currency there is no premium - only a preference - for small bills. The ability to make your own change is helpful. For example I read some advice recently that when traveling and faced with an 'on the spot fine'/bribe, it's easier to make it $5 or $10 if you don't need to ask for change for a $20.

[johnbrickner]

Can't remember where I read it but, metal coinage seems to keep more value than the same in paper during times of massive currency devaluation. And would have to agree with Jade and nero that during hard times the ability to make your own change is better than forwarding a note of printed higher value. With fractional PM coins of the realm undoubtedly easiest recognized and retaining the highest value.

[Recyclersteve]

When the people of Zimbabwe lost faith in their system (when they had the incredible 100 trillion dollar note), they switched and began to use U.S. Dollars, Euros and bartered with gold, which is heavily mined in that country. If you have something produced in your area, that could be a firm of currency. Otherwise, barter could be the preferred method of exchange. For instance, "If you babysit my kids, I'll use my snowblower and clear your driveway."

[coppernickel]

I think if the dollar sees a "bank holiday" then cash, especially in small denominations, will be in urgent demand. If it turns into a full blown collapse the time of cash would pass VERY fast.

I keep the bulk of my "emergency cash" in two dollar bills, most are 1976 and still pretty easy come by and it puts them before the traceable magnetic strips.

Having recently read, "How to survive and thrive in the coming hard times." I think that is the name, I don't remember the author. The predictions for end of our time time economic collapse have been around since the 1970's, but somehow the world still goes round.

[fasteddy]

^^^I have stacks of two $ bills. Didn't know about the magnetic strips...thanks for the thread Ray...some more to think about.

[beauanderos]

I think if the dollar sees a "bank holiday" then cash, especially in small denominations, will be in urgent demand. If it turns into a full blown collapse the time of cash would pass VERY fast.

I keep the bulk of my "emergency cash" in two dollar bills, most are 1976 and still pretty easy come by and it puts them before the traceable magnetic strips.

Having recently read, "How to survive and thrive in the coming hard times." I think that is the name, I don't remember the author. The predictions for end of our time time economic collapse have been around since the 1970's, but somehow the world still goes round.

That sounds like something Howard Ruff might have written.

[coppernickel]

I think if the dollar sees a "bank holiday" then cash, especially in small denominations, will be in urgent demand. If it turns into a full blown collapse the time of cash would pass VERY fast.

I keep the bulk of my "emergency cash" in two dollar bills, most are 1976 and still pretty easy come by and it puts them before the traceable magnetic strips.

Having recently read, "How to survive and thrive in the coming hard times." I think that is the name, I don't remember the author. The predictions for end of our time time economic collapse have been around since the 1970's, but somehow the world still goes round.

That sounds like something Howard Ruff might have written.

Thank you, that is it.
How to prosper in the coming bad years-a crash course in personal and financial survival, by Howard Ruff.

[smalltimeopn]

This is a great thread. I'm also holding and adding to a FRN position - larger than I ever have at any time in my life. But I'm wondering how long it will be accepted once things cave. Will a can of vegetables, a roll of TP, or 3 shotgun shells be more valuable??

Than a $5 FRN....

[JadeDragon]

$2 bills are going be harder to spend then $1 or $5

[Doctor Steuss]

This is a great thread. I'm also holding and adding to a FRN position - larger than I ever have at any time in my life. But I'm wondering how long it will be accepted once things cave. Will a can of vegetables, a roll of TP, or 3 shotgun shells be more valuable??

Than a $5 FRN....

I think that the majority of society has been conditioned to see fiat money as inherently valuable. In my opinion, it would likely take quite a while before a significant psychological shift happened in the general populous to where tangible assets became more representative of value than greenbacks.

[beauanderos]

This is a great thread. I'm also holding and adding to a FRN position - larger than I ever have at any time in my life. But I'm wondering how long it will be accepted once things cave. Will a can of vegetables, a roll of TP, or 3 shotgun shells be more valuable??

Than a $5 FRN....

I'm thinking that you'll need both... low denomination fiat currency as well as one ounce or less (90" coins) if one of many various scenarios occur. I imagine that fiat would die out in acceptance quicker than precious metals would grow. There would likely be a transitional period of spending currency (during a phase where folks lose faith in it's value) to another in which goods are bartered, to a final time when gradual acceptance of the worth of silver (and gold) becomes more widespread. Look at the ignorance of the 99% in their consideration of the value of silver or gold now, before you rush to hammer the nails into dollar based currency's coffin. Everything will have a purpose, just at different times. If nothing else, having a nice war chest will enable you to scoop up the bargains that may well appear if the deflation camp prove prescient.

Here's a thought. No less than Ted Koppel, among others, suggests that we are ripe for a cyberattack that could lead to widespread grid down situations. Then there's the threat of an EMP, whether from enemies of the state or the sun. So in a scenario where communications might be limited to how loud you can yell... will we have thousands of differing valuations of both currency and precious metals based upon locale? How much is the dollar worth? Or your silver and gold... when there is no one to tell you where it is currently trading?

[wheeler_dealer]

Presidential dollar coins. No magnetic strip, no worn, tattered paper. Small denominations, recognizable. Just a thought for small denominations. Without food and barter, paper won't matter.

[Treetop]

I doubt there will be any premium on small bills but obviously as others said youd have change, or wouldnt over pay. If things fall I expect barter to be king including silver and gold. With some cash trades as well. That said I expect most would be on board for a new fiat currency as fast as the feds can print it. Might be backed by something or not. I doubt silver and gold will ever be mainstream currencies again. If so I expect things fell so hard there is no federal government. In which case I expect trade will be rather limited for many years. Food producers would then be king. everything else will be a far second for most. Our society is rather compartmentalized. Ever grown crops without outside inputs? It is far removed from most of our food production system. Hard to guess how things might re organize with no federal gov. But one thing is certain few if any farmers will have production anywhere close to current rates unless they employ many people.

[fansubs_ca]

But one thing is certain few if any farmers will have production anywhere close to current rates unless they employ many people.

Ironicaly this could make some of those newly employed people better off than they
are now. No applying online for a job and moving through the corporate interview
process that makes no sense from the outside, just you hear a farmer needs help,
they make a decision on the spot, you do the work, you get paid (in produce?) The
hardest part will be getting these people from where they are to the farms where
the work has to be done.

As for small change I agree that there will be no premium but if banks were closed
for a week or two having exact change could help you avoid overpaying in the
meanwhile. Whenever I get a twoonie in change I have a jar I throw it in at
the end of the day. Though with people you deal with on a recurring regular
basis you could probably just pre-pay the extra towards the next time if neither
of you have change.

Not sure how much is in the twoonie jar but if I get really desperate I've also still
got a lot of unsorted pennies around here and sorted out zinc I could dip into.

[IdahoCopper]

I think if the dollar sees a "bank holiday" then cash, especially in small denominations, will be in urgent demand. If it turns into a full blown collapse the time of cash would pass VERY fast.

I keep the bulk of my "emergency cash" in two dollar bills, most are 1976 and still pretty easy come by and it puts them before the traceable magnetic strips.

Having recently read, "How to survive and thrive in the coming hard times." I think that is the name, I don't remember the author. The predictions for end of our time time economic collapse have been around since the 1970's, but somehow the world still goes round.

You can use a degausser to wipe the mag-strips in bills.