European Economy: Cash is Trash When Everything Else is Up

Money...the more the world gets – 14% more today than this time last year on one recent estimate – the less anyone wants it.

Putting cash in the trash makes sense, of course. What self-respecting follower of fashion would want anything that everyone else disdains, too?

The fundamentals don't help. In our world of tiny to negative real interest rates, you'd have to be an idiot to keep your wealth in notes and coins. And only a fool would think he (or she) was getting ahead by keeping cash in the bank...rather than bidding up bricks-n-mortar...stocks and shares...junk bonds in emerging markets...or gold bullion owned outright.

Just try shopping today for a man's wallet that includes a pocket for small change! No one wants the damn stuff. Better to drop your pennies into the plastic cup marked "Thank You" than stuff nickels and dimes into your pocket.

Hence the rise and rise of stock markets, vintage wines, junk bonds, real estate prices, fine art, race horses, beachfront in Central America, English soccer teams and African mining resources.

Residential property prices in Northern Ireland, for instance, have risen 45% year-on-year. It doesn't matter where the money has come from; it's wound up on the Falls Road in what used to be considered slum housing.

No matter that two-thirds of Ulster's economy is funded by government programs – rather than private enterprise – or that the province still lacks a viable political settlement to end four decades of sectarian violence. Sinn Fein and its arch-enemy – the DUP run by "Dr No" himself, the Revd. Ian Paisley – are now struggling to pretend they can run a coalition together at Stormont. But the real estate agents don't care either way, and nor do the lenders.

Terraced houses crowded into West Belfast have nearly trebled in price during the last five years. Cross the 'Peace Line' (if you can) onto the Shankhill Road – home of diehard Protestant Loyalism – and two-bedroomed terraces have more than doubled in price over the last 12 months alone. Priced at up to £150,000 ($300,000) according to The Independent newspaper, houses on the Shankhill now draw bidders routinely offering 10-20% over the asking price.

Across the Irish Sea on the British mainland, the cheapest housing in the UK now sits in Nelson and Burnley, near Blackburn in Lancashire's desolate industrial waste lands. These crumbling terraces – all empty, vandalized and boarded up – are due for demolition or arson, depending on whether the government's "compulsory purchase" scheme gets there first.

And with two bedrooms upstairs and only two rooms on the ground, they cost £22,000 according to a recent survey, equivalent to more than $40,000.

Here in England at least, money's physical form is finally giving the lie to its financial worth. Last week the Bank of England issued a new Twenty Pound note. Smothered in so many silvery logos it seems to ape a New World wine that's just won second prize at a tasting competition, the new £20 doesn't even smell like real money. And stamping Adam Smith's mugshot next to the Bank of England's "promise to pay" adds no more credibility than stamping a smiling lion on play money for kids.

"Monopoly...is a great enemy to good management," as Smith wrote in his Wealth of Nations – and central banks hold a monopoly over printing money. Given their lack of good management, how to defend the illusion of monetary worth now that governments and the financial industry alike are doing all they can to destroy it?

Adrian Ash
for The Daily Reckoning Australia

Editor’s Note: City correspondent for The Daily Reckoning in London, Adrian Ash is head of gold research at BullionVault.com. - giving you direct access to investment gold, vaulted in Zurich, and low-cost gold investing.

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