I read with great interest Melissa's thread (On the economy...) and it prompted me to open this one.

Since I'm still living in the city my situation is different from many if not most here. While I don't have the option (OK, or experience or know-how, either) of raising my own food or even the space to create a large store of reserves I have been preparing in my own way. Since I can't stockpile foodstuffs I'm stockpiling another commodity instead.

If a large true larger scale depression were to hit (which I doubt will happen), one thing which would be in extremely short supply is cash. Even in recessionary times, cash can increase in value (buying power). Cash is nothing more than a commodity like beans or corn. It's value relative to other commodities rises and falls with market influence. I know most people don't look at cash that way but, if you think about it, that's all it is. It is a commodity that you trade or sell in exchange for other commodities.

If you're out trying to purchase a new tractor (as I have been) what you're really doing is selling some of your commodity (cash) for theirs. It's no different than selling beans at harvest time.

Just as a good growing and harvesting year may result in an oversupply of beans forcing the prices down, a rapidly growing economy will create an oversupply of money forcing it's value down as well. The common term for this is 'inflation.'

In the other extreme when very little is harvested from the bean crop or when very little money is available the relative values of those two commodities will rise. Again, the common term when this happens with the money supply is 'recession.'

Now let's say that even in that bad crop year you happened to have a bumper crop because you were on a hill and all the lowlands flooded. You'd be a great shape. It's the same with cash. If you were able to attain cash in bad times your cash is more valuable, too.

I'm not advocating anything other than I usually do. I just wanted to present it in a somewhat different light here. I'll be interested to read your responses.

-- Gary in Indiana (gk6854@aol.com), November 09, 2001

Answers

Gary, I agree with the majority of your assessment . . . having ready cash at hand can drop a price on an item much quicker than any IOU (Bird in the hand . . .). Many people would be in danger of bankruptcy if the bank were to have to foreclose on them now. For all their wealth, the owners need time to pay for what they purchased earlier. Not smart, especially in our climate. Buy Buy Buy ? Not this guy.

But in a really hard case scenario, where a crop failure has one party with plenty, and the other party with hard cash, I think the person with hard cash is going to be out of luck. The law of supply and demand being what it is, the price of the item is worth what the SELLER demands. If the produce seller is willing to sell what he knows what is valuable at extreme profit, the person with cash either pays the price, or goes elsewhere.

I'm hoping for a LITTLE MORE inflation; I'm tired of watching my CDs collect so little interest . . . sure isn't the eighties, when interest was in the 20% rates. Now that is a little more like it. For those in debt, not funny at all.

I'm interested in more takes too, thanks for asking this question, Gary.

-- j.r. guerra (jrguerra@boultinghousesimpson.com), November 09, 2001.

greenbacks, no modern sandwich coins, no

gold and silver coins, yes

-- Rose (open_rose@hotmail.com), November 09, 2001.

j.r., while your assessment of the extreme is valid on it's face, let me introduce another element to the scenario. Let's say you have the only bean crop around but the bank is on your heels with foreclosure papers. If there's plenty of cash around, you're still right about being the SELLER. However, let's assume that the commodity I have (cash) is in equally scarce supply. You may have dozens of people willing to trade you corn or oats or cattle or pigs for your beans but the bank wants cash and I have it. I might prefer to have beans, but my cash can also buy corn or oats or cattle or pigs. NOW who's in the driver's seat?

All of a sudden I become the SELLER with the desireable commodity. I can buy your beans from you or wait and buy them from the bank. I can even buy the your mortgage from the bank and come take your beans. You need to buy my cash with your beans and now I'm the one who can set the market. Again, just a little different perspective here.

-- Gary in Indiana (gk6854@aol.com), November 09, 2001.

I also think it's a good idea to have some cash on hand. But I know I can't eat it, and I fully expect someday to have to rely on my food storage. There are any number of things that could happen to our food supply, from periods of extended drought to deliberate sabotage. Don't think I am paranoid, I am not. But I am one who believes in prophecy, and I believe in preparedness. You can't eat cash. And I don't believe it or gold will always be valued above life's necessities.

-- mary (marylgarcia@aol.com), November 09, 2001.

Gary, "true" commodities have an inherent value related to the investment of labor and other effor required to produce them. Cash can parallel commodities EXCEPT for the fact the governments can create this particular "commodity" out of thin air. Under these circumstances the value of the cash commodity and drop infinitely.

-- charles (clb@dixienet.com), November 09, 2001.

Charles, if "'true' commodities have an inherent value related to the investment of labor and other effort required to produce them," then wouldn't it be impossible to lose money in the production of any 'true' commodity? Ask any farmer if that rule applies to any crop they've EVER planted or any animal they've EVER raised. What is the relationship of which you speak? Is it cost plus a given percentage or some similar formula? Of course not. The market determines price on any and every commodity in a free market.

The same government that can add dramatically to the money supply and lower the value can also flood the market with beans from it's food stores and do the same thing to their price. Stopping overseas sales to large buyers or eliminating set-aside subsidies would have a similar effect.

You can trade futures in commodities like beans, corn, live hogs or pork bellies. You can also trade futures in commmodities like the US Dollar, the Japanese Yen, the British Pound or Canadien Dollar. All of those commodities are traded on the same commodities exchanges.

I know people don't usually think of money this way. I'm only trying to express a little different view here and maybe create some "outside the box" thinking here. ;o)

-- Gary in Indiana (gk6854@aol.com), November 09, 2001.

I truly must be tired because I have read this over 2 or 3 times and I still don't get it!!!!!!! In my view cash is usually pretty good to have around!

It is nice if you can trade with someone, something you want for something they want, but it is so rare to make the match, that dealing in cash can be easier. Cash is just another trading tool.

But, le's say for instance a famine wiped out the entire apple crop in the US, it wouldn't matter if you had a million dollars you couldn't buy a US apple. But if you had the foresight to stockpile apples the year before, by cold storage, canning, freezing, or drying, you have something the milliionaire can't buy!!! But if he comes to my house I will sell him some...

-- Melissa (me@home.net), November 09, 2001.

Excellent points Gary. And, the sales price (as opposed to inherent value) of a commodity can be drastically distorted by government action (such as dumping stores or hordes of commodities - gold from reserves, wheat from warehouses, etc. There is an inherent value in the production de novo of material goods, commodities, however. A cow can't be made anew out of thin air and it cost to mine ore and get gold, whereas cash money has no value except that which we ascribe to it. In a commodities sense you are of course right; anything can be traded, from pork bellies to cash. I guess I am more sensitive to the fads of the gov. and feel better about real property.

-- charles (clb@dixienet.com), November 09, 2001.

Couldn't agree more...we are blessed in being able to do both..we have saved quarters for years...just plain old quarters.....my husband feels that in a bad situation, nobody will have change for big bills and quarters do not call attention to the fact that one has $$$$$$....ready coinage and stored food hopefully will serve us well in times of need and allow us to be able to assist others at the same time.

-- lesley (martchas@bellsouth.net), November 10, 2001.