Dec 01 2008
Does Cash Make You A King?
We often hear that “Cash is King” in times of recession and deflation. Is that really so? By now, we all know that if the US government were a listed enterprise, it would have been bankrupt, on the basis of the balance deficit of US$22,000,000,000. How big is this debt? Put across simply, a stack of 22,000,000,000 notes at $100 value. To save paper, we might want to introduce $1million dollar notes. Even with these new notes, we’ll have a stack of 22,000 notes. Can printing all these new notes solve the problem? The answer is yes, but only to the extent that you can tolerate the notes in your hands devaluing to the same extent. Just imagine all these $1million notes floating about the supermarkets and hardware stores for purchase of boxes of diet pepsi or screw-drivers. The situation is similar to one when a listed company issues new shares and diluting the value of each of the existing shares. Valuable assets like stocks of profitable companies, properties, oil and gold are all limited in their supply. Can the value of these assets drop endlessly against the American dollar? If the Hong Kong Dollar stays pegged to the US dollar, will holding cash outperform holding these other assets in the coming few years?
Disclaimer, the writer is not a professional financial adviser and cannot be deemed to be giving investment advice.
Photo credit: http://www.ep.tc/one-million-dollars.jpg
