Cash is King

With the board game Monopoly, it was love at first sight.

I still remember that experience when I was eight years old: The fresh smell of a newly opened board game at Christmas time, the miniature houses and hotels, the play money, and the great feelings of winning.

My life has changed quite a bit over the years, but the monopoly themes have stayed with me. During deployment in the Marines, we referred to foreign currencies as monopoly money. When house hunting in my later years, my real estate agent would say: “This isn’t Park Place, you’ll have to settle for Connecticut Avenue.” Even today, I still enjoy the occasional game with my niece, although we usually play cheater’s edition and she’s much better at it than I am.

When I was first learning how to play, my Dad gave the game an interesting twist. Under normal rules, if you didn’t have cash to pay your bills, you had to sell property or go bankrupt and lose. However, my Dad devised a way to keep players in the game longer, by extending them loans from the bank. So if you were in financial trouble, you could take a loan. We never really put a limit on it, so conceivably you could continue in the game forever. If you ran into more trouble, you’d take out more loans and continue in business.

This was my first introduction to the concept of leverage.

Imagine being able to take out 0% interest loans in monopoly even if you weren’t in financial trouble.

You could basically buy every property you landed on. You wouldn’t even care how much the property was worth or its rate of return. You could offer exorbitant prices to your fellow players to buy their properties, too.

But what if the game ran out of physical money to borrow? No problem, you could extend IOUs to other players or to the bank.

Maybe you can see where I’m going with this.

A game of unlimited borrowing is eerily similar to the U.S. economy today.

However, in the real world, debts have to be paid off. Creditors will never extend infinite loans to borrowers, no matter how excellent their credit scores. At a certain point, creditors will stop lending at low interest rates, if they are uncertain they’ll be paid back. They will only be willing to lend at much higher interest rates, rates that are not affordable for borrowers.

At that point a deleveraging unfolds. Borrowers either default, restructure, or pay off their loans. Businesses that can survive do so. The rest go bankrupt.

Even with a central bank willing to extend additional loans and monetary stimulus, deleveraging is a natural cleansing of unproductive business from an economy. Bankers and politicians will do everything in their power to prevent a recession, but it is a healthy occurrence in an economy.

A recession is like a forest fire. It’s not fun to be in one, but the long term effect is to clear out the dead wood, so the forest can grow back in a stronger and healthier state.

When deleveraging occurs, cash is king.

In The Money Mission, I discuss the importance of having cash in a deleveraging economy. Cash takes on many different forms to include the dollar and other foreign currencies. Authentic cash are commodities, and it’s a good idea to have these in the right amounts, too. But having all of your cash in one form is not a good idea. Some have advocated investors put all of their money in gold and silver because the government will create hyperinflation from stimulus efforts. While a possibility, one must also look at the big picture. The U.S. stock and bond markets together are worth over $70 trillion. This doesn’t include all the values of private businesses, real estate, and various other assets that have appreciated to expensive levels. If the Federal Reserve is offering $6 trillion and the Federal government is offering $3 trillion, how effective is that amount at bailing out $70+ trillion?

There is also demand for dollars worldwide. The dollar is the world’s reserve currency, so in a global deleverage, demand for the dollar will far outstrip the supply in a short period of time.

Saving some cash is always a good idea. Having some physical cash in your possession and in a high yield savings account are good positions. The interest rate in a high yield savings account protects some of the purchasing power of your cash against inflation. It also does this at low risk. Additionally, if you were to lose your income, you’ll have a larger emergency fund for support.

During this period of time, with stay-at-home orders and social distancing still in effect, our top priority is to keep everyone safe and healthy. However, I also want to make sure you are doing well financially, too. You might be in a difficult place with your job or finances. You might even be unemployed.

For a limited time, I’m going to offer my membership program at a reduced price. I want to help get you back on your feet financially if you’re experiencing difficulty right now.

If you join before midnight Eastern Time on Saturday, April 25th 2020, I’ll offer you the first month of my membership program for a discount of over 60%. Instead of my normal price of $249, you’ll get all benefits of the program for only $97. In addition, you’ll get a complimentary digital copy of my book The Money Mission valued at $20 for free.

If you aren’t totally satisfied after the first month, I’ll return your money in full, no questions asked. You’ll keep the bonus for free.

Take advantage of this right now, you have absolutely nothing to lose and everything to gain. Stay safe, and I’ll talk to you again very soon.

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