The chequeing scheme, where micro meets macro

This is about as a rounded and admittedly loose connection as one can make but a connection nonetheless. Let me get straight to the back story.

My lady friend of 18 years & counting refuses to use a debit card. She despises credit. She also prefers to not use cash either. She's still the mindset of 20 years ago when everything revolves around cheques. Now, in her defense there is a practical reason behind it. She feels if you really want to buy something that added step of writing it out reduces impulse buying and judging by her sterling accounting of our finances; I offer no debate.

A few weeks ago she unexpectedly ran out of cheques. Unfortunately this coincided with the long Martin Luther King Day weekend thus the banks were closed. So with no ability to access her money, she had two choices: use credit or dont buy what she needed until the next day. As we were just one day from our annual winter getaway to Florida... I enter with option three: me picking up the tab. And being the loving spouse I am, I chose to use my cheques. One part out of respect for her and partly because I just haven't written one in so long. At the same time, I felt it would make it an interesting exercise to practice my cursive. 

So a few transactions and a few chicken scratches later, we were on our way. When we got back home is when it got interesting. It seems due to inactivity and I moving my direct deposit out of that bank, my account was closed. Unbeknownst to me, I had written three cheques without having an account at all. I quickly made contact with the vendors and paid in cash the amount + fees. This suddenly made me remember why I stopped using cheques over a decade ago: overdrafts.

Now at this point It was behind us. One week later came the letters from collection agencies demanding the funds to cover said cheques. So, I called to explain to them the situation. A manager on duty of the collection service then hit me with this...

"Sir, if you dont have proof you made good on these cheques we require a payment to take care of that. We except two forms of payment. Western Union and Cheque by phone."

Cheque by phone, I asked? I told her I wrote a bad cheque, why would they accept another cheque? She then begins to tell me it happens all the time. That people knowingly write bad cheques and then make payments to the collection agencies with more bad cheques. If this process seems completely irrational and made up; its only the same exact thing that our government does (and gets away with) regarding the dollar.

Now I did say it was a loose connection and you made it this far so bare with me.

We effectively print dollars with no tangible backing whatsoever, just "confidence" that the dollar will not crash and that in turn will not lead to a run on the bank. Remember, due to the modern practice of fractional reserve banking, bank's tend to only keep a small fraction in liquid reserves. Thus any major fluctuation of withdrawals in a one day period can make things very interesting for a bank.

Now with that said, after the banks make these monopoly based dollars, they just sit back and operate the biggest shakedown modern civilization has ever seen.

By way of OPEC taking only US dollars for its oil (thank you President Nixon and King Faisal), it forces oil buying nations (read the entire world) to naturally obtain US dollars so they can obtain the OPEC oil (which holds about 2/3 of the worlds oil supply). OPEC then takes those US dollars and reinvests them into US banks further strengthening our place as the preferred empire of the world over.

So, like a guy armed with a closed chequing account and a fistful of cheques, you too can play the game of tangible assets/commodities for nothing too. Buy the goods and services with cheques that, like our dollar, are essentially worthless paper backed by nothing; THEN use the same cheques to pay off the creditors! You come out with goods and everyone else is stuck holding worthless paper. Then rinse & repeat.

The difference between the guy running that scheme with a closed chequing account is eventually the jig will be up. Unless you’re real slippery and willing to constantly move and change your name quite often; it will all come to an end. But what about the US petrol-dollar scheme? How long before that hustle is over? When you think about it, from the US point of view, it’s paramount that the US remains the reserve currency for oil. For if not, we can expect a lot of dollars coming back home and when I say a lot, I am talking the SHIT-TON of quantities.

If that happens our standard of living (even at a declining rate) will all but disappear. This will create instant hyperinflation and eventually a sell-off so large that the immigration issues on the borders wont be commonly known from Mexican people trying to get as they are today but instead it will be American citizens trying to get out.

Its pretty obvious the lengths our leaders will go to keep this asset bubble propped up. So, what happens if you don't agree with this petrodollar recycling scheme? What if you are in favor of, say a more "open competition" regarding how to pay for oil? As I stated last year in this piece; it usually doesn’t end well for you.

Now with Iraq and Afghanistan wrapping up, all the sabers are waving towards Iran and they are running out of time. Friday, President Obama put them on notice Friday saying:

"Right now, we think it would take over a year or so for Iran to actually develop a nuclear weapon"

Then eloquently added:  "but obviously we don’t want to cut it too close.”

The President then went on to call a nuclear Iran "a red line". You have less than a year Iran. Less then a year before you continue or end your nuclear program. But remember, the nuclear program is a guise. The real threat remains the precedent you are making with disrespect for the dollar. So, close your oil bourse and fall back in line or else.

Now picture that guy again with the cheques and the false chequing account. Hes cashing cheques and receiving goods and when you want to collect or end the scheme he shows up at your place of business with an army and guns and tells you if you dont change your ad's or paint your store Tropicana yellow hes gonna shoot the place up and remove you. You like your job dont you? Your kids eat waffles dont they? You need money to buy waffles. The American hegemony alive and well; Tony Soprano don’t have nothin’ on us. 

Get your Burl "silver" Ives on.

Everyone remembers the movie “Indecent proposal”. The movie where Robert Redford offered Woody Harrelson's character 1 Million dollars for one night with his wife, who was played by Demi Moore. The movie gave a complex view of how people value themselves in relation to money and it probably made a lot of people play the “what if” game because of it. I remember being a teenager playing the “what if” game myself. More often than not, it was centered on money as well. For example: 

How much would it take for you, to let Michael Jackson fondle you?
If reincarnation allowed you to come back as someone, who would it be?
If you won a million dollars, what would you do with it?
  
The first scenario was when MJ was in his heyday of molestation, so it was relevant then – not proud of it, but true nonetheless. That last scenario was the one I would think about often to myself.  Being that i was young, the answers were predictable for a kid who just wanted to play sports and nothing else. Those fantasy dollars were chasing imaginary possessions like: cars, houses and basketball court's in my backyard(s). You get the idea. As I got older, the view became more conservative, one built on investing and preserving that wealth. I’ll get back to that later. 

Up until recently I haven’t given the “what if” game much thought. That is until I seen this story of a woman in Michigan, who won a lottery worth: 1 million dollars. 

Amanda Clayton, a 24 year old unemployed female, won the "Make Me Rich!" lottery earlier this month as reported on by everyone in the national media. The overview is simple. Mrs Clayton took a lump-sum payment of 500K after taxes and bought two houses and a car. Or exactly what I would have done…20 years ago. 

The rub is that Mrs Clayton also collected $200 in food stamps monthly even after she had won. Now any reasonable person would understand or sense an obligation to end his or her case and stop receiving the foodstamps but Mrs Clayton does have a point. She went on record stating that:

“I thought, maybe, it was OK because I'm not working. It's hard. I am struggling."

You see she is struggling, she doesn’t have a job and if that wasn’t hard enough, maybe you will tear up when you know that she quote:

“I have no income and I have bills to pay. I have two houses."

How is someone able to hit the lottery for seven figures and still legally be eligible for food stamps? Because, according to federal guidelines; gambling and lottery winnings are considered liquid assets and don't count as gross income. Therefore, one could hit the Mega-Millions 350 Million dollar Jackpot and still collect their foodstamps. So technically speaking, she wasn’t breaking any laws. Technically is one thing, morally or ethically is another.

Now, you are probably asking yourself… what does that have to do with you and the “what if” game and Mrs Clayton striking it rich then still collecting foodstamps? It’s obvious that what Mrs Clayton did was unethical and really a microcosm for many in society, who feel they are entitled to benefits. Many times, those benefits are goodwill or tax dollars from others used to give the less fortunate a hand; to only be stolen and pillaged by people that could otherwise do for themselves but would rather go this route because it easier.

Now, when I played the “what if” game as I got older I would always say I would invest the money in a CD or save it in a Money Market or just conventional savings account. Back when I was doing my dreaming (in the mid-90’s) a Jumbo CD yield was anywhere from 4-6%. Obviously I would have taken out multiple CD’s because of the limitations of the FDIC, but that is really all you would have to do to live off the interest. Pretty simple, no money manager needed. Sure it’s not exotic but its conservative and simplistic. What about now? 

 Graph from: Bankrate.com

In the 90’s we could live off of 35-40K a year, the yield we could expect from a million dollar investment. I assume that would be sufficient for Mrs Clayton (she may only be able to own one house thou) and I know it would be for me. Now with that said, let’s play the “what if” game in today’s environment. 


For anyone of us that frequent a bank and see the rates on the wall, we know the return isn’t worth them holding our cash. As you can see from the link below, a jumbo today would yield you at the most 1.15% with most of the interest rates being below 1%. Using today’s interest rates, it would have us collecting anywhere from $7,500-$13,000 off of 1 Million dollars in Jumbo CD’s. That is not livable by most standards.

 http://www.bankrate.com/funnel/cd-investments/cd-investment-results.aspx?prods=15,24

What this says is what we already know: fiat money, fractional reserve banking and our entire monetary policy/system is starting to eat itself. The debt driven - black hole gathers strength. It’s hurting the poor and those people who rely on cash of course but like we see here, it hurts the savers (where true capital comes from) and instead, favors the wealthiest and credit whores. As I pointed out with pending interest rate tsunami that is coming when/if the FED raises interest rates and the fact that the American consumer is tapped out and saturated in debt, our demise is only a mater of time. Today, the “what if” game for me and hopefully anyone else (including you too Amanda) only consists of silver and gold… and some guns.