Sunday, November 13, 2011

Old-Timers and Their Rolls of Cash

Back in the 1950s, 60s and 70s, it was commonplace for men who had lived through the Great Depression to keep rolls of cash in their pockets. Many carried $200 or $300, equivalent to $1,000 to $2,000 today. Usually, these weren't wealthy men. They were ordinary men who had learned from experience that life is unpredictable, usually in a bad way. In their time, banks had failed, the stock and real estate markets had collapsed, unemployment had risen to 25%, families had fallen apart, young people felt lucky to have a job--any job--and prosperity returned only after the world survived the crucible of a horrendous world war. Cash was their insurance policy against all kinds of hazards, including the uninsurable. Cash felt good.

We're now in another era of uncertainty. While government safety nets, stimuli and other measures have kept us out of a Depression, the unresolved debt crises in America and Europe, as well as depressed real estate and volatile stock markets, continue to inhibit recovery. Another downturn may be in the offing. Federal deposit insurance relieves us of the need to keep large amounts of paper currency on hand. But the value of cash is strongly correlated with increases in market volatility, and cash is getting to be extremely valuable now.

Safety nets are wearing thin. Government benefits for many have run out and there's no room in the budget for more. Many are one paycheck away from homelessness. Illness, layoffs, disability, a new roof, a major auto repair, and other unpredictable expenses wait in ambush. Credit is tight. The only people who can get loans are the ones that don't need them. Keep 6 to 12 months living expenses in an emergency fund that's FDIC insured. Then set aside some more money to cover hell and high water expenses. The chances of another worldwide financial crisis swirl like a morning fog that may not lift. All the newfangled financial engineering hasn't made the world a safer place. The old-timers knew one thing: cash is the best port in a financial storm.

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