North Koreans in misery as cash is culled

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http://www.timesonline.co.uk/tol/new...cle6940482.ece

Shops and markets in North Korea have been closed and all cash transactions frozen after the Government’s shock announcement of a devaluation of its currency in an effort to crack down on the country’s burgeoning free-market economy.
In the capital, Pyongyang, yesterday only the few shops and restaurants permitted to trade in foreign currencies — patronised by the privileged elite and the city’s small foreign population — were open for business. All other enterprises and services based on cash, including markets, long-distance bus services, barbers’ shops, saunas and bath houses, were suspended until the revaluation of the won is completed next week.
There were reports of public outrage and confusion after the announcement of the measure, which requires North Koreans to swap existing won notes for new ones at an exchange rate of one to 100 — effectively knocking two zeroes off their value. Because of a cap of 100,000 won per family (£475 at the official exchange rate), anyone with significant holdings of cash will have their savings wiped out.

[touchring]

Re: North Koreans in misery as cash is culled

http://www.timesonline.co.uk/tol/new...cle6940482.ece

One more reason why you must buy gold.

[fallout]

Re: North Koreans in misery as cash is culled

Gold wouldn't necessarily be of much help in this situation...all prices will simply be revalued in the new currency. I.e. a loaf of bread that formerly fetched $1000 in the old currency yesterday now fetches $10 in the new currency today, all things being equal, while in terms of gold, whatever oz. amount of gold bought a loaf yesterday is what would buy a loaf today.

The Soviet Union/Russia has revalued the ruble several times since the WW2, each time in a similar manner, none of which made Vodka immediately more expensive either in "real" (commodity based) terms (i.e. vs bread, gasoline, gold, etc) nor in fiat currency terms. I.e. a bottle which sold for 5 roubles prior to revaluation went for 0.5 roubles immediately afterwards.

What both revaluation situations sadly DO do, unfortunately, is threefold-
1) Wipes out savings.
2) Set up for even more currency devaluation/inflation to occur. I.e. next week the same loaf of bread is $17 new currency.
3) Reduces faith in the currency/government/economy. Wealth flees if able.

As a side note, some have (probably correctly) pointed out that the US Treasury has such an ability in their back pocket.
From Karl Denniger over at Marketwatch.com-

"Now let's ask the question nobody wants to ask:

Is America proceeding inexorably down a path where "the wise guys" - that would be Bernanke, Obama, Geithner - have such a plan "in their back pocket" if the dollar should happen to decline precipitously? If the market refuses to buy bonds and they can't finance spending $1.5 trillion more than they take in via taxes?
Remember, Henry Paulson had drawn up the "TARP/EESA" plan in his back pocket six months before he locked Congress in a room one dark September night in 2008 and used it to extort $700 billion of taxpayer money to bail out the banksters on Wall Street, coordinating that with $11 trillion more of Fed and Treasury "commitments." He lied about it being a "necessary immediate response" to an "unforeseen" circumstance - the truth is that he drew up his evil plan and then waited for an appropriate time when he could ramrod it through Congress under threat of martial law.
I'm sure you think it won't happen again, right? We got "change" in November of 2008, yes?
ARE YOU SURE, CONSIDERING THAT YOU ARE ON THE HOOK FOR THE $12 TRILLION THAT THEY MANAGED TO STEAL THE FIRST TIME?

If such a plan was in place the winning strategy would be to take every possible dollar in credit you could - all of it - and intentionally default. If they do something like this you win huge.
Given how obstructionist, intentionally deceitful and opaque The Federal Reserve and Treasury have been up until now, how certain are you they wouldn't try something like this?
Something to think about, and for those who say that no government would do something like that, remember this: In North Korea, they just did.
PS: No, gold won't save you if that sort of thing happens."

[ThePythonicCow]

Re: North Koreans in misery as cash is culled

Something to think about, and for those who say that no government would do something like that, remember this: In North Korea, they just did.

Yeah - but North Korea's leader is evil, stupid and dishonest. Our fine U.S. leaders are good, smart and honest :rolleyes:.

PS: No, gold won't save you if that sort of thing happens."

Why wouldn't owning gold help if this happens, and what would help?

[touchring]

Re: North Koreans in misery as cash is culled

Gold wouldn't necessarily be of much help in this situation...all prices will simply be revalued in the new currency. I.e. a loaf of bread that formerly fetched $1000 in the old currency yesterday now fetches $10 in the new currency today, all things being equal, while in terms of gold, whatever oz. amount of gold bought a loaf yesterday is what would buy a loaf today.

North korea did more than just revalue the currency, if you read carefully, they basically canceled money. Everyone though, is allowed to get some new currency, up to 100,000 won (£475 at the official exchange rate)

[Raz]

Re: North Koreans in misery as cash is culled

Of course owning gold would help - in the aforementioned situation.

IF one had $300,000 in Bonars and Uncle Spam set a $200,000 limit on conversion of Old Bonars to the *New* Bonar, you would immediately lose 1/3 of your savings - at least in nominal terms. (And with a time-lag, probably far more in real terms.)

With Gold it wouldn't matter what the conversion ratio was - or the conversion limit.

[grapejelly]

Re: North Koreans in misery as cash is culled

this happened to US citizens to a great extent in 1933 ...

[fallout]

Re: North Koreans in misery as cash is culled

Raz has a point, but the same would be equally true of most any stockpiled commodity in physical possession, be it gold or canned beans.

[jimmygu3]

Re: North Koreans in misery as cash is culled

Of course owning gold would help - in the aforementioned situation.

IF one had $300,000 in Bonars and Uncle Spam set a $200,000 limit on conversion of Old Bonars to the *New* Bonar, you would immediately lose 1/3 of your savings - at least in nominal terms. (And with a time-lag, probably far more in real terms.)

With Gold it wouldn't matter what the conversion ratio was - or the conversion limit.

Hopefully everyone here realizes that this would not happen in the US. The dollar is an internationally held and traded reserve currency and the US is a capitalist country where wealth is celebrated. The Won is monopoly money used in an isolated, totalitarian, communist country where being wealthier than your neighbor is tantamount to treason.

Jimmy

[Quincy K]

Re: North Koreans in misery as cash is culled

Yeah - but North Korea's leader is evil, stupid and dishonest. Our fine U.S. leaders are good, smart and honest :rolleyes:.
Why wouldn't owning gold help if this happens, and what would help?

What would help is transferring your fiat into any and all assets(physical). And if it were to happen, you will have no chance of trading in your paper(bonars or bonds) once it occurs. It will be too late.

[grapejelly]

Re: North Koreans in misery as cash is culled

Hopefully everyone here realizes that this would not happen in the US. The dollar is an internationally held and traded reserve currency and the US is a capitalist country where wealth is celebrated. The Won is monopoly money used in an isolated, totalitarian, communist country where being wealthier than your neighbor is tantamount to treason.

Jimmy

it will certainly happen in the US. The US is not a capitalist country. It is a democratic socialist with a bit of capitalism country...the money will be depreciated to nothing and EVERYONE knows it. Question is when, and how to bail out without triggering the event that bailing out is designed to avoid.

[Starving Steve]

Re: North Koreans in misery as cash is culled

Notice how the North Korean govn't called a 100:1 de-valuation, "a re-valuation" of the won. So, relative to the old currency value, the new won is re-valued upward by 100x. But relative to the saver, the purchasing power of the old won is de-valued to 1/100th of its former value.

The de-valuation/re-valuation trick is an old con-game played by central bankers, worldwide. One-trillion reichmarks in Germany in 1923 became one New-Reichmark under Hitler. And the de-valuation/re-valuation con-game has been played throughout the world, both before and since 1923.

One of the cleverist con-games in fooling the public was done by the Bank of England in 1971 when it switched from denominating Pound-Sterling from 240 pennies to the Pound-Sterling, to the new standard of 100 New-Pennies to the Pound. The 240/100 re-valuation became a 100/240 de-valuation of the old Pound Sterling.... It apparently fooled everyone in the UK because price inflation exploded immediately after the currency re-denomination.

The Bank of England told the public in the UK that 240 pennies to the pound was "old- fashioned and clumsy". The Bank of England told the public that 240-to-the-Pound- Sterling was too difficult for business computations, and this "archaic standard" made the UK less competitive in the world...... And the public fell for this line of reasoning!

Another line given the public by the Bank of England was that tourists coming to the UK had troubles understanding the 240d: L1 system, so a new 100:L1 system would be better for tourists. That line of reasoning seemed logical too.

Perhaps, this is exactly why kids in school should be taught the importance of using a hyphen in spellings. The use of the old hyphen in English enables readers to take-apart words and de-code their meanings.

In the case of North Korea's central bank, we learn from spellings how to de-code the meaning of: de-valuation (of the won), re-valuation (of the won), inflation, and even a good lesson in relativity (as applied to currency value). ;)

And the real tragedy is that one central bank teaches another how to fleece the saver, either directly or indirectly. Maybe recalling the inflationary legacy of central banking worldwide, and also de-coding (through spelling) the terminology used by central banks, would help the public to better understand what central banks are up to.

[Quincy K]

Re: North Koreans in misery as cash is culled

Hopefully everyone here realizes that this would not happen in the US. The dollar is an internationally held and traded reserve currency and the US is a capitalist country where wealth is celebrated. The Won is monopoly money used in an isolated, totalitarian, communist country where being wealthier than your neighbor is tantamount to treason.

Jimmy

Then why is gold at $1200/ounce? It doesn't produce any yield and is a barbaric relic that serves no purpose other than for jewelry and some limited applications for conductivity.

Maybe 5000 years of history and its connotation as a monetary base has something to do with it.

To think that dollar cannot encounter a sudden stop/collapse is somewhat foolish.

[jimmygu3]

Re: North Koreans in misery as cash is culled

Then why is gold at $1200/ounce? It doesn't produce any yield and is a barbaric relic that serves no purpose other than for jewelry and some limited applications for conductivity.

Maybe 5000 years of history and its connotation as a monetary base has something to do with it.

To think that dollar cannot encounter a sudden stop/collapse is somewhat foolish.

My post was in response to the proposition that the US might call in cash, capping redemptions at $200k per capita. Certainly our fiat currency is being depreciated, but the North Korea scheme would never fly in the US.

Funny how people will call the US "socialist" or even "communist". North Koreans are literally slaves to the government, with NO freedom of speech, NO freedom of information, NO right to "life, liberty and the pursuit of happiness", not even allowed to use the internet, read a foreign newspaper, much less leave the country. Meanwhile the "socialist" US can't even get a quasi-universal healthcare bill through congress, based largely on private insurance, doctors and hospitals, because it's "too liberal".

Get real and stop the hyperbole. We're depreciating the dollar to hell but we ain't North Korea.

Jimmy

[Fiat Currency]

Re: North Koreans in misery as cash is culled

We're depreciating the dollar to hell but we ain't North Korea.

There's certainly some truth to that.

History teaches us much about fiat currencies though. Surely one cannot argue that Executive Order 6102 in 1933 willingly devalued the $USD in gold terms from $20.67 to $35/ounce.

Even tally sticks (or split tally sticks) which had an incredible run through fiat currency history, eventually wound "up in smoke".
(If you don't know the story - they burned them in Parliament and set the building on fire. Oh - the irony.)