The Quantum Pontiff

Mattress Money

i-b99ddfef7d695762484e2218953798cd-donniedarko.pngThere are many things I do not understand in the wide world of finance, but the one which perplexes me the most is why people believe that their money is safe under their mattress.

I mean come on people: mattresses? The odds of a fire in your household serious enough to call the fire department during the year are about one in three hundred. Sure the odds of the whole house burning down are lower, but do you really want to put it under a mattress?

And what about residential robbery? Your odds of a break in are somewhere around one in 250 per year. And if I’m a robber in these dire financial times the first place I’m looking is, of course, under your mattress (and those jewels that you stuffed under your clothes in your dresser, do you really think that’s the best place for them?)

This doesn’t even consider the odds that all hell will break lose in the economy and we will, for example, enter into a period of prolonged hyperinflation. At this point that money under your mattress is all safe and sound except for the fact that it is rapidly becoming worthless. Of course you could convert it to gold bars and put it under your bed, but then you could have bet incorrectly and inflation could not go up and gold could go down in value (are you really sure gold is a pure inflation hedge?) Oh, you say, invest in treasury inflation protected securities! But wait, what is the opposite of inflation? Oh yeah, deflation is a risk as well.

There is no “safe” place for money. Never has been, never will. If you’re really concerned your best bet is probably in vast and substantial diversification across instruments you’ve probably never even thought about as places to park your cash. Of course you probably don’t have the resources to do that, since the transaction costs and management costs necessary to do that keep it far out of your reach. And sure if you want to make your mattress one of the places you park your money, that’s fine. But me, I wouldn’t be sleeping safely because I’ve got money under my head at night.

Jim Cunningham: Son… DO YOU SEE THIS? This is an Anger Prisoner. A textbook example. DO YOU SEE THE FEAR, PEOPLE? This boy is scared to death of the truth. Son, it breaks my heart to say this, but I believe you are a very troubled and confused young man. I believe you are searching for the answers in all the wrong places…

Donnie: You’re right, actually. I am pretty- I’m, I’m pretty troubled and I’m, I’m pretty confused. But I… and I’m afraid. Really, really afraid. Really afraid. But I… I… I think you’re the fucking Antichrist.


  1. #1 Janne
    September 27, 2008

    Japan actually has a form of “mattress money” that is about as safe as you can make it. It’s a type of bank account with two features: it pays no interest – 0.0%, nada, zilch – and all money in it, no matter how much, are directly guaranteed by the state of Japan. It’s effectively a savings account with the state, just managed by whatever bank you’re depositing with. Effectively, the state not only has to default, the value of yen has to crash; the kind of event where money itself is no longer a reliable holder of value.

    The account type was set up during the crisis years of the 90’s, when deflation and worries about bank safety meant people really did start keeping their savings at home, with the expected disastrous results.

  2. #2 jeff watson
    September 27, 2008

    Absolutely wonderful article.

    I would disagree with Janne’s take on the Japan’s postal accounts. Japan has had low interest rates since the 90’s which is due to a multitude of reasons, safety not being one of main reasons. Their money be guaranteed, but the Yen didn’t do too well on the foreign exchange markets for a long time. The low rates on the yen allowed for an huge, huge, huge carry trade to evolve….one that took years to unwind, and is partially responsible for the instability we see today.

    The Japanese have one of the higher personal savings rates, while ours has turned negative.


  3. #3 Janne
    September 28, 2008

    Jeff, normal Japanese bank accounts do give you an interest, if truly pitiful (salary accounts are zero in practice if not in theory though you can consider the bank card and other services part of the earned return), and they are guaranteed only up to 10 million yen per person and bank.

    These accounts are different in that the guarantee is not limited and the money is not considered to be held by the bank but by the state. As I said, they were set up to be a literal replacement for the mattress or desk drawer, just safer from accidents and crime.

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