Bank runs in Euroland will lead to bank runs globally

Today Mish reports on an FT article entitled "anatomy of the Eurozone bank run".  It is well worth a read from the standpoint of being yet another confirmation that the global debt Ponzi is just entering the pain stage of its inevitable meltdown.  As you read the article, please pay special attention to the chart which shows money running out of the PIIGS banks and into the German banking system.

To be afraid of having money in the PIIGS banks is good sense but the rapid and exponential rise of cash in the German banking system can only be described as a mania in the making.  Why?  Because Germany is in fact no more solvent than the PIIGS who it exported goods to in order to achieve the appearance of prosperity.  Clearly very few understand this mathematical certainty and so the sheeple are all herding into the German banking system "for safety".  More like out of the frying pan and into the fire.  My view is clearly the minority here but I am quite sure that it is correct because math and history and real Austrian economics side with me.  I think we could possibly be working on a 5th of 3rd wave for this flight into German banks.  If this model analysis is correct, the run will likely have a large, vee shaped pullback followed by one more big thrust before the bottom begins to drop out of confidence in German finances.  As counterintuitive as it might seem, that exponential rise is a sure sign of coming trouble for the German banking system.  It represents too many people with too high of expectations moving into it not because of good economic reasons but rather out of fear.  At some point it will unwind as the herd takes losses as a result of its bad decisions which cause it to rethink and move in another direction.

The second important take away is Mish's correct statements about the fraudulent basis of fractional reserve lending and how it, at the end of the day, is always responsible for the bank runs.  He wrote, "The way to stop runs on the bank is easy enough: stop fractional reserve lending and other fraudulent lending practices." That's right, folks, fractional reserve based lending is nothing more than a fraudulent con game perpetrated by money criminals at the Federal Reserve and other global central banks.  It is a true alchemic something for nothing scheme which feeds on itself as useless bureaucrats and moneymen rise to the top of society based on the art of the grift.  This is in no way an emotional statement but rather a calm recounting of the facts.  If you don't believe it then you are the patsy.  Period.  Fractional reserve lending has gotten the world into unpayable levels of debt and thus they will never be paid.  Default, in some form or fashion, is the only recourse.  It doesn't matter what scumbag politicians say.  It doesn't matter what their Keynesian Kon salesmen from academia say (Paul Krugman, etc.).  They are looking out for themselves and for the fraudulent institution upon which their ability to fund their lifestyles depends.  Without the con they would be mowing lawns and taking out trash for a living because they have no real marketable skills.  They are very intelligent but have spent their whole parasitic lives living off of the backs of the working class.  At this point they should just be jailed for their roles in worst financial crime in history: the collapse of the global economy and the likely bloody aftermath of civil unrest, martial law and perhaps even regional or global war.  Yes, the damage is going to be significant.

Finally, I want to address something that even brilliant minds are still confused about: the notion that there is not enough gold in the system to return to gold backed currency.  I've heard it from engineers, lawyers and laypeople who think they understand how money works.  So here is the truth:

• Gold is just a token.  We could just as easily base our paper currency on Yap money stones.  The key is that the number of them cannot come or go based on the whims of central planners.  Invariably these con men game the system to benefit themselves at the expense of everyone else.  The value of gold is that it takes work, time, risk, physical danger and regulatory hurdles to bring more supply online.  It cannot just be conjured up from thin air.  When the price of gold gets  too high, miners kick up their investments thus eventually increasing the supply (with some years worth of lag; you do not just bring a new mine or even a previously shuttered mine backs up at the snap of a finger).  When the price of gold gets too low to be worth the time, investment risk, personal danger level, cost of mining then miners scale back their operations, lay people off and shutter mines.  Gold as a commodity backing for currency is thus self correcting based on valid Austrian market forces, not based on the whims of bureaucrats who want to take credit (or avoid blame) for the economy (which they have no real long term control over anyhow).
• The amount of gold in the system is irrelevant.  One ounce of it could back the global money supply if that was all the gold that was in the world.  So what if each dollar was only backed by a trillionth of an oz?  Would it really matter?  In fact, would it not make auditing the gold supply much easier?  Of course we could not trade physical gold coins with such a valuation.  We would trade electronic claims on it.  But that's how we want to work anyway: debit cards and Paypal do not trade physical dollars either.  It's all electronic and we are unlikely to go back to physical trade for any extended periods.  It would all but eliminate the global market for consumers.  Nobody is going to send gold coins to China in the hope that their goods might arrive.  But they will send electronic gold with the ability to cancel the payment if the goods are not received.
• There is NOTHING backing the current money supply.  So any increase in commodity backing of the currency will be an infinite improvement over the current situation.  Math, not emotion.  It will indeed be infinitely better from a pure economic standpoint.  Something is infinitely better than nothing.
• What throws people off is the perceived high price of gold when priced in US dollars and other funny money.  In fact, gold is cheap because the central banks which back the funny money are all insolvent and failing in domino fashion.  Not as a result of contagion, simply in the order of their relative strength in the Ponzi.  So what if gold had to go to $20,000 per Troy Oz in order to make it worth enough to cover all the dollars and Euros that have been conjured up out of thin air?  Really, SO WHAT?  It will not matter to the economy.  But it will, as Mish states, clean up the banking system: "Under a full-reserve 100% gold-backed banking system, inflation would be nonexistent and bank failures would be few and scattered." By the way, the very fact that Mish believes in gold backed currency ought to be enough for any thinking, observant person to revisit their own beliefs about the inability to back the global money supply with gold.  Mish has been spot on in calling the housing bubble and just about every market move since I began following him in late 2006.  He absolutely understands how money works.  If you disagree with him it's probably because you don't. I'm not saying people shouldn't have their own opinion but true economics is just math and the math we are talking about here is not theoretical.  It's beyond opinion.  You either understand it or you do not. 1+2 can never = 4 except to someone who doesn't understand math.

Note that none of the above is meant to offend.  It is meant to give cause for thought.  Everyone is ignorant about something!  It is not a crime nor even a character flaw.  It is human and to be expected.  But thinking people will reconsider their views when presented with facts and they will avoid the programmed, emotional response which has been whispered into their ear over the years so that it comes out their mouths in conversation.  We are all programmed by the system to some degree.  Not having a college degree has saved me from exposure to the Keynesian lie in my formative youth.  Thus I can see through that con easily whereas many college educated folks, with econ 101 under their belts and little self study afterward have been infected by academia with a belief in government controlled money despite the fact that it has never worked for very long before.