If you really think anything has happened to fix the ongoing collapse of the global debt Ponzi then have a look at this:
http://www.reuters.com/article/2013/03/16/eurozone-cyprus-president-idUSL6N0C82UE20130316
If you were too lazy to click the link, it basically says that the Cypriot President announced a 10% "levy" on all the bank deposits of all "Cypridiots" who did not figure out in time that their government was colluding with banks to run a massive debt Ponzi. Was the new tax money that was just stolen from their bank account used for public works? How about to pay down government debt? OF COURSE NOT! It was simply spent as a prepaid insurance policy premium that would protect their creditors as part of the terms to be eligible for EVEN MORE DEBT!! These poor sheeple do not realize the math of the situation. They have entered the debt spiral whereby the parasitic aspects of owning too much debt kill you. These aspects include fees, interest payments, and now insurance payments on future debt increases. If allowed to continue, the con men will steal everything from the Cypridiots.
It is unquestionably true that without continuous new growth of debt, a debt Ponzi must collapse. That's just how Ponzis (a form of pyramid scheme) work. The people had no say in this "levy". When government taxes you it is supposed to be done with the consent of the people. When your bank account is simply dipped into by the heavy hand of taxation without representation then it is nothing more than theft. Since it took labor for people to earn that money in the first place, then the government effectively stole years worth of labor from the people. In civilized society, theft of labor is known as slavery.
I have written several times in these blog pages and in private emails to family and friends that banks are not safe because banks are in bed with corrupt, debt laden governments. Banks are supposed to be private savings organizations whose job is the safe keeping of your money. Common ignorance and webaganda make people believe that this is the case. What they don't tell you is that you are really investing in the bank when you deposit your money.
Yes, that's correct! From a legal perspective, a bank deposit is an investment in which you to get some small interest payment and free checking in return for allowing the bank to use your money as reserves against new loans. In other words, "use" means "reinvest at a high degree of leverage". With so much leverage available to them the banks can't help themselves but overinvest with ridiculous leverage. Since investing is a form of gambling, banks all over the world are nothing more than leveraged gamblers. Generally, the bigger the bank the more corrupt leverage it had to use in order to get big. During normal times bank deposits are supposed to be low risk, low reward investments. In fact, the risk is generally so low that people forget that it is an investment and that all investments can lose money.
Unfortunately, during the collapse phase of a debt Ponzi of such historic size as we are experiencing right now, risk is amplified across the board and in fact, traditional models of risk begin to become completely unreliable. Cyprignorant Cypridiots learned that the hard way today. I wonder how many of them will realize this is only the tip of the iceberg and that things are now so bad that it has come to this. Which means that the problems remain and that a 10% haircut of their wealth is not nearly enough to fix the problem even if profligate government spending could ever be controlled. I suspect that the smartest of them will say "once bitten twice shy" but that the masses will say "well, maybe this is the last time". That is the mindset of the herding species called Homo Sapiens. After the collapse I think we should change the official name of our species to Homo Victimus or perhaps Homo Patsius because we seem to be genetically predisposed to getting screwed by strangers and never learning from the pain.
Those on the margin (marginal players on a relative basis) are always hit the first and the worst. Expect to see this same sort of theft occur over and over again, spreading to Japan, Euroland and eventually to the US as well. It's not that they want to do it, it's that they have to do it in order to retain their corrupt control of their livestock which provide them a living from our labor. In other words, when the drought comes and the rancher's land will no longer support all the livestock which the rancher has been using for production of wool and milk, the rancher starts culling the herd and eating meat.
The defense against this coming outrage is so simple: do not let strangers hold onto your cash. That means, eschew the corrupt banks (and which of them is not in the pocket of government?). Do not accept a pittance in return for the real and rising risk of default. Do not believe that some stranger will be a better shepherd of your retirement funds than you because the minute they can no longer make money representing you is the minute they will make money stealing from you. Do not believe that the FDIC will make you whole in the face of market collapse and/or government theft. The FDIC is bankrupt. Also, know what is and is not money. Real money cannot change value by decree! Real money has a value placed upon it by the free market, not by government con men. Gold is real money. Government can try to manipulate its value but any downward manipulations are nothing more than a buying opportunity for those who understand how the debt Ponzi can, must and therefore will eventually collapse.
After all that has gone on, after all that we have been shown about how government and banks are thick as thieves, I have little sympathy for anyone who does not do the right thing for themselves and their families. Gold is your retirement account. Not paper gold shares in an ETF or fund but rather real, physical 24 kt gold bullion coins which are valued only by their gold content and purity and without consideration of any other factor. Anyone that can't figure this out will eventually suffer the fate of today's Cyprignorant Cypridiots. JP Morgan (the man) was no Cypridiot. He wrote and said on many occasions, "Gold is money and everything else is not" and "Gold is money and everything else is credit". This was common knowledge before the world was pulled over our collective eyes by the fraudulent scam of fiat currency and fractional reserve banking.
I think that it's worth remembering that, before fiat money, there were deposit banks, capital banks and investment banks.
ReplyDeleteDeposit banks were just places to safeguard the depositors' savings. It had a big safe and provided checking services. By their own nature, it had not fractional reserves.
Capital banks were banks that loaned the depositors' savings. Evidently, there is a risk in loaning money, so the depositors were remunerated with interest in their balance. However, as they did not provide checking services as deposit banks, deposits were actually a bank's and a depositor's liability. By their own nature, it had fractional reserves.
Investment banks were banks that invested the depositors' savings. Riskier than capital banks, the remuneration to the depositors was higher in proportion to the risks. They too had fractional reserves.
As long as these functions are kept separated, the question of fractional reserves makes sense and bank runs are a non-issue, or at least not in the sense that it became later. Later, banks were allowed to be deposit and capital banks at the same time, making all deposits the banks' liabilities, yet the depositors might not be remunerated for it for they now had no choice.
Of course, we now live in an age when banks exercise all these functions at the same time. So they are extremely vulnerable to bank runs, yet they do not remunerate the depositors in proportion to this risk. Instead, this remuneration or insurance was shifted to themselves via tax-financed state operations.
All this without even mentioning the poison of fiat money and the consequent collusion between the state and banks that make it possible.
Most of what you wrote is correct IMO and it does show the progression from seemingly sane to complete insanity that always eventually occurs once the camel's nose is allowed in the tent. So what's the camel's nose in this case? Well, you hit it "on the nose" with this statement of seemingly common sense:
ReplyDelete"As long as these functions are kept separated, the question of fractional reserves makes sense..."
In truth, it *never* makes sense to allow fractional reserve economics because it allows special people to make up money from thin air. The people thought they had money in the system AND the bank thought they had money in the system AND the recipients of investments made by the banks thought they also had money in the system yet all 3 were talking about the same exact money which was the original deposit. Once you let anything like this happen then it's guaranteed to get out of control. In no time the regulators of the system are captured by it and the whole thing eventually takes on the character of the original corruption of greed based on the promise, and for a length of time, the reality that fractional reserve of assets provides a something for nothing existence of great wealth. Only problem is, the concentration of wealth is simply the money conned from patsies even if it takes them a long time to figure it out. Again, all fractionally reserved economic transactions are fraudulent; there is no such thing as "good" or "just right" fractional reserve banking.
Fractional banking does not need the creation of money out of thin air. This is indeed a theft, but a bank lending part of its deposits, with the depositors knowing that they incur risk, however being paid for it fits in what is morally acceptable in a free society.
ReplyDeleteThe introduction of debt-based fiat money is the NOx that will explode the economic engine, though it provides a kick in the pants rush for a few seconds before destroying the engine.
"Fractional banking does not need the creation of money out of thin air."
ReplyDeleteThe very definition of fractional reserve banking is to create "money" from thin air! The issue here is that, as widely practiced today, the depositor - ALL depositors - has the right to pull all of their deposits from the bank at any time (and potentially all at the same time).
Even though the amount of money under its care is not guaranteed in this type of system, the bank has the right to make fractionally reserved loans against all of these deposits. In other words, the corrupt system allows banks to loan out more money than they have on hand and that is a TOTAL scam, period. Additionally, the fact that a run on even a seemingly conservative bank will make it insolvent shows that the whole scam relies on the participants in the scheme having "confidence" in the system. REAL economic systems work without the need for confidence; people participate in them because they MUST do so in order to live day by day. Confidence based systems, on the other hand, attract speculation for the purpose of turning a profit without doing the labor that is associated with making money in an honest economy. The key thing here is that this speculation can stop on a dime at the whim of a speculator. When the speculators run out of the confidence game, the game collapses. Thus, confidence based systems can be shown to be nothing more than a con game which will eventually collapse as opposed to a real, sustainable economy.
The ONLY honest lending operation is that in which only 1 entity has access to the funds at any given time. That is why physical monetary tokens like gold and silver coins cannot be fractionally reserved whereas paper or electronic representations of them can be (and always are in practice) fractionally reserved. With coin-tokens, only 1 person can have physical possession of the purchasing power that is associated with honest money. No matter how many times the physical token is re-loaned in this process, every entity along the way has a balance sheet that does not add fake wealth to the system. This is the key to understanding whether or not a monetary system is honest or completely fraudulent. In an honest lending system it is completely understood that any default by the borrower will be borne by the agent for the depositor (the banks). Even if 75% of the banks loans go bad, the bank is still solvent!! All it does is send its investors the bad news that their investment went bad and now are only worth 25% of the original deposit.
(Continued)
ReplyDeleteAn example of an honest banking operation is one where the depositor's funds are tied up in a certificate of deposit for a set and immutable period of time like 6 months to 3 years. The bank should then be free to loan exactly that amount, **and not one thin silver colored dime more**, to a 3rd party. This is an example of non-fractionally reserved lending using the bank as an intermediary. While credit is offered to the borrower in this circumstance and debt is assumed, the money supply is not effectively increased by the activity because there is no fractional reserve happening. There is a reserve basis for the loan and it is 100%. This system is honest and fair because it eliminates the possibility of a bank run which can suddenly uncover an overleveraged bank's insolvency. No bank run is possible on funds legally tied up in certificates of deposit the way it can when the deposits may be taken out on a daily basis at the whim of the depositor.
Any banking operation that effectively increases the purchasing power that is running around in the economy on a daily basis will result in never ending inflation. Those with first access to the money (rich people and politically connected people) will use leverage to buy assets whose value will be inflated as everyone else finally gets access to credit. But by the time the average person starts to use credit in a big way, asset prices are already bubble-ized by the front runners of this pump and dump scam. Once nobody else wants credit, asset prices decline while debt of the late comers remains and they have to choose between accepting life long debt slavery or being societal outcasts.
Such an immoral attack on people was never possible before the widespread adoption of fractional reserve banking and so it is extremely important that people see it for what it is.
I agree with the immorality of fractional banking with fiat money. But, without the latter, no money is created out of thin air.
ReplyDeleteFractional reserves banking means what it reads: it does not hold its reserves in full. It is not unlike a coop that lends money out in exchange for a participation in loan interests.
It has nothing to do with fiat money necessarily, though both being found so pervasively nowadays that they get confused.
The example that you gave in which the balances are tied to a CD is what capital banking used to be.
But, no, except in the classic deposit bank above, a depositor has no right to withdraw his money because it is not his money anymore when it's deposited, then becoming the bank's liability. IOW, if the bank fails, the depositor has not right to compensation in the typical terms he agreed with when he opened the account. He forfeited his property rights over that amount the moment he deposited it, though almost everyone is cyprignorant of that.
"But, without the latter, no money is created out of thin air."
ReplyDeleteThis is what we are told and it is technically true but a complete fabrication in practice. "Money" might not be created from thin air by fractional reserve lending but credit is certainly created and debt is certainly created and credit spends just like money. So what is really created from thin air by fractional reserve banking is purchasing power.
And yes, in today's implementation of fractional reserve banking, checking account and savings account deposits are used as part of the reserves. Those deposits have no requirements to leave them in the bank even though the bank has already made loans using them as reserves.
The people can use their deposits to guarantee loans of their own even if they don't pull the money out! The bottom line is that $1 worth of savings ends up driving $10 worth of economic activity. This drives the price of everything up until people decide that they don't want to take out more loans in order to chase those high prices. That's how a deflationary collapse is brought on. Without the expansion of purchasing power that fractional reserve banking brings to an economy there would be no such thing as a deflationary crash such as seen in the PIIGS and which is also coming to France and then Japan and then Germany and finally, to some degree, to the USA.
I think Mish nails it in this post where he talks about what is wrong with banking:
http://globaleconomicanalysis.blogspot.com/2013/03/can-we-fix-whats-wrong-with-banking.html
Bottom line: fractional reserve lending. Mish writes,
"The solution to the symptoms of massive income disparity, a dearth of jobs, and lack of growth is not wage caps on executive pay or hikes in the minimum wage or a return of Glass-Steagall. The real solution is elimination of the Fed, elimination of fractional reserve lending, and a return to sound money policies that do not benefit the already wealthy at the expense of everyone else."
Note that he does not provide any caveat or conditions on that statement. Note that return to Glass Steagall is specifically pointed out as NOT being a solution. The bottom line is that fractional reserve banking is fraudulent in all of its forms, period. So few people seem to understand this that I'm pretty sure the con men will be allowed to re-start another debt Ponzi as soon as the current one collapses.
I think that we agree and are just talking through each other by using loose terms.
ReplyDeleteI am not talking about the multiplication of fractional reserve LENDING. In capital banking it could only lend what it held in reserve, though the depositor might not be able to redeem his funds in full at any time.
It was much like the case you illustrated that depositors would effectively lend to a bank via a CD: an early redemption would result in a haircut or would be impossible before maturity, depending on the terms agreed on. IOW, the reserve is not always available, it's fractional; but the lending capital would be up to a maximum of 100% of the reserves.
I wish I could use the best terms to describe how different kinds of banks existed before the fraud of fractional lending and the theft of fiat money.