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More Evidence that Banks Create Credit Out of Thin Air
I recently provided evidence that banks create credit out of thin air.
I've just found two more pieces of evidence:
(1) William C. Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, said in a speech last July:
Based
on how monetary policy has been conducted for several decades, banks
have always had the ability to expand credit whenever they like. They
don’t need a pile of “dry tinder” in the form of excess reserves to do
so. That is because the Federal Reserve has committed itself to supply
sufficient reserves to keep the fed funds rate at its target. If banks
want to expand credit and that drives up the demand for reserves, the
Fed automatically meets that demand in its conduct of monetary policy.
In terms of the ability to expand credit rapidly, it makes no difference.(2) On February 10th, Ben Bernanke proposed the elimination of all reserve requirements:
The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system.
Of course, Bernanke's proposal is the exact opposite of the 100% reserve system proposed by Nobel
prize winning economist Milton Friedman and Laurence Kotlikoff, former
Senior Economist for the President’s Council of Economic Advisers.
More importantly, if banks don't make loans based on available reserves, but can enter into loan agreements first and then borrow any reserves needed, that means:
(1) This was never a liquidity crisis, but rather a solvency crisis, as I and many others have repeatedly
tried to explain. In other words, it was not a lack of available
liquid funds which got the banks in trouble, it was the fact that they
speculated and committed fraud,so that their liabilities far exceeded their assets. If you don't understand what I'm saying, please read this.
(2) The giant banks are not needed, as the federal, state or local governments or small local banks or credit unions can create the credit instead, if the near-monopoly power the too big to fails are enjoying is taken away, and others are allowed to fill the vacuum.
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If the other agents were able to stand for the big banks, they would also enjoy a too big to fail status.
The fact they dont is a straight evidence that the local banks, credit unions and stuff can not fill the big banks's shoes.
Good morning. So is anyone worried about their money at the local bank? Where else to you go? When we look back 20 yrs from now....what will we say? Will there be some obvious path from here that we are missing due to the daily distractions/drama of watching too much pathetic tv televised govt hearings led by people that could not beat themselves out of paper bags?? So, the question is, what is that next thing......Remember way back in 2010 when the govt came up with all that regulation and panicky crapola about financial reform.....all we needed to do was invest in ______ and buy________and sell________. How dumb was that? What an easy trade! An idiot could have seen it! Easy, right?
Gold, bitches ? Perhaps guns ?
Perhaps silver ? Perhaps spam ?
When the currency no longer makes sense, get out of the currency.
Someone needs to point out to Bernanke that the law of supply and demand still applies to capital and if the supply of capital is infinite, it is demand which determines the amount of investment the economy can hold. Solvency, not liquidity.
IMHO you need to look at the rule of law. Two parties needs to put something up of value to complete a contract. Here is where you need to THINK folks how banksters 'get' their money. Technically, the bank has nothing to offer UNTIL you sign the contract. Only AFTER you sign can they then create a book entry with a dollar value that they then create this money for you to purchase a home and thus inflating their balance sheets. Before you signed, said bank did not have anything in their ledger nor anything of value to fulfil their contractual obligation.
The above is an overly simplistic description of technical contractual law and/of financial transaction.
The idea of eliminating reserve requirements is one of the final pre-conditions for hyperinflation to occur. Without those requirements, the regulatory structure for loans will be adapted to insure consistent monetary expansion and thus a persistent velocity above 1.8. Once this is achieved the genie is out of the bottle and we will begin to see 5% per month, net 60% per annum plus inflation rates as the political will to assure growth will outweigh the regulatory authorities desires to insure any sanity within the system.
It's going to be brutal.
Let's see, when the denominator approaches zero, what happens to the leverage ratio? Looks like one way to fight a deleveraging event is with...higher leverage? Yeah, that'll work just fine.
At that rate prices would double in 14 months, triple in 23 months, and quadruple in 28 months.
I still can't believe Obama kept Ben Benanke.
TheBamster had nothing to do with keeping or getting Bernanke.
He is told who will occupy the key positions in government by the men behind and in front of the curtain that runs this country.
He is a puppet of the financial world. Ditto for Summers, Geithner, Gensler, Greenspan, Blankfein, Scheinberg, Shapiro and the rest of The Tribe.
I wonder what the world would make of the fact that nearly the entire contingent that runs this country had last names like romano, rossi, rossitto, testa, prizzi, tessio, brazzi, corleone, tattaglia, valentino, tucci, and nespoli.
I doubt there would be complete silence about one nationality monopolizing the government.
Weren't there some mid-western states that didn't get into tall this shit because their banks were state run and heavily regulated?
One. The State Bank of North Dakota is the only public state bank in the nation. And ND is weathering this crisis quite well comparatively.
Go figure. Make a bet that the elite find a way to destroy it?
These movies very well describe the bank's money (aka debt) creation mechanism:
Money as Debt (~45 min): http://freedocumentaries.org/int.php?filmID=214
The Money Masters (~90 min): http://freedocumentaries.org/int.php?filmID=243
(just click the red button to launch the movie)
If one of the peasants has the bright idea to exercise this "mechanism", he'd be called a counterfeiter & sent to prison...
who are we at war with now? Eurasia or Eastasia? its so hard to keep up...
it doesn't really matter to true blue oceanians. you're either with us or ...
You're giving aid and comfort to the enemy, who by the way, is undefined (how convenient).
Off to a FEMA camp near you.
"Eliminate minimum reserve requirements?" As in ZERO reserves? Can this edven be real ?
That's it!
I'm jumping into Silver and hooking up with my friend in Wellsville. The Dairy farm will hold us out. I'm buying ammo for his guns and hoping to make a trade.
I don't understand. How can this possibly not lead to hyperinflation once the economy picks back up? Won't this just create gigantic bubbles?
(Playing dumb... of course I do understand... we need gigantic bubbles to make the numbers bigger and cover up the fact that we're basically bankrupt.)
It's like everything in government: We need it to work so we don't have to explain when it doesn't.
And when it doesn't work, we need to try more things that don't work, so that we can keep the system working, because if we stop trying things that don't work, then the system will fail.
Ahh yaaaay yaaay. I sure could use a valium about now.
although aided by a deeply corrupt government, especially after the fact and via corporate agents (paulson, rubin etc.), this crisis is essentially one created by private enterprise.
Which begs the question, that if banks don't trust each other enough to lend to, then why would anyone buy their stock and/or bonds?
The question is rhetorical, of course, because we know the answer. It was ultimately the pumping of bank stocks that saved them, temporarily, not TARP or alphabet soup, in conjunction with Fed buying their trash.
YIKES!!!!
Well, it's certainly not G-R-E-A-T! Right Tony?
evidence lol who needs stinking evidence .. just look at the purchases by the fed ,, of any thing that moves,,
thats like seeing a dead bleedingnaked bodie lying dead,, and some one comes up and says .. evidence ..poke him see if he moves
what do they produce,, nothing they even buy their paper from the crane company,, with what ,, they use the interest from the treasury.. on the poofs of air .
What if they get more thin air? Like in NO RESERVES!!?:
http://tinyurl.com/yfkv5nc
I hope this is a sick joke.
Your desire is granted.
You just had to rub that lantern, didn't you! The joke's on all of us.
There are no reserves. There hasn't been since 1971. How can there be, any on a bank note that promises to pay or redeem nothing?!
It's an exercise of simply adding make believe credits to a bankrupt balance sheet.
try and think like a ponzi scammer, then you'll understand where he's coming from.
The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system.
On top of that they are trying to gain control of oversight for all banks (not only the TBTF) , if this happens they will be able to do whatever they want. They will have all kinds of gimmicks and create the appearence that everything is fine.
The US is becoming insolvent and everyone knows it besides the people of the US.
So sorry for Jackin the post - my apologies.
However...
I/We have not Seen MARLA - post-comment-edit-or do anything in AT least 2 months!!!
WHAT..... ZH has become of Marla?? and the Great job she has done for this site??
Don't apologize. It's a great question.
Maybe Marla is slaving away for the pay site 0Hedge? No time for us plebes. I love her still!
At her age, Spring Break looks like a logical place to be rather than here, trying to hatch a desperately needed revolution.
No reserves?I always said wall st was the worlds biggest game of 3 card monte.
How entertaining bernake agrees!