Fractional Reserve Banking
Because so much is riding on what so few decide,once the faith in the Central Banks fail, the chances of us getting out of this diminish every second...
Let me be blunt: this next crash will be far worse and more dramatic than any that has come before. Literally, the world has never seen anything like the situation we collectively find ourselves in today. The so-called Great Depression happened for purely monetary reasons. Before, during and after the Great Depression, abundant resources, spare capacity and willing workers existed in sufficient quantities to get things moving along smartly again once the financial system had been reset. This time there’s something different in the story line...
Critics of today’s fiat currency/fractional reserve banking world have (for what seems like forever) made the common sense point that when debt rises faster than cash flow, bad things are bound to happen. In every cycle since 1980 this has been dismissed by the vast majority who benefit from inflating bubbles - until the bubble bursts. And here we go again.
All we can do is point out the risks, so that people can at least prepare on an individual level. A major lesson everybody should take to heart from the Cyprus experience is this: when the next crisis strikes, do not believe any of the promises uttered by government or central bank officials. You will be lied to in the critical moments, and you could stand to lose a lot if you believe the lies.
Today the Swiss Federal Government confirmed that it had received enough signatures and would hold a referendum as part of the so-called "Vollgeld", or Full Money Initiative, also known as the Campaign for Monetary Reform, which seeks to ban commercial banks from creating money, and which calls for the central bank to be given sole power to create the money in the financial system. In other words, an initiative to ban fractional reserve banking, and revert to a 100% reserve.
Most experts are of the view that the massive monetary pumping by the US central bank during the 2008 financial crisis saved the US and the world from another Great Depression. On this the Federal Reserve Chairman at the time Ben Bernanke is considered the man that saved the world. Bernanke in turn attributes his actions to the writings of Professor Milton Friedman who blamed the Federal Reserve for causing the Great Depression of 1930s by allowing the money supply to plunge by over 30 percent. Careful analysis will however show that it is not a collapse in the money stock that sets in motion an economic slump as such, but rather the prior monetary pumping that undermines the pool of real funding that leads to an economic depression.
Central planners around the world are waging a War on Cash because, as Ron Paul so eloquently put it "the cashless society is the [government]’s dream: total knowledge of, and control over, the finances of every single [citizen]." It is perhaps ironic then that Sweden, which became the first country in Europe to issue paper money in 1661, is probably going to be the first in the world to entirely eliminate it.
The institutional academic system is broken. We need less systemic, traditional education that only provides knowledge of low utility and more alternative education that provides the right high-utility knowledge to thrive during today's global currency wars.
If you thought we'd seen the depths of NIRP, think again because as Deutsche Bank notes, the ECB, Riksbank, SNB, and Nationalbank will likely dive further into the monetary Twilight Zone in the months ahead. Only when rates become negative enough to spark a depositor revolt will we have reached the "real" lower bound, but at that point, it will be far too late...
Back in February, we noted that NIRP had officially arrived in the US as JP Morgan announced it was preparing to charge some large institutional customers for deposits. This represented a kind of de facto (if not yet de jure) NIRP. Now, a combination of pinched margins and new regulations has led some of the largest financial institutions in the US to penalize corporate and institutional deposits on the way to instituting what amounts to a stealth version of negative interest rates.
Bank profitability will remain under pressure for some time to come in light of the new capital regulations currently in the works. This will make it more difficult for banks to generate new capital internally, so they will have to tap the capital markets and dilute their shareholders further. It is no wonder that bank stocks remain way below the valuations they once commanded (we actually wouldn’t touch these stocks with a ten-foot pole). From a wider economic perspective, the new capital regulations are rendering banks moderately safer for depositors (as long as the markets don’t lose faith in government debt that is), but they also contribute to their ongoing “zombification”. Bank lending is going to remain subdued. This wouldn’t represent a big problem, if not for the fact that it is likely to provoke even more government activism.
Awareness about the concept of money is making a comeback. Gone are the decades in which the global citizenry was fooled to leave this subject to economists, governments and banks – a setup that has proven to end in disaster. The crisis in 2008 has spawned debate about what money is, where it comes from and where it should come from.
Update: So much for the "no more intervention" - CHINA SAID TO ORDER BROKERAGES TO BOOST STOCK MARKET SUPPORT
A busy weekend in Asia was dominated by mayhem in Malaysia, and witch-huntery in China. Chinese authorities began a wide-scale crackdown on rumor-mongerers, arrested journalists, and even detained a regulator for insider trading, as they lifted loan caps on the banking system at the same as withdrawing (verbally) support for the stock market. China strengthen the Yuan fix by 0.15% to 6.3893 - this is the biggest 2-day strengthening of the Yuan fix since Nov 2014. Then just to rub some more salt in the wounds, Goldman cut China growth expectations to 6.4% and 6.1% respectively for the next 2 years. Chinese stocks are opening modestly lower (SHCOMP -3.3%).
Austrian Economics Is Now Equivalent To Terrorism Thanks To Latest Islamic State "Gold Standard" Propaganda ClipSubmitted by Tyler Durden on 08/30/2015 13:16 -0500
What better way to mute demands for a return to sound money and the gold standard, than by making them equivalent to jihadist terrorism? Why, there are none, which may explain the hilarious appearance of the "Islamic State's" latest 55-minutes pro gold standard YouTube clip, which is nothing but a crash course in Austrian economics.
The reason given by our rulers for suppressing cash is to keep society safe from terrorists, tax evaders, money launderers, drug cartels, and other villains real or imagined. The actual aim of the ?ood of laws restricting or even prohibiting the use of cash is to force the public to make payments through the financial system. This enables governments to expand their ability to spy on and keep track of their citizens’ most private financial dealings, in order to milk their citizens of every last dollar of tax payments that they claim are due.