Fractional Reserve Banking
In our previous article we explained why buying a house is often a very silly financial decision, especially for people who are young, or those that have a low net worth. In this article we're going to explain why we think people are so infatuated with the idea of buying and owning a house, even though, if you look a the facts, it goes against many of the investment principles they believe in and hold dear.
Why Mainstream Economists Like Krugman Are So WRONG and So DANGEROUS
"If you have physical gold or silver, you are in a golden position,” Celente said. Despite the many risks of today, Celente saw light at the end of the tunnel. He said that there are opportunities in “clean food”, breakthrough alternative energy, alternative medicine and in digital education and internet learning.
Plain vanilla bank runs are as old as fractional reserve banking itself, and usually happen just before or during an economic and financial collapse, when all trust (i.e. credit) in counterparties disappears and it is every man, woman and child, and what meager savings they may have, for themselves. However, when it comes to shadow bank runs, which take place when institutions are so mismatched in interest, credit and/or maturity exposure that something just snaps as it did in the hours after the Lehman collapse, that due to the sheer size of their funding exposure that they promptly grind the system to a halt even before conventional banks can open their doors to the general public, the conventional wisdom is that this is a novel development (and one which is largely misunderstood). It isn't.
I predicted this clearly, with loads of evidence, last spring. I even tipped the SEC/UK authorities. Tthe chickens come home to roost. Let it be known, Wall Street's margin IS my business model!!!
The Status Quo system is failing. Its collapse will be messy. Starting to call things what they really are is a necessary first step to working with this reality.
Financial markets have become increasingly obviously highly dependent on central bank policies. In a follow-up to Incrementum's previous chartbook, Stoerferle and Valek unveil the following 50 slide pack of 25 incredible charts to crucially enable prudent investors to grasp the consequences of the interplay between monetary inflation and deflation. They introduce the term "monetary tectonics' to describe the 'tug of war' raging between parabolically rising monetary base M0 driven by extreme easy monetary policy and shrinking monetary aggregate M2 and M3 due to credit deleveraging. Critically, Incrementum explains how this applies to gold buying decisions as they introduce their "inflation signal" indicator.
The reigning paper money system is at the center of the growing income inequality and expanding poverty rates we find in many countries today. Nevertheless, states continue to grow in power in the name of taming the market system that has supposedly caused the impoverishment actually caused by the state and its allies. If those who claim to speak for social justice do nothing to protest this, their silence can only have two possible reasons. They either don’t understand how our monetary system functions, in which case, they should do their research and learn about it; or they do understand it and are cynically ignoring a major source of poverty because they may in fact be benefiting from the paper money system themselves.
"Just be long. Pretty much anything. So here’s how I understand things now that I am no longer the last bear standing. You should buy equities if you believe many European banks and their sovereign paymasters are insolvent. You should buy shares if you put a higher probability than your peers on the odds of a European democracy rejecting the euro over the course of the next few years. You should be long risk assets if you believe China will have lowered its growth rate from 7% to nearer 5% over the course of the next two years. You should be long US equities if you are worried about the failure of Washington to address its fiscal deficits. And you should buy Japanese assets if you fear that Abenomics will fail to restore the fortunes of Japan (which it probably won’t). Hey this is easy… And then it crashed"
- Hugh Hendry
You've probably read many articles about money - what it is (store of value and means of exchange) and its many variations (metal, paper, etc.). But perhaps the most important distinction to be made in our era is between metallic money and credit money. As the following 16 reasons make very clear, it is no exaggeration to say that the transition from gold money to credit money changes everything. The key distinction of all these important differences is the ephemeral nature of credit-money (and any form of fiat currency). History teaches us that a financial-political crisis of sufficient magnitude reveals the underlying value of credit-money - i.e. zero - in a brief but cataclysmic loss of faith/trust.
Still unnoticed by a large part of the population is that we have been living through a period of relative impoverishment. Money has been squandered in welfare spending, bailing out banks or even — as in Europe — of fellow governments. But many people still do not feel the pain. Many people believe the paper wealth they own in the form of government bonds, investment funds, insurance policies, bank deposits, and entitlements will provide them with nice sunset years. However, at retirement they will only be able to consume what is produced by the real economy. Savers and pensioners will at some point find out that the real value of their wealth is much less than they expected. In which way, exactly, the illusion will be destroyed remains to be seen.
According to the popular way of thinking, bubbles are an important cause of economic recessions. The main question posed by experts is how one knows when a bubble is forming. It is held that if the central bankers knew the answer to this question they might be able to prevent bubble formations and thus prevent recessions. Contrary to Shiller, in order to establish that a bubble is forming we don’t need to apply the same methodology employed by psychologists. What we require is the establishment of a correct definition of what bubbles are all about. Once it is done, one discovers that bubbles have nothing to do with some kind psychological malfunction of individuals – they are the result of loose monetary policies of the central bank.
The notion that the euro area crisis is over has recently been heavily propagated by EU politicians and the mainstream media. However, it is way too early for such victory laps. Hans-Werner Sinn is perfectly correct in pointing out that the ECB's attempts to restore the 'monetary policy transmission mechanism' by suppressing interest rates in the periphery is going to perpetuate capital malinvestment,delay the necessary reforms and these interventions have actually scared private capital away, as investors require adequate compensation for the risks they are taking. Meanwhile, savers are ultimately paying for this ongoing waste of scarce capital. It is high time that central banking is recognized for the disease it is. Without central banks aiding and abetting credit expansion, this situation would never have arisen. Even a free banking system practicing fractional reserve banking could not possibly have created such a gigantic boom-bust scenario. Money needs to be fully privatized – the State cannot be trusted with it.
Hi! I’m Amy Johnson-Martinez, the 14-year-old girl who’s saving the earth from environmental destruction. A lot of people don’t understand how the destruction of the earth is connected to our addiction to economic growth. Actually, a lot of people don’t even realize that we’re addicted! Personally speaking, I think it’s kind of weird that economists don’t tell us about this. So I guess it takes a 14-year-old girl to tell you about it! Economists always say, “The economy has to keep growing or else it will collapse.” But it can’t grow forever, because the earth is running out of resources. Actually, it’s already starting to happen. That’s a big reason why the economy is getting worse.
Russell Brand's excited exchange with stoic Brit Jeremy Paxman this week is a must-see "exchange of new ideas vs old." Among Brand's clearer moments were "stop voting, stop pretending, wake up. Be in reality now, time to be in reality now. Why vote, we know it's not going to make any difference, we know that already." The excellent discourse has prompted this open letter supporting the comedian.. concluding so legitimately nowadays, with Upton Sinclair's infamous quote "It is difficult to get a man to understand something, when his salary depends upon his not understanding it."