Fractional Reserve Banking
Government mandated fiat currency simply does not work in the long run. We have empirical evidence galore – every fiat currency system in history has failed, except the current one, which has not failed yet. The modern fiat money system is more ingeniously designed than its historical predecessors and has a far greater amount of accumulated real wealth to draw sustenance from, so it seems likely that it will be relatively long-lived as far as fiat money systems go. In a truly free market, fiat money would never come into existence though. Greenspan was wrong – government bureaucrats cannot create something “as good as gold” by decree.
With historically low long-term interest rates, the opportunity cost of holding gold and silver are close to zero or even negative, in other words you would “lose” money if you buy bonds (the benchmark) instead of gold and silver. When people realize that their money is not “safe” with the banks they will start withdrawing cash from their accounts and buy physical gold and silver instead. Depending on circumstances this could possibly bring down the (fractional) banking system. Why keep money in an account that gives you a negative return? Swiss banks are already witnessing stronger than normal interest for physical gold.
All Out War Pt 3: Contrary to Central Bank Rhetoric, the Danish Krone Peg's as Fragile As Glass, May Throw Banks Into Turmoil!Submitted by Reggie Middleton on 02/11/2015 08:22 -0500
Exactly as I warned 3 wks ago, Nordic countries are facing pressure. Here's strong evidence of a krone break, havoc to ensue in global banks, how to monetize when skittish brokers pull access & leverage.
"Most investors go about their job trying to identify ‘winners’. But more often than not, investing is about avoiding losers. Like successful gamblers at the racing track, an investor’s starting point should be to eliminate the assets that do not stand a chance, and then spread the rest of one’s capital amongst the remainder." So as the year draws to a close, it may be helpful if we recap the main questions confronting investors and the themes we strongly believe in, region by region.
While we have covered the aberration that is a negative gold GOFO rate previously and in extensive detail in this post, an abridged version of what negative GOFO means comes courtesy of Deutsche Bank's recent discussion on what a successful Swiss gold referendum. To wit: "It is interesting to note that benchmark gold-dollar swap rates have recently traded negative, meaning investors are paying to borrow gold. This is unusual as gold is traditionally used as a source of collateral for cash financing.... [A] number of factors may play a role, such as excess dollar liquidity or an increased demand for collateral on the back of the global regulatory developments." In short a gold shortage at the institutional, read commercial and central bank, level. And not just a shortage but the biggest shortage in history, judging by today's latest plunge in the 1 Month GOFO which just dropped to -0.5% and , worse, 1 Year GOFO that just hit its lowest print in the 21st century, and is also about to go negative: something that has never happened before further suggesting the gold shortage could go on for a long, long time!
The “unintended consequences” of the negative interest rate policy will vastly outweigh the perceived advantages of any short term boost to economic activity they may provoke. Given that the failure of these interventions is already absolutely certain, we must be prepared for even more interventions to “fix” the failures produced by the previous ones. Many modern-day intellectuals appear quite keen on abolishing the market economy and replacing it with some form of command economy (just as long as their personal plans are implemented of course). They should be careful what they wish for.
In the final part of Hugh Hendry's 3-part (part 1 and part 2 here) interview with MoneyWeek's Merryn Somerset the Sanguine Scot, perhaps surprisingly to some given his previous negativity - though fitting with his world view of fiat currency destruction - believes "to bet against China or Chinese equities, or the Chinese currency is to bet against the omnipotence of central banks. One day that will be the right trade, just not ready or sure that that is the right trade today."
Something is dreadfully wrong in America.
As noted over the past week there has been a massive shortage of precious metals - most notably silver which as of this moment is indefinitely unavailable at the US Mint - as a result of the tumble in the paper price, and following 8 days of sliding and negative 1 month GOFO rates, today the physical metal shortage surged, as can be seen by not only the first negative 6 month GOFO rate since last summer's much publicized gold shortage when China was gobbling up every piece of shiny yellow rock available for sale, but a 1 month GOFO of -0.1850%: the most negative it has been since 2001!
The Doomsday Machine has been unleashed in Tokyo...........
Central banks are printing rules almost as fast as they’re printing money. The consequences of these fast-multiplying directives — complicated, long-winded, and sometimes self-contradictory — is one topic at hand. Manipulated interest rates is a second. Distortion and mispricing of stocks, bonds, and currencies is a third. Skipping to the conclusion of this essay, Jim Grant is worried: "The more they tried, the less they succeeded. The less they succeeded, the more they tried. There is no 'exit.'"
Recapping the tenets we presented here, here, and here, once an economy is subjected to a bout of monetary inflation, whether that be via direct central bank money creation or via money (and credit) creation by the fractional reserve banking system, an unsustainable, artificial economic boom is born, whereby malinvestments (bubbles if you like) are created that sooner or later must be liquidated. And whether that bust takes the form of a hyperinflationary bust or a deflationary bust, bust we will get.
- BULGARIA CENTRAL BANK CORPBANK PRE-JUNE REPORTS 'MISLEADING'
- BULGARIA CENTRAL BANK SAYS CORPBANK ASSETS ARE 6.7B LEV
- BULGARIA CENTRAL BANK SAYS CORPBANK AUDIT SHOWED ONLY 13 PERCENT OF LOANS HAD VALID COLLATERAL
With the revelations of systemic, widespread corporate criminality of banking institutions in recent years, it is clear that global Bank CEOs are becoming the new Drug Lords.
History may not repeat exactly because technology, resource discoveries, and political dynamics change the nature of society, but it does rhyme because the human foibles of greed, lust for power, arrogance, and desire for conquest do not vary across the ages. The corruption, arrogance, hubris, currency debasement, materialism, imperialism, and civic decay that led to the ultimate downfall of the Roman Empire is being repeated on an even far greater scale today as the American Empire flames out after only two centuries. The pillars of western society are crumbling under the sustained pressure of an immense mountain of debt, created by crooked bankers and utilized by corrupt politicians to sustain and expand their welfare/warfare state. Recklessness, myopia, greed, willful ignorance, and selfish disregard for unborn generations are the earmarks of decline in this modern day empire of debt, delusion and decay.