Fractional Reserve Banking
“You can’t stop an idea whose time has come.”
"Those who might want to borrow are no longer creditworthy due to excessive debt and/or stagnant income, or those who qualify to borrow more are not interested in borrowing more at any interest rate: they are done with debt." The Fed can push interest rates down and make it easy for banks to loan more money, but it can't (yet) force us to borrow money we don't want or need.
"The War on Cash is the attempt by governments to phase cash out of their economies. Governments hate cash because they hate the financial privacy cash makes possible. And they prefer that you keep your money in a bank to help prop up an unsound fractional reserve banking system." As Ron Paul warned, “The cashless society is the IRS’s dream: total knowledge of, and control over, the finances of every single American.”
A Full Analysis and Step-by-Step Guide for EU Area Residents To Aid In Escaping the Upcoming Bank Bail-ins & Capital ControlsSubmitted by Reggie Middleton on 04/18/2015 12:21 -0400
This may take you the entire weekend to digest, but if you are an unsecured creditor/lender (have a checking, savings or demand deposit account) to a euro zone bank, I would consider it your fiduciary responsibility to yourself to sit down and parse this piece with care and aplomb!
Centrally issued money centralizes wealth and generates systemic inequality. This is equally true of all centrally issued currencies. But the inequity that is intrinsic to this system is politically, socially and financially destabilizing, and so this system is unsustainable.
Creating even more money will not help the situation, only exacerbate it. Hyperinflation is a cancer that lurks in our monetary structure. Time to surgically remove it before it metastasizes.
It matters not who is in charge of the Fed or what rules Congress may insist that it adopts. Once money printing, via fiat or fractional reserve credit creation, is seen to be both feasible, justified, and legal nothing and no one can stop it. The political pressure to fund government programs will be irresistible. Everyone knows that the Fed seemingly has the ability to solve their problem by monetizing the federal debt. Should it refuse to do so, we would see riots in the streets similar to what is happening in Europe as protesters target the European Central Bank. The only solution is to destroy the monster that makes it all possible, the Fed.
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 09:22 -0400
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.