On Sunday in Brisbane the G20 will announce that bank deposits are just part of commercial banks’ capital structure, and also that they are far from the most senior portion of that structure. With deposits then subjected to a decline in nominal value following a bank failure, it is self-evident that a bank deposit is no longer money in the way a banknote is. If a banknote cannot be subjected to a decline in nominal value, we need to ask whether banknotes can act as a superior store of value than bank deposits? If that is the case, will some investors prefer banknotes to bank deposits as a form of savings? Such a change in preference is known as a "bank run."
Throughout history, in most cases of economic collapse the societies in question believed they were financially invincible just before their disastrous fall. Rarely does anyone see the edge of the cliff or even the bottom of the abyss before it has swallowed a nation whole. This lack of foresight, however, is not entirely the fault of the public. It is, rather, a consequence caused by the manipulation of the fundamental information available to the public by governments and social gatekeepers.
This Austrian School interpretation of events fits the facts rather better than the monetarist account. The lesson for policymakers today is uncomfortable. For, on this view, if there is a parallel with the 1930s, the damage has already been done. It was done when the Fed allowed funds available for investment in capital markets to balloon, not this time through unsterilized gold inflows but through its QE experiment.
What's Really Happening?
The bottom line, or rather, negative line, is the Millennials' savings, because "after a flirtation with thrift after the recession, young Americans have stopped saving. Adults under age 35—the so-called millennial generation—currently have a savings rate of negative 2%, meaning they are burning through their assets or going into debt, according to Moody’s Analytics. That compares with a positive savings rate of about 3% for those age 35 to 44, 6% for those 45 to 54, and 13% for those 55 and older."
Who Said It? "Deficit Spending Is A Scheme To Confiscate Wealth. Gold Stands In The Way Of This Insidious Process"Submitted by Tyler Durden on 11/09/2014 19:14 -0500
"This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard." - Who Said It?
In October the US economy added the most waiters and bartenders in over a year. In fact at 42K, one in every five jobs "created" in the US economy went to a bartender, or a waiter.
The central planners are in a state of fear and panic. They are trying everything and anything to create market validation for their policies, watching with trepidation as their favored economic metrics fail to respond to all of their frenzied efforts. They are so far over the tips of their skis right now that there's nothing they won't do. By the time a central bank is behaving as recklessly as Japan, it's time to edge towards the exit, because the chance of a flash fire in the building has grown uncomfortably high. That is, instead of providing comfort, these most recent moves should invoke greater worry for those of us alert enough to see them for what they are: acts of panic.
The Keynesian notions of “potential GDP” and “aggregate demand” have no basis in the real world. They are revealed doctrine. They are the religion of the state’s economic policy apparatus. Its bad enough that this destructive economic religion leads to the farcical forecasting games evident in the EC’s chronic updates and slow-walks of the GDP numbers down. The evil, however, is that the Keynesian apparatchiks will not desist in their destructive money printing and borrowing until they have suffocated free market capitalism entirely, and have monetized so much public debt that the financial system simply implodes.
Two headlines came across my screen today, which taken together pretty much sum up the effects of policy decisions made by Central Bankers and politicians since the financial crisis. The financial oligarchs got bailed out, and the rich got richer due to decisions made by “leaders” around the globe. As such, the entire planet has now been transformed into a neo-feudal tinderbox.
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.'"
When the next crisis comes there will no doubt be economists and commentators who blame it on some proximal event, like the failure of a large important financial institution. Don’t be fooled. The seeds of the next crisis are already sown. Fed policy under Ben Bernanke and Janet Yellen has distorted the economy in a way that makes it precariously fragile, and susceptible to collapse.
And then there is BusinessWeek, which quite to the contrary, is urging its readers in its cover story, ignore common sense, and do more of the same that has led the world to dead economic end it finds itself in currently. In fact, it is, in the words of NYT's Binyamin Appelbaum, calling the world governments to become the slaves of a defunct economist. And spend, spend, spend, preferably on credit. Because, supposedly, this time the resulting crash from yet another debt-funded binge will be... different?
The recent spike in global political-financial volatility that was temporarily soothed by ECB covered bond buying reveals another crack in the six-year-old throw-money-at-the-banks strategies of politicians and central bankers. The very fact - that without excessive artificial stimulation or the promise of it - more hell breaks loose - is one that government heads neither admit, nor appear to discuss. But the truth is that the global financial system has already failed. The political system that stumbles to sustain the illusion that economies can be built on rampant financial instability, has also failed us. Past presidents talked of a square deal, a new deal and a fair deal. It’s high time for a stability deal that prioritizes the real financial health of individuals over the false one of financial institutions.
Over the last few weeks, the markets have seen wild vacillations as stocks plunged and then surged on a massive short-squeeze in the most beaten up sectors of energy and small-mid capitalization companies. While "Ebola" fears filled mainstream headlines the other driver behind the sell-off, and then marked recovery, was a variety of rhetoric surrounding the last vestiges of the current quantitative easing program by the Fed. “You will know that the financial markets have reached peak instability and volatility when Britney Spears rings the opening bell.”