A Deposit In A Bank Is Not A Riskless Form Of Saving

Tyler Durden's picture




 

Submitted by Tim Price of Sovereign Man blog,

Like Lehman Brothers before it, Cyprus may well come to be seen not so much as the cause of further crisis but as yet another symptom of the ‘long emergency’ that continues to suffocate the western economies.

We would describe this emergency as, fundamentally, an inevitable crisis triggered by an unsustainable explosion of credit; western banks and western governments are now like Macbeth’s “…two spent swimmers, that do cling together / And choke their art.”

The prime minister of Luxembourg, Jean-Claude Juncker, has provided two clear insights into this world of deceit:

“We all know what to do, we just don’t know how to get re-elected after we have done it.”

And,

“When it becomes serious, you have to lie.”

This is what we now have by way of government: a self-serving elite who cannot be trusted, operating to a timetable defined by, and limited to, the electoral cycle.

This liberty deficit is possibly more severely damaging than the supposedly intractable fiscal one that lies beneath it. Yet whatever emerges from the disaster, Cyprus has reminded us of a couple of awkward truths:

  1. A deposit in a bank is not a riskless form of saving.

    We may not see eye to eye with the FT’s Martin Wolf on many aspects of modern economics and central banking in particular, but he described banks well last week:

    Banks are not vaults. They are thinly capitalised asset managers that make a promise– to return depositors’ money on demand and at par– that cannot always be kept without the assistance of a solvent state.”

  2. When states become insolvent, the piper must ultimately be paid. Fatal, embarrassing insolvency is not a problem that can be perpetually or painlessly deferred.

Cyprus matters not because of the size of its economy or because it is (for the time being) a member of the euro zone.

It matters because the inept handling of its crisis last week threw one facet of modern banking into sharp relief: if a deposit guarantee is seen to be fraudulent or sufficiently fragile to be easily smashed by politicians, then confidence in banks, and in unbacked paper currency itself, will be vulnerable to an unpredictable run.

CLSA strategist and financial market historian Russell Napier writes as follows:

“The key impact will be long term as the citizens of the Euro, like the citizens of the Soviet Union or the American colonies before them, eventually reject the sacrifice of political rights necessary to support the system.”

“When the history books are written, the Brussels-imposed sequestration in Cyprus will be seen as the tipping point when the citizens of the Euro system realized that the socio-political sacrifice needed to sustain a single currency was just too great.”

Actions have consequences. Cyprus may end up being a storm in a teacup. Like Russell Napier, we fear it may well be the start of something altogether more sinister.

If you have yet to consider the sanctity, stability, ‘store of value-ness’ and true safety of the paper currency you hold within the banking system, now might be a good time to start.

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Mon, 03/25/2013 - 15:27 | 3373752 Badabing
Badabing's picture

just buy PMs

 

Physical that is.

Mon, 03/25/2013 - 15:27 | 3373761 redpill
redpill's picture

Are they trying to say that when I take my paycheck from the bank that created it out of thin air to another bank that then disappears it, that I might never see it again?

Mon, 03/25/2013 - 15:31 | 3373771 flacon
flacon's picture

Banks ceased to be banks whey they went all fractional-reserve on us. Now they lend our loans out to others and make the spread of the risky loan they made and give us an "interest rate". Glass-Steigal?

 

A TRUE BANK will give you zero interest rate on your savings because they are full reserve and don't make any loans with your money. 

 

If you wanted to make loans with YOUR money then you would be in the most excellent stock market that only ever goes up except on days it goes down. 

 

 

Mon, 03/25/2013 - 15:35 | 3373777 Pladizow
Pladizow's picture

Starting with a domino 5 millimeters tall and increasing each successive domino by 150%, the 29th domino will be large enough to topple the Empire State Building.

Also, look at the line where you sign your checks. It has the letters MP next to it, which stands for micro print. What you think is a line is actually words saying, something along the lines of you are only signing as an agent acting on behalf of the owner.

 

Who's that owner?


Mon, 03/25/2013 - 15:37 | 3373807 Seasmoke
Seasmoke's picture

i have no idea why 5 millimeters and 150% are used in your example......but only 29 dominos.....WOW

Mon, 03/25/2013 - 15:41 | 3373825 Pladizow
Pladizow's picture

To solve for X, we must know y and z!

Mon, 03/25/2013 - 15:50 | 3373860 The Juggernaut
The Juggernaut's picture

This is all going as planned.

Mon, 03/25/2013 - 16:12 | 3373980 new game
new game's picture

i am getting so f'king sick and tired of these acclaimed talking heads tip toeing around the issue.

THE BANKERS AND STATISTS JUST COMITTED FELONEY ROBBERY - THEIVES BY THE COVER OF THE STATE.

is that so hard to say; wouldn't want to offend anyone...

 

 

Mon, 03/25/2013 - 17:44 | 3374293 little buddy bu...
little buddy buys the dips's picture

...and if they are offended, fuck 'em. that's their problem with their own ego.

 

one banker (or politician) swinging from a lamp post is all it will take.

Mon, 03/25/2013 - 15:43 | 3373830 DutchR
DutchR's picture

Have fun,

Domino Chain Reaction

www.youtube.com/watch?v=y97rBdSYbkg

Mon, 03/25/2013 - 15:58 | 3373912 Grimbert
Grimbert's picture

You are sitting in a football stadium, just over half way up the rows of seating, and for reasons only known to a mathematician the stadium is going to be filled with water. An amount of water will be added each minute that is precisely double that added the minute before. A very tiny amount is added in minute number 1, in minute number two a still very tiny amount is added, but it is twice that of the previous minute, and so on for 60 minutes. It will take an hour to fill the stadium. You are sat half way up. What's the latest you can leave it before you absolutely have to run away?

Mon, 03/25/2013 - 16:15 | 3373985 koncaswatch
koncaswatch's picture

...minute 59. depending on how fast you can run, maybe minute 45.

Moral; don't wait to the last minute do what you must do.

Mon, 03/25/2013 - 16:17 | 3373997 new game
new game's picture

probably about minute 12-15 and best be pissing as you float over the top...

double trouble bubble in a way wacky way- hey man far da f out...

Mon, 03/25/2013 - 16:21 | 3374007 Tulpa
Tulpa's picture

Do I have a bathing suit on?

Mon, 03/25/2013 - 16:58 | 3374104 pods
pods's picture

Is this being filled with actual water, or rehypothecated water certificates while the actual water is held at the NY Fed?

pods

Mon, 03/25/2013 - 17:02 | 3374117 akak
akak's picture

It matters not one whit, as long as you are a bank --- in that case, you can remain underwater (with the blessings of a corrupt federal government) for literally years at a time.

Mon, 03/25/2013 - 15:49 | 3373862 seek
seek's picture

The microprint on mine says "authorized signature." I suppose that could suggest agency, but the 50 page booklet AKA contract the bank hands you when you get an account spells it out a lot more clearly.

Mon, 03/25/2013 - 16:31 | 3374039 Curious Monk
Curious Monk's picture

While your statement is true, the 29th domino would do more than that - it would knock the moon out of orbit!

To topple the Empire State Building it would only take 13th dominoes... it would take 29 if each successive domino increased in height by only 50%.

 

Mon, 03/25/2013 - 16:54 | 3374093 aerojet
aerojet's picture

Where do you dream up this bullshit?  The micro-printing is a check security feature and it says something totally innocuous like "this should be words you can read."  It's not some kind of admiralty court fringed-US flag nonsense.

Mon, 03/25/2013 - 17:02 | 3374118 pods
pods's picture

Well it says "authorized signature" cause I looked.  

As to the other part, jury is out in my house.  

pods

Mon, 03/25/2013 - 15:33 | 3373782 ghostfaceinvestah
ghostfaceinvestah's picture

Exactly - fractional reserve lending is the issue - lending out money they don't have.

Mon, 03/25/2013 - 15:46 | 3373839 Groundhog Day
Groundhog Day's picture

“When the history books are written, the Brussels-imposed sequestration in Cyprus will be seen as the tipping point when the citizens of the Euro system realized that the socio-political sacrifice needed to sustain a single currency was just too great.”

I highly doubt that this will be taught or written in history books for our children and grand children to see.  Our children and grand children will have their own form of theft they will have to deal with.  This has been going on for thousands of years...it won't be the last

Mon, 03/25/2013 - 16:07 | 3373947 Urban Redneck
Urban Redneck's picture

1) People complain about low interest rates on their bank "savings", which implies they want a return ON their deposit with the bank

2) Avg Household Debt is greater than 0, implying people want to be able to borrow money from a bank

3) Given 1 & 2 the end of fractional reserve banking would need a) a much better sales job b) some Fascist Totalitarian Strongman to impose it against the will of the people or c) massive economic pain and suffering on an unimaginable scale in order to drive people to it out of shear desperation

4) Austrian economics only provides an incomplete solution, except if you are building a system from scratch and you're building it in a vacuum.

 

Just because fractional reserves are a huge part of the problem doesn't not make their inverse the solution.

Tue, 03/26/2013 - 03:37 | 3375817 Scarlett
Scarlett's picture

b) and c) are here already

Mon, 03/25/2013 - 17:47 | 3374307 little buddy bu...
little buddy buys the dips's picture

...and then charging interest. the fuckers.

 

hang 'em high.

Tue, 03/26/2013 - 01:18 | 3375679 Klaus Daimler
Klaus Daimler's picture

Correction: they are lending out money that isn't theirs.  They do, in fact, possess it.  Possession being 9/10 of the law...  You can reach the logical conclusion.

Tue, 03/26/2013 - 01:17 | 3375680 Klaus Daimler
Klaus Daimler's picture

Correction: they are lending out money that isn't theirs.  They do, in fact, possess it.  Possession being 9/10 of the law...  You can reach the logical conclusion.

Mon, 03/25/2013 - 15:38 | 3373809 CheapBastard
CheapBastard's picture

That's why banks pay you such a high interest rate...b/c they are not riskless, right?

 

[sarc]

 

 

Mon, 03/25/2013 - 15:40 | 3373821 redpill
redpill's picture

I posted this earlier today, but it bears repeating only because it's a reminder of how banking should work.  How about a bank with 100% reserves wherein depositors pay a small fee per $1000 to keep their money safe, and the proceeds of the fee go to pay for the overhead of the bank, and any excess goes into a standalone fund for lending. Loans are only given from the standalone fund, recipients must have an account in good standing, and max loan amount is based on account balance, which is held as collatoral. Fees on collatoral portion of account balance are waived, and loan interest rate cannot be lower than the equivalent deposit fee on the collatoral amount. Missed payments are deducted from the collatoral balance. If collatoral is exhausted, the loan is declared in default, the account is closed, remaining balance returned, and the individual may no longer do business with the bank until they repay the loan. If number of depositors falls such that the bank can no longer cover overhead expenses, it is a bank failure and all depositors are returned 100% of their funds. No bailouts, no bullshit insurance schemes, no pretending.

Mon, 03/25/2013 - 15:46 | 3373842 flacon
flacon's picture

EuroPacific Capital and GoldMoney are like that. Other than that I don't know any full reserve banks.....

Mon, 03/25/2013 - 15:52 | 3373850 redpill
redpill's picture

Europac is a broker similar to other brokers, your money is in a holding acct (I know I have an acct with them!).  They are not a bank and can't lend out your money.

 

Perth Mint is 100% reserve on both allocated and unallocated bullion FWIW.

 

 

Mon, 03/25/2013 - 15:52 | 3373880 angel_of_joy
angel_of_joy's picture

Err, not quite...

http://europacbank.com/topics/security-and-regulation/

quote:

"Since Euro Pacific Bank makes no loans and keeps a 100% reserve deposit ratio , depositors can be assured that the risk of default is extremely low"

At least that's what they're saying...

Mon, 03/25/2013 - 15:57 | 3373900 redpill
redpill's picture

 

He said Capital, not Bank, but even so I didn't realize they had a small overshore banking op.  It's Schiff though, so I take his word for the 100% reserves.

"This Website is intended for the use of NON United States or Eastern Caribbean States citizens or residents"

Heh, oh well.

 

Mon, 03/25/2013 - 16:27 | 3374028 angel_of_joy
angel_of_joy's picture

That's actually an advantage when you manage to get rid of the "privilege" of holding one of the most dangerous passports in the world...

Mon, 03/25/2013 - 18:00 | 3374361 PrintemDano
PrintemDano's picture

Is Jon Corzine nearby?

Mon, 03/25/2013 - 16:00 | 3373918 seek
seek's picture

Is Europac open to US citizens? I guessing not. I'd be curious to hear if anyone is using them.

From the link it looks like there might be a work-around in forming a non-US company that banks with them, but I'm not sure. Definitely intrigued.

Mon, 03/25/2013 - 16:03 | 3373934 redpill
redpill's picture

There may be a way, Schiff is clever.  But you'd probably need a pretty hefty stack to make it worthwhile.

Mon, 03/25/2013 - 19:05 | 3374585 DosZap
DosZap's picture

redpill,

But you'd probably need a pretty hefty stack to make it worthwhile.

Bet your ass, call Schiff's company and see what they charge for handling your money..............it's STEEP.

Mon, 03/25/2013 - 17:08 | 3374136 Mike7.62
Mike7.62's picture

EuroPacific Brokerage is open to US citizens, but I don't think that the EuroPacific Bank is. I just closed my EuroPacific Brokerage account, not trusting counterparties and/or clearinghouses.

Mon, 03/25/2013 - 16:10 | 3373968 dick cheneys ghost
dick cheneys ghost's picture

Can one even obtain a license for a 'full reserve bank'?.... I dont know, but i doubt it.........I mean 'the state' (issuing the license) will want you to buy its Debt in exchange for the license and you cant do that unless you are a 'fractional reserve bank'

Mon, 03/25/2013 - 15:54 | 3373891 sansnobel
sansnobel's picture

Yes, but you are taking the Dimon and the Squid's abilty to use LEVERAGE to put MOAR in their pockets and less in yours.  We wouldn't want the Jew Banker and the Greek Banker to have to earn a living now would we?

Mon, 03/25/2013 - 16:02 | 3373929 Groundhog Day
Groundhog Day's picture

It's a nice dream red pill.  It will never happen in the real world

Mon, 03/25/2013 - 18:47 | 3374518 DosZap
DosZap's picture

I posted this earlier today, but it bears repeating only because it's a reminder of how banking should work.  How about a bank with 100% reserves wherein depositors pay a small fee per $1000 to keep their money safe, and the proceeds of the fee go to pay for the overhead of the bank, and any excess goes into a standalone fund for lending. Loans are only given from the standalone fund, recipients must have an account in good standing, and max loan amount is based on account balance, which is held as collatoral. Fees on collatoral portion of account balance are waived, and loan interest rate cannot be lower than the equivalent deposit fee on the collatoral amount. Missed payments are deducted from the collatoral balance. If collatoral is exhausted, the loan is declared in default, the account is closed, remaining balance returned, and the individual may no longer do business with the bank until they repay the loan. If number of depositors falls such that the bank can no longer cover overhead expenses, it is a bank failure and all depositors are returned 100% of their funds. No bailouts, no bullshit insurance schemes, no pretending.

Too logical, and NO lending each and every dollar at a 10-1 ratio,THAT's where the $$$$$$$$ is made.

Mon, 03/25/2013 - 16:24 | 3374017 new game
new game's picture

banks can never be trustable no matter what - theives always go to where the money is...

Mon, 03/25/2013 - 15:44 | 3373837 Pseudo Anonym
Pseudo Anonym's picture

yep, that's what they say.

my paycheck .....then disappears it, that I might never see it again?

because you have constructive knowledge that it was lent out: http://tinyurl.com/cner4my

Proponents of FRB often say that FRB “depositors” “are” aware of what is done with their money since interest is paid on it. In actuality what they are saying is that such customers are “deemed” to have constructive knowledge of the fact that their money is lent out, since they “ought to” know that this is implied by the earning of interest.

 

Mon, 03/25/2013 - 16:14 | 3373984 dick cheneys ghost
dick cheneys ghost's picture

Pseudo Anonym...........You are correct...........keep pounding the point

Mon, 03/25/2013 - 15:28 | 3373765 wee-weed up
wee-weed up's picture

Socialist governments everywhere have always assumed your money belongs to them. You only get to keep the piddling amount they say you can keep.

Mon, 03/25/2013 - 15:37 | 3373804 howenlink
howenlink's picture

Maybe all the world's John Galts could just pool their gold and buy the Island of Cyprus outright.

Mon, 03/25/2013 - 15:55 | 3373893 mick_richfield
mick_richfield's picture

We will take back the whole world, soon.

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