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Has Fractional-Reserve Banking Really Passed the Market Test?

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Submitted by World Dollar

Has Fractional-Reserve Banking Really Passed the Market Test?

In 2003, Jörg Guido Hülsmann, a senior fellow of the Mises Institute, published the essay “Has Fractional-Reserve Banking Really Passed the Market Test?” in a Winter edition of The Independent Review. The key conclusion drawn was that it is the obfuscation of the difference between fractional-reserve IOUs and genuine money titles which preserves the the practice of fractional-reserve banking.

It is the belief of this author that this essay has not received the acclaim that it so richly deserves. Indeed, its implications for the future of money and banking are monumentous. If those who advance the Austrian School of economics, the Mises Institute and Zero Hedge most prominently among them, were to grant its ideas a great renaissance, the worldwide return to sound money may happen far sooner than most could have believed possible.

J.G. Hülsmann
explains why “in a free market with proper product differentiation, fractional-reserve banking would play virtually no monetary role” (p.403). The incisive reason given is that genuine money titles are valued at par with money proper, while fractional-reserve IOUs + RP (Redemption Promise) would be valued below par, due to default risk.

Here is the deductive argument being made:

1.    Debt (IOUs + RP) is promised money.
2.    A promise has the risk of not being kept (default risk).
3.    Therefore, promised money, debt (IOUs + RP), is less valuable than genuine money titles (/money proper).

J.G. Hülsmann goes on to explain why the mispricing of fractional-reserve debt (IOUs + RP) persists. The reasons given include the outlawing of genuine money titles and deceptive language (“deposits”).  This author would like to add one more reason, namely the myth that the government could actually “guarantee” deposits in the event of a systemic run. Systemic runs mean, by definition, most if not all money proper exiting the fractional reserve banking system, meaning the money proper with which the “guarantees” could be fulfilled doesn’t exist, short of unprecedented levels of new money printing and financial repression. This point is acknowledged on p.22 of the otherwise unexceptional “The Chicago Plan Revisited” by Jaromir Benes and Michael Kumhof.

The history of fractional reserve banking is, then, defined by informational inefficiency. Market participants have failed to reflect the price differential between fractional reserve debt (IOUs + RP) and genuine money titles.

Let us now extend the deductive argument:

4.    Therefore, an arbitrage opportunity exists. All holders of Debt (IOUs + RP) have an economic incentive to make the redemption request for genuine money titles (/money proper).

Mervyn King, ex-governor of the Bank of England, once claimed that it is irrational to start a bank run, but rational to participate in one once it has started. While the second part of the claim is correct, the first is not. It is irrational not to start a bank run, due to the arbitrage opportunity that exists.

This, of course, holds the assumption that the market will become informationally efficient, and will therefore capitalise on the mispricing. But the holding of this assumption is only credible if this idea is spread. We live in a time with an unprecedented level of competing voices wanting to be heard, the unfortunate consequence of which is that we drown out the voices that are truly exceptional. It is no exaggeration to say that “Has Fractional-Reserve Banking Really Passed the Market Test?” may prove to be the most revolutionary essay in the history of monetary economics and banking, if only it  receives the level of appraisal and promotion it deserves.

On this matter, the reasons given for the persistence of the mispricing of fractional-reserve debt (IOUs + RP) are unsustainable in the long run. The lack of legal protection for genuine money titles is no more than a technicality, for there is nothing in practice that can sustainably prevent the existence of full reserve banks. Awareness that “deposits” are not actually money being held for safekeeping is a matter of educating the public, as is awareness that government’s deposit “guarantees” are not actually credible in the event of a systemic run. 

If we assume, then, that fractional-reserve banking will come to its logical ending, there is good reason to believe that the shock will herald the endgame for fiat money. It is in fact the case that all fiat money is the liability of the central bank, which also carries the risk of non-repayment (default risk). This, again, means an arbitrage opportunity for market participants to withdraw the fiat money from the fiat money banking system. This confirms that the original basis for fiat money is destroyed, for its repayment to the central bank is not credible.

Finally, at long last, we have a worldwide return to sound money. Will there be a new 21st century Gold Standard? Will we recourse to cryptocurrencies such as Bitcoin? Will we see the rise of the Equal Opportunity Standard, with everyone in the world being issued once with an equal amount of World dollars? Or will there be another innovation to come? What we must defend, as proud advocates of freedom, is that the free market will decide. That governments finally learn to stop their oppressive, damaging interference with the monetary system.

 

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Sat, 07/26/2014 - 21:27 | 5008515 Yen Cross
Yen Cross's picture

   My rectal cavity is leaking obunga care.  As Fonz says.  Ouch my balls<>

  Has "Frictonal reserve" currency failed to start a FIRE?

Sat, 07/26/2014 - 21:37 | 5008534 Jackagain
Jackagain's picture

We should have one of Obama's experts check on that for you...

http://vimeo.com/79220808

Sat, 07/26/2014 - 22:10 | 5008585 Yen Cross
Yen Cross's picture

 I'm sure you're right on that inclination/

  After the top off, POP tripple latte'?

  Less than %5 percent of the )whole( signup program is validated!

 I've got friends in the insurance industry that are " Intentionally" messing with OTOOL<>CARE.

  The Military is FED> UP!

Sat, 07/26/2014 - 23:08 | 5008718 NoDebt
NoDebt's picture

Fractional reserve banking was inveted when currency was backed by a hard asset (gold, etc.).  It's purpose to was to multiply the currency beyond the fixed 1:1 money:currency ratio.  

Since currency is no longer backed by a hard assets, and is fiat, printed in whatever quantity is needed, what purpose does fractional reserve banking serve?  What purpose is there in a "money multiplier" when the base money itself can be instantly expanded to fill whatever currecy needs exist?

(Hint:  there is no reason beyond being closest to the monetary spigot, siphoning off an arbitrage fee as base money is turned into currency.  It's the ultimate front-running.  Get paid in higher value dollars before creating lower value dollars from them.)

Sat, 07/26/2014 - 23:39 | 5008803 Stackers
Stackers's picture

Fixing the banking system would be easy

 

1. Set-up depositor banks. 100% funded these would basically just hold peoples deposits and act as clearing houses and charge people 0.25% per year as a handling fee. Very boring business

2. Set-up credit lending banks, deposits are held in CD's with the express understanding that they will fund consumer loans and are at risk of losing the capital if the loans go bad. The banks would get to charge a 1-2% difference between rate they give on the CD's and the rate they charge on the loans. Again 100% backed. Different banks could market different CD's with varying rates depending on the level of risk the loans it is backing are making. This would provide "junk" bond return rates and allow sub-prime loans as well.

Sat, 07/26/2014 - 23:57 | 5008831 Dr Hackenbush
Dr Hackenbush's picture

thanks, but going with Aristotle on this one

http://www.sacred-texts.com/cla/ari/nico/nico048.htm

Sun, 07/27/2014 - 02:20 | 5009024 Elvis the Pelvis
Elvis the Pelvis's picture

Fractional reserve banking?  The very idea makes my nuts itch.  Bitchez. 

Sun, 07/27/2014 - 07:30 | 5009219 negative rates
negative rates's picture

Crisis bitches!*

Sun, 07/27/2014 - 10:26 | 5009494 Caggge
Caggge's picture

It's not Fractional reserve banking. It's Fictional reserve banking.

Sun, 07/27/2014 - 13:29 | 5009872 Jadr
Jadr's picture

New name, same old shitty blog.  Stop pimping your garbage, tool.

Sun, 07/27/2014 - 17:03 | 5010266 Radical Marijuana
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"Justice is a kind of mean, but not in the same way as the other virtues, but because it relates to an intermediate amount, while injustice relates to the extremes."

Justice has no meaning outside of the concept of the conservation of energy, through which it actually exists, and has its ideal fulfillment. The only relatively justice is expressed as the dynamic equilibria between different systems of organized lies, operating robberies (as outlined in my comment below.) The "intermediate amount" is the dynamic equilibria there.

Dr. Hackenbush, do you not consider it to be somewhat bizarre that science has progressed in profound ways since the days of Aristotle, and yet, you are still promoting the same old-fashioned impossible ideals that he explained ??? Well, I expect you do not, since, when it comes to anything to do with human beings, those who promote old-fashioned ideas are quite proud of doing that, despite that is based on deliberately ignoring all of the progress in understanding general energy systems better with respect to everything else, EXCEPT with regard to human beings, because there is found the most thoroughly BIZARRE backwardness!

IF civilization is going to survive, it is going to have to go through some profound paradigm shifts in the basic ways that people think, which are going to make all previous paradigm shifts in the history of science look like child's play by comparison.

Sun, 07/27/2014 - 09:54 | 5009436 Atomizer
Atomizer's picture

Yen Cross, Jackagain is a good person. We go back to the days of lehmann brothers, Bear Sterns, and AIG.

We where a soundboard of Market Watch. I could of shown you IRS, FBI, and SEC. Market Watch internal posted exchanges between me and the agency. All of that has been purged. Lifeboatwithductape became extinct. 

 

Treat Jack well. As you know, it takes big balls to participate in the fight club. 

Sat, 07/26/2014 - 23:13 | 5008745 garypaul
garypaul's picture

Another bullshit ZH article. That 'collapse of fiat' link sounds like crap to me. How can there be a shortage of cash when the powers-that-be can print (like with ink and paper).

Of course there are flaws with the fiat money system but running out of trees isn't one of them.

Sun, 07/27/2014 - 00:42 | 5008931 World Dollar
World Dollar's picture

Our debt-based monetary system is not simply "printing money". As explained in the article, all fiat money is the liability of the central bank. The eventual repayment of the fiat money must be credible in order for it to come into existence in the first place. This is an important reason for why the "lender of last resort" function of central banks is designed to be strictly limited. 

Imagine now that the systemic runs on fractional reserve banks have happened. Could the monetary authorities step in and "bail-out" all who had not reacted quickly enough to get the fiat money out of the banks? This action would be fraught with difficulties in terms of monetary economics and legal considerations. 

But, for the sake of argument, let's assume that this is possible. There is still a fundamental problem. The basis for the value of our fiat money is its eventual repayment to the central bank. By logical deduction, this repayment is not credible. Market participants have an economic incentive to withdraw the money permanently from the fiat banking system. The original basis for fiat money's value is destroyed. We will return to a system of sound money, with the free market deciding what it wishes to use as money, provided that governments allow it to. 

In short, it is not just fractional reserve banking, but our entire monetary system, that is based on logical fallacy. It would have been wise to have heeded the words of Charles Holt Carroll, 1860: "a promise is a debt, and the attempt to make debt serve the purpose of money always has been and always will be a failure". Unfortunately, he is another exceptional economist whose words have been drowned out. 

 

Sun, 07/27/2014 - 07:00 | 5009197 Wahooo
Wahooo's picture

The only way you will have a run on the Fed is if a nation with a military might larger than that of the U.S. demands payment for the debt that the U.S. cannot meet. Until that time, the digital trees will be chopped down and fed into the printing presses.

Sun, 07/27/2014 - 07:34 | 5009228 negative rates
negative rates's picture

That day is fast approaching, the question is, are you prepared?

Sun, 07/27/2014 - 12:43 | 5009773 gnaritas
gnaritas's picture

Really, which military would that be?

Sun, 07/27/2014 - 14:05 | 5009946 logicalman
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The death of the Petro Dollar will mean the US military being paid in worthless paper currency (it's worthless now, but don't say it too loud) and would be unable to purchase anything from other countries or effectively buy other governments. The size of the US military will be reduced greatly at that point. Even if they still have the largest military on a country/country basis, they've pissed off enough countries that could become a coalition with a bigger combined military.

Sun, 07/27/2014 - 14:50 | 5010078 Chief Wonder Bread
Chief Wonder Bread's picture

+1 for partial agreement. The US knows the importance of pegging oil to the dollar and therefore won't allow the Petrodollar to die without a fight, i.e., the world is headed for a big war over energy resources.

Sun, 07/27/2014 - 16:11 | 5010328 zhandax
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"the shock will herald the endgame for fiat money"

What has happened to every fiat currency throughout history?  Memories are short, people are stupid, and there is big money to be made in distracting the uneducated.  Rinse and repeat.

Sun, 07/27/2014 - 10:05 | 5009464 BigJim
BigJim's picture

Look, I'm a hard-money man myself, but the idea that the central bank can't just whip up as much currency as it needs to meet 'depositor' demand in the case of a bank run is just wrongheaded.

I understand that cash is M0 and thus the balance sheets go completely haywire, but they can just suspend the current system, issue the cash, and then re-absorb it once the panic dies down and people want to put their money back into the bank so they don't have to carry aound wads of cash or worry about it getting stolen by burglars.

TPTB can create as many 1's and 0's as required to keep payments operating between the banks within any particular currency zone.

Can they maintain the purchasing power of those currency units in such a scenario? No. But that's a different issue.

Sun, 07/27/2014 - 13:30 | 5009874 A Nanny Moose
A Nanny Moose's picture

As explained in the article, all fiat money is the liability of the central bank. The eventual repayment of the fiat money must be credible in order for it to come into existence in the first place.

Exactly who is liable again? Not the central bank. If the central bank were actually liable, we would not be in this mess. Government has nothing other than the legal monopoly on pointing a gun. Debt money simply defers the pointing of the gun, at those not yet even born, and who cannot even vote.

Sun, 07/27/2014 - 07:31 | 5009225 negative rates
negative rates's picture

If it looks likes fiat money, and it walks like fiat money, and talks like fiat money, it might be fiat money.

Sun, 07/27/2014 - 08:35 | 5009303 Notsobadwlad
Notsobadwlad's picture

You are of course correct, even with all of the red votes you have received... but IMO not exactly for the reason many people would expect. If money had anything to do with the creation of a fair means of exchange, then the Mises-ites would be 100% correct in their view of how money "should" work.

However, money is all about control and power and nothing about creating a fair means of exchange. There are really only two classes; those who create money and decide where it goes and those who need money to survive in this world. Those who wish to maintain power over us and keep us as slaves will do everything they can to make sure that their money is the only means to get things. Through force, they will continually decrease our ability to be independent of their money system. This should explain a lot and confirms through actions (and not their words) that their intent is power and slavery, not equity or even fairness.

Given the above, one has to understand that their money system and the division it causes is intentional. People realize that it is a lie and struggle against the chains. However, there are those who knowlingly or unknowlingy serve the masters and have their future and comfort deeply invested in making sure the current system continues. Yes, they are traitors to the human (slave) race, but they would say that they might as well be in comfort while they are here, instead of fighting the system and living a dismal life in poverty .... as all traitors rationalize.

Sun, 07/27/2014 - 09:45 | 5009425 Bollixed
Bollixed's picture

"Those who wish to maintain power over us and keep us as slaves will do everything they can to make sure that their money is the only means to get things"

Right there is the possible rub with the wished for Gold Standard. FDR 2.0...

Sun, 07/27/2014 - 22:40 | 5009558 socalbeach
socalbeach's picture

I was wondering why he got so many down arrows myself, maybe because he said it was another bs ZH article.  But his main point is valid:

In the old gold-backed system, there was X amount of gold, and say 10*X receipts for gold.  If more than 1/10 of the people tried to redeem their receipts for gold, there wouldn't be enough gold to handle the requests.

In the current system, the monetary base (currency, coin, plus reserves on deposit with the Fed) performs the exact same role that gold did in the previous system.  If you want to redeem your checking or savings account money, you can go to the bank and withdraw currency.  If there is not enough currency at the bank (vault cash) to satisfy requests, the bank can request that their bank reserves be converted to currency.  Currently excess reserves on deposit with the Fed are $2.6 trillion.  If more than that amount is requested to be withdrawn, the Fed can just create more monetary base by buying Treasuries or MBS.  M2 (one measure of money held by the non-bank public) is currently $11.2 trillion, but there are more than enough outstanding Treasuries and MBS to monetize. Monetization of course increases the monetary base (buy bonds with newly created bank reserves).  In an extreme case the Fed could start monetizing other forms of debt like municipal bonds.  There could however be a delay before you could withdraw currency or coin, as it would take time for the literal printing press or mint at the Treasury to crank out currency.

So nothwithstanding that currency and bank reserves are liabilities of the central bank, if the Fed is determined they can handle an extreme bank run.  In the old gold backed system that wouldn't have been possible with fractional reserve lending because gold cannot be created at will by the Fed.

Sun, 07/27/2014 - 17:02 | 5010236 Radical Marijuana
Radical Marijuana's picture

CORRECT, Notsobaldwlad!

The article above was another one of the typically silly and superficial appeals to miraculously create a better money system, in ways which deliberately ignore the crucial questions about whatever is going to be the murder system to back that money system up. Fractional reserve banking has ALREADY passed the REAL "market" test, which included the "free market" in murder and fraud, which is what made sovereign states, and enabled the banksters to capture control over those states.

There cannot be any sound and honest monetary system unless there was a sound and honest military system to back that up. However, the real world for thousands of years has been selecting civilizations to develop in the opposite direction, because success in warfare was based on backing up deceits with destruction, and upon that basis was constructed a political economy of enforced frauds. Fractional reserve banking is LEGALIZED FRAUD, ENFORCED BY GOVERNMENTS, because the banksters were the biggest gangsters, that were able to apply the methods of organized crime to dominate the political processes, in order to created the currently established systems of legalized lies, backed by legalized violence, which are mainly present in the forms of the biggest banks, and the corporations that grew up around those banks.

Articles like the one above deliberately ignore the basic facts about how human beings operate as entropic pumps of energy. Furthermore, such an article is light years away from any kind of radical critique of the concept of entropy as that operates through general energy systems. The basic facts are that human beings necessarily operate as robbers in their environment. All human realities are organized lies operating robberies. All private property is based on backing up claims with coercions, and so, money is measurement backed by murder.

The degree to which the biggest bullies were able to dominate human societies, and thereby have their bullshit social stories dominate those societies, is ubiquitously found not only in how the established systems work, but also in how their controlled opposition groups work. FRACTIONAL RESERVE BANKING WORKS, AS AN EXAMPLE OF HOW DISHONESTY BACKED BY VIOLENCE WORK AS THE FUNDAMENTAL WAYS THAT HUMAN SYSTEMS ACTUALLY OPERATE.

Pretty well everyone who gets articles published on Zero Hedge, or make comments upon those, continues to operate using the basic ways that human languages and cultures have developed (as dominated by the biggest bullies' bullshit world view) to provide relatively good analysis based on relative dichotomies, but then tend to collapse back to bullshit "solutions" based on false fundamental dichotomies, and their related impossible ideals, as the recommended ways to resolve those problems better.

Notsobaldwlad, I would qualify your statement that "money is all about control and power and nothing about creating a fair means of exchange," to say that the different systems of organized lies operating robberies can develop dynamic equilibria, which may trend towards "money" becoming a "fair means of exchange," however, that may happen ONLY on the basis of the foundation of the real robberies, that were the mechanisms actually always originally there.

There is no fundamental dichotomy between voluntary contracts versus involuntary contracts. There are no fundamental dichotomies present in the ways that the production of destruction controls production. There can be no actually existing idealized "free market" that does not include a de facto "free market" in fraud and robbery. The real economic systems are due to the real history of warfare, which was organized crime on a larger scale, out of which selection processes emerged the dynamic equilibria of the different systems of organized lies operating robberies.

The rule of law is rife with inherent paradoxes, such as that nobody guards the guardians. The human rule of law IS connected to natural laws through the ability to back up lies with violence. Economics is necessarily a human science like warfare was a human science. Human general energy systems are best described as following the principles and methods of organized crime, because they TAKE ENERGY.

However, our society is so totally dominated by the biggest bullies' bullshit that we live inside of a Bizarro Mirror World where everything appears proportionately backwards. We are taught to understand everything backwards, in profound ways, such as how an arbitrary minus sign was inserted into the entropy equations of thermodynamics and information theory, so that the numbers measuring power and information would end up having positive values, rather than negative values, as the mathematical physics itself said was the case.

We understand the basic concept of SUBTRACTION either backwards, or not at all, which is the most backwards way that we could understand subtraction, as the most basic of all processes. Therefore, we understand the processes of robbery that flow from the original subtraction backwards too. We understand all of our concepts about money and private property backwards. Not only does that facilitate runaway social polarization, but also it facilitates the destruction of the natural world.

We should be developing better human, industrial and natural ecologies. However, in order to do that we would need enough people to understand the degree to which they are currently understanding the world in profoundly backwards ways, as expressed in this article, and over and over again on Zero Hedge, as a leading edge of critical thought about the currently established systems, which do relatively good analysis of the problems, but then collapse back to bullshit solutions at the end.

Human beings, when perceived as separate from their environment, are thereby subtracted from that whole. Thereafter, across those defined boundaries they must TAKE ENERGY, or operate robbery systems. Furthermore, the same applies to the flow of information, as it does to the flow of energy. Human beings are necessarily, when understood properly by themselves, organized lies operating robberies. However, those who were best at doing that have developed their biggest bullies' bullshit language, which has inverted, and thereby perverted, the meaning of everything, to become our current Bizarro Mirror World, where governments are the biggest form of organized crime, controlled by the best organized gangs of criminals, which currently are the banksters, who have been able to control governments to legalize private banks effectively counterfeiting the public "money" supply out of nothing as debts, i.e., fractional reserve banking, as all of the rest of the similar systems whereby the Fraud Kings were able to covertly capture control of the powers of sovereign states assembled by the previous eras of the War Kings.

Those who most benefit from that dominate our society so totally that there appear no practical ways to resist their runaway successes. However, they are now in grave danger from the paradox of final failure from too much success. The excessive degree to which enforced frauds successfully dominate our established political economy includes the degree to which the controlled opposition groups stay within the same frame of reference as the established systems operate out of, as this article again exemplified. Thereby, the monetary system has become like an almost totally metastasized cancer, or a parasite that is killing its host. However, the treatments for those conditions (other than dying from them) would be to develop better dynamic equilibria (in which overall process, the economy dying from diseases like fractional reserve banking may be one of the larger scale cures.) As long as people continue to collapse back to bullshit "solutions" based on false fundamental dichotomies and their related impossible ideals, then no genuinely better resolutions are possible.

Notsobaldwlad, your last statement:

"... those who knowingly or unknowingly serve the masters and have their future and comfort deeply invested in making sure the current system continues. Yes, they are traitors to the human (slave) race, but they would say that they might as well be in comfort while they are here, instead of fighting the system and living a dismal life in poverty .... as all traitors rationalize."

Reminded me of this famous quote:

"The few who understand the system, will either be so interested from it's profits or so dependant on it's favors, that there will be no opposition from that class."

-- Rothschild Brothers of London, 1863.

At the present time, only a tiny minority of the people understand the fractional reserve banking system, since the vast majority of them have been conditioned to not want to understand it. Most of the few that do understand that are taking the maximum advantage they personally can from operating inside of those established systems of enforced frauds, which deliver to them the short-term benefits from those systems of organized lies, operating robberies.

MEANWHILE, progress in science and technology continue to advance at an exponential rate, while the powers and capabilities thereby developed are channeled through social pyramid systems of debt slavery backed by wars based on deceits, which have driven that debt slavery to generate numbers which have become debt insanities, which are being pushed and pushed towards provoking death insanities.

Since the debt controls were backed by the death controls, there are no realistically possible better debt controls other than those which would be backed up by better death controls. Of course, the vast majority of people, within both the established systems, and their controlled opposition groups, deliberately deny and ignore that, as they continue to operate those systems through the maximum possible deceits and frauds about what is really happening.

"Traitors to the human (slave) race" are actually also traitors to themselves, and the entire human experiment, based on building brains that could build models of their world, including models of themselves within their models of their world. At the present time in history, the relative degree of progress in doing that, through science and technology, is generating bigger and BIGGER contradictions, such as expressed as globalized electronic fiat money frauds (i.e., globalized fractional reserve banking), backed up with things like weapons of mass destruction and mass surveillance.

Thousands of years of success in warfare based on deceits, followed by hundreds of years of success in finance based on frauds, have accumulated in the systems which exist today, (INCLUDING THEIR CONTROLLED OPPOSITION, WHICH ARE COMPONENTS INTEGRATED INTO THOSE SYSTEMS.)

Good analysis of human realities ALWAYS necessarily reveals organized lies operating robberies. There are NEVER any genuinely better resolutions to those problems which could return to "sound and honest" money which did not simultaneously address the issues of how to operate a "sound and honest" murder system. However, over and over again, the controlled opposition groups to the established systems continue to follow their relatively good analysis of the real problems, with idealized "solutions" which could never actually exist in the real world, because they understand all of the mechanisms backwards!

Only that which actually exists can actually evolve. What actually exists must necessarily be described as organized lies operating robberies. There is no fundamental dichotomy between organized crime versus government. Governments are necessarily the biggest form of organized crime, controlled by the best organized gangs of criminals, which currently happen to be the banksters, that have been able to capture control over governments to legalize the enforced frauds called factional reserve banking, etc. ...

However, there is no way to stop measurements from happening, and there is no way to stop murder from being possible. Therefore, no ways exist to stop money from being measurement backed by murder. (Going backwards to any kind of commodity backed form of money only goes back to the measurements of commodities being backed by murder.) THE PROBLEM is that human beings must necessarily develop systems of artificial selection, which flow from the fact that natural selection always exists. As the human experiment unfolds, human beings must necessarily end up modeling natural selection, as that process internalizes as intelligence, and that intelligence is collectively expressed through groups of human beings. However, at the present time, human artificial selection systems operate through murder systems based on the maximum possible deceits, to back up monetary systems based on the maximum possible frauds, while, at the same time, that was necessarily the way that things developed, because human beings, as entropic pumps of energy, are necessarily always systems of organized lies operating robberies.

MEANWHILE, human beings are continuing to think using dualities, which were practically innate to human abilities to think, as found at the foundation of the development of natural languages. Almost everyone, almost all the time, thinks about everything in profoundly wrong ways. Therefore, of course, they think about political economy problems like that too! As progress in science and technology demolishes one false fundamental dichotomy after another, while understanding general energy systems better and better, the most intense manifestation of that process has been through the human arts and sciences of warfare and economics.

In those domains especially, our civilization is almost totally dominated by the biggest bullies' bullshit, (including throughout the controlled opposition groups). There should be profound paradigm shifts, in the form of intellectual scientific revolutions, to cope with the ways we have globalized electronic frauds, backed by the threat of the force of atomic bombs, that are based on better understanding the ways of thinking that enabled those phenomena of globalized electronics and atomic bombs to be made.

However, as far as I can tell, I continue to waste my time pointing that out, "fighting the system and living a dismal life in poverty," as you suggested, Notsobadwlad. I have been working for several decades against the established monetary systems, and the military systems that back them up, because I have been thinking that those were criminally insane since I learned about them when I was a teenager.

Every single day, my on-going political experiments in the Canadian context, through Electoral District Associations again and again PROVES that 99% of the people want to continue to act like incompetent political idiots, that never participate in funding the political processes, while the 1% that do are almost totally interested in maintaining the established systems that they benefit from, which also includes most of the controlled opposition groups whose bogus "solutions" are recommendations that we should go backwards to some old-fashioned religions or ideologies. My best guesstimate is that, IN FACT, less than 0.000001% of the general population both actually understand the established systems, and are effectively against them in realistic ways.

Hence, there is nothing which can be done but to wait and watch as the enforced frauds, based on the FACTS that primarily "money is all about control and power and nothing about creating a fair means of exchange" drive its internal contradictions towards even worse runaway social polarization and destruction of the natural world. The grand paradox of "control and power" based on backing up lies with violence is that works all too well in the shorter term, while less and less well in the longer term ... As every regular reader of Zero Hedge is well aware, and speculates about all the time, we are rushing towards the tipping, turning points, where debt slavery systems generate numbers of such astronomically sized debt insanities, that the entire superstructure of those enforced frauds could crash itself into collapsing into chaos. Thousands and thousands of years of civilizations being dominated by the biggest bullies and their bullshit social stories has resulted in a civilization powered up by exponentially advancing science and technology to become runaway MAD criminal insanities!

Fractional reserve banking was the MADness of Money As Debt, which was backed up by the power of the state to demand taxes be paid in that form of legal tender, which power of the state was backed up by a military power which had become MAD Mutual Assured Destruction. However, those established systems can count on 99% of the population continuing to want to act like incompetent political idiots, or Zombie Sheeple, being routinely fleeced by those debt slavery systems, that they do not want to understand, while almost the rest of the 1% who personally participate more directly in the political processes want to keep those established systems doing, despite that those have already become criminally insane levels of debt insanities, on the verge of provoking death insanities, as the consequences of their collapsing into chaos.

Theoretically speaking, one would like to think that more people would want to understand those problems better, so that there could theoretically be some better resolutions of those runaway problems. However, everything I have learned continued to convince me that that percentage of the population actually interested in that is something less than 0.000001%.

Sun, 07/27/2014 - 21:48 | 5011231 MASTER OF UNIVERSE
MASTER OF UNIVERSE's picture

The percentage of the population that can understand this level of obfuscation by central planning banksters will always be low. Educating

the worker bees is futile if they are preprogrammed to genetically follow their queen bee wherever she flys. Even if colony collapse disorder occurs the worker bees will follow the queen bee to their deaths. Like Lemmings and Americans they fall off of cliffs whether fiscal or real because they are programmed to follow and not lead.

Look at the choices for the upcoming USA election and ask yourself where the leaders are? The USA is about to choose either a Clinton or another Bush. Is that leadership or programming?

Sun, 07/27/2014 - 09:54 | 5009435 oudinot
oudinot's picture

You are correct, there cannot be a shortage of cash but there certainly can be a shortage of confidence in cash or a lack of confidence in the institution,bank that holds the cash.

That's what starts bank runs

Sun, 07/27/2014 - 10:17 | 5009487 nasdaq99
nasdaq99's picture

What happens when money loses value.  I think this is Somalia:

 

http://www.liveleak.com/view?i=826_1406461813

Sun, 07/27/2014 - 11:45 | 5009627 rubiconsolutions
rubiconsolutions's picture

Stop calling it "fractional reserve banking". It's counterfeiting. Period. If people keep applying some benign language to what is otherwise a crime than it will continue to be tolerated. It's akin to calling rape an "unsolicited sexual interlude".

Sun, 07/27/2014 - 13:32 | 5009882 A Nanny Moose
A Nanny Moose's picture

Bingo! Grammar, Logic, Rhetoric.

The first step toward regognizing evil, is to start referring to things by their true name (a.k.a. using the proper grammar.)

Sun, 07/27/2014 - 20:30 | 5011049 kita27
kita27's picture

No I disagree, it IS irrational to start a central bank run because the profit in sound money arbitrage does not outweigh the devastation of a collapsing society.

Sat, 07/26/2014 - 21:35 | 5008530 Jackagain
Jackagain's picture

Economically speaking, fractional reserve banking works something like this...

https://www.youtube.com/watch?v=6DBuk91phkI 

Sat, 07/26/2014 - 21:39 | 5008542 lasvegaspersona
lasvegaspersona's picture

This seems kind of silly. Why not define 'money titles' to begin with. Do you mean this as a cute way to say gold?

Fiat currency is currently defended in the Forex market by buying back your own currency with other currencies. The central bank intevenes to keep the currency's value in a desired range compared to other currencies. There is no real need for a cenral bank to prepare to satisfy all holders of the currency. It must simply keep the currency valuable so that it is still used.

One of the big spit fights we get into begins by using the term 'money'. In reality we should define which monetary function we mean. Fiat currency, properly managed works fine as a medium of exchange. In the longer term it always fails as a store of value. I have no issue with 'money' but articles that just blurt out the term and don't define the meaning are like reading the rules to World of Warcraft...terribly important I'm sure but of no interest to me.

Sat, 07/26/2014 - 22:01 | 5008578 TheReplacement
TheReplacement's picture

Money is money.  Money can be used as currency.

Fiat currency represents money or "faith".  Fiat currency is not money.

It seems pretty clear doesn't it?

Sat, 07/26/2014 - 23:07 | 5008733 disabledvet
disabledvet's picture

Actually his is a good point...one totally ignored by the article...namely "who has title to a property?"

His was the whole problem with the CDS market and "mortgage backed securities" (and all the other securitized CRAP)...namely, the whole was backed by....as it turned out...Bailout Nation.

Well..."where is my reserve in the fraction" assholes!

One answer OBVIOUSLY is GOLD.

The other however is in WHO HAS TITLE (the "lienholder") to a piece of property? When it came the ENTIRE MBS market (over a trillion dollars per annum at peak!) "this was indeterminate"!!!

I'm sorry? What is your collateral again?

And as Detroit found out..."the collateral was Detroit!"

Well...what about say...Michigan or Rhode Island then?

"ALL FOR JERUSELUM!" you say?
I say "die for Allah" bitch.

You choir boys wanna die of the Eastern Front...well, it ain't for lack of action over there.

Sun, 07/27/2014 - 07:41 | 5009230 negative rates
negative rates's picture

You about ready to jump yet? The views are nice up here, and your all alone, and aloner got be left alone with nature.

Sat, 07/26/2014 - 22:07 | 5008592 World Dollar
World Dollar's picture

The typical definition for money is that it is a medium of exchange, store of value, and unit of account. 

It is a fair and indeed popular point to make that fiat currency fails as a store of value in the long term, with reference typically made to how much fiat currencies have fallen in value over time. But the point made by this article, and indeed the essay by Hulsmann in 2003, is rather more nuanced than this. Fiat currency only fulfils this definition of money, as a medium of exchange and store of value, so long as there is informational inefficiency, with market participants failing to reflect price differentials, and therefore capitalise on arbitrage opportunities.

The only way the price differentials will become reflected is if this idea is spread, which, unfortunately, it has not been to this day. As said, it could mean a worldwide return to sound money far sooner than most could have believed possible.

 

Sat, 07/26/2014 - 23:09 | 5008741 disabledvet
disabledvet's picture

STFU. "This ain't no abstract bullshit game anymore."

You wanna raise your Teutonic horde bitch? Slap your dick on the table and let's see what you've got phucker.

Sun, 07/27/2014 - 07:42 | 5009231 negative rates
negative rates's picture

Jump motherfucker, JUMP!

Sat, 07/26/2014 - 21:42 | 5008545 Yen Cross
Yen Cross's picture

 You know you've been reading too much Z/H, when your contemplating ?...

Sat, 07/26/2014 - 22:15 | 5008613 whoopsing
whoopsing's picture

Is there such a thing as too much ZH Yen ?

Sat, 07/26/2014 - 22:08 | 5008594 kchrisc
kchrisc's picture

Guillotine the Fed.

Sat, 07/26/2014 - 22:29 | 5008660 ThroxxOfVron
ThroxxOfVron's picture

The Money Shot: "It is irrational not to start a bank run, due to the arbitrage opportunity that exists."

Read that a few times slowly and let it sink in.

 

Bankers know this better than anyone having a fuller understanding of the system that they inhabit than the deluded public.

 

Bankers start most bank runs with the intention of acquiring real property at discounts against the inflated marks assigned during the fractional/debt instrument pyramiding aka inflaion of the debt/iou supply phase.

 

Banking is an agricultural derivative: sowing the debts and reaping the inevitable defaults that are mathmatically certain to accrue under a debt-based fiat regime in which the interest payments required to balance the books are simply never created....

Sat, 07/26/2014 - 22:39 | 5008679 Matt
Matt's picture

"government’s deposit “guarantees” are not actually credible in the event of a systemic run."

If the government has the power to create money ("dollars"), than it can certainly gaurantee the deposits effectively. It seems odd to me that it is not the Central Bank's duty and obligation to ensure the deposits.

If creating a large amount of paper bills during a credit collapse is, in fact, inflationary, the government/central bank could simply nationalize all the banks, increase the reserve requirements so that the new amount of M1 times leverage is equal to the previous M1 times leverage.

Example, if currently there are 100 Billion dollars in paper and reserve rate is 2 percent, if needed, 400 billion dollars could be printed and stuffed into the banks' accounts at the central bank at a reserve rate of 10 percent and the total amount of money should stay the same. 

Of course, if a country follows Ghana or Estonia and goes to a fully digital currency with checking accounts all being held by the central government, the money can be reserveless. In that case, containing inflation becomes a pure excercise in restraint, which unfortunately always fails. 

Sat, 07/26/2014 - 23:01 | 5008720 ThroxxOfVron
ThroxxOfVron's picture

Bankers start most bank runs by tightening credit or raising rates with the explicit intention of acquiring real money and real property at discounts against the inflated marks assigned to real money and real property created during the fractional/debt instrument pyramiding/bubble aka inflaion of the debt/iou supply phase.

The credit supply is constricted creating a panic for payments to avoid insolvency and the true scarcity of actual money that has prevailed previously is revealed.  Debt-based fractonal lending is the basis of the underlying insability.

 

We have no money.  Nothing can be paid.  The national debt cannot be paid because it is effectively an accounting of the interest payments made on government debts.  Every interest payment ever made can be conceived as the misallocation of prinicipal as no loan ever creates the interest portion associated.

Banking is an agricultural derivative: sowing the debts and reaping the inevitable defaults that are mathematically certain to accrue under a debt-based fiat regime in which the interest payments required to balance the books are simply never created...  As real money and real property is attached as collateral to debts it is effectively consumed by the credit as the non-existant interest payments are leached out of the accountings.

Real money and/or real property must continually be ceded to the debt-based fiat generation of the system collapses.   ALL loans generated in this system are really negative sum gain transactions the repayment of principal and interest of which can only be made by theft or misallocation of the promised payments of other transactions.


This is why the national debt is both perpetual and the basis of Oligarchy/Feudalism: the debt can never be paid off, it can only soak up more and more productivity.   I suspect that the only reason recent western monetary cycles have lasted as long as they have is two fold:

1. much property has been confiscated and re-allocated in and from the 'New World'.

2. cheap petroleum energy sources have satisfied part of the accumulating debts through historically unimaginable 'productivity rates' predicated on the consumption of these limited resources.

 

"If creating a large amount of paper bills during a credit collapse is, in fact, inflationary, the government/central bank could simply nationalize all the banks, increase the reserve requirements so that the new amount of M1 times leverage is equal to the previous M1 times leverage."

You are missing the point?  The system is extractive by design.  Debt based fiat is a negative sum exorcise.

Collateral must continually be ceded to pay for the interest which is never created along with the principal component of loans.  This is NOT an exchange of debt-money equivalents for debt-money equivalents; principal can be paid with principal; but, interest cannot be paid with principal unless another transaction is defaulted -and the collateral ceded.

ALL fractional debt-based fiat lending is a negative sum game and involves the exchange of real money or real property for the debt-based fiat.

Sat, 07/26/2014 - 23:18 | 5008762 disabledvet
disabledvet's picture

YOU STILL NEED COLLATERAL TO LEND INTO!

EVEN WITH A FINANCIAL COLLAPSE!

IN THEORY YOU CAN THROW MONEY FROM HELICOPTERS...BUT WHY NOT USE THE POST OFFICE AS THAT'S WHAT YOU'RE DOING ALREADY AND IT'S A HELL OF LOT MORE EXPENSIVE!

(again for the record I AM NOT FOR GENERAL PLAN OST NOR ITS ANTECEDENTS. However..while we are on the subject...PARDON MY NARRATION!)

Sat, 07/26/2014 - 23:40 | 5008808 ThroxxOfVron
ThroxxOfVron's picture

OK.  

What COLLATERAL is The FED lending to?

What COLLATERAL are CCards lending to?

How is a depreciating off the lot GM pos COLLATERAL?

What is the COLLATERAL on a student loan?

Sun, 07/27/2014 - 07:44 | 5009235 negative rates
negative rates's picture

SHOUT, then JUMP motherfucker!*

Sun, 07/27/2014 - 10:14 | 5009457 oudinot
oudinot's picture

Ok, I borrow $10,000 for my wagon fry business. My wagon and fryer are put up as collateral.  I have to pay 10% interest on the loan.  In a  year I have sales over $90,000 and a $30,000 profit, I pay the bank back its $11,000 ($10,000 principal, $1,000 interest) after  a year.  Transaction finished

I have not ceded any more collateral, I paid interest with my profits.

Please explain with your hypothesis why this is impossible.

Sun, 07/27/2014 - 13:43 | 5009902 ThroxxOfVron
ThroxxOfVron's picture

It's NOT impossible because You and your loan are not isolated from the economy.  The money You allocatd to pay off your loan simply indicates that someone(s) else was not able to allocate funds to pay their loan(s).

 

The only Bank in the World is running the exact collateralized debt-based system we presently have and it makes it's ONLY loan to YOU for $100.  

There are no other loans in existance and there will be no other loans generated over the duration that your loan is outstanding; so there is no money in the system save the money created at origination of your loan.   

The interest rate can be ANY positive rate You choose; anything above zero.

Once You make the first payment of principal and interest CAN a loan be repaid with interest if ALL of the money in the system was created is the principal?

 

 Why don't YOU try to explain to ME where the 'money' to pay the interest on a loan comes from if You take a case inisolation as I just have.

Sun, 07/27/2014 - 15:13 | 5010144 Matt
Matt's picture

You model is based on the money only moving once. It flows.

Government borrows $100 for ten years and will repay $130 at the end of the ten years.

Government spends the $100 dollars, and reclaims $15 at the end of year one in income taxes, assuming the company that the government got the goods or services from does not spend that money within that year.

Year two, Government spends that $15, the company spends the $85, the Government collects another $15 in income taxes.

At the end of the ten years, the Government has cumulatively collected $150 in taxes, even though only $100 physically exists, because the money flows around constantly.

Along the way, it may have paid money back to the lender, and that lender would spend money, and the Government would collect taxes on the incomes of whoever earned that money by selling goods and services to the lender.

The Government, over the ten years, has repaid the $130, has collected an excess of at least $20, and the $100 are still circulating around.

Obviously, people hoarding paper dollars disrupts this system and must be dealt with somehow. Inflation is one way of discouraging hoarding cash, while offering returns on investment is one way of encouraging that money to continue cycling.

Sun, 07/27/2014 - 15:46 | 5010257 oudinot
oudinot's picture

The money that I collected for my French fries came from many people and I am sure that they didn't pay me to so as to default on their loans.

However, with my  bank now repaid , with interest- they have received $11,000 from me- they can create, issue another $100,000 loans (fractional banking rules) on my repayment to thier lenders.  My transaction will give many people cash to repay their loans somewhere in the system.  Hence, profits, create more money such as to sustain the economy.

 

That's what you are missing from your hypothesis.

 

Sun, 07/27/2014 - 17:45 | 5010579 ThroxxOfVron
ThroxxOfVron's picture

Nothing is missing from my hypothesis.

You just do not want to admit that much of what is called borrowing is not; -it's counterfeiting and selling of tax receipt warrants.

1. Some of those People will default on their own loans.

2. Some of those people are still rolling over their loans over so that they can retain possession of the collateral ( and buy your french fries ).

3. The government and many the corporations are ONLY rolling over their loan PERPETUALLY. The money created will never be paid back because it isn't really debt in the sense of smething borrowed with the intention to pay back.

Many Governments and Institutions and Corporations have NO intention of ever paying off their 'debt'; their intention is to roll the loans over forever; paying off a loan from Peter with a new loan from Paul if not another loan from Peter.

This is perpetuated by the defacto seliing of Tax Receipt Warrants aka 'full faith and credit of the United States'.

 

Do You really believe that the People running the United States Government have any intention of PAYING OFF the National Debt and extinguishing ALL outstanding interest bearing Treasury issuance?   

Here are a few clues before You answer:

 

http://www.ssa.gov/oact/cola/central.html

"2012: average net compensation = $42,498.21

2012: median net compensation = $27,519.10"


http://www.usgovernmentspending.com/federal_debt_chart.html

"Today’s Federal Debt is about $17,588,746,437,000.

The amount is the gross federal debt issued by the United States Department of the Treasury since 1790. It doesn’t include state and local debt, and it doesn’t include the so-called unfunded liabilities of entitlement programs like Social Security and Medicare.

Federal Debt per person is about $53,904."

 

http://www.cnsnews.com/news/article/ali-meyer/372-percentage-not-labor-f...

"In December, April, and now May, the labor force participation rate has been 62.8 percent."


Roughly $54,000 FEDERAL DEBT PER PERSON on a MEDIAN NET COMPENSATION OF $27,500 and a Labor Participation Rate of 63%.

This would imply that each and every working person in the Untied States owes roughly 100%  of 2+1/2 years of NET to pay off the national Debt TODAY.

Taking the compounding interest into account, it would appear that the entire country couldn't pay the National Debt off even if every single penny earned -100%- was remitted from today until at least March of 2017.

...&, yes this is entirely dismissive of the BOTH entire Congressional Budget and ALL Social Programs including SS & Medicaid & the fact that as the Debt is paid down that Inflation would surge as Trillions in sequestered 'Hot Money' would erupt into the system and search for safety and yield ( which would also impact interest rates, trade, fx cross ) ...

 

 

Here's more:

 

http://research.stlouisfed.org/fred2/series/RREPT

http://www.zerohedge.com/news/2014-07-12/jpmorgan-blows-feds-we-can-cont...

http://www.newyorkfed.org/markets/rrp_counterparties.html

http://www.zerohedge.com/news/2014-06-30/wtf-chart-day-holy-340-billion-...

http://blogs.wsj.com/economics/2014/06/23/fitch-report-feds-reverse-repo...

http://blogs.wsj.com/economics/2014/06/11/two-fed-officials-suggest-reve...

http://www.imf.org/external/pubs/ft/wp/2014/wp14111.pdf

 

Mon, 07/28/2014 - 06:46 | 5011936 oudinot
oudinot's picture

I am talking about the micro, and clealy you are incorrect about the use of collateral in that example..

I agree that may corps and govt. will never repay loans but that is a different topic.

Sun, 07/27/2014 - 14:13 | 5009977 logicalman
logicalman's picture

Interest rates tell you what percentage of loans must default - that's where the interest comes from.

 

Sun, 07/27/2014 - 17:24 | 5010523 css1971
css1971's picture

Actually it is possible to pay the interest on the loan, because the money can circulate several times. However it gets really, really difficult as the loan is extinguished. Hence... "Growth".

Sat, 07/26/2014 - 23:11 | 5008722 ThroxxOfVron
ThroxxOfVron's picture

The National Debt is an accruement of unpayable interest charges perpetually rolled into new loans.

I agree with Karl Denninger on this issue: the National Debt cannot be paid off and is a type of fraud at inception/issuance as it is not intended to ever be paid off.  

This is probably the case with any such type of perpetually rolled-over and perpetually growing debt generated by corporations and governments.

People have life-spans and so it would seem rather insane to lend and rool-over ever greater sums to people as they become aged; but, corporations and governments are not restricted to natural organic life expectancies and thus make exceptions amongst themselves to the reasonable reluctance to lend at a ceratin age thresh-hold that would be applied in the case of aging Mortal Persons.

A thirty year loan to a human being in theri 30s, or 50s might make sense.  

A thirty year loan to someone in their 90s???  ...Especially someone already deep in debt?

Now consider a 200+ year old corporation hundreds of billions or even several trillions of dollars in debt...

Sat, 07/26/2014 - 23:20 | 5008769 disabledvet
disabledvet's picture

PHUCK YOU TOO DENNIGER.

"Gold money....OR DIE!"0

Sun, 07/27/2014 - 07:45 | 5009238 negative rates
negative rates's picture

That aint your GOLD, bitch.

Sun, 07/27/2014 - 00:47 | 5008941 World Dollar
World Dollar's picture

Our debt-based monetary system is not simply "printing money". As explained in the article, all fiat money is the liability of the central bank. The eventual repayment of the fiat money must be credible in order for it to come into existence in the first place. This is an important reason for why the "lender of last resort" function of central banks is designed to be strictly limited. 

Imagine now that the systemic runs on fractional reserve banks have happened. Could the monetary authorities step in and "bail-out" all who had not reacted quickly enough to get the fiat money out of the banks? This action would be fraught with difficulties in terms of monetary economics and legal considerations. 

But, for the sake of argument, let's assume that this is possible. There is still a fundamental problem. The basis for the value of our fiat money is its eventual repayment to the central bank. By logical deduction, this repayment is not credible. Market participants have an economic incentive to withdraw the money permanently from the fiat banking system. The original basis for fiat money's value is destroyed. We will return to a system of sound money, with the free market deciding what it wishes to use as money, provided that governments allow it to. 

In short, it is not just fractional reserve banking, but our entire monetary system, that is based on logical fallacy. It would have been wise to have heeded the words of Charles Holt Carroll, 1860: "a promise is a debt, and the attempt to make debt serve the purpose of money always has been and always will be a failure". Unfortunately, he is another exceptional economist whose words have been drowned out. 

Sun, 07/27/2014 - 10:15 | 5009483 shovelhead
shovelhead's picture

That makes no sense.

It's like saying that people will get their car repossessed because the money to make the last loan payment won't exist.

A ponzi scheme can last indefinitely as long as new money (loans) is always created. It only collapses when that is not the case.

 

Sun, 07/27/2014 - 13:30 | 5009837 ThroxxOfVron
ThroxxOfVron's picture

"That makes no sense.

It's like saying that people will get their car repossessed because the money to make the last loan payment won't exist.

A ponzi scheme can last indefinitely as long as new money (loans) is always created. It only collapses when that is not the case."

 

How does it not make sense?  

It is a type of ponzi; and the those who have control of the ponzi and first access to the funding streams always walk away with the real property!

Loans default all the time because defaults are built into the system.  there are these people called Repo Men that even have their own 'reality tv' shows now on cable tv.   Even if YOU make/allocate enough money to service and/or pay off YOUR loans it doesn't change the aggregate mathematics at work in the debt pyramiding system.

Lender of last resort.  Think about what that means.

WHY would it be necessary to have a lender of last resort?  WHY have bailouts?  Becuase the system HAS TO HAVE more lending/debt as it is the only exiting way to inhibit the collapse of the supply of 'moneyness' in the present system.

Every debt-dollar that is in existence is a short on real 'money' and/or real goods: a promise to pay and not payment in and of itself.  

The system is a debt pyramid that requires inflation or debt spirals out of control.  New debt/currency must continually be created or the 'money supply' collapses and defaults surge.  The system is designed to inflate perpetually.   

Ambrose Evans Pritchard at the UK Telegraph seems to understand this and talks of it quite openly.   A.E.P. has written a lot about how Italy has now run years of primary surpluses but has been going further and further into debt as the trajectory cannot be reversed due to the interest pyramiding.  It wouldn't be a problem accept that Italy agreed to keep it's debt below a certain ratio to gdp; and that is ultimately impossible unless other countries are pyramiding their debt faster or debt is being defaulted due to the dynamics of the Euro debt currency system and the requirement for perpetual 'growth' which is actually in many ways not much more than an accounting of debt pyramiding...

 

TOTAL systemic debt never goes down.  -Not without defaults and a collapse of inflated asset values.  

People who are never forced to pay off the principal can live very very well off of debt financing as was evidenced during the recent HELOC extraction phase of the financialization pyramiding of residential real estate in the United States.

Everything is just fine as long as the debt can be inflated and successively larger loans at ever lower interest rates are the normal.  As soon as rates are raised ( Volker ) or repayment is demanded the whole system seizes up, debt-money becomes very scarce; and defaults ( real property ceded to the financiers ) surge...  During the pyramiding of debt instruments and inflation phase perceived real property values and accountings of 'financial assets/wealth' advance.  

One of the frauds at the heart of the Great Financial Crisis was that the system ran out of Borrowers that could reasonably make the interest payements as a matter of actual workpalce/income/flow econoimics and without further HELOC re-financings the system would deflate; so loans were generated by Banks that the Bankers KNEW could not be repaid...

Control Fraud came to dominate the origination processes in an attempt to continue the pyramiding.

Kinda like making new loans to someone already technically in default.  Argentina might be a national example of this...

 

Now, what is going on with those Russian sanctions?  

Trying to lock the Russian businesses out of the market for debt that needs to be rolled-over.  NOT paid off!  Rolled-over.

The sanctions being proposed/implemented are designed to collapse the businesess in Russia by denyng them access to the next round of debt-ponzi financing and trash the outstanding floated shares.  Russia is being threatened with a putative margin call and forced liquidation.  This is an excuse to deivest Russian businesses of their REAL Property.

It's funny but it isn't.  IMHO, the plot to deny Russian businesses access to debt markets is like a Bank offering a large low rate crdeit facility to a borrowwer for years.  The borrower creates a very profitable business with the leverage.  Then one day the Bank decides to PUNISH the borrower by cutting off the credit line and calling in the loan.  The reason isn't that the Bank needs the money or is concerned that the interst payments won't be made or the debt dutifully rolled-over again.

Look at the CDS on Gazprom and the like to see that the ratings agencies and lenders aren't in fear of a natural default on this debt...  

The loans are being called for reasons that have nothing to do with econimic/financial performance of the borrowers or probelems with their cash-flow!  It's being called as a form of violence, a predicate or proxy for war!

The Russian Sanctions are about seizing real property through denial of financing attack, very much like starting a Bank Run in order to take advantage of the arbitrage opportunity that exists!

"It is irrational not to start a bank run, due to the arbitrage opportunity that exists."

Sat, 07/26/2014 - 22:51 | 5008697 world_debt_slave
world_debt_slave's picture

how does it work when you can't divide by zero?

Sat, 07/26/2014 - 23:01 | 5008717 Yen Cross
Yen Cross's picture

 Is it just me , or is it a giant "free for all"?  Police? They're luvin it.

  The United States is out of control!/ And we judge VLAD?

Sat, 07/26/2014 - 23:20 | 5008768 q99x2
q99x2's picture

Since they F'n wrote the software for the markets I would have to say yes.

Sun, 07/27/2014 - 00:23 | 5008885 Pairadimes
Pairadimes's picture

Uh, what market? Seriously.

Sun, 07/27/2014 - 00:54 | 5008952 Yen Cross
Yen Cross's picture

~ Deductive Argument

1.    Debt (IOUs + RP) is promised money.
2.    A promise has the risk of not being kept (default risk).
3.    Therefore, promised money, debt (IOUs + RP), is less valuable than genuine money titles (/money proper).

Sun, 07/27/2014 - 03:07 | 5009083 ThroxxOfVron
ThroxxOfVron's picture

"1.    Debt (IOUs + RP) is promised money.

2.    A promise has the risk of not being kept (default risk). 

3.    Therefore, promised money, debt (IOUs + RP), is less valuable than genuine money titles (/money proper)."

 

...Simply continue that deductive argument to it's conclusion:

4. Debt ( IOUs + RP ) are being generated to exchange for MORE valuable genuine money titles (/money proper) ( and real property).

5. Each debt that is designed to be paid back with interest is intended at inception/origination is in conflict with all others.  The interest component in not generated and does not exist.  The balance sheet CANNOT possibly balance.

An amount of debt equal in ratio to the compounding of interest on loans outstanding cannot be paid and must either be defaulted or perpetually rolled whilst continually compounding.  

6. ALL Debt that is perpetually rolled is NOT really debt in the sense of a LOAN.  It is something else; a compounding misallocation of productivity; a wealth vacuum.  The National Debt is NOT comprised of Loans; it is both a type of counterfeiting or taxation or BOTH.

 

DOES ANYONE HERE ON Z.H. actually believe that the $17T or so in National Debt can or will ever be PAID OFF rather than rolled-over and grown perpetually?

I contend that the purpose of the Debt-based monetary system is to use the fraudulent National Debt as an extractive legal device.   The National Debt is fraudulent as it not in fact debt taken on to be payed/settled: it is designed never to be payed off but rather perpetuated as an extractive device.   

As presently constituted the National Debt is the privatization of federal tax revenue streams.

To some extent it is also the privatization of the IRS.

It is also a form of perpetual robbery from Citizenry who do not see benefit from the spending of the Federal Borrowings or who do not possess shares of the privatized tax revenue streams.

Notice that it is The FED, the Banking system; which is buying up tax revenue streams with printed credit even while lending speads are at historic highs...

 

 

Sun, 07/27/2014 - 06:30 | 5009188 Urban Redneck
Urban Redneck's picture

The national deb may be 17T, but the US money supply that is supposed to repay it is only 12T, so of course it can't be paid back, but then the stock market is 23T, so even if the 99% didn't require any money to eat or shelter or commute to their indentured servitude, the 1% must be suckers to buy into this overvalued stock market, the municipalities must be retards to think there is going to be any table scraps left over from treasury repaying its debt which will allow them to cover the 4T they have borrowed, then moving back to those 1% retards who can never get their purchase price out of the equity markets... those companies that they overpaid for must be really mismanaged to think that after the Federal and Municipal governments get done trying to use the 12T money supply to repay their 21T in debt, that their companies will be able to repay the 10T they owe. But the award for dumbest dumb-asses (as opposed to just the dumb and dumber), goes to the little guy... who thinks that he- after big governments, big business, and big wallets have figured out how to divide the 12T amongst their over 50T in claims (and get something more than .25 on the dollar), joe-six-pack, is ever going to come up the 10T he owes the banksters...

Sun, 07/27/2014 - 13:49 | 5009909 ThroxxOfVron
ThroxxOfVron's picture

Exactly.

And those are just the easist to identify claims.  Consider the insurance and annuity and pension promises beyond those.

Then there is the outrageous pyramiding in the Derivatives Complex...

I don't think there is a real cent for every outstanding $100 of IOU/leverage.  NO, that is not a typo.

Sun, 07/27/2014 - 06:12 | 5009183 Urban Redneck
Urban Redneck's picture

The explanation of Hülsmann's deductive reasoning appears to have ignored the fact that money is fungible. There is a section in the paper titles "The Modern Monopoly of Fractional-Reserve Banking" but then he runs off the rails into the differences and divergence between banking and bailments.

Sun, 07/27/2014 - 02:43 | 5009057 theonewhowaskazu
theonewhowaskazu's picture

Except the money itself is just more debt (debt of the Federal Reserve, secured by debt of the US government, denominated in that same debt of the Federal Reserve.)

This means the money ultimately is backed by the US Government. The US Dollar is, I mean. And guess what else is backed by the US Government? The FDIC. So the debt created through fractional reserve banking REALLY IS the same thing as dollars. 

Sun, 07/27/2014 - 03:26 | 5009090 ThroxxOfVron
ThroxxOfVron's picture

The Treasury will eventually have to emit un-backed/debt-free Dollars or default.

The interest cannot be paid as it does not exist.  

ALL interest that is paid means that some portion of principal has been and will continue to be (mis)allocated as interest.

Principal that has been (mis)allocated to make interest payments must be rolled perpetually or defaulted.

The system as it is presntly constituted is designed for misallocations and defaults.  It is an inherently unstable system.

 

Sun, 07/27/2014 - 04:09 | 5009089 shouldvekilledthem
shouldvekilledthem's picture

I got to the conclusion that gold backed money cannot really work as it's based only on trust, same as fiat money.

Cryptocurrencies for the win!

Sun, 07/27/2014 - 05:56 | 5009171 Urban Redneck
Urban Redneck's picture

Money titles, in and of themselves, are not a solution, just as jiggering with the fractions in a fractional reserve system is not a solution, the evil is monopoly and it is only broken by competition. The masses have endured same tyrannic evils of the banking system and its perverse relationship with the State when there were money titles and real bills, just as they did when there were gold standards, and even in the dark ages of full reserve when the banksters of Florence were in bed with the popes of Rome. But I repeat myself-

Fractional Reserve is only a small part of the problem, but FULL RESERVE is a large of why the evil Rinse, Repeat cycle of failed reforms HAS NOT BEEN BROKEN every time it has been tried.

---

The first step to break the cycle of evil is to break the MONOPOLY - this has to be done on a whole bunch of levels, some of which include:

1) Solely tying the money supply to the creation of government and bank issued debt has to go (which also addresses granting the banks a monopoly skim on the proceeds of money creation by the issuance of government debt), and allowing money to be created by the federal government borrowing needs to be completely eliminated.

2) Expanding the range of institutions participating in the creation of money (bring back the Subtreasuries, establish public banks at the State and Municipal levels, the establishment and licensing of commodity banks, and bringing certain types of NBFIs into the cycle without intermediary banks.

3) Creating the legal framework and mechanisms to allow digital money to exist outside of banks (if you have USD in ANY form other than paper notes- it exists ONLY at a licensed bank (regardless of whether this is supposedly segregated cash in a pension plan, a PayPal or equivalent account, even BitchCoin Exchange balances, these institutions all have to use intermediary banks).

4) Creating the legal framework and technical mechanisms required for "self-extinguishing money" (this is actually not THAT difficult as it existed in the pre-digital days of the real bills [receivables] trade, before even electric calculators).

5) Abolishing legal tender laws and the monopoly on issuance of bank notes by the Federal Reserve (this infringes on the contracting rights of private parties and prohibits competition among note issuers who might have a superior product - the notion that JPM and its toxic crap balance sheet creates notes that trade at par with my local CU and its mortgage based balance sheet is ludicrous).

6) Abolishing Universal Banks and developing specific regulations for Retail, Commercial, Investment, Custodial and Commodity banks as well as CUs.

7) Instituting effective concentration risk/market share caps - specifically the banking units of JPM, BoA, Wells Fargo and Citi must be broken up (this is in addition to revoking their authority to operate as universal banks, which necessarily involves commingling funds since money is fungible)

8) Fixing Fractional Reserve - worthy of and requiring an entire book in and of itself, particularly since the last time I checked the reserve requirement calculation regulations themselves were about 1000 pages. However, there are 2 critical points: 1) there needs a mechanism whereby liquidity CAN be injected into the system in times of crisis to facilitate clearing and settlement, and that liquidity is WITHDRAWN once the crisis passes (the abolition of legal tender laws and the creation of self-extinguishing money would facilitate this. 2) The type of reserve and its discounting must be appropriate for the type of bank and the services it offers - a situation which mandates negative absolute rates, regardless of inflation would be an unmitigated disaster and in addition to impoverishing the masses and some of the banks would then concentrate real wealth in the hands of those bankers that survive.

http://www.zerohedge.com/news/2014-07-24/legal-tender-renders-planning-i...

Sun, 07/27/2014 - 14:13 | 5009945 ThroxxOfVron
ThroxxOfVron's picture

Thank You, Urban Redneck; for the very thoughtful post.

I agree with much of what You have written and believe the points you have raised are important to consider.

Real Negative Interest Rates actually reveal the system for the looting operation it is: printing IOUs that will never be fully repaid to acquire REAL Assets is easiest described as counterfeiting in my vernacular.  We are speaking of much the same problems with a difference of language.

Not long ago there were not forums to have discussions of monetary policy and engineering issues outside of acedemic or institutional settings which limited the public discussion deleteriously.  I beleive that these probelsm are some of the most important to be addressed and that they will not be addressed responsibly within the traditional settings as they simply have not been responsibly addressed historically.  

IMHO, when monetary policy is finally actually dragged out into the open it is going to be as contentious a debate as any that dominates present discourse...  

Sun, 07/27/2014 - 14:20 | 5009998 Urban Redneck
Urban Redneck's picture

Thanks.

Most of the physical "forums" I've come across tended to self-segregate based on schools of economic thought or job-role in the financial services leviathan, so the "debates" I've seen were usually minor cosmetic blemishes on the beast, or exercises in self-validation through group-think. At least here you can count on the wolves feeding on it, unless it is a relatively pure regurgitation of a specific minority dogma that sometimes gets a free pass.

Sun, 07/27/2014 - 06:13 | 5009180 NickStrange
NickStrange's picture

maybe we should have a look at the following IMF document

(the future after the fiat monetary system meltdown is pretty obvious, another fiat monetary system :-)))

"51. Why bancor? A global currency, bancor, issued by a global central bank (see 

Supplement 1, section V) would be designed as a stable store of value that is not tied 

exclusively to the conditions of any particular economy. As trade and finance continue to 

grow rapidly and global integration increases, the importance of this broader perspective is 

expected to continue growing. "

http://www.imf.org/external/np/pp/eng/2010/041310.pdf

that all central banks try to amass physical gold, has nothing to do, with the imminent meltdown, of course....

Sun, 07/27/2014 - 08:13 | 5009269 Notsobadwlad
Notsobadwlad's picture

Obviously there are three conditions under which fractional reserve banking will come to an end:

1. Those who run the fractional reserve banking system end it themselves because they believe that they have developed a better form of slavery and control over the people, their slaves/property... us. For them to end it voluntarily for other reasons they would have to consider us their equals and I would not hold my breath on that one.

2. The people band together and destroy the owners and slavers... IMO, not going to happen because even through in many ways and places the cage that we are held in is showing its bars and rusty locks, most people, especially the servant-slavers, who assist the owners to maintain the prison, do not have the first clue that they are slaves held in a prison.

3. The world ends.

In order of likeliness, IMHO: 3,1,2

Sun, 07/27/2014 - 08:36 | 5009313 Marco
Marco's picture

1. They have worked centuries to get all the land back ... once they have enough of it they can just go back to the old style of control, own enough land and you own the people. Just need some more "property taxes are bad m'okay" indoctrination (highly succesful as examplified here) and they can go back to their old ways.

Sun, 07/27/2014 - 08:37 | 5009317 eddiebe
eddiebe's picture

To me the question of what money is in actuality this red hot minute ( not in some mind game exercise ) is what I can use to buy what I need to survive. The fact that the little green strips of paper are used because people work to get them does not matter. Neither does it matter in this regard that the monetary system is set up by criminals that are sucking the life-blood out of the whole planet and its populations and enforcing it at the point of a gun. 

It is really meaningless to make distinctions about what passes as Fractional reserve money or real money or promised money. If you can buy a loaf of bread with it at your favorite store, it is money.

The author is spot on though in pointing out that the public needs to be educated as to how they are being scammed by their governments and banking cartels. That's really the point that needs to be stressed. Too bad they are so busy doing other things to ever consider how the system they are forced to participate in works, and why.

Sun, 07/27/2014 - 08:58 | 5009347 Pool Shark
Pool Shark's picture

 

 

The problem is that all fiat currencies work,... until they don't.

The common man recognizes that holding fiat exposes him to the losses imposed via inflation, but since his employer pays him in FRN's and every store, restaurant, and service professional accepts only FRN's, he is forced to utilize FRN's.

His problem arises either when he cannot obtain enough FRN's to pay his debt (debtor - bankruptcy) or when his 'savings' are destroyed in the inevitable collapse of the currency (creditor/saver - hyperinflation)

This is why those with foresight are looking to start their own bank runs by simply refusing to participate in the fraudulent system, They are divesting themselves of FRN's; refusing to go into debt (the only power the bankers have over us), and acquiring real assets such as precious metals, real estate or productive businesses.

As long as the 'common man' continues to play the bankers' game and remains in debt; he has no choice but to remain on the treadmill that feeds the corrupt system.

Fractional Reserve Banking is just like Global Thermonuclear War: "The only winning move is not to play."

 

Sun, 07/27/2014 - 10:00 | 5009323 OC Sure
OC Sure's picture

"It started with goldsmiths. As early bankers, they

initially provided safekeeping services, making a profit from

vault storage fees for gold and coins deposited with them.

People would redeem their "deposit receipts" whenever

they needed gold or coins to purchase something, and

physically take the gold or coins to the seller who, in turn,

would deposit them for safekeeping, often with the same

banker. Everyone soon found that it was a lot easier simply

to use the deposit receipts directly as a means of payment.

These receipts, which became known as notes, were acceptable

as money since whoever held them could go to

the banker and exchange them for metallic money.

 

Then, bankers discovered that they could make loans

merely by giving their promises to pay, or bank notes, to

borrowers. In this way, banks began to create money.

More notes could be issued than the gold and coin on hand

because only a portion of the notes outstanding would be

presented for payment at any one time. Enough metallic

money had to be kept on hand, of course, to redeem whatever

volume of notes was presented for payment.

 

Transaction deposits are the modern counterpart of

bank notes. It was a small step from printing notes to making

book entries crediting deposits of borrowers, which the

borrowers in turn could "spend" by writing checks, thereby

"printing" their own money."

 

-Modern [Counterfeiting] Mechanics; Federal Reserve Bank of Chicago, 1961

 

It is this one erroneously accepted premise that needs to be explained to would be bank-runners in order to show the criminal nature of the falsely defined "fractional reserve banking."  The obfuscation between not knowing  "the difference between fractional-reserve IOUs and genuine money titles" comes from the fact that the difference between money and counterfeit are not clearly defined by the tyranny of modern economics. I have done so, ad nauseam, here: 'http://ocsure.blogspot.com.

 

Instead of attempting to identify the medium itself as "genuine money" or not, simply identify the two sides of the exchange which the medium mediates as genuine productive work or not. This is the purpose of money; to mediate an exchange of productive work for productive work, and not just to mediate an exchange. Counterfeit mediates an exchange too; it mediates an exchange of no productive work for productive work.

 

So in FED of Chicago's criminal rationalization above, what is happening? When the goldsmiths began their business, they did productive work as jewelers, coiners, and safe warehousing which met the voluntary demand of others participating in the economy of productive work. When the goldsmith began loaning against their wealth, they still provided an exchange of something (as represented by the wealth they accumulated as a result of their work) for something (as represented by the borrower who would work to repay the loan). This is 100% reserve banking, or trade. Now, when the goldsmith makes any loan beyond the wealth accumulated it then represents an exchange of nothing (as represented by no thing to correspond to the paper) for something (as represented by the borrower who would work to repay the loan). This is 100% reverse banking, or theft. 

 

The most important thing to see is that counterfeiting is not the falsifying of the medium of exchange; it is not an obfuscation of the medium. Counterfeiting is the falsifying of actually having performed productive work and then passing along that lie as truth. Would be bank-runners won't initiate unless their blood is boiling.

Do you think that properly defining  "fractional reserve banking" by what it actually is, Reverse Banking, could instill such heat? Theft is immoral and criminal, is it not?

Sun, 07/27/2014 - 10:17 | 5009479 hoist the bs flag
hoist the bs flag's picture

nice

Sun, 07/27/2014 - 10:38 | 5009506 OC Sure
OC Sure's picture

+ 1

It is my hoisting of the certainty flag. ...Uncertainty is unacceptable.

Sun, 07/27/2014 - 10:47 | 5009513 shovelhead
shovelhead's picture

I get pissed off when I think of how hard I had to work for my little piles of dollars every week and yet the corner Bank can create millions of them every week by a data entry and gather interest on them .

My pile represents added value. Their huge counterfeit pile represents...nothing.

Yet each dollar is equal in the marketplace.

How could any rational person allow that to be legal is beyond me.

Ya' know, just keeping it simple.

Sun, 07/27/2014 - 17:29 | 5009554 OC Sure
OC Sure's picture

Rational people are deceived by tyranny which has them focussed on the medium instead of the two sides of the exchange being mediated.

This lie has gone on for generations that money is "just a medium of exchange." The lie permeates pop culture directly from college textbooks and in this manner modern economists and bankers are trained criminals; not behind closed doors or in dark corners of the populace but in the wide open in the clear light of day as if this makes it legitimate. Thus, tyranny, controlling the language, controls what the "culture" accepts as true.

Sun, 07/27/2014 - 16:06 | 5010309 logicalman
logicalman's picture

That's why THEY keep it complicated.

It would all fall apart real fast if they didn't.

If you print it, it's counterfeiting - if they print it it's quantitative easing.

TPTB use the law to commit crime (Gangsters - the Specials http://www.youtube.com/watch?v=lgCZN1rU5co )

 

Sun, 07/27/2014 - 14:08 | 5009962 ThroxxOfVron
ThroxxOfVron's picture

"

Instead of attempting to identify the medium itself as "genuine money" or not, simply identify the two sides of the exchange which the medium mediates as genuine productive work or not. This is the purpose of money; to mediate an exchange of productive work for productive work, and not just to mediate an exchange. Counterfeit mediates an exchange too; it mediates an exchange of no productive work for productive work."

 

Bingo.

Sun, 07/27/2014 - 09:24 | 5009349 damage
damage's picture

Yes fractional reserve banking has indeed passed the market test. The problem is fiat / "fictional reserve".

 

http://www.freebanking.org/2014/06/17/adam-smith-and-free-banking-disser...

 

From 1716 to 1845, the Scottish financial system functioned with no official central bank or lender of last resort, no public (or private) monopoly on currency issuance, no legal reserve requirements, and no formal limits on bank size. In support of  previous research on Scottish “free banking,” I find that this absence of legal restrictions on Scottish banking contributed to a proliferation of what Adam Smith derisively referred to as “beggarly bankers” which rendered the Scottish financial system both intensely competitive and remarkably resilient to a series of severe adverse shocks to the small developing economy.

 

Also see Canada pre-1935, no central bank and no reserve requirements.

http://www.cato.org/sites/cato.org/files/articles/tir_14_04_01_selgin.pdf

During the great depression there was one year where we lost over a third of our banks to failures, while in Canada, absent a central bank they lost zero.

The problems with the banking system in the US pre-1913 were caused by regs which required banks to hold $2 in US Treasuries to back every note they issued, along with the ban on branch banking.

The problem is fiat money or "fictional reserve" as I call it, not banks loaning out deposits so that the money can actually be used.

If you don't want a bank loaning out your deposits you can always purchase a safety deposit box and put your cash in there instead.

 

 

 

 

 

 

 

 

 

 

Sun, 07/27/2014 - 17:05 | 5010375 oudinot
oudinot's picture

Wonderful comment and correct.

However, although Canada didn't have a CB until 1935 the reason it did get one was that Saskatchewan (for you Americans, a small province between Alberta and Manitoba, a wheat basket) ,a province (state) of Canada defaulted on about $66 million dollars in 1933. On this weakness, the international bankers took over, presto Canada gets CB. Wouldn't suprise me if the banksters  manipulated Sask. down for this particular purpose but I don't know enough on the specifics  to comment intelligently. Seems like a miniscule amount in today's term, in the great Depression $66MM was real money.

Canada, like Norway (Oil)  has a small population compared to their vast  natural resources.  Everyone thinks our banks as solid, great-in reality they are crappy institutions, oligarchic, brain dead  and mean-its only because of the above they survived.  

Canadian banks have maneouvered real estate prices to such  a ludicrous  point there will be 'bad news', for the Can. banks when TSHF in Can. real estate.

 

Sun, 07/27/2014 - 09:43 | 5009419 BeetleBailey
BeetleBailey's picture
Has Fractional-Reserve Banking Really Passed the Market Test?

Depends on who you ask.......

Fuckstick wankin bankers? Political cunts? Bureaucratic taint lickers? Elitist swine? Lobbyist corporate douchebags?

Oh yes....yes indeed.

The masses?

95% have no idea what you're talking about

The other 5?

Market Test: FAIL

Stress Test: FAIL

Smell Test: FAIL

Steal Test: PASS

 

Sun, 07/27/2014 - 11:08 | 5009440 hoist the bs flag
hoist the bs flag's picture

...

Sun, 07/27/2014 - 10:20 | 5009490 Dapper Dan
Dapper Dan's picture

I just bought my wife's car, WE MADE $800.00 PROFIT !!

 

Sun, 07/27/2014 - 11:05 | 5009533 1stepcloser
1stepcloser's picture

did you take delivery of the car or do you just hold the title?  Cause if you only hold the title, 100 other people she slept with could also claim the car since they have a title as well.. LOL just teasing ya 

Sun, 07/27/2014 - 16:09 | 5010321 logicalman
logicalman's picture

Take a look at the ownership papers - it'll tell you you are the 'registered keeper' or some such bullshit.

Registration means you just gave title away to another party.

Do some research.

Sun, 07/27/2014 - 10:34 | 5009502 Atomizer
Atomizer's picture

What happen to our darling posting $9500 dollars. We can use GDP calculations and remove you from society. This should yield a positive growth structure. 

Let's recap, I make $9500 a month. Please hit my link to join into a ponzi scheme. 

Sun, 07/27/2014 - 11:43 | 5009624 geekz_rule
geekz_rule's picture

this is so silly. seriously. fractional reserve is plain and simply, absurd. all the debt, leverage and the infinite of silly evolutions of that.. derivitives, etc. it condenses unnatural amount of power in a few peoples hands. its 100% gaurenteed to end with corruption.

Sun, 07/27/2014 - 16:10 | 5010325 logicalman
logicalman's picture

Of course it's guaranteed to end with corruption.

That's where it started.

 

Sun, 07/27/2014 - 14:33 | 5010040 NAP
NAP's picture

Thanks for the article.  The Hulsmann paper was also very helpful to clarify issues about money (gold, bitcoin, etc.), fractional reserve banking, etc that weren't so clear having read Rothbard & others.

The implication is that spreading the word, educating people, about these issues will improve consciousness and help lead to a good money system whenever the present system crashes.

Sun, 07/27/2014 - 16:03 | 5010300 MASTER OF UNIVERSE
MASTER OF UNIVERSE's picture

"Free markets" for who?

The 1% rhetoric of "free markets" serves the 1% "free markets" but don't confuse the markets that the 1% use with the markets that the 99% use, please. The 1%ers borrow FED money-pump free money while the 99%er gets sub-prime car, home loans at significantly unfree market rates. If the 1%er had to borrow at the same loan rate as the 99%, a war would be initiated the moment they figured it out. Bottom line, RESTORE GLASS-STEAGALL.

OCCUPY THE AUTRIAN SCHOOL OF ECONOMICS OCCUPY Z/H - OCCUPY EVERYTHING

Sun, 07/27/2014 - 16:13 | 5010334 logicalman
logicalman's picture

Bottom line....

Realise thay you OWN NOTHING. You just pay fees for the use of the things you think you own.

The guy with the biggest stick can take what he wants, when he wants it.

If you have it, it just means he doesn't need it right now.

See "Bail-in"

Sun, 07/27/2014 - 16:53 | 5010422 RMolineaux
RMolineaux's picture

This item is a mass of gobbly gook full of undefined terms and defective logic.

Sun, 07/27/2014 - 18:49 | 5010785 JimS
JimS's picture

Read Stephen A. Zarlenga's "The Lost Science Of Money: The Mythology Of Money- The Story Of Power". The World's problem is having private banker;s controlling any country's money supply and it's regulation. Pure and simple.

Mon, 07/28/2014 - 01:14 | 5011625 JoJoJo
JoJoJo's picture

"Give to Caesar.." Caesars and kings have been minting the coinage from time immemorial. Take the mint away from Treasury/Fed and give it directly to a President/Congress and the outcome is eventually the same - massive overspending. Didnt the pre communist Csars overspend on things like railroads to nowhere across Russia? Once in a while you might get blessed with a Prez and Congress who are fiscally/monetarily conservative and who would not consider a Greenspan,Bernanke, or Yellen. But who could vote them in? Not the Free Stuff Army.

Mon, 07/28/2014 - 08:05 | 5012024 AdvancingTime
AdvancingTime's picture

I contend the primary reason that inflation has not raised its ugly head or become a major economic issue is because we are pouring such a large  percentage of wealth into intangible products or goods. If faith drops in these intangible "promises" and money suddenly flows into tangible goods seeking a safe haven inflation will soar. Like many of those who study the economy I worry about the massive debt being accumulated by governments and the rate that central banks have expanded the money supply.

The timetable on which economic events unfold is often quite uneven and this supports the possibility of an inflation scenario. A key issue being one of timing. If the price of gas jumps to $8 a gallon overnight do you buy gas and not make your car payment or stop driving the twenty miles to work? Answer, it could be months before your car is repossessed so you buy gas.

 It is important to remember that debts can go unpaid and promises be left unfilled. If this happens where does it  leave us? Chaos and major disruption would result from such a scenario. As we have seen from the economic crisis of 2008 and following many other unsettling developments legal actions can continue to drag on for years.  More in the article below.

http://brucewilds.blogspot.com/2014/04/inflation-seed-of-economic-chaos....

Mon, 07/28/2014 - 08:09 | 5012034 AdvancingTime
AdvancingTime's picture

We  are all interconnected for better or worse. A bad apple can spoil the whole basket. Welcome to the world our leaders have designed or allowed to form. Whether by design or merely as a byproduct of globalization we have weaved a web of financial transactions that circle the globe. Over the last several years as money was printed by the central Banks it was not contained in the countries where in was printed. This money flowed across borders influencing and distorting markets and prices across the world.

Some people have been calling for a "world currency" for years. the saying "one should never let a good crisis go to waste" means that a meltdown with high levels of fear would present a perfect opportunity and catalyst to advance this agenda down the field. Remember many people with agendas have a lot to gain when a major shift in the currency markets takes place. More on this subject in the article below.

http://brucewilds.blogspot.com/2014/02/contagion-may-lead-to-new-world-c...

Do NOT follow this link or you will be banned from the site!