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Money Creation - "So Simple The Mind Is Repelled"

Tyler Durden's picture




 

As John Kenneth Galbraith famously stated, "The process by which money is created is so simple the mind is repelled." As Peak Prosperity's Chris Martenson explains (as part of his excellent Crash Course), essentially, money is lent into existence though fractional reserve banking. The dollars you deposit at the bank? They turn into nearly 10x that amount as your bank subsequently makes loans using that money as collateral. As simple as the process is, nearly every American remains ignorant of it and its massive implications. At the heart of the matter is this: our money supply and its related debt obligations MUST continue expanding (thereby devaluing the purchasing power of each dollar ad infinitum) -- forever -- or the entire system collapses upon itself. Prepare to be repelled...

 

For those who simply don't want to wait until the end of the year to view the entire new series, you can indulge your binge-watching craving by enrolling to PeakProsperity.com. The entire full new series, all 27 chapters of it, is available -- now-- to our enrolled users.

The full suite of chapters in this new Crash Course series can be found at www.peakprosperity.com/crashcourse

And for those who have yet to view it, be sure to watch the 'Accelerated' Crash Course -- the under-1-hour condensation of the new 4.5-hour series. It's a great vehicle for introducing new eyes to this material.

 

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Sun, 08/03/2014 - 18:15 | 5041639 Freewheelin Franklin
Freewheelin Franklin's picture

LOL. "Crash course". Pun intended, I suppose.

Sun, 08/03/2014 - 18:18 | 5041645 jaap
jaap's picture

Need to see, for everyone. The whole series.

Sun, 08/03/2014 - 18:23 | 5041660 Publicus
Publicus's picture

Print money to fund economic activity. Then collect the money back from where they pooled, and cancel them.

People can then do whatever they want, plus, there is no need for tax.

Sun, 08/03/2014 - 18:29 | 5041680 Newsboy
Newsboy's picture

Good work, if you can get it, but you can't get it.

You aren't a banker.

Sun, 08/03/2014 - 18:51 | 5041753 CrazyCooter
CrazyCooter's picture

It is extremely important for folks to understand that the leverage in banking is not limited to 10x as is popularly repeated/recited/etc. Leverage is infinite given a very simple, and true, assumption.

Given a closed banking system (i.e. all banking activity in a nation can be consolidated to a fixed set of banks), banks will lend EVEN IF THEY DO NOT HAVE THE RESERVES. Why? Because banks can borrow at the intra-bank rate (e.g. LIBOR, Fed Funds, etc) and still make a decent profit on the spread between the borrow rate and the loan rate. This only works because the loan from Bank A will deposit to Bank B (in a closed system) such that Bank A can borrow from Bank B (i.e. at the LIBROR, Fed Funds, or equivalent rate) and still be within regulations.

To be clear, Bank A created moeny PAST their regulatory limit, but Bank B took the deposit and is by definition under their regulatory limit and therefore able to lend those funds in the intra-bank market to Bank A who origininated the loan.

This is all fine and dandy unless banks are run by greedy sociopaths, the leverage in the banking system is infininte.

<looks around>

I reccomending pulling your funds and putting CASH in a safe deposit box.

Regards,

Cooter

Sun, 08/03/2014 - 19:18 | 5041790 Dr Hackenbush
Dr Hackenbush's picture

Throw away the textbooks, the money multiplier is long since dead.  

edit: Actually the text books should have been thrown out a long time ago 

 

"In the real world, banks extend credit, creating deposits in the process , and look for the reserves later."

-Alan Holmes, then Senior Vice President, Federal Reserve Bank of New York (1969)

Sun, 08/03/2014 - 19:34 | 5041904 john39
john39's picture

Mystery babylon...

Sun, 08/03/2014 - 20:53 | 5042124 Seek_Truth
Seek_Truth's picture

Bingo!

"Your merchants were the world's important people. By your magic spell all the nations were led astray." - Revelation 18:23

Sun, 08/03/2014 - 21:07 | 5042215 Silveramada
Silveramada's picture

Indeed! 

And I would spicy it up even more adding Revelation 2:9 and 3:9...

Sun, 08/03/2014 - 21:24 | 5042257 BigJim
BigJim's picture

I'd still like to know how Martenson could afford Kermit for the voice over. Isn't he, like, an A-lister?

Mon, 08/04/2014 - 04:38 | 5042829 All Risk No Reward
All Risk No Reward's picture

Money is conjured out of thin air when a debt obligation that accrues interest is created.  Even the Bank of England finally came clean.

News Release - Quarterly Bulletin pre-release articles: ‘Money in the modern economy: an introduction’ and ‘Money creation in the modern economy’
http://www.bankofengland.co.uk/publications/Pages/news/2014/051.aspx

"In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood. The principal way in which they are created is through commercial banks making loans: whenever a bank makes a loan, it creates a deposit in the borrower’s bank account, thereby creating new money."

Money creation in the modern economy
http://www.bankofengland.co.uk/publications/documents/quarterlybulletin/...

They make it out of thin air and require that it be paid back with interest.

In the video above, the cash deposited was assumed into existence.  IT DOESN'T WORK LIKE THAT.

That cash was lent into existent at interest.

If the banks lend $20 to society @ 5% interest, in one year society owes the banks $21 due to double entry bookeeping adjustments that add $1 interest liability to society and $1 interest asset to the banks.

The monetary balance sheet still balances, BUT THE IMPORTANT PART IS **WHO** CONTROLS THE MONEY NEEDED FOR SOCIETY TO PAY BACK THE DEBT - AND THE ANSWER IS THE BANKS.

The society is not sovereign, it is a financial vassal of the monetary/banking system.

This was not news to Napoleon...

“When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”
 ~Napoleon

Also note that one person net positive position in debt money is some other person or group of person's inextinguishable debt.

The debt money system is a MONETARY BALANCE SHEET - A ZERO SUM GAME.

POVERTY IS A FEATURE OF THE SYSTEM, NOT A BUG.

When the debt pushers get wealthier, everyone else gets poorer.

All by design.

 

Sun, 08/03/2014 - 19:12 | 5041802 DoChenRollingBearing
DoChenRollingBearing's picture

 

 

Yes, I agree re keeping a decent amount of CA$H around the house, but...., 

They have been printing a LOT of $50s too.  I get mostly $50s from the ATM now.

The CVS "checkout machines" (replacing a cashier or two) now takes $50s.

Can they print iridium?

"$50 Bills, Iridium, Bitcoin app for iPhone"

http://goo.gl/pndDh3

Sun, 08/03/2014 - 19:32 | 5041896 Escrava Isaura
Escrava Isaura's picture

“Textbooks assume that money is exogenous.” … “In the United Kingdom, money is endogenous” Mervyn King, Governor of the Bank of England. 

Sun, 08/03/2014 - 19:42 | 5041931 DoChenRollingBearing
DoChenRollingBearing's picture

 

 

OK, + 1

(But I had to look up the two terms...)

The quotation is probably true of most other countries as well, not just the UK.

Sun, 08/03/2014 - 20:34 | 5042065 Dr Hackenbush
Dr Hackenbush's picture

endogeneous money indeed - each borrower is a mini Bernank 

Sun, 08/03/2014 - 21:39 | 5042322 lovejoy
lovejoy's picture

Crazy ... you are so sane.

When I hear the money creation based on deposit argument, I know that that person has never worked in finance. If a good loan opportunity walks through the door, does the banker go to the computer to see what his deposits are at the Fed? No, you just make the loan and worry about that later. In the worst case you can simply go to the interbank market market to get the necessary funds to meet you Federal Reserve requirements.

Mon, 08/04/2014 - 00:40 | 5042663 CrazyCooter
CrazyCooter's picture

And that sir is why the system's "heart attack" will be clearly visible in the "intra-bank market".

While I can't articulate, my gumption tells me the recent MMMF shenanigans are rooted precisely in this very mechanism. When short term goes tits up, it is all coming down ...

Regards,

Cooter

Sun, 08/03/2014 - 22:05 | 5042390 moonstears
moonstears's picture

Cooter, bank of Sealy trumps SDB, if shit gets squirrely. Buy US bonds, bitchez.

 

Mon, 08/04/2014 - 00:38 | 5042659 CrazyCooter
CrazyCooter's picture

It is a fair argument, but care to quantify the odds of your mattress being expropriated, via catastrophe or otherwise, vs a SDB?

The answer, the crux of the question, is simply one of odds.

Regards,

Cooter

Mon, 08/04/2014 - 09:46 | 5043353 Global Observer
Global Observer's picture

Banks can borrow reserves from other banks only if the other banks have excess reserves. However they can borrow reserves from the Central Bank. Only the Central Bank can create reserves. When a customer withdraws reserves from one bank and deposits them in another, the total reserves in the banking system doesn't change, it only affects the reserve balances of the individual banks. However, when a customer withdraws reserves from a bank, but does not deposit them in any other, the total reserves in the system will come down and if enough of them do it, the Central Bank has to purchase bank assets to infuse reserves into the system. That is what the Quantitative Easing programme was about, converting illiquid bank assets into reserves.

Mon, 08/04/2014 - 03:10 | 5042780 StychoKiller
StychoKiller's picture

I read "The Creature from Jekyll Island," 'nuff said.

Sun, 08/03/2014 - 19:22 | 5041868 williambanzai7
williambanzai7's picture

Sun, 08/03/2014 - 19:28 | 5041883 nmewn
nmewn's picture

Banzai, you've picked up your own personal troll!!!

Cool ain't it? ;-)

Sun, 08/03/2014 - 19:39 | 5041918 DoChenRollingBearing
DoChenRollingBearing's picture

My trolls are legion.  On the other hand, I ask for it...

Sun, 08/03/2014 - 20:32 | 5042107 nmewn
nmewn's picture

Oh yeah DoChen, if you haven't pissed someone off, by you being you, to the point of living rent free in their heads and them realizing you'll never change and them becoming a troll of you, so you can smile at every down vote, you really haven't accomplished anything in proving the existence of rabid little trolls ;-) 

Sun, 08/03/2014 - 21:26 | 5042261 BigJim
BigJim's picture

I reflexively downvote anyone who mentions downvotes.

Including (of course) myself.

Sun, 08/03/2014 - 21:29 | 5042270 fonzannoon
fonzannoon's picture

I reflexively upvote anyone who tries to downvote themselves.

Then I downvoted myself for having to reference this before replying

http://www.oxforddictionaries.com/us/words/themselves-or-themself

Mon, 08/04/2014 - 08:39 | 5043100 JamesBond
JamesBond's picture

I downvoted you to make it even

Sun, 08/03/2014 - 21:56 | 5042370 williambanzai7
williambanzai7's picture

Mon, 08/04/2014 - 12:29 | 5044234 michaelbrownira
michaelbrownira's picture

this is our reality (even if we close our eyes)

Michael Brown

Sun, 08/03/2014 - 18:19 | 5041650 MH17FLIGHT
MH17FLIGHT's picture

My last pay check was $9500 working 12 hours a week online. My sisters friend has been averaging 15k for months now and she works about 20 hours a week. I can't believe how easy it was once I tried it out. This is what I do... http://goo.gl/bhiamE

Sun, 08/03/2014 - 18:30 | 5041668 Skateboarder
Skateboarder's picture

edit: [for once], that comment is totally apropos for a thread.

Sun, 08/03/2014 - 18:52 | 5041754 cartonero
cartonero's picture

Yeah, I finally get it: MH17 and her sister's friend are bankers!

Sun, 08/03/2014 - 19:39 | 5041921 DoChenRollingBearing
DoChenRollingBearing's picture

Was that last word supposed to be "wankers"?

Mon, 08/04/2014 - 00:35 | 5042654 CrazyCooter
CrazyCooter's picture

I sure hope the Limerick King is around ... i see Bankers, Wankers, and Anchors ... comedy gold for the right mind!

Regards,

Cooter

Sun, 08/03/2014 - 18:29 | 5041681 stinkhammer
stinkhammer's picture

I had no idea that you made that much money milking horses for semen with your sisters friend.  keep it up loser!

Sun, 08/03/2014 - 18:46 | 5041733 Manthong
Manthong's picture

You flatter the troll.

The scammer is not of equine quality.

Rather, jackass DNA so their mother can spawn more siblings is most appropriate.

Sun, 08/03/2014 - 18:55 | 5041764 Yen Cross
Yen Cross's picture

 Don't confuse the "Jackass" with the "Mule" my friend. Both, loyal 1/2 breeds that have their own specialties.

Sun, 08/03/2014 - 18:52 | 5041755 codecode
codecode's picture

All the links on this site point to the following below - everyone feel free to contact them and report this persons affiliate information: http://homejobreport.biz/jump.php?offer=2980&0=&1=bo0326&2=&3=ab-27-a

 

Customer Service Email Contact: support [at] anytimeprofits.com 

Customer Service Telephone Contact: 877-976-5822 or (307) 212-8010 

Customer Service FAX: (307) 298-0011 

Business Hours: 10:00 am - 4:00 pm EST Monday - Friday

Sun, 08/03/2014 - 18:59 | 5041779 nc551
nc551's picture

MH17FLIGHT is a time traveler from the near immediate future where minimum wage is $800/hour, about the same as a gallon of gas.

Sun, 08/03/2014 - 18:20 | 5041653 kchrisc
kchrisc's picture

People should never forget that "printing" is theft.

 

"Guillotines are debt reduction."

Sun, 08/03/2014 - 18:34 | 5041694 Cliff Claven Cheers
Cliff Claven Cheers's picture

Why do individual banks fail if they can create money at will?

Sun, 08/03/2014 - 18:48 | 5041734 tickhound
tickhound's picture

I know u know this...

But individual banks can't create money at will, they can only create new money upon loan demand. They "fail" once they fail to entice you to borrow, artificially if need be.

So central banks become this demand of last resort... And since we don't seem to like loans at 3%, they deduced that we'd HATE them at 4.

YOU ARE HERE.

Sun, 08/03/2014 - 18:57 | 5041767 Cliff Claven Cheers
Cliff Claven Cheers's picture

My question was meant to provoke thought.  Everyone is surprised how money is created.  It is created by the banking system as a whole not individual banks.  No one bank can create their own money.  They get a deposit and they lend out 90% of it and that other 90% get deposited elsewhere and it is reloaned, etc, etc.  Individual banks still have to make good loans or fail in the real world, or in our world they get bailed out.  The money supply increasing should be a function of a growing economy. 

When the world was on gold standard and a nation that purchased more than they sold, their gold would migrate out of the country and they would experience a recession due to now having a smaller money supply and the country that received the gold would have a money supply that would increase and they would experience an inflationary period. 

The paper money supply has so many more advantages, we now can spend more than we have and continue to borrow to make up the difference due to money printing by the central bank.  People should be more concerned with the out right money printing by the Fed to support the government debt versus the natural money supply creation due to economic growth.

Sun, 08/03/2014 - 19:33 | 5041901 pods
pods's picture

Small correction Cliff, banks do NOT lend out deposits, but lend AGAINST deposits.

pods

Sun, 08/03/2014 - 20:20 | 5042073 Cliff Claven Cheers
Cliff Claven Cheers's picture

Potato Patato.  Just kidding.  Its been awhile since I studied economics.

Sun, 08/03/2014 - 19:41 | 5041916 Escrava Isaura
Escrava Isaura's picture

Cliff Claven Cheers, below is a repost. It should add some clarity.

Ladies and Gentlemen, REN, at Real Currencies.com:

Nature of debt money [dollar], specifically that created by hypothecation.

The hypothecation mechanism takes the borrower’s credit and assigns it to the banker. The banker then creates bank money, even though the debtor provided his asset or future labor. Banker’s risk is also low, as the debtor’s assets can be foreclosed.

This banker money splits into two parts at birth: A debt instrument is created i.e. loan documents, mortgage or some sort of debt claim. Simultaneously, the banker creates ‘his new’ money as an output of the loan. This money is called banker.

However, the instrument may travel a path different [where this fraud/loot gets in high gear]… The two entities may be disallowed from returning to each other, and hence they cannot cancel out. This is a clear danger…These two paths, and disallowing is not comprehended well by economists.

In the case of Germany circa Versailles treaty, a three way triangular flow was created. The allies had to pay back dollar denominated debts to America for war material borrowed. Germany in turn was put on the debt hook to pay dollars, gold, pounds or Francs to the Allies.

The U.S. didn’t allow much in the way of German goods importation, so Germany could not acquire dollars in trade to pay allies, who wanted dollars to pay their debts. Ultimately, Germany borrowed (more debt) from wall street to pay into the triangular flow. This triangular flow led to the hyperinflation, and ultimately a populist (Hitler) being elected.

Germany issued bonds to create credit money in Wall Street. Credit dollars found their way from Germany and ultimately to the U.S. treasury, as if they were going from one U.S. pocket to the other. However, Germany, England and France all had dollar debts that were outside of their legal system. They had difficulty acquiring the dollars to satisfy the debt instrument outside their country. This ultimately led to WW2.

It should be a cardinal rule in economics; never let your debts point outside of your legal system. How many need to die before this rule is learned? Debt money, even without usury is dangerous if not kept under control.

Lately, the U.S. has used debt instruments to create empire. A foreign country. lets say Bolivia, is hooked on dollar loans. The dollar denominated debt instruments are attached to the whole country and population. The BM [Bank Money] soon leaves the economy as much of it becomes bribe money for leaders, and the rest goes overseas to buy the power plant, or road construction machinery, etc.

The rosy economic picture of the World Bank projections never materializes, hence no dollars are available in local economy to cancel the debt instruments. Bolivia does not have enough dollars and the Bolivian currency comes under pressure.

At that time bear raiders [speculators] borrow BM money into existence and attack, causing the local money to collapse. Predators [US banks] can then enter with dollars and buy up the country, leading to Oligarchy. Or, dollar zone countries (U.S. with its military) may go in and demand their pound of flesh, i.e. resources such as oil extraction, in exchange for the debt relief.

So, usury turbocharges the debt problem, as there is not enough money to pay off the instruments. But, also there is a big problem of path, where the BM [Bank Money] is not available… it has disappeared.

Mon, 08/04/2014 - 10:08 | 5043444 Global Observer
Global Observer's picture

Banks can create liabilities (money), but only against assets (loans). If their assets don't perform (defaults by borrowers), they have to write off/markdown their assets. However, the liabilities they created would have already moved to the accounts of other customers or even to a different bank and hence cannot be reduced. So they have to reduce the shareholder equity on the liabilities side to balance the books. If the total loss in asset value is more than the shareholder equity, the bank becomes insolvent.

Yes, endogenous money creation by banks is quite useful and enabled the explosion of commerce that occurred since the industrial revolution. However, money is not wealth, just a token of value that is expected to be exchanged for wealth. Reckless expansion of money (debt) whether by commercial banks or the Central Bank doesn't by itself create wealth and could lead to a collapse of the whole system. Not the end of the world, but would definitely cause a lot of hardship for a lot of people when commerce ceases because of the collapse of the system.

Sun, 08/03/2014 - 18:48 | 5041741 kchrisc
kchrisc's picture

Individual banks can only create loan-fiat from stolen deposits. If they mismanage things and have too many bad loans,  they can have cash flow problems and go "tits-up." Also, as they get close to certain solvency ratios, the Fed and DC US tend to come in and transfer the bank to another bank to prevent runs and reductions in "Confidence"--fraudulent-reserve banking is, after all, a con.

So basically, the individual banks can only create loan-fiat that then needs to have a healthy flow of cash from their loan victims to stay afloat.

Sun, 08/03/2014 - 21:43 | 5042328 HardAssets
HardAssets's picture

That may be the case if you're a small bank. If you're a Too Big to Fail connected insider bank you get 'loans' (ultimately backed by the public) and don't even have to follow the old accounting rules. They do whatever they want.

Basically, the whole thing is a criminal fraud. They cover it up with lawyer, economist, and banker talk - but that's what it is.

Sun, 08/03/2014 - 18:54 | 5041757 icanhasbailout
icanhasbailout's picture

because it's a vital tool in fleecing the sheep of their former assets

 

see: Global, MF

Sun, 08/03/2014 - 18:20 | 5041657 rubiconsolutions
rubiconsolutions's picture

Isn't that a crime if I do it?

Sun, 08/03/2014 - 18:29 | 5041683 Skateboarder
Skateboarder's picture

Not if you put some eagle insignia and some 'official' sounding terms on there (and make a deal with the Fed).

Sun, 08/03/2014 - 18:50 | 5041673 FlyinHigh
FlyinHigh's picture

27 Chapters & 4 1/2 hrs. to learn "the banks are screwing us over"?

There fixed it in 6 words.

 

Sun, 08/03/2014 - 18:29 | 5041682 fonzannoon
fonzannoon's picture

you know things are bad when the comment trolls go on auto pilot

Sun, 08/03/2014 - 18:34 | 5041695 Skateboarder
Skateboarder's picture

I vote for a captcha comeback. No one likes machine bots; human bots are tolerable.

Sun, 08/03/2014 - 19:47 | 5041946 moonstears
moonstears's picture

Hey, was it just me back them? : I had to send a bitchy email after several days, as I recall, like standin' on the porch at the old house(in fight club)

Sun, 08/03/2014 - 18:55 | 5041761 icanhasbailout
icanhasbailout's picture

fear the High Frequency Trolling algorithm

Sun, 08/03/2014 - 18:30 | 5041686 Sudden Debt
Sudden Debt's picture

Ha! Even if everybody knew, they wouldn't care.
Why?
Well, because they'll say: I must own my money thanks to them!
And why?
Well, to be honest, most of us have lazy jobs that don't really qualify as hard work.
Half of my family are farmers and when I visit them, they mock me for my soft hands.
Their hands look like shovels that can break bricks and feel like sandpaper with a 100 grain.
I get a papercut from postit notes....

So for us, money is so easy and it's like a gift.
It's only for real hard working people that money gets a different meaning.

So if everybody would know... Shit would happen and the FED would be a rockstar.

Sun, 08/03/2014 - 18:37 | 5041705 db51
db51's picture

QUESTION ABOUT GOLD AND SILVER.   I do not own an ounce of gold or silver.   Today, I'm thinking, I've got 12K bushels of wheat that I am selling in the morning and was wondering the best way to convert the $ 65K into Gold/Silver without getting bent over for outrageous commissions.   Should I buy coins or bars.  

Goldman Sucks and the USDA will have wheat driven down to nothing by late fall...so I'm bailing now while the getting is good....and sitting on a bunch of ass wipe dollar bills doesn't look too promising either....and forget about stocks.    I don't want to invest in paper gold or silver.   Maybe I should order $ 65K worth of .223 and 9mm.  Would that raise some eyebrows or get me a visit from Homeland Security?   Really don't want to start the week with that scenario.

Sun, 08/03/2014 - 19:01 | 5041720 Cliff Claven Cheers
Cliff Claven Cheers's picture

You sound like a terrorist.  Why would you need gold and ammo?  I see a re-eduction camp in your near future.

Also you are getting out now while the getting is good which means you are no different than the banks, looking for a muppet bag holder.  I think that is called shitting on your neighbor.

Sun, 08/03/2014 - 18:49 | 5041723 fonzannoon
fonzannoon's picture

It would have been funny if you said "so i'm baling now while the getting is good" (wheat humor)

Sun, 08/03/2014 - 18:45 | 5041736 lotsoffun
lotsoffun's picture

i don't know if you are a troll pulling our legs.  all you need to know.  apmex.com 

Sun, 08/03/2014 - 18:59 | 5041780 db51
db51's picture

no troll.    Thanks for the info.   I need to get educated before someone fucks my lightsockets out on the transaction.  Trying to avoid that.  The Mrs. would not be happy seeing $ 65K vanish into thin air.

Sun, 08/03/2014 - 19:48 | 5041945 Deathrips
Deathrips's picture

Cash transactions under 10k are the best. if you are only worried about getting bent over on commissions, not a paper trail.

 

visit here.

 

www.comparesilverprices.com

 

RIPS

Sun, 08/03/2014 - 21:34 | 5042291 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Feds are only worried about $10000 green cash transactions.  They are the only ones aloud to launder money.  To wit, a few years back Wachovia/Wells Fargo were caught money laundering $373 billion in Mexican drug cartel.  They paid a fine of like $100 million and, of course, no one went to jail.

Tuco

Sun, 08/03/2014 - 20:34 | 5042037 DoChenRollingBearing
DoChenRollingBearing's picture

 

 

THIS will take almost $42,000 off your hands:

http://www.providentmetals.com/ohio-precious-metals-opm-1-kilo-gold-bull...

And, it's "Made in USA"!

Mon, 08/04/2014 - 20:03 | 5046627 lotsoffun
lotsoffun's picture

do chen - good advice - and you are certainly one of the reasons i come here to read.  on the other hand - buying smaller pieces allows one to sell off in smaller pieces, if i don't want to redeem the full kilo at one time.  for me, apmex over kitco anytime.  however - there are a number of small dealers in nyc.  bulliontradingllc.com has greatly improved their website and has good stuff also.

 

Sun, 08/03/2014 - 18:48 | 5041742 Skateboarder
Skateboarder's picture

Draw $4K out every month in cash and go to a local jeweller or coin shop and get it in person.

100oz silver bars pack a punch but I've found that 10oz bars give you the best value/mobility in the longer run. Coins are cool - buy some Royal Canadian Mint 1oz maples once in a while. As for gold, stick with 1oz RCM gold maples - people like those and they will be easily accepted anywhere without hesitation.

Sun, 08/03/2014 - 19:06 | 5041791 Cliff Claven Cheers
Cliff Claven Cheers's picture

You are giving Un American advice my friend.  You don't support the US dollar or what?  Purchasing gold is removing $s from the money supply and is contributing to shrinking economy. You should be telling him to but some shit not to hoard his money.  I suggest you watch what Keynes has to say here:

Fight of the Century: Keynes vs. Hayek

http://www.youtube.com/watch?v=GTQnarzmTOc

Sun, 08/03/2014 - 19:18 | 5041844 Skateboarder
Skateboarder's picture

I support no paper, Cliff. Wealth comes in many forms. Paper/digital currency is not one of them.

Buy a nice collection of a backpack, a tent, and sleeping bag, and a stove. That's real wealth right there.

Musical instruments are some of the best wealth. <3

Sun, 08/03/2014 - 19:26 | 5041878 Cliff Claven Cheers
Cliff Claven Cheers's picture

I am just messing with you, trying to get some good arguements going.  For some strange reason ZH is my entertainment.

Sun, 08/03/2014 - 19:31 | 5041881 moonstears
moonstears's picture

This used to be fight club, now it's Bernankeville...sigh.

...He loved big brother... (FAMOUS LAST LINES, YOU NAME THE BOOK)

Sun, 08/03/2014 - 19:32 | 5041895 Cliff Claven Cheers
Cliff Claven Cheers's picture

I miss the good ol days when Trav777 would flame it out with Tmosely.  I got a good laughs with those two.

Sun, 08/03/2014 - 19:36 | 5041912 moonstears
moonstears's picture

I got to pissing with Trav's biggot ass a few times. Still loved the free speech, it's not just a river in Egypt.

Sun, 08/03/2014 - 19:45 | 5041938 Cliff Claven Cheers
Cliff Claven Cheers's picture

I hear you he was a pea brain but his exchanges with other ZHers gave me some good laughs.  There are a lot of old timers I miss.  I wonder if most just read and do not comment any more.

Sun, 08/03/2014 - 20:04 | 5042003 moonstears
moonstears's picture

I was amazed. Back then it was too funny, could go anywhere. I'd get in just to fight, I'm not a Jew, not black, just not so simple minded. The way shit's going, in America, IMO, we may NEED friends. I figured biggotry, long ago, it's a tool. So I'd tell those guys to fuck off, too much smarts on ZH to be running that shit. Move near "X group" if so inclined, to avoid "those guys" but don't push away fellow patriots in this forum. JMO

Sun, 08/03/2014 - 21:37 | 5042311 BigJim
BigJim's picture

Speaking of Trav, there's a bit of classic Trav-ery two posts down this thread here:

http://www.zerohedge.com/news/2013-01-31/syria-threatens-surprise-respon...

Sun, 08/03/2014 - 21:26 | 5042266 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

In the 1933 the feds confiscated "bullion" gold and in 1934 confiscated "bullion" silver.  Buy circulated Pre-33 Gold and old silver dollars and pre-65 quarters, dimes and halves.  They are actual U. S. currency.

Personally, I hate buying any coin that has the eugenicist hag Queen Liz on it.  Plus maple leafs are bullion.

Tuco

Sun, 08/03/2014 - 19:07 | 5041744 moonstears
moonstears's picture

Suggestion for silver. Tomorrow take $9K, cash. Call a local coin dealer, tell him you want US "junk silver coin at close to spot, for cash". Now take the quoted kitco price of silver tomorrow. Now multiply by that  0.715. That's what you should pay per $1 face value for pre 1965 silver dimes, quarters and halves as close as possible.

P.S. You want to pay as close to $14.50(I did the math) cash per $1 face. You DO NOT want 40%, silver coin only 90% coins, remind him you're a cash buyer.  Morgan and Peace dollars are more, approx $20 each right now. Hope this helps. This is approx $620 face for $9K you should get dimes quarters and half dollar coins 1964 and back. NO Nickels.

P.P.S. As for me, I buy US SAVINGS BONDS! Best to you in the endeavor! 

Sun, 08/03/2014 - 20:17 | 5042064 withglee
withglee's picture

Why no nickels?

Sun, 08/03/2014 - 20:21 | 5042075 moonstears
moonstears's picture

Only silver US nickels are war years(WWII), 40%, he does not want 40%.

Sun, 08/03/2014 - 21:22 | 5042252 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Good advice, except "war nickles" are comprised of 35% silver.  You will not be able to buy at spot as you alluded.  If you can buy at spot ask plus $2 that would be a good deal.  spot ask plus $2 X .715 will give you the rate per $1 face value (i.e. 10 dimes).  Typically, you have to pay a bit more for halves.

Good luck.  Everyone should have a "survival bag" of $100 face value of junk silver.

Tuco

P. S.  In my extensive experience buying war nickels is the cheapest way to buy silver currency.

Sun, 08/03/2014 - 22:00 | 5042379 moonstears
moonstears's picture

Tuco, dealers who are at spot can be found. A fact, Sir.

Sun, 08/03/2014 - 18:36 | 5041710 grid-b-gone
grid-b-gone's picture

Citizens own the currency. Any expansion of the money supply should start with a distribution to the citizenry. Banks can bid for that new money using CDs or other finanacial instruments. This would also ensure valid CD market rates and let all-sized banks vie for new money equally. 

The current system exists precisely so equality is circumvented and the currency can be gamed by member banks.

 

Sun, 08/03/2014 - 19:17 | 5041713 OC Sure
OC Sure's picture

 

 

It is explained better and easier to understand here in just a few short paragraphs:

Fractional Reserve [Stealing] Cannot Be Banking -

http://ocsure.blogspot.com/   

Opponents of tyranny are wrong not to define what the difference is between money and counterfeit and why the former was invented in the first place. By not doing so, they accept the misuse of language and use the same falsehoods while attempting to argue against them. Accepting the false definitions while attempting to prove a point only exacerbates the misunderstanding. It appears this video is no exception.

 

 And this doesn't make sense: 

"At the heart of the matter is this: our money supply and its related debt obligations MUST continue expanding (thereby devaluing the purchasing power of each dollar ad infinitum) -- forever -- or the entire system collapses upon itself."

This is the same as saying that if the counterfeiting stops then the economy collapses. The exact opposite is true. 

If the counterfeit stops, people will still do productive work and the value of the currency will increase. The people who will be harmed the most are the ones who do not depend on productive work but depend on theft instead (and they deserve it!).

To say that stopping the counterfeiting will make the problems that counterfeiting causes worse does not make sense. It is like saying that if we stop bringing people with ebola into the USA then everyone will be at even more risk of catching the virus.

 

Sun, 08/03/2014 - 18:38 | 5041716 jal
jal's picture

Bull Shit!!!!

"The dollars you deposit at the bank? "

Money deposited is operating petty cash.

!0X is only an operational guide line to sound banking practice.

hehehe 

Sun, 08/03/2014 - 19:12 | 5041818 Dre4dwolf
Dre4dwolf's picture

Blacks Law Dictionary (7th Edition)

Deposit:

Definition 1:The act of GIVING money or other property to another who promises to PRESERVE it or to USE IT and RETURN IT in kind.

Definition 2:The money or property that is given.

-----

So lets break that down.

1) You give them 1$

2) They promise to "preserve it" or to "use it" and return it.

So Step 1 seems good "we give them 1$"

But Step 2, seems a bit broken, considering when you give them 1$ it turns into 9$, they are essentially diluting your money, not "preserving it".

So the promise is broken upon the act of lending.

So banking deposits are actually a scam, no one in theory should actually deposit their money unless they WANT the bank to steal 90% of its value off the bat.

^^.... 

Deposits amount to.... gifts from you to the bank essentially.

Now ask yourself this, does the bank pay taxes on the new money it created out of thin air? 

and also

Technically, when you deposit 1$ and they make 9 out of it . . .. where is YOUR cut of that 9? since essentially they could not create that 9$ without your 1$ to back it up.

So the "real value" of your 1$ is 9$ (in todays money) and tomorrows money means your 1$ is worth 0.10cents

So they are robbing you, making money off you, lending the money they made off you to someone else who then is in debt to them for the money they lent to him that they stole from you, and then they make "interest" ontop of that, which results in a NOTE which is again deposited and derivatize in another account to further the transaction add-infinity. . . 

lol

The fact that this system has not completely imploded on its day of inception is madness.

 

They fractionalize your money, your debt and the interest on your debt.

This is how when you borrow say 400,000$ to buy a house, it endsup costing you close to 1.5 Million over the term of the note..... all on money the bank never even had to lend you in the first place! ^^....

 

Sun, 08/03/2014 - 23:30 | 5041722 Dre4dwolf
Dre4dwolf's picture

All you need to know:

 

 

1) The one who prints the money is the master

2) The one who works for the money is the slave

3) People that point this out are shunned because people can't process that they are living in a cage of materialism.

 

 

Banking is not a legitimate sector of the economy, its the fraudulent criminal part that has been legalized because its such an effective scam to dis-impoverish a population, governments can't resist the temptation to rob their citizens, so the draconian systems like inflation, taxation, and usury continue to exist like a plague that we can not squelch.

 

When you print money out of thin air, there is no legitimate excuse to have any system of taxation in place.... municipal and govt bonds could simply be monetized add-infinium (like it is) but without the circle jerk scam to obscure the transaction needlessly and the system would operate more efficiently with less over-head.

The problem is you lose "enforcement" , the govt and banks lose a little power over the people to enforce a fraudulent debt based system on them.

You are already taxed with inflation, so the entire 2ndary form of taxation (income/sales taxes etc.) are essentially there to make you think you are paying for roads with your taxes, when nothing could be further from the truth.

Most of your taxes endup being payed to concealed share-holders of your supposed national central bank. . .  in foreign countries.

 

A nicer model/form of central banking would be to issue "shares upon birth" to all nationals born in the country, and every citizen is equal to one share in the Central Bank, with no more shares issued than citizens born, these shares should pay a dividend equal to profit-overhead / (shares by population).

So if the population is 10, and the central bank has 10 public shares (shares that extinguish at death and can not be traded). and the bank made 100$ profit it would be 100$ - overhead (not to exceed a certain %) divided equally among living share holders.

 

It would be perfect and "fair".

Its funny because the current system is the exact opposite , as a birth certificate does not signify a stake in society but rather a debt to it which is ludicrous because its slavery at birth if you think about it.

 

 

Sun, 08/03/2014 - 18:42 | 5041724 Captain Jack Sparrow
Captain Jack Sparrow's picture

Is Peak Prosperity related to Zeitgiest?  All of the fractional reserve issues were explained well in those movies

Sun, 08/03/2014 - 21:02 | 5042199 Seek_Truth
Seek_Truth's picture

An oldy, but a goody- Much better:

The_Money_Masters

 

Sun, 08/03/2014 - 19:05 | 5041731 realWhiteNight123129
realWhiteNight123129's picture

This is not hte way it works out.

First of all, let us redefine GDP into circulation. that means circulation of goods and services. The baker sells bread, the plumber sells plumbing services to the carpenteur who sells carpentry services to the Baker to create a simple loop of circulation

Baker --bread-->Plumber--plumbing services-->Carpenter--carpenting services-->Baker

In order to circulate good and services, the people need an instrument of circulation. The instrument of circulation can be money (in the old days a gold coin). But requiring all transactions to be settled with the gold coins is kind of an hassle, so people came up with a form of credit which did not invovled banks. Gold bills were instruments of circulation in Yorkshire for some time in the end of XVIII and beginning XIX century. In other words, people would trade goods and services for trade receivable "good bills" without a bank intermediation. 

So the Carpenter would receive a good bill from teh Baker, that a promise to pay in 90 days money (Gold), he would then pay with this bill the plumber and endorse teh bill (you would ahve two endorsment instead of one, excellent credit!). So this way the Gold could be used a multiple of times during 90 days without changing hands, at the end of the 90 days the Gold would clear all the bills and knock down all liabilities and extinguish them. 

This form of credit would not involve bankers at any point of time but just the economic agent. At some point bankers decided to buy those good bills and issue notes (currency) against those bills and make a spread. That instrument of circulation is not anymore credit but currency.

If a merchant decided to deposit some gold at the bank, the bank could also issue currency notes against the money. 

 

To recap: Instruments of circulation can be: Credit directly, money, or currency created by hte bank. The Bank creates currency against either Money (Gold coins M0 at the time, today FRN--M0), or credit (good bills).

The problems of today's monetary system:

 

1. An authority is able to create M0 (money) against crappy credit. In the old days, currency was created against a commodity (Gold-M0). M0 could  be minted (expansion of m0)  or melted (contraction of M0), leaving some discretion from the market participants in reducing or augmenting the money supply (minting) or convert that into bullion or `plate` as they called it at the time (shrinking money supply). Today M0 can be corrupted if it is issued against crap assets (MBS and TSYs)

2. Banks can accomodate a lot of leverage if all the credit is good bills, that is fine, the currency is fine, EVEN WITH LEVERAGE.  The problem is that usually with leverage comes bad credit.  The real problem is when bank create currency against bad credit. Then instead of letting bad credit fail, the Central Bank makes matters worse and breaks the principles of Thornton and Bagehot, that is never rediscount bad credit against BoE notes.

3. Currency is redeemable in money today (hence people go to the bank to withdraw M0 during a crisis, like thye did in hte old days with Gold coins), but since Gov can cheat and create more Central Bank Notes, that prevents the people to regulate interest rates and the amount of credit in the system. The regulation of interest rates by central planners is not possible in redeemable currency, as a result repression of rates and explosion of junk credit is not possible, bad credit is wiped off early in the cycle with redeemable currencies. The only redeemable currency left on the planet is Hong-Kong. There the people have the capacity to force interest rates up and curb credit, but the currency is pegged to crap (USD) instead of Gold and HKD suffers in a way similar to the British Pound during hte XIX century which would be constantly exposed to massive new discoveries of Gold. 

 

Sun, 08/03/2014 - 20:06 | 5042020 withglee
withglee's picture

And what is it you recommend?

Sun, 08/03/2014 - 21:27 | 5042268 realWhiteNight123129
realWhiteNight123129's picture

A system of redeemable currency. It could be based on Gold, could be based on bitcoin, silver, whatever really but a form of M0 not controlled by the Central Bank an Gov, and this form or M0 can be asked on demand to the bank. That keeps the bankers in check. In other words, no fiat system.

 

Sun, 08/03/2014 - 18:54 | 5041747 Oscar Mayer
Oscar Mayer's picture

That's not how it's done, that's the myth version.  The Fed, as well as the Bank of England have repeatedly stated that bank deposets play no roll in the credit creation process.  Fed held reserves play no roll in the credit creation process.  Banks create credit out of thin air 100% of the time and currently reserve 3% of what is deposited from the credit they created.  The purpose of reserves is to meet daily demands for the legal tender by bank customers, that's it.  !00% of all deposits held are credited accounts and of the $9+Trillion in U.S. deposts the banks are running naked on $8.7+Trillion of it.

All credit as currency is a promise to pay legal tender FRNs.  The credit itself, has no legal standing as a currency but all debts incurred through its use as such, are legally binding.

Now, let that work on your brain for awhile....

Sun, 08/03/2014 - 18:55 | 5041762 ebworthen
ebworthen's picture

Imagine if hot dog and sausage making was completely unregulated.

Welcome to the Central Bank Sausage Factory.

Roadkill, rats, and roentgens.

Bon appetit!

Sun, 08/03/2014 - 19:01 | 5041785 Seasmoke
Seasmoke's picture

Bad credit is all anyone really needs to know. 

Sun, 08/03/2014 - 19:11 | 5041813 Elliptico
Elliptico's picture

And if you fall behind on a loan, the banks will tale possession of the asset that was purchased with money that does not exist.  Now that is winning!

Mon, 08/04/2014 - 12:51 | 5044350 striped-pad
striped-pad's picture

Remember that the bank actually gave up some FRNs or equivalent when the borrower purchased the asset, so it's not like the bank is getting something for nothing. One of my biggest criticisms of "Money as Debt" is that it suggests that banks can create FRNs when a borrower signs a promissory note. In fact banks create a deposit, which they redeem in FRNs *which they must have obtained from elsewhere*. Deposits at a retail bank are basically the same as banknotes issued by that bank i.e. the bank promising to pay the bearer on demand.

Bank deposits are liabilities of the bank. FRNs are liabilities of the Fed. Banks cannot add a loan to their assets while adding liabilities to the Fed's balance sheet.

Have a look at the 2010 and 2011 posts on wheatonomics.blogspot.com to see how it works.

Sun, 08/03/2014 - 19:13 | 5041821 Urban Redneck
Urban Redneck's picture

The only thing accurate is the title: "So Simple The Mind Is Repelled"

Money is created when a banker or two decide they want to create money. Very often by one banker simply issuing it into existence to the other banker. Nothing more is required. A bank is free to create any amount of money it pleases so long as it doesn't fall below capitalization requirements- which is why a banking license is called a license to print money.

Joe the plumber and the Obamaphone EBT lady (and their deposits/loans to the bank) are rounding errors.

Sun, 08/03/2014 - 20:09 | 5042035 Yen Cross
Yen Cross's picture

 Personally, I thought your comment was concise and articulate...

Sun, 08/03/2014 - 23:40 | 5042582 hedgiex
hedgiex's picture

Second it

Mon, 08/04/2014 - 04:50 | 5042836 Urban Redneck
Urban Redneck's picture

Too much truthiness? I'm not normally direct and concise in my posts.

Sun, 08/03/2014 - 21:33 | 5042288 realWhiteNight123129
realWhiteNight123129's picture

The Central bank creates money. Banks create currency, they do not create money. Currency can fail (like Cyprus) can be created either against money (MO) when you deposit 100 USD bills in your account and your currency deposit rises, or can be created against credit when a merchant sells a receivable to the bank and gets some currency deposits against it. 

Currency created by banks can be redeemable for money (FRNs), can fail (Cyprus) and can bear interests. Money (m0) does not fail (Gold coin in the past, FRNs notes, or ECB notes -Cyprus- today). Money is not redeemable in something else, and does not bear interests. 

 

 

Mon, 08/04/2014 - 06:15 | 5042834 Urban Redneck
Urban Redneck's picture

Those are academic and semantic definitions of money and currency that don't hold up in the real world. For example, the definition of "currency" is not correct unless there is a qualifier attached to "currency" because without a qualifier, the word currency would refer to bank notes.

But regardless, the constraints on the process you describe don't even contradict what I wrote. As a banker I would get daily reports of vault cash, and (being one of those omniscient bankers) I would know with an amazing degree of certainty (to non-bankers) exactly how much money our hundreds of thousands of customers would collectively get paid (deposit) and would spend (withdraw) each day over the next week. If the projected net flow was undesirable against the projected stock and flow of vault cash, I would telephone my banker at the local Federal Reserve branch and have currency/money willed into existence... simply by the sound of voice and my positive reserve balance with the FED. Voila, a couple days later- banknotes that did not exist (even on the FEDs balance sheet) are delivered to my vault ready to be placed in circulation.

Getting back to So Simple The Mind Is Repelled: Let's say I wanted to fuck a girl from marketing on a big pile of $100 bills, that's all the reason I need to order 4 pallets of banknotes from the FED, there is no economics involved, just the desires and will of bankers which are only constrained by the balance of their master account at the FED (or their ability to manipulate it through creative accounting) and their profit motivation. It's a sick and perverted system.

Mon, 08/04/2014 - 12:58 | 5044392 striped-pad
striped-pad's picture

"I would telephone my banker at the local Federal Reserve branch and have currency/money willed into existence... simply by the sound of voice and my positive reserve balance with the FED. Voila, a couple days later- banknotes that did not exist (even on the FEDs balance sheet) are delivered to my vault ready to be placed in circulation."

While the banknotes did not exist beforehand, your bank's deposts at the Fed will be reduced by an identical amount. Total Fed liabilities are unchanged as a result of you requesting banknotes. Your bank now has fewer deposits with the Fed, but more banknotes. It's almost identical to someone using an ATM.

Mon, 08/04/2014 - 14:57 | 5045004 Urban Redneck
Urban Redneck's picture

The various measures of the money supply and the measure of total Federal Reserve liabilities are different things.

The OP was focused on paper money, so I ran with that, but it is the least important component... and sex jokes about stacks of preferred seniors would just be too dry.

Mon, 08/04/2014 - 17:43 | 5046026 striped-pad
striped-pad's picture

My point was that when a retail bank orders lots of cash, it doesn't just get willed into existence. It's just withdrawn from the retail bank's deposits with the Fed. For almost all intents and purposes, there is no difference between FRNs in the possession of the bank and the bank's deposits at the Fed.

I thought you were suggesting that a bank with a small reserve at the Fed allows it to obtain a large quantity of FRNs from the Fed, which I'm sure is not true. It can create lots of credit if it wants (its own liabilities), but it can't just obtain a whole load of new Fed liabilities without giving the Fed something in return.

If the bank does create lots of credit, and its creditors decide they want to be paid in FRNs, the bank has to (i) sell some assets to obtain the FRNs, or (ii) borrow FRNs using its assets as collateral (assuming the lender believes that its assets are valuable enough to secure the loan).

Mon, 08/04/2014 - 19:57 | 5046609 Urban Redneck
Urban Redneck's picture

Back in the Dark Ages, liquidation of part of the portfolio was a potential consequence of getting it wrong, particularly if you didn't have enough bankster frenemies who weren't wrong. But after I left there was the great Bernanke Enlightenment, and unless they repeal both TBTF and Trash-for-Cash, no one will ever have to sell or worry about THE lender believing their trash has enough value to secure the loan, which increases both the money supply and the FED's balance sheet.

Mon, 08/04/2014 - 22:05 | 5047200 realWhiteNight123129
realWhiteNight123129's picture

Bank notes are not currency today, they are money in fiat.

However bank notes in Hong-Kong are actually currency because redeemable into something else (USD).

Money is not the same thing as currency. Because currency is created against credit as well as money. Saying that money and currency are the same is wrong. Both are instruments of circulation, but that does not make them the same. Currency can be created against credit, but technically debt is redeemable is either rolled-over for new debt, but when you hit the low point in interest rates, essentially all credit because repayable in money at the same time. If you do nothing you have the XIX century banking crisis, or cyprus. So at the end of the credit expansion all debt try to find money to extinguished because rolling over is not possible.

If you had a meteorite of Gold falling on the earth, you could mint money and the debtors woudl find some money in the system to extinguish their debt. No meteorite and the currency would be destroyed, notes from Bank of Issue would fail and even currency of BoE could fail (like in 1825). If you make Bank notes irredeemable they become the equivalent of Gold coins and not fail on conversion because they are not convertible (ECB notes in cyprus). I hope that is clear. 

The great falacy of the banking trolls is to claim that currency created against credit (bank deposit) is the same thing at the FRNs, that is telling that currency deposits and Central bank notes (money) are the same thing. Tell that to the holders of coins durng the XIX century crisis or tell that to the holder of ECB bank notes before the crisis in Cyprus. The situation is vastly different during the crisis , they will make sure you get that point.

Sun, 08/03/2014 - 21:33 | 5042289 realWhiteNight123129
realWhiteNight123129's picture

Dupe

 

Sun, 08/03/2014 - 21:33 | 5042290 realWhiteNight123129
realWhiteNight123129's picture

Triple

 

Sun, 08/03/2014 - 19:21 | 5041863 stopcpdotcom
stopcpdotcom's picture

NOT money. CURRENCY.

Sun, 08/03/2014 - 21:35 | 5042307 realWhiteNight123129
realWhiteNight123129's picture

+1 Correct. The confusion created by the enemy should not repeated.

Sun, 08/03/2014 - 22:15 | 5042377 HardAssets
HardAssets's picture

J.P. Morgan (the man, himself) :

"Money is gold, and nothing else."

Before the Bank and Currency Committee, Washington, DC, 1912.

Mon, 08/04/2014 - 05:28 | 5042845 Ghordius
Ghordius's picture

not MONEY, not even CURRENCY. It's CREDIT that is created. Please don't forget that all this "reserve requirement" thing is just a regulative precaution against bank runs

yet credit get's created all the time. a bank is only an institution specialized in managing credit creation... by it's customers

the really repulsive thing is how bankers drive this kind of state-sponsored car, not the car itself

the very moment I give a loaf of bread without asking for immediate payment I'm creating credit, too. which on the other side it's a debt. to be estinguished through payment of currency or a loaf of bread

if I deliver the building materials for a house, I'm doing the same. my debtor might have made a deal with a bank involving putting the house as collateral and building it on credit. I am not supposed to discriminate against him, then I'm getting currency from the bank for my building materials, and the bank is supposed to give him credit against a reasonable collateral

what part of this planet has forgot is what is reasonable collateral. today, even a arts student with dubious carreer chances is deemed to be reasonable collateral, which is doubly repugnant because there we are using a young person's life as collateral (his future "income stream" being impounded), as if you could trade that person. there is the source of the "debt serfdom" which ails America

----

in short: you have to visit a US University. open credit spigots for US University studies means price levitation. then subsidies tend to levitate prices. meaning you have to get into debt, and after that you have to buy your home on credit, which is another subsidized American thing, and so subject to price levitation. and all this "you have to..." is both a cultural thing and a nice biz for banks... without regard to economy in it's most basic meaning, i.e. "living within your means"

the big rip-off is through the disregard of the economic and empirical fact that sustained subsidies - direct or through credit - levitate prices. and price levitation leads, eventually, to "someone holding the bag"

Mon, 08/04/2014 - 10:07 | 5043440 lovejoy
lovejoy's picture

Credit is money and the currency used in the transaction is controlled by the Sovereign which has a monoply by which it creates the demand demand for the currency through taxation. Without the demand for the currency to pay pay taxes, the currency would not exists. That is why you can't pay taxes in gold, goats, tomatoes, timber etc.

 

Mon, 08/04/2014 - 22:12 | 5047217 realWhiteNight123129
realWhiteNight123129's picture

In a double entry system of bank balance sheet, credit enters on the left side and currency enters in a quasi similar amount on the right side (thye make a spread). 

When you deliver money to the bank (FRNs), the FRNs are sitting ont eh left side of the bank while a currency deposit is create on teh right side of the balance sheet.

Currency and money do not even stand on teh same side of the bank balance sheet.

M0 (money) always sits on the left side of the bank balance sheet, and other currency sits on the left side of the banks balance sheet. Currency is a liability of the bank while money (M0 reserves) sits on teh right side.

That is another crucial difference betwen money (M0) and currency (other currrency aggregates)

Mon, 08/04/2014 - 05:23 | 5042853 Ghordius
Ghordius's picture

following up on this, if you want to intervene, you should do it smartly

a subsidy does make things affordable... IF it's not sustained. by sustaining a subsidy, you steal it's "magic" and compound the problem

a classic on the theme most humans aren't educated to understand, where "a little bit of a thing is good, and too much of it is bad"

Mon, 08/04/2014 - 05:39 | 5042864 Ghordius
Ghordius's picture

.

Sun, 08/03/2014 - 19:58 | 5041991 thetruthhurts
thetruthhurts's picture

And of course the funniest part is when Republican candidates for office harp on working towards a "balanced budget"  it, by its very nature, can never NEVER happen!

Sun, 08/03/2014 - 20:06 | 5042016 novictim
novictim's picture

Repelled!  Hell, YES!

My GOD!  It is like taking out a mortgage on a house and claiming you'll pay it back over 30 years! 

Crazy!

/sarc

Sun, 08/03/2014 - 20:48 | 5042154 q99x2
q99x2's picture

Not so simple. First you have to control the nation's government.

Sun, 08/03/2014 - 20:48 | 5042155 JimS
JimS's picture

There is no magic going on. This type of banking system (private bankers defining "money", creating "money" from thin air, and being in charge of regulating said "money") has been going on for the last 400/500 years. This is detailed in "The Lost Science Of Money" by Stephen Zarlenga. Read it.

Sun, 08/03/2014 - 20:50 | 5042163 Duc888
Duc888's picture

Dre4dwolf :When you print money out of thin air, there is no legitimate excuse to have any system of taxation in place.

 

Truer words were never written.  All taxation...ALL
OF IT, becomes totally punitive.

Sun, 08/03/2014 - 21:05 | 5042208 I Write Code
I Write Code's picture

 

Dre4dwolf :When you print money out of thin air, there is no legitimate excuse to have any system of taxation in place.

Yes!

Well, actually, to replace income taxes the fed would have to print $1.6t every year - plus whatever they've been printing recently (plus another $900b for social security).  Would that be so bad? The Fed would use this to buy endlessly issued tbonds.  CONVENIENTLY our Congress (ptui) has already given up on the limits to the federal debt, ceded it entirely to Obama.  Now, there is nominal *interest* due on these bonds, but so what, you just print that too.  Now, you'd expect this to lead to inflation - but it has not done so - not offically anyway! - in the last five years.

This is Bernanke's Gift and Obama's Stash.

How long can it keep on giving?

Of course the real limiting factor on this is not even inflation, it's corruption, but we are very near that end times on corruption already after the bankster revolutions of 1991, 1999 and 2008.

No, I don't expect this to end well at all, but I have trouble estimating the "when" of it.

Mon, 08/04/2014 - 00:04 | 5042606 RaceToTheBottom
RaceToTheBottom's picture

Just wait until the taxpayers and the FSA find that out.....

Game over

Sun, 08/03/2014 - 22:08 | 5042394 world_debt_slave
world_debt_slave's picture

this isn't going to end well

Sun, 08/03/2014 - 22:28 | 5042437 ginunn
ginunn's picture

The problem with people who trot out the fractional reserve banking paradigm is they leave their brain in their back pocket. Simply ask yourself when you've followed the argument to 10x multiplication, where is all the money? Hint: you don't have any.

Mon, 08/04/2014 - 02:23 | 5042747 shouldvekilledthem
shouldvekilledthem's picture

Bitcoin users are not affected. :)

Mon, 08/04/2014 - 05:24 | 5042855 Grouchy Marx
Grouchy Marx's picture

http://www.cmi-gold-silver.com/blog/money-as-debt/

Check out the video in the link above. It is an excellent presentation on the creation of money. 

Mon, 08/04/2014 - 05:28 | 5042857 Aussiekiwi
Aussiekiwi's picture

As simple as the process is, nearly every American remains ignorant of it and its massive implications

I thought everybody knew this by now?

Mon, 08/04/2014 - 07:16 | 5042943 A82EBA
A82EBA's picture

The sheep dont know and they dont want to know. They see us as the enemy party poopers hoping for collapse, trying to undermine their system. Its been 5 years, trillions of bailout injected and nothing blew up, 401s are a lot fatter. Pride and embarassment should put an end to this 'its not going to end well' narrative. We doomers have been beat in the short term and just need to keep stackin until it does blow up, and even then we wont get the credit for having insight because the sheep STILL wont connect it to the dollar in the end and you cant teach them what they dont want to learn. Preaching to the choir is going nowhere. TPTB are  still very much in control.

Mon, 08/04/2014 - 05:38 | 5042865 Anthony Migchels
Anthony Migchels's picture

It's true that money creation by the banks is an issue, but the main thing is the interest on their credit.

Because they create the loan, but not the interest on the loan, someone else has to go into debt to finance the interest payments on the original loan. This is the key driver behind endless money growth. This is known as P + I > P (where P is Principal and I Interest) in interest-free economics

Here's an article working this basic issue out to its fundamentals, it also addresses Austrian critique of this basic notion. 

This is another article working out the vital issue that the problem is not credit creation, but interest

Mon, 08/04/2014 - 12:30 | 5044240 striped-pad
striped-pad's picture

It doesn't matter if P + I > P. Yes, the borrower owes more to the lender than they originally borrowed. They can repay this by selling something to the bank or the bank owner, or to someone who sold something to the bank or bank owner.

Why would the bank or bank owners not sit on all the interest forever to prevent borrowers from repaying? Well the banks need to pay their running costs including employees, and their shareholders want to get a return on their investment so they can buy things. If directors won't release the profits, there would come a point where it would be extremely profitable for shareholders to force the bank to be liquidated. It's true that if there were a monopoly bank, it would be able to sit on the interest until people were forced to liquidate their real assets at low prices to pay the interest, but in a competitive banking system a bank wouldn't have that power.

What seems to be forgotten in this critique of debt money creation with interest is that profits can be spent in just about the same way as money created from borrowing.

Mon, 08/04/2014 - 07:19 | 5042946 AdvancingTime
AdvancingTime's picture

Good old paper as a place to store wealth.  The really big earners in recent years have benefited greatly from the surging stock prices as much of their income has come from financial markets and gains in equities. Many people seem to think this is the hope of our future.

When you have more than you need or want to put money away for a rainy day where do you store it? If you rated people on a "wealth chart" by how many tangible assets they owned you might be shocked to find much of the wealth people own is in paper and this is full of risk. More on this subject in the article below.

http://brucewilds.blogspot.com/2014/08/where-wealth-is-held.html

Mon, 08/04/2014 - 07:28 | 5042957 Jack4952
Jack4952's picture

QUOTES on MONEY CREATION by PRIVATE BANKS

                    Bankers

"Banking was conceived in iniquity and was born in sin. The Bankers own the Earth. Take it away from them, but leave them the power to create deposits, and with the flick of a pen they will create enough deposits to buy it back again. However, take it away from them, and all the fortunes like mine will disappear, and they ought to disappear, for this world would be a happier and better world to live in. But if you wish to remain slaves of the Bankers and pay for the cost of your own slavery, let them continue to create deposits." Sir Josiah Stamp, President of the Bank of England in the 1920s, the second richest man in Britain.

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

"The bank hath benefit of interest on all moneys which it creates out of nothing." William Paterson, founder of the Bank of England in 1694, then a privately owned bank.

"Let me issue and control a nation's money and I care not who writes the laws." Mayer Amschel Rothschild (1744-1812), founder of the House of Rothschild.

"The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests." The Rothschild brothers of London writing to associates in New York, 1863.

"I am afraid the ordinary citizen will not like to be told that the banks can and do create money. And they who control the credit of the nation direct the policy of Governments and hold in the hollow of their hand the destiny of the people." Reginald McKenna, as Chairman of the Midland Bank, addressing stockholders in 1924.

"The banks do create money. They have been doing it for a long time, but they didn't realise it, and they did not admit it. Very few did. You will find it in all sorts of documents, financial textbooks, etc. But in the intervening years, and we must be perfectly frank about these things, there has been a development of thought, until today I doubt very much whether you would get many prominent bankers to attempt to deny that banks create it." H W White, Chairman of the Associated Banks of New Zealand, to the New Zealand Monetary Commission, 1955.


                    Politicians

"I believe that banking institutions are more dangerous to our liberties than standing armies." Thomas Jefferson, US President 1801-9.

"When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain." Napoleon Bonaparte, Emperor of France.

"If the American people ever allow private banks to control issue of their currency, first by inflation, then by deflation, the banks and the corporations will grow up around them, will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." Thomas Jefferson in the debate over The Re-charter of the Bank Bill (1809).

"Money plays the largest part in determining the course of history." Karl Marx writing in the Communist Manifesto (1848).

"The government should create, issue and circulate all the currency and credits needed to satisfy the spending power of the government and the buying power of consumers. By adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity." Abraham Lincoln, US President 1861-5. He created government issue money during the American Civil War and was assassinated.

"The death of Lincoln was a disaster for Christendom. There was no man in the United States great enough to wear his boots and the bankers went anew to grab the riches. I fear that foreign bankers with their craftiness and tortuous tricks will entirely control the exuberant riches of America and use it to systematically corrupt civilisation." Otto von Bismark (1815-1898), German Chancellor, after the Lincoln assassination.

"That this House considers that the continued issue of all the means of exchange - be they coin, bank-notes or credit, largely passed on by cheques - by private firms as an interest-bearing debt against the public should cease forthwith; that the Sovereign power and duty of issuing money in all forms should be returned to the Crown, then to be put into circulation free of all debt and interest obligations..." Captain Henry Kerby MP, in an Early Day Motion tabled in 1964.

"Banks lend by creating credit. They create the means of payment out of nothing." Ralph M Hawtry, former Secretary to the Treasury.

"... our whole monetary system is dishonest, as it is debt-based... We did not vote for it. It grew upon us gradually but markedly since 1971 when the commodity-based system was abandoned." The Earl of Caithness, in a speech to the House of Lords, 1997.

                    Others

"Money is a new form of slavery, and distinguishable from the old simply by the fact that it is impersonal - that there is no human relation between master and slave." Leo Tolstoy, Russian writer.

"It is well enough that people of the nation do not understand our banking and money system, for if they did, I believe there would be a revolution before tomorrow morning." Henry Ford, founder of the Ford Motor Company.

"The modern banking system manufactures money out of nothing. The process is, perhaps, the most astounding piece of sleight of hand that was ever invented. Banks can in fact inflate, mint and un-mint the modern ledger-entry currency." Major L L B Angus.

"The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. The process by which banks create money is so simple the mind is repelled. With something so important, a deeper mystery seems only decent." John Kenneth Galbraith (1908- ), former professor of economics at Harvard, writing in 'Money: Whence it came, where it went' (1975).

 

Mon, 08/04/2014 - 12:10 | 5044132 striped-pad
striped-pad's picture

There is no need for the money supply to increase forever. (Incidentally I prefer to say 'quantity of money' than 'money supply' because the term 'supply' in economics suggests a quantity per unit time). See the posts from 2010 and 2011 at wheatonomics.blogspot.com.

In summary, as bank owners spend their profits on food, fast cars, top hats, etc., the borrowers are able to sell something to obtain this money, which means they can now pay back the interest they still owe.

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