This page has been archived and commenting is disabled.
Who Said: "If Rates Go Negative The Treasury Will Print A Lot More Currency"
With the Danish central bank earlier today cutting the deposit rate further into unprecedented, negative territory, taking it lower for the 4th time in 3 weeks to a record low -0.75%, after both the European and Swiss Central banks did the same, leading to a monstrous $3.6 trillion, or 16% of total, in global government debt trading with a negative yield.
Which brings us to this blast from the not so distant past. Our question to readers: who said the following?
- if rates go negative, the U.S. Treasury Department’s Bureau of Engraving and Printing will likely be called upon to print a lot more currency as individuals and small businesses substitute cash for at least some of their bank balances.
- I might even go to my bank and withdraw funds in the form of a certified check made payable to myself, and then put that check in a drawer.
- If bank liabilities shifted from deposits to certified checks to a significant degree, banks might be less willing to extend loans, because certified checks are likely to be less stable than deposits as a source of funding.
- As interest rates go more negative, market participants will have increasing incentives to make payments quickly and to receive payments in forms that can be collected slowly
- if interest rates go negative, the incentives reverse: people receiving payments will prefer checks (which can be held back from collection) to electronic transfers
And the punchline:
- we may see an epochal outburst of socially unproductive—even if individually beneficial—financial innovation
If you said, the Federal Reserve Bank of New York, feel free to issue a $1 billion negative interest rate bond and retire with the proceeds.
* * *
Here is the full post, courtesy of Kenneth Garbade and Jamie McAndrews of the NY Fed:
If Interest Rates Go Negative . . . Or, Be Careful What You Wish For
[T]his post examines some of the possible consequences. We suggest that significantly negative rates—that is, rates below -50 basis points—may spawn a variety of financial innovations, such as special-purpose banks and the use of certified bank checks in large-value transactions, and novel preferences, such as a preference for making early and/or excess payments to creditworthy counterparties and a preference for receiving payments in forms that facilitate deferred collection. Such responses should be expected in a market-based economy but may nevertheless present new problems for financial service providers (when their products and services are used in ways not previously anticipated) and for regulators (if novel private sector behavior leads to new types of systemic risk).
Cash and Cash-like Products
The usual rejoinder to a proposal for negative interest rates is that negative rates are impossible; market participants will simply choose to hold cash. But cash is not a realistic alternative for corporations and state and local governments, or for wealthy individuals. The largest denomination bill available today is the $100 bill. It would take ten thousand such bills to make $1 million. Ten thousand bills take up a lot of space, are costly to transport, and present significant security problems. Nevertheless, if rates go negative, the U.S. Treasury Department’s Bureau of Engraving and Printing will likely be called upon to print a lot more currency as individuals and small businesses substitute cash for at least some of their bank balances.
If rates go negative, we should also expect to see financial innovations that emulate cash in more convenient forms. One obvious candidate is a special-purpose bank that offers conventional checking accounts (for a fee) and pledges to hold no asset other than cash (which it immobilizes in a very large vault). Checks written on accounts in a special-purpose bank would be tantamount to negotiable warehouse receipts on the bank’s cash. Special-purpose banks would probably not be viable for small accounts or if interest rates are only slightly below zero, say -25 or -50 basis points (because break-even account fees are likely to be larger), but might start to become attractive if rates go much lower.
Early Payments, Excess Payments, and Deferred Collections
Beyond cash and special-purpose banks, a variety of interest-avoidance strategies might emerge in connection with payments and collections. For example, a taxpayer might choose to make large excess payments on her quarterly estimated federal income tax filings, with the idea of recovering the excess payments the following April. Similarly, a credit card holder might choose to make a large advance payment and then run down his balance with subsequent expenditures, reversing the usual practice of making purchases first and payments later.
We might also see some relatively simple avoidance strategies in connection with conventional payments. If I receive a check from the federal government, or some other creditworthy enterprise, I might choose to put the check in a drawer for a few months rather than deposit it in a bank (which charges interest). In fact, I might even go to my bank and withdraw funds in the form of a certified check made payable to myself, and then put that check in a drawer.
Certified checks, which are liabilities of the certifying banks rather than individual depositors, might become a popular means of payment, as well as an attractive store of value, because they can be made payable to order and can be endorsed to subsequent payees. Commercial banks might find their liabilities shifting from deposits (on which they charge interest) to certified checks outstanding (where assessing interest charges could be more challenging). If bank liabilities shifted from deposits to certified checks to a significant degree, banks might be less willing to extend loans, because certified checks are likely to be less stable than deposits as a source of funding.
As interest rates go more negative, market participants will have increasing incentives to make payments quickly and to receive payments in forms that can be collected slowly. This is exactly the opposite of what happened when short-term interest rates skyrocketed in the late 1970s: people then wanted to delay making payments as long as possible and to collect payments as quickly as possible. Some corporations chose to write checks on remote banks (to delay collection as long as possible), and consumers learned to cash checks quickly, even if that meant more trips to the bank, and to demand direct deposits. However, if interest rates go negative, the incentives reverse: people receiving payments will prefer checks (which can be held back from collection) to electronic transfers. Such a reversal could impose novel burdens on payment systems that have evolved in an environment of positive interest rates.
Conclusion
The take-away from this post is that if interest rates go negative, we may see an epochal outburst of socially unproductive—even if individually beneficial—financial innovation. Financial service providers are likely to find their products and services being used in volumes and ways not previously anticipated, and regulators may find that private sector responses to negative interest rates have spawned new risks that are not fully priced by market participants.
* * *
... Such as negative interest rate mortgages, first in Denmark, and soon in every NIRPy banana republic near you.
h/t @ButlerGoldRevo
»
- 19562 reads
- Printer-friendly version
- Send to friend
- advertisements -
Isn't it already illegal to be your own bank???
I think it is now illegal to be a saver.
Give it time.
Expect folks like silvercards ( physical silver backed ATM service providors ) to do a lot more business.
Here comes the $1000 bill sporting Obongo's face.
SHit... We Need A $50K Bill At Least, Like Zero-GOLD-Canada Printed A few years Back...
NIRP Is Probably the Start Of The End For The Current Fin System...
What about the guys living paycheck to no paycheck..?.or don't have $10 in the prison bank
The Fed has been warning us for over 4 years that the recovery talk was all bullshit if one looks at the graph in this article:
Commercial Paper Issuance Continues to Indicate no Real Economic RecoveryThe government will make possession of more than $5k in cash a felony -- to protect the children, or something like that.
what DO people do with their fiat in a negative interest rate environment? where do you put it?
What have the German proles been doing? Mattresses and Home safes?
Is this the time of Denninger's prophesied "buy assets for pennies on the dollar as people disgorge of "valuables" for scarce fiat"?
Sheeple go out to eat judging from the trending numbers on waitstaff employees, let us eat and drink for tomorrow...
Not so sheeple, like J. rawles recommend that we go into tangibles:
.
We've been f'd pretty hard. It makes sence too, because there are so few of us savers, more people like to consume, so they throw us to the wolves.
No, they love savers. Sort of how I love cows because I enjoy eating them for food.
Those bank fuckers can bite my shiny metal ass.
Cash please.
'Gold please'.
See, I fixed that for you ;)
I still can't figure out if the bonds have a positive Yield-To-Maturity despite their negative current yield...there has to be a catch, people are not dumb enough to lose money, are they?
No, it's actually a negative YTM because they are purchased well above par value.
Stupid is relative. If you have hundreds of billions and no place to put it you can't just put it in a bank because the deposit is only insured up to a modest dollar ammount ($250K in a US FDIC insured account). Who would have that kind of scratch sloshing around? Think it through. You'll get there.
Nobody ever went broke underestimating the stupidity of the public.
Pension fund managers are.
We had the book Flat World- a world strictly in 2d. But that pales in comparison to the wackiness of NIRP world.
Long fire resistant home safes.
When the psycho Banksters make the rules the world will be fucked, Bitchez. -Thomas Jefferson-
"Don't believe everything you read on the Internet." - Mark Twain
With rates at negative, what people will need is some kind of large building with a vault and security where they can hold cash and deposit and withdraw it as they wish.........kind of like what a bank was 50 years ago......food for thought.
This will soon be made to be illegal.
If its all the same to you I'll trade out of paper and watch the value of the holding go up.
Of course I'm accident prone ;-)
You're no sailor.
Well, certainly a strong case for PM's! In this insane environment of negative yields, surely gold & silver will come to the fore. It makes much more sense than holding cash, and it would seem would take up much less space if you were an oligarch for example.
Go PM's!!
"Civilised people don't own gold" - Chuck "Civilised" Munger.
Gold and silver might "pay" zero percent, but that's starting to sound more and more like a bargain.
It's only 'money good' if it's in hand.
"if you save you are helping the terrorists..think of the burning man and hang your heads". a quote from some jew at the FED was it mr yellen? well it don't matter they are all jews at the fed.
Refer to "Mr." Yellen quote in 2010 per Reuters:
http://www.reuters.com/article/2010/02/22/usa-fed-yellen-idUSN2222725320...
It would appear that we are about there now.
Tyler,
You do great work here, please keep it up. Don't give your enemies cause to discredit you by using misleading headlines...This is NOT a Fed primer, as the link you provide clearly disclaims:
[...The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors...]
Meh I dont know... 10yr has been on an interesting up trend last few days. A serious pause will need to occur or the yields may continue that upwards march towards June.
NIRP is the dumbest idea yet. "Hey, since we can't get the inflation we want let's steal the product of people's labor out from under them directly."
As deposits exit, the leveraged banking system has to start calling in loans and delevering.
This is like the prelude to the most massive financial train wreck the world has ever seen.
Why would they have to delever when the FED has their back with ZIRP/NIRP? It just turns the whole banking system into a bunch of Central Bank zombies that John Q Public has very little use for so then the FED just declares all the paper worthless unless you turn it in for the new paper scheme. Hard assets anyone?
Unlikely scenario for the Fed to declare dollars worthless and reissue new dollars. Weimar Germany had to reissue because faith in the currency was shot and inflation and interest rates were massively high. This is the opposite. This is negative rates and a deflationary shock.
They are effing this up royally, but they won't do it on purpose by declaring paper money worthless. More likely the fed will cancel it's bond holdings and monetize the debt.
But negative interest rates are an incredibly dangerous idea. It is incredulous that this is actually all happening in reality. It's like a chapter from a financial market disaster book. 50 years from now students will read about this and wonder what they were thinking.
I certainly agree with you on hard assets. The modern world has never seen a globally coordinated effort to debase and devalue currencies as fast as possible like this in recent history. If ever.
But..cost of necessities will keep rising. Just as services you render will command lower and lower prices:
"You know its serious when the entire City of Chicago goes under."
Only Valerie Jarret is left.
The REIT INDEX fund has been compounding for what....TEN STRAIGHT YEARS? THIRTY?
Well thank goodness for the internet!
"We'll IPO this sucker! It'll be fine!"
Meanwhile back in what's left of the Republic...
--If rates go negative, we should also expect to see financial innovations that emulate cash in more convenient form--
I wonder how cryptocurrencies would fare? Should we expect them to become convenient to use like cash in this scenario?
I'm sure the NSA faction would love that.
Please. Researching the subject is advised before you spread your ill informed conclusions.
So if I borrow $100,000,000, at negative 1% annual interest, the lender will pay me $1,000,000 per year to have the loan? This should work...
It's a small club, and you ain't in it.
+1, even though you forgot to give credit to whom it is due: George Carlin.
Not exactly. If you have money in pensions, they will start stealing that, at an ever increasing rate. This is the baby boomers' bill coming due, for a lifetime of living beyond their means. Old age impoverishment. A MYRA created by the FED.
If you are some sort of government, yes, but I seriously doubt it.
If rates get too negative, there will be runs on banks, as people will close their accounts and demand cash. Nobody is going to put a big cashier's check in a drawer, if there is a chance that bank goes belly up and that check becomes worthless.
This is check kiting in reverse, and the bank customers are the fools!
Sorry. Is will be illegal cash checks with no account.
If it's individually beneficial, who gives two shits if it's socially unproductive??
Question for Tyler: if rates in the US go negative, will the TSP's G fund lose money for those invested in it?
This reminds me of the situation in Chile during the Allende/Pinochet years when a US dollar cheque may end up with half a dozen endorsements on the back. Incidently, a million dollars will fit into a standard business briefcase if they are all new 100 dollar bills. I know - I've done it.
And a million dollars in Gold Eagles easily fits in a monster box, though I can't say I've done it.
That would be a neat trick (or a mathematical error)...
If you haven't already, time to buy gold motherfuckers. This all can't end well.
Bullish on bitcoin and counterfeiters ... but I repeat myself.
This site makes me laugh and tired. One day we read how inflation is bad. The next deflation is bad. I have wiplash.
Either is bad when you get massive amounts due to screwy monetary policy.
And in my world we are getting both. Economic deflation and monetary (debt) inflation, so the whole discussion inflation-deflation is moot. As the velocity of money goes doen (economic deflation) they will make up for it with inflaction (debt bubble) to keep GDP from plunging, as there's nothing else to do for them to keep it all together for a bit longer. The moment the debt bubble bursts all hell will break lose.
Negative interest rates leads to lots of cash outside of the banks. Of course! I was wondering where I was going to get the cash to put in my wheel barrow when hyperinflation sets in. Now I know.
hey this is really is one big hedgefund....where I pay for the privledge of them making money using mine! AWESOME....I am in a hedgefund...losing even more than the crooks running my government
Just me, or are TPTB trying to increase "the velocity of money"...
Biggest Fund in Denmark Not Hedged Against Euro Peg’s Collapse
5 February 2015, by Peter Levring (Bloomberg)
http://www.bloomberg.com/news/articles/2015-02-05/biggest-fund-in-denmark-not-hedged-against-euro-peg-s-collapse
Oeps!
There goes what's left of the Amazon...
Only gold makes COMMON sense.
I read an article earlier this week in the bathroom at work. It was from Rolling Stone edition back in 2012. The article was asking celebities about certain political current events. One common question was getting their opinions on the Occupy Wall Street Movement. Sting's answer made me quiver. He basically said that he likes the movement and said that money has to exist because our society is so dependent on it. Then he said that banks need to charge negative interest rates, because you shouldn't make money by just having it sit there (or some bs like that).
I couldn't believe it! This was 4 years ago!!! They put this crap out there in pop culture to get us acclimated to their agenda. Get your money out while you still can. Once they start charging you to keep your money there, a run on the banks isn't far behind. Better yet, buy gold and silver. They are a store of value. Help raise awareness to your friends and family. These candles with silver coins make great gifts: https://www.etsy.com/shop/ScentSavers?ref=hdr_shop_menu
They help 'normal' people understand the value of real money. Like the fact that one dime from 1964 and before is worth over 12 times over their face value. Its obvious to anyone to see the decrease of the dollar and the stability of real money!
Geez, what a collection of ignorant posts. There is Money (Legal Tender) and there is credit (an Obligation to pay Legal Tender). Money (Legal Tender) is not a digit you carry about on a debit card, it is a printed note, a physical medium that you can hold in your hand, fold and put in your pocket, free of obligation or claim. That digit you access via your debit card is actually bank debt. Think about it, you've been using bank debt as a medium of exchange, and it has nothing to do with the actual Legal Tender money supply, other than it represents the bank's obligation to pay in legal tender. We use credit/debt as a medium of exchange but it holds No Legal Status as a currency, not even the credit issued by the Fed.
The Fed is required by law to back every FRN it puts into circulation with its assets of equal value. Banks are required to submit unencumbered assets of equal value to the notes received from the Fed.
There are $1.33-Trillion FRN's in circulation around the globe, over half of that circulates outside the U.S. There is $10-Trillion in 'credited' deposit accounts. Do the math....
You're on the money; however pliable gold (and silver) may be...
But you'll need some LEGAL tenderers to render your "Legal Tender".
It's like that glorious sheepdog and the sheep parable. You know, where the mighty Hollywood actor looks after the other dumber than fuck fellow soldiers? What if the sheepdoggy is, say, Charles Manson?
Banknotes are not the only legal tender, and US banks can and do clear their local FED account daily with actual "digital" money (although in a pinch there other alternatives). I know because I've done it. A Federal Reserve note may be legal tender for all debts, public and private (assuming the Secret Service isn't called in to deem the legal tender a forgery), but a federal reserve credit is also legal tender because it is actually the same obligation.
That said, debit cards are for little people (who don't have FED accounts) and what a customer gives to a merchant is a simple bank credit obligation, but when that same transaction is settled between the customer's bank and the merchant's bank-- digital legal tender is exchanged between the two FED members (unless one of them is having "difficulties" then something less than digital legal tender may be used to settle.
The interesting questions that comes to mind, (and I can't answer them off the top my head after a decade away) are what happens to those "legal tender" cotton-linen banknotes when they are deposited in a US bank, and become "vault cash" (and then if that same vault cash balance is encumbered by the bank to deal with other obligations), and what is the physical notes' status before, and while, they are in transit from the FED to a member bank to be placed in circultaion, but the receiving bank hasn't actually signed the paperwork yet?
Please explain how a digital I.O.U. a Federal Reserve Note is the same obligation as the Federal Reserve Note thst is owed? How does that work?
The Fed defines credit as such: "Credit dollars are a debt generated currency that is denominated by a unit of account. Unlike money, credit itself cannot act as a unit of account. However, many forms of credit can readily act as a medium of exchange. As such, various forms of credit are frequently referred to as money and are included in estimates of the money supply."
Credit holds no legal status as a currency, but all debts incurred through its use as such, are legally binding.
What I am talking about (electronic FRNs and cotton-linen FRNs are both direct obligations of the Federal Reserve (not the member bank) and denominated in US Dollars.
I wouldn't agree that credit holds no legal status as currency because 1) USC delegates to the Secretary of the Treasury or his designee (such as the IRS, OFAC, FinCEN) authoity to define (fuck with) definitions in pursuit of policy (tax collection, money laundering, counterfeiting, bribery, et al.), and 2) 31 USC 5103 (the evil legal tender law) reads "... currency (including Federal Reserve Notes AND circulating notes of Federal Reserve banks [notice the AND, implying differentiation and clarifying my differentiation above] and national banks) are legal tender for all debts, public charges, taxes, and dues."
Economics textbooks and FRB web pages are usually written by economists, not bankers and lawyers (who write their own laws and then impose them on everyone else).
31 USC 5103 defines legal tender, credit/debt is not included in that definition. Yes, both cotton-linen FRNs and the credit issued by the Fed are obligations of the Fed, but only the cotton-linen FRNs are the money supply, the credit is not. An obligation to pay in legal tender cannot be the legal tender. The same exact priciple applies between Legal Tender and the Credit promising to pay in Legal Tender, as applied between Gold and Notes promising to pay in Gold. The notes promising to pay gold acted as a medium of exchange, but the debts incurred with the note weren't settled until they were paid in gold. Same holds true for the Credit we use as a medium of exchange.
Credit issued by the Fed is the same as the credit issued by any other bank, private credit, an obligation to pay in legal tender and not part of the actual money supply.
The circulating notes of the Federal Reserve banks are based in the reserves held at the Fed, instead of shuffling reserves around from bank to bank, they use representional notes.
Your are confusing what you (personally) use as a medium of exchange with another person and what banks use as medium of exchange with other banks.
As to the money supply - the definition of "currency" as used by the FRB in the calculation M0 is meaningless (legally) - it is determined solely and at the whim of the FED. But the without MB, the US don't even have a fractional-reserve banking system, they would have a zero-reserve banking system. The reserves are the settlement currency (FED credits to banks/obligations of the FED) in the modern banking system.
No I'm not, two entirely different notes. One is the FRNs we use and the other is the notes denominated in the FRNs we use (held as reserves) that the banks use amongst themselves, primarily for interbank loans. They probably do all that digitally these days.
All legal tender notes are the settlement currency, $1.33-T in circulation and another $2.6-T held as reserves to settle the $10s of Trillions in credit created by banks, Wall Street and the Fed. Credit creation is the true cause of inflation, not the legal tender fiat that gets blamed.
"Congress has specified that a Federal Reserve Bank must hold collateral equal in value to the Federal Reserve notes that the Bank receives. This collateral is chiefly gold certificates and United States securities. This provides backing for the note issue. The idea was that if the Congress dissolved the Federal Reserve System, the United States would take over the notes (Fed liabilities). This would meet the requirements of Section 411 (Federal Reserve Act), but the government would also take over the assets, which would be of equal value. Federal Reserve notes represent a first lien on all the assets of the Federal Reserve Banks, and on the collateral specifically held against them."
Now, what does the government NOT get in that transaction?
It does not get the Trillions in credit created by the banks and Wall Street!
Why is that you may ask?
Because all that credit created by the banksters and Wall Street IS NOT PART OF THE MONEY SUPPLY!!!
It is because we conflate money with credit, we are living in a bankster's paradise (debt hell for us).
Credit is not money, and it should not be counted as being part of the money supply. It is deceptive and fraudulant that they do.
I think I understand what you are getting at, but the distinctions between the letter of the law, the spirit of the law, and the implementation of the law are critical, and materially different.
Every licensed US (member) bank has 1 account with their local Federal Reserve Branch. and that 1 account has 1 available balance (roughly equal to the Bank's excess reserves).
When an authorized officer of the bank orders currency from FedCash - no collateral is posted, the bank's available balance is simply debited for the amount of the FRN order (see Section 5 of Operating Circular 2).
The Treasury Department should really re-word that paragraph because there are effectively (if not actually) ZERO gold certificates that are posted as collateral by member banks. The collateral is 100% US .gov Debt. The actual calculation would be the H41 balance of FED gold certificates minus the Treasury Department's inventory of gold certificates (as of EOY 2014 since the amounts are identical, so the exact figure for the entire US banking industry was between USD 0 and USD 500,000).
In the event of some "meltdown" of the Federal Reserve system, the gold certificates (and the presumably underlying physical gold, of which 5% is currently actually in FED custody) would then used to back the US Government bonds, not the notes of an officially bankrupt Federal Reserve.
The reason actual FRNs are important is because the "rest" of the US Money Supply m3 + mb - (2 x m0) is legally owned by, and registered to the member banks of Federal Reserve System, according to "however" each Federal Reserve District Bank "chooses" to allocate it's share of the money supply it has a monopoly on amongst it's member (owner) banks. Every night a bunch of reconciliation files go back fourth between each bank and the FED and "everything works out" ... until a bank becomes insolvent, and the regulators come in decide how to divy the banks remaining assets amongst its creditors (including uninsured depositors) i.e. bail-in, and now the derivative holders have seniority.
The FRNs in circulation (m0) represent the only segment of the money supply which the Banks are not the registered owners of (and which the Banks do not take a skim from every time money is transferred between natural or corporate "persons"). The Federal Reserve guys make best algo writers at the best quant firms on Wall Street look like rank amateurs.
The legal tender issue is an even more complicated mess because while an FRN may be legal tender to satisfy an obligation, there is no law which requires the creditor party to actually accept cash (FRNs) as settlement. On the bank side, Bank's must be able to meet redemption requests for demand deposits (m1) with legal tender, even though it's a fractional reserve system, which gives creates additional intra-day demand for the inter-bank market (which is largely run and settled through FedLine by the FED - so all the member banks can maintain an appropriate available balance in their master account to keep the regulators away and ponzi scheme and great basis point skim going (just a little bit longer).
"When an authorized officer of the bank orders currency from FedCash - no collateral is posted, the bank's available balance is simply debited for the amount of the FRN order (see Section 5 of Operating Circular 2)."
Treasury explains it as such: "Federal Reserve notes are legal tender currency notes. The twelve Federal Reserve Banks issue them into circulation pursuant to the Federal Reserve Act of 1913. A commercial bank belonging to the Federal Reserve System can obtain Federal Reserve notes from the Federal Reserve Bank in its district whenever it wishes. It must pay for them in full, dollar for dollar, by drawing down its account with its district Federal Reserve Bank."
Banks post unencumbered collateral, that's their buy-in into the system, their account from which they draw.
All deposit accounts are credited accounts, there is no money in them, it's all Bank Debt. Question; how can you bail-out a bank with it's own debt from deposit accounts with a "bail-in"? Back in the olden days, some 7 to 8 years ago, when a bank went tits up, all deposits held by the bank was instantly transformed into bank debt. Depositors experienced that phenomenon as their accounts going "POOF!", which required the FDIC to step in and reimburse them up to the insured limit. Now, those same credited accounts magically retain their "moneyness" ?
"I think I understand what you are getting at, but the distinctions between the letter of the law, the spirit of the law, and the implementation of the law are critical, and materially different."
When the system collapses with no salvageable options, it will be the letter and implementation of the law that will rule that day.
As an aside, how do you think fractionally reserved banking works?
By the time the olden days arrived I had already left Banking for Investment Banking Advisory (during the preparations for the last US invasion of Iraq) - but the Fed's don't (and can't) bail out a failed bank, so Plan A is always find someone to buy the bank, and offer them contingent money (taxpayer loss sharing) if the FED fails to juice the "recovery" track with the promised Monetary Policy adjustments, Plan B was pay off the insured depositors and send Hank to preach fire & brimstone (or pitchforks and torches) to the Congress critters since the FDIC actually doesn't have enough debt, much less any actual money, with which to bailout anything other than a few immaterial banks. Now that depositors rank below the infinite derivatives and their contingent demand for dollars - who knows, but I don't use banks any more than I absolutely have to.
Fractional Reserve Banking ... you'll wish you never asked... there's a reason this place is called FIGHT CLUB.
The following quotes come from the linked articles ( I limited myself to the last year and a half...
Mike Maloney makes a valiant effort to simplify the modern banking system so that the average person can understand it, but because of some of his rhetorical devices and definitions used in previous episodes-- he is over-simplifying, and thus MIKE MALONEY IS WRONG (as a bunch of people who should understand better and are posting in this thread).
So let me elucidate and illuminate-
Forget his distinction between between money and currency and ignore all the little green graphics- in the actual banking system they are not greenbacks or even money or currency as he defines them they debits and credits between the central bank and its member/owner banks.
The otherwise sophisticated here run off the rails into tinfoil hat lunatic land with their "infinite money" creation calculation. The stricter definition is correct, and Mike Maloney is flat out wrong.
If you want to understand HOW the "infinite" expansion occurs you need to first define BANK DEPOSIT correctly. There are many things one can DEPOSIT at a bank... for a detailed list look up RISK BASED CAPITAL CALCULATION. - Physical greenbacks, digital dollars, and Treasury Securities all are basically taken at face value and the bank can turn around and loan 90% of that value into existence. But municipal securities, rated corporate bonds, and a whole bunch of OTHER THINGS which are not traditionally viewed as money can be used as capital by a bank to create MOAR MONEY (at varying haircuts to that 90%). So your subprime NINJA loan which actually did create money gets securitized into an MBS and passed off to a muppet who then deposits it into a bank which now has more capital from which to create new debt money. VOILA!
Furthermore, not all debt creation results in money creation. Interest the broadest example, but stepping outside of the BANKing system- if you take out a title loan on your car, that debt is real (and the interest expense is real) but no money is created, unless some enterprising banker securitizes the obligation so that it becomes "eligible collateral" i.e. DEPOSITS or "collateral transformation" in shadow banking parlance (which is a slightly different process to achieve the same end - MOAR bank capital). And since the shadow banking industry is much larger than the cotton-linen blend money supply it is mathematically more important to system stability than all those little green graphics in the video.
There are also unfunded liabilities and contingent debt- (i.e. derivatives) but that's moving a little beyond Banking 101, but if YOU trade futures or options- recognize that you live in glass house since if you exercise that instrument you are transforming a contingent or notional debt into an actual debt without creating any money.
The end result is the same as Mike describes it - infinite "money" creation by a private banking monopoly in cahoots with corrupt and irresponsible political leaders- but the video is a gross and incorrect over-simplification, which is a shame since banking is nothing more than an applied spread arithmetic and a license to legally "print" money. If he hadn't boxed himself in with craptastic definitions and explained it as the "liability" getting redeposited instead of the money or currency being redeposited- he would actually be fundamentally correct in describing the seemingly infinite money supply created from a finite amount of debt.
Edit: Almost forgot, once a bank has met its required capital reserves, there is nothing to stop it from taking its excess reserves (including your deposits) and leveraging it up and doing sickening things involving other banks (but that's banking 103).
--- Since I'm predisposed towards iconoclasm, I conducted a brief mental debate on the morality of throwing a turd in the punchbowl before I decided to write that. There were key two points that swayed my opinion 1) for those who do have the opportunity to corner financial leaders in public forum- if they phrase a question in a manner which can accurately and factually (truth is a different quest) be dismissed then the few people who have that luxury will be LEGITIMATELY ridiculed and set back the cause of reform; and 2) The Law of Unintended Consequences as it applies to poorly thought reforms that actually see the light of day. The Monetary, Banking, and Financial systems are not independent of each other. One could actually implement a full convertibility gold standard and without addressing how debt and other competing demands for money are created, transmitted and multiplied through the systems- the result would be the rich getting richer and the poor left holding bag while the system collapses prematurely. If the video and comments were on HuffPo or FauxNews- you can't teach a camel to drink or a retard to think, but this is a slightly more sophisticated crowd even if we regularly demonstrate some really low brow humor. --- There are a number of reasons why I myself am against a gold standard, but they actually distract from the larger problem- the private for-profit monopoly on the nation's money supply. The Federal Reserve was intentionally designed to prosper in an environment of a FULLY CONVERTIBLE gold standard so a gold standard, in and of itself, is certainly NOT going to fix the Fed (or the economy), both the US government and certain US banks made out like bandits when the Great Depression got rolling in Europe - warfare by other means, before they ran out Au and switched to Pb. Right now the banks nominally have notional assets is gross excess of real global output - if you give them the means to convert their funny money into hard money they certainly will, which will leave a MUCH smaller pie of real money to be divided amongst the non-bankster classes. ---No the FRN supply is (ironically) about 10% of that... and it's also the part of the money supply that the Federal Reserve does not really even care about since (absent a literal printing press) they only indirectly control it versus their ability to manipulate electronic/bank money.
Digital Digitz Bitchez.
Edit: and it is an ironic relationship NOT a causal one.
---
Unbelievably wrong.
If Shamu motors her whale tail off to Wally World and pays with her Capital One card instead of her EBT, then when she swipes her credit card at the register- Capital One's account at the Fed is debited and WalMart's Bank (the Bank, not Walmart, has the account with the FED) receives the offsetting credit- then it is up to the two banks to sort out the correct allotment of the Bank's digital digits amongst their customers- the KEY point being there are TWO BANKS involved, and the BANKS are the lawful owners of the digital money supply (Capital One's reports to Fed on how THEY would like their "share" of the private money supply divided is what determines how much money a customer actually has- ask Jon Corzine for additional clarification if you missed my point). Strictly speaking no money is actually created until Capital One reconciles with the local Federal Reserve and in the several hour interim Capital One's excess cash at the local Fed takes a ding, but that's a minor detail.
If you look at Capital One's 2012 10-K they have 312 billion in assets (money people owe them e.g. outstanding credit card debt) and on the other side of the ledger it is broken down into 212 billion in "DEPOSITS" 50 billion in "borrowings" and 40 billion shareholder equity with a tier 1 capital ratio of 11% and a net interest margin of 6.5%.
See my lengthy post below for a more complete definition of "DEPOSIT"- because it's NOT Shamu and her brethren who have deposited 212 billion in greenbacks or even EBT benefits at Capital One earning 0%, it's wholesale instead of retail banking (with a helping of shadow banking on the side). However, Capital One is a BANK and subject to the same regulations and capital requirements as Angelo Mozilo was while he was printing dollars out of NINJA loans.
Issued Bank credit, regardless of whether it is revolving or not is most certainly collateralized.
BTW - to all those people who think they understand what a 10% reserve requirement is- what is Capital One's maximum direct money creation against 212 billion in deposits, and if it is what you think it is, and bankers are actually greedy as hell (which I certainly agree with), then how do you explain that Capital One has only 312 billion in loans against 212 in deposits when they could be so much richer collecting 20% on their increased loans?
---
I finally figured out what bugs me about Mike Maloney... It's not his over simplifications, it is that he's looking at the history of finance from an economic perspective as opposed to a banking perspective as a foundation for "making sense of it all" and predicting the future of banking. Finance and Economics are NOT the same thing. (FWIW I was a banker, not an economist, so I'm biased - get over it).
Even with a fixed and fully convertible gold standard there is currency fluctuation. One needs merely to look at the cross border interest rates and discounts on commercial paper (i.e. banking and duration mismatch). If one sticks to economic textbooks and theories they'll NEVER see it.
Starting with Germany 140 years ago is myopic (but does take more than 10 minutes). In order understand the modern history of money (and the clearing and settlementfunction of banks) you need to start with the DUTCH in the 17th century (Amsterdamsche Wisselbank), the birth and rise of the BoE at the dawn of the 18th century, and then the FED at the dawn of the 20th. There's a reason one of so many people's favorite boogeyman is called the Bank for International Settlements, settlements didn't and doesn'tjust have to do with the Treaty of Versailles.
The current "End-the-FED!" debate isn't anything new. It's a rinse-repeat rehash of Keynes v Hayek the better part of a century ago, which was a rinse-repeat rehash ofCurrency-Banking debates a century earlier.
The previous debaters weren't stupid (the victors weren't always honorable in there methods, but there were significant valid financial and political reasons as to why things developed the way they did. Looking to the future while ignoring the relevant history and the disciplines that determined that history (banking and politics) simply will not yield a correct predictive analysis of future developments. Government's have reigned in central banks and restored both gold backing and even convertibility countless times before, and done so in response the same structural issues that the banking system faces today, and yet we're still here AGAIN.
Sure, this time it's different...
---Since despite every restoration of the currency... we are where we are -- the "fix" (and any victory over the banks) is fleeting.
So it's irrationally optimistic to think that a saner monetary order will carry the day. Such an order might make a guest appearance for a couple weeks or at most years, but the timing (and the taxes, or black market) have to be just right in order for the little guy to profit from the fleeting sanity/opportunity, and it means walking away from everything tha one has fought for at the most psychologically painful and counter-intuitive moment to do so.
---
Fortunately, a bank cannot "whip up the value of $100,000 out a $10,000 deposit" despite what Mike Maloney says.
Some simple numbers:
US Treasury debt owned by the public 12.568 trillion (this was whipped up out of nothing, but it is actually larger than what follows)
http://www.treasurydirect.gov/NP/debt/current
M2 Money Supply 11.322 trillion
http://research.stlouisfed.org/publications/usfd/
And then for the Banking sector:
http://www.fdic.gov/bank/statistical/
Total Bank Assets: 13.854 trillion
Out of 5,809 institutions there are only 22 with assets in excess of 100B and only 4 with assets in excess of 1T
The concentration of fed funds bought & sold, repos & reverse repos, and derivatives concentrated in the top 4 banks dwarfs their already obscenely unethical and systemically dangerous 44.5% share of total assets
Total Deposits: 10.516 trillion (which is part of)
Total Liabilities: 12.196 trillion
Net Loans and Leases: 7.172 trillion
And then looking at the rest of the assets that comprise the 13.854 trillion: Loans & Leases 51.8%, Securities 20%, Cash 12.6%, Trading Account Assets 4.2%, FF & Reverse Repos 3.0%, Goodwill 2.5%, All Other Assets 5.9%
---
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.
---
It is perception (of the masses of the electorate) that has doomed every effort to restore backing to the various currencies in countries with elected governments worldwide for centuries.
The current "End the Fed" crowd is frankly less articulate and knowledgeable of banking mechanics than previous iterations of the "End the BoE" crowd. This is not an omen of successful or lasting reform.
The problem with the system is the existence and practices of a PRIVATE MONOPOLY of the [US] money supply, which operates in collusion with a network of other PRIVATE MONOPOLIES with similar strategic interests worldwide. CLEARING/DISCOUNTING and Settlement is a function of SUPPLY and DEMAND and is normally expressed through INTEREST RATES.
PRIVATE MONOPOLIES allow the banks to further manipulate interest rates on a longer term basis (as opposed to the lower-level daily LIEbor manipulations) through manipulation of the money supply to suit their own and the politicians' ends.
Maloney is looking at banking strictly from the perspective of a bank depositor, and not from the perspective of the banks themselves, much less the governments they are bed with.
Would a rational person propose change to the auto service industry based solely upon his experience/perspective as a consumer with his or her mechanic and his macro perception of the auto service industry? Such an approach ignores the operational considerations of the manager of his local garage, the corporate considerations of any other garages in the chain, as well the intricacies of the dealer and part supplier networks.
---
The quote I posted the other day was from the guy (anthropologist, bioligist, sociologist, but neither a banker nor an economist) who coined the term "survival of the fittest" and wrote State Tampering with Money and Banks after the THIRD suspension of convertibility within 15 years following the passage of the Peele Act.
Ignore history at your peril, you are doomed to repeat it. Even with the limitations of a mercantilist framework (which still secretly underpins the supposedly "monetarist" financial system) the 150 year old indictment of the banking system is more articulate and more accurate than anything being advanced today. If the opponents of the current system cannot step up their game to even the level attained 200 years ago, much less by Hayek and others 100 years ago, then the notion that reason and values might carry the day is laughable.
If economics and banking isn't your cup of tea, then I would recommend examining the process of money/capital flows from an industrial engineering orcybernetics standpoint. With the latter, one is at least prepared to take on the MIT central banker cabal in one of their alma matter's more specialized disciplines that actually helps understand why the cancer of the banking system has evolved the way it has.
BTW, I did watch episode 4 (which had a gaping flaw on par with "adult" AGW proponents who use this (or similar) misleading and fraudulent depictions of the process of forcing).
---
Absent a global command economy the big question is what price will it take to clear and settle future cross-border trade in trade in calories/btus?
With the continuation of unconstrained fiat currencies, the decreasing supply of calories/btus at a given price should demand a higher relative price (which would imply rising prices of those specific goods, irrespective of any inflation BLSing at the macro level).
If the suppliers of black/soft gold want yellow gold in exchange their goods, then a central bank would be suicidal to tie their domestic currency supply to a minuscule and diminishing supply of yellow gold, and those governments would very likely confiscate/tax yellow gold out of private ownership to meet the strategic imperative even absent backing their currency with it.
Given the high moment of inertia to reorging the whole global currency paradigm I think it's going to be very messy, which is why my savings are largely in geographically diversified physical gold (starting in LIRP and increasing the percentage through ZIRP and now NIRP), and why a significant portion of savings that are invested are allocated to mining and energy equities, but then I am too busy to trade in and out at the Berspanke/Yellen game of musical chairs which is tied to that moment of inertia.
But on the corporate side where I have numerous daily transactions and a huge monthly cross border trade settlements, I really don't see that gold is practical beyond the supply in the "petty cash" box, it is not likely to help me import a tanker car of diesel or export a container load of pineapples or industrial chemicals.
---
The petty cash is intended to cover payroll in a banking shock so people don't starve in the short term, nothing more. I certainly wouldn't try pay down the balance sheet debt to bankers with it (hiring a lawyer to fight the bankers... perhaps).
Most of our assets are capital investment -- machinery/vehicles and to a lesser extent land/buildings. The big unknown is buying diesel btus, which to some (limited) extent could be replaced people's excess calories (at least on the farming side), but more realistically inventory and work-in-progress already are and would continue be used to finance fuel and other prodcution expenses.
The challenge in this is how does one clear and settle the trade in the midst of a crisis? If some new system is not in place in short order, then the worldwide death toll would be expressed in billions, so when TSHTF and the corrupt politicians (finance ministers) and their bankers meet to impose whatever comes next-- what sort of compromise could they reach in short order? (Whether it would actually work, who knows?)
Gold (almost) always works on an individual level (with huge variance in the discounts), but going back half a millennium, the paper contracts to buy and sell goods internationally have usually been cleared and settled with another piece of paper, regardless of whether a gold standard is in place (this is actually why there is still currency fluctuation and arbitrage when everyone is supposedly on a fixed gold standard). Payments between governments are another matter, but then gold is the money of kings.
---
Fight Club has its sacred cows and members of the herd too, that doesn't change reality.
---
But are human beings (collectively) capable of greater use of information and higher consciousness? And isn't the necessity backing of money with murder greatly reduced by doing away with the quaint notion that money has or can store value over time?
---
The collective suicide of the human race is a rather extreme solution to the evils of the monetary system. The largest obstacle to implementing a replacement system (for better, or worse) is that short of a NWO, the system must be at arrived at by a consensus of the Parties. Unfortunately, the Parties are made up of bankers who maintain a monopoly on the money supply and States who maintain a monopoly on violence. In order for that outcome to be better, the consensus of the Parties must be for a voluntary and flexible notion of money, but I do not think this is necessarily an insurmountable obstacle. But then, I did succeed by operating within the established systems, even if I chose to do things my own way.
---
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...
---
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.
---
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.
---
Yes! but there is large segment of the "market" (both individual and business) that doesn't want the RESPONSIBILITY/WORK of finding an appropriate non-monetary savings/investment vehicle for the fruits of their labor. If market providers have the option of offering competing notes that could better act as a store of value, and trade at an appropriate premium, the "convenience "types are more likely to participate.
There is also the issue of chronic bank balance sheet opacity, but again, if banks can actually offer competing notes , then stronger banks with better balance sheets have an incentive for greater and simplified disclosure, which wasn't technically feasible the last time there were competing banknotes (silver notes are an exception since they one could ascertain the premium without the interwebz, but I'm not sure I'd accept Jack Lew's signature as proof there was metal to back the note).
But without setting up competing banks then the Federal Reserve or something that inevitably will evolve into its evil twin will still have a monopoly on the money supply.
---
It wasn't my definition of sovereignty to begin with, I simply accepted the gauntlet thrown. My thesis has always been that monopoly is the root of monetary evil, and from that root springs debt currency, interest rates and their manipulation, legal tender laws, and a lot of other dependent and consequent evils.
The closest anyone here has ever come to refuting that argument is actually you... when you posted Aldrich's NMC's analysis of the SNB. We must be getting dumber collectively. Although, in a forum filled with goldbugs and PM hustlers I can understand the trepidation or self-loathing some might have to overcome before playing the Aldrich/Federal Reserve card in defense of their own position.
---
Every case is different. The prescription I came up with for the US certainly wouldn't work as well in the EU. The Eurozone's biggest problem is a common debt-linked currency which is completely unlinked to national budgets and interest rates that are not correlated to actual risk. At the same time I think Switzerland has more options than either the US or the EU. Meanwhile, the necessary steps for the BRICS are in some respects opposite of those for the US, since the latter is in decline with no prospects for serious course correction in the near or intermediate term. The only way I see for the US to preserve its position is to implement relatively radical reform of the monetary system which actually and effectively constrains the private bank monopolies before the US loses the standing to do so, or the system the US spawned can be turned against the US by others.
---
But how can the US bring jobs home? The US is simply a very unattractive country in which to operate the company. The corporate revenues must exceed the corporate costs, and both the regulatory costs and regulatory uncertainty are very high. The IRS just retroactively outlawed an entire class of health insurance policies and implemented retroactive fines that exceed the average employee's entire compensation. The US is attractive to foreign corporations (as a tax haven) only if they don't have offices or provide jobs in the US - government regulation doesn't get any more ass backwards. Collapse appears to both the most viable and likely option.
---
I identified perhaps a dozen "work arounds" (usually in the form of absurdist reductions) some combination of which would be employed in less extreme forms. At the end of the day- the referendum will not do what either the proponents or establishment will say it does, and the people who are emotionally invested in the outcome will never see the result they desire. However, there are worse alternatives, and if the SNB doesn't get over its elitist and Teutonic inclinations, while simultaneously improving its communication skills and transparency, then there will be another referendum, and another... until the popular demands are met, and real damage is done.
---
The Swiss are different - and not well understood.
There were no "hanging chads". Out of the 900+ ballots in my town, under 220 people voted yes on the gold initiative. The were 4 geniuses who didn't sign their ballots and less than 10 who submitted ballots but didn't cast a vote either way on the third federal initiative. The numbers we forwarded to the County and Canton matched up with the reported totals, the system worked the way it was supposed to - just not the way a lot of the outsiders wanted it to.
If you want to want to win at the ballot box, you need allies and consensus (or the shit to hit the fan -- 4% unemployment and 0% CPI inflation are hardly shiteven if rent and health insurance are rising faster).
Next up is the drive for the END FRACTIONAL RESERVE referendum. The uppity serfs are going to keep beating the SNB until morale improves or the shit does hit the fan.
To head that off, the SNB might very well start repatriating that 300 tons (without telling anyone, just like last time) in order to have another card to play with whatever the next monetary policy referendum is...
So how could one get a gold referendum to pass IN SWITZERLAND, without sacrificing 4% unemployment and 0% CPI movement?
1) You have to recognize that CHF (in the mind of both SNB and business- is a medium of exchange and a unit of account.
2) Swiss like their "things" different, subtle, complex, and to perform as designed when used according to instruction.
Both sides were lying out their asses about this referendum and its consequences. That's politics. But the domestic situation in Switzerland is different that almost everywhere else.
So- here's how to hove a shot at a real gold standard and get the backing of both the SNB and some of the major political parties (it is a referendum about monetary policy after all)...
First, take JUST the first article from the failed referendum (gold repatriation and domicile) and codify it the Constitution, regardless of whether the SNB reacts preemptively.
Second, recognize that a currency is a medium of exchange and unit of account - and have 3 in Switzerland.
1) the Swiss Franc (as is but without any gold backing - so that the SNB has maximum flexibity against the damn 'ferners
2) the Cantonal Franc (Primarily for domestic use, which can be incented by stating the SNB will not honor any digital Cantonal Francs, held by banks not domiciled in Switzerland and regulated by Swiss Authorities; they could even borrow the full reserve language from the pending referendum to maintain domestic purchasing power, and specify that domestic tax payments have to be made in Cantonal Francs, and finally
3) bring back the Gold Franc. Start reissueing the 20 franc Vreneli in specie. In addition, issue paper Gold Francs in smaller (1,5,10's for the po') and larger (100,500,1000 for the rich) fully backed by the Swiss gold reserves, and publicly audited annualy by the Cantons and selected citizens appointed by the Federal Council. This detaches the Swiss gold from the CHF and unties to SNB's hands to continue its policy of a pseudo-Euro (without sacrificing monetary policy and simply adpoting the Euro), disincents currency speculation and attacks (ala Soros), allows for domestic price stability and a relatively constant money supply and 3) creates a real and fully gold backed currency for those who don't mind price volatility in their savings, and provides a mechanism for actual price discovery of physical gold by examing black market exchange rates outside of Switzerland
It can be sold to SNB, since it unties their hands externally, removes their gold headaches, and makes peace the uppity serfs and achieves consensus instead of turning gold into another perpetual slug fest - like immigration which everyone is getting really tired of. If the SNB accepts it -- more political parties than just the largest (SVP) can be brought into the fold.
---
I would rather have the gold in MY hands, than in "my" central bank' s hands...
(I may be a shareholder in the SNB, but that doesn't mean I trust them any more than the next bunch of bankers)
---
The referendum didn't actually return gold backing to the CHF, or even introduce a stable fixed rate backing, it introduced a minimum variable ratebacking and left the price stability mandate unchanged - which would have counter-productively forced the SNB to print MOAR in a vicious cycle.
---
TSHTF. Crisis necessitates compromise (its cheaper to buy an existing reserve currency [SDR] than to build one from scratch, unless they manage to postpone the inevitable another decade or so and the BRICS have actually had a chance to build a functioning alternative) and the compromise will be that the US is forced to give up its IMF veto and chunk of its quota.
---
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.
http://www.zerohedge.com/news/2013-10-17/hidden-secrets-money-part-4-big...
http://www.zerohedge.com/news/2014-06-13/currency-war-140-years-monetary...
http://www.zerohedge.com/news/2014-07-24/legal-tender-renders-planning-i...
http://www.zerohedge.com/news/2014-07-26/has-fractional-reserve-banking-...
http://www.zerohedge.com/news/2014-08-06/gold-and-what-high-priests-funn...
http://www.zerohedge.com/news/2014-11-30/swiss-gold-referendum-fails-78-...
http://www.zerohedge.com/news/2015-01-21/world-leaders-demand-central-ba...
Then when Greece was "unfixed" (again) I proposed the RentenDrachma (h/t Ghodius) - so the one word panancea was, is, and will be (in my eccentric mind) - COMPETITION.
"The reason actual FRNs are important is because the "rest" of the US Money Supply"
There is no ""rest" of the US Money Supply". Debt obligations are not money.
Exeter's Pyrimid.......
Fair enough, but we're bouncing all over the place with "legal", "economic", and "real" definitons. Don't get me started on lunatic misnomers like the Velocity of Money, or outright lies like Gross Domestic Product.
I appreciate your long response, if you don't mind I would like to share it with the folks over at goldismoney2.
I read it as banks primary function is the production of debt and the really successful banks can produce a multitude of paper assets by which they produce debt as well. Banks combined with Wall Street, equals capitalism, which has little to do with the economic activity of actually producing goods and services and more to do with the creation of the "monetizable" paper representations of those activities. Capital equals "monetizable" collateral.
And we've reached the point where actual economic activity, like the legal tender, has become incidental to the monetization process.
Here's a hopefully novel idea (for the US anyway); why don't we take the actual legal tender money supply and divide it by M3, then discount all that credit/debt by the results. How many bankster/Wall Street credits could a dollar buy?
** By the way, I'm not a fan of Mr. Moloney.
Feel free to share it, I signed it over to Tyler Durden when I posted it here. When I'm writing for work - I actually proofread, instead of just spell check.
The banks primary function should be the gathering of capital to create and judicicously allocate credit. Reality is another matter.
If your concern lies in monetization and finacialization though, the ACTUAL Velocity of Money is very important. Bankers don't actually make or spend dollars (in their minds or business models) -- everything is basis points. And the bottom line is NIM (net interest margin). All the expenses can (and are) quantified in basis points: bank branches and ATMs, marketing, salary and bonus (how else could a fund manager with $0 invested in the fund be worth a million dollars a day?), compliance, those "non-recurring" legal expenses, the interest (that used to be paid) to depositors - it's all expressed in basis points behind the wizard's curtain in the executive conference room when there are no analysts or regulators around. The same conversion to basis points is done for revenues - the interest charged to borrowers and for F/X conversion, ATM fees, the next M&A deal or corporate acquisition by the bank, the increased profit that the institution will make by giving a larger portfolio (or account) to a certain trader or manager. BASIS POINTS. (or even whole percentages for the high margin graft)
When viewed through from the perspective of the bankers, what they need (both within the bank and in the broader economy) is an increasing money supply that moves ever faster. They need/want both the Stock and Flow increasing because they skim x percent of the stock and y percent of the flow. At the end of the day their income/theft is based on the the quantity theory of money -- they make or steal z percent of Q, and since P is always 1 (more or less, unless you live Wiemar or Zimbabwe), increasing both M and V is a hell of a lot moar profitable than just getting the fed to increase MB.
So when I worked in a bank, occasionally some ass clown would make a comment about the velocity of money (usually an economist at a social function) - and I'd just smile and think "Yeah, that's why I make bankster bucks and you wear tweed while practicing mental (midget) masturbation in your ivory tower..." Then one day after hanging out at ZH, and hearing this (yet again) I went to visit a former co-worker who now mentally masturbates in an ivory tower all day... and to torture his students like fresh bankster meat. If you ask a roomful of economics students to actually explain the velocity of money (and chastise the first smart ass with the basic memorization capacity and inclination to actually parrot the textbook verbatim) the vast majority describe the quantity theory of money and NOT the velocity of money.
The velocity of money (as defined in economic dogma) has nothing (ZERO, NADA, ZILCH) to do with velocity, speed, transactions, or even money changing hands, and yes - it has been decreasing for years. Whereas money itself has moving faster and changing hands more often for even more years.
The olden days - paper checks, paychecks, snail mail, inventory, fractional stock trades, teletype and streaming tickers have been supplanted by electronic check processing and clearing between banks, then digital check imaging, ATMs direct deposit and online bill pay, email and IM, decimalization and HFT... Just-In-Time everything (including living paycheck to paycheck with 0 savings) -- it all serves the greater bankster need MOAR FOR THEM.
The actual speed of money changing hands, which that classroom of muppets was describing (and the takers take a skim of)-- is over 50, and actually is over 50 times higher than FED-calculated m2 "velocity".
So what actually is this thing the mental midgets and dismal scientists call the "Velocity of Money" - it's an inverse function of the level of monetization and finacialization of the economy. When it reaches 0, the banksters reach Nirvana. BUT it's always a great excuse to ask the Dismal Overlords at the FED to keep increasing the Money Supply in an effort to juice that so-called "Velocity of Money" that everyone gripes about. Everyone from the socialist to the socialites... says the decreasing velocity of money is problem, but one does not cure increasing finacialization of the economy by increasing the monetary base and the influence and control of banks over the economy. The banksters, however, are ecstatic that so many think that enriching the banksters is a viable and acceptable way to decrease their domination of the economy.
The math and underlying data links are in the post below.
---
http://www.zerohedge.com/news/2014-11-26/country-will-be-next-zimbabwe#c...
On a related note: MV may equal Py, but MV doesn't actually have anything to do with the velocity of money, it is a calculation of the efficiency of the money supply in generating GDP. Comparing V to the actual velocity of money, however, is useful for examining how finacialization has made "economic" activity inefficient to the point of not even contributing to the flawed and BLS'd definitions of GDP output.
For Example:
M (US M2 money supply) = 11.4T http://research.stlouisfed.org/fred2/series/MYAGM2USM052N
x
V (US M2 velocity) = 1.534 http://research.stlouisfed.org/fred2/series/M2V
=
P (US Price level) = 1 (rounded)
x
Y (US GDP) = 17.5 trillion http://research.stlouisfed.org/fred2/series/GDP
From the FRB's very own lying mouth: Velocity is a ratio of nominal GDP to a measure of the money supply (M1 or M2). It can be thought of as the rate of turnover in the money supply--that is, the number of times one dollar is used to purchase final goods and services included in GDP.
NO. The first sentence is correct and true, but when they translate to CNBS sheeple speak in the following sentence, they lie. The number of times one dollar is used to purchase final goods and services included in GDP is UNRELATED to the rate of turnover in the money supply.
For proof see embedded links on right side of page (and total them on annual basis across clearing platforms): http://www.federalreserve.gov/paymentsystems/default.htm
The US Federal Reserve cleared over 1 QUADRILLION USD of transaction in 2013. If V represented TURNOVER, then V would be over 87 not below 2. (And the Federal Reserve doesn't even clear and settle all economic transactions in the US, so a more accurate calculation of velocity would be even higher).
"......Money (Legal Tender) and there is credit (an Obligation to pay Legal Tender).
"......Credit/Debt as a medium of exchange....holds No Legal Status as a currency..."
".....There are $1.33-Trillion FRN's in circulation around the globe, over half of that circulates outside the U.S. There is $10-Trillion in 'credited' deposit accounts. Do the math...."
Precisely Right on ALL Counts......
And among the Sagest Comments ever made on this Site...Or Many Other Sites for that Matter.....
No.
"No."
That's funny........
Becareful for what you wish for. Las Vegas Casinos enevy the banks as the banks always fine away to creme the top off any transaction they do.
Fair enough write a big check to yourself. When you come to cash it the Bank will add a process fee of say 2% of the vaule.
This will make it hurt as leaving the money in the bank you might only loose 0.75%
Bitcoin users are not affected by malicious central planning.
If Interest Rates Go Negative . . . Or, Be Careful What You Wish For
With a properly managed Medium of Exchange (MOE), INTEREST is never negative. The reason is simple. Traders "never" deliver more than they promise. To do so would be a negative DEFAULT.
The relation governing any MOE is: INFLATION = DEFAULT - INTEREST.
The job of the MOE manager (process) is to monitor DEFAULTs and collect an exactly equal amount of INTEREST, thus guaranteeing zero INFLATION all the time, everywhere.
The MOE will never detect negative DEFAULTs (i.e. traders delivering more than they promise). Thus, there will never be negative INTEREST collections.
INTEREST collections "mop up" in-process trading promises left to circulate after a DEFAULT. There is no such concept as "mop down".
What more proof do we need that our MOE managers (processes) are clueless!