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"But Still There Is Faith In The Central Bank..."
Submitted by Simon Black via Sovereign Man blog,

It was another time. Another era. Another superpower.
Great Britain’s was the largest economy in the world in 1873. And it showed.
The British pound dominated world trade and was the most widely used reserve currency on the planet.
And London was the undisputed epicenter of global finance.
There was more money in London, in fact, than in just about every other major financial center in the world combined.
Britain was clearly at the top of the world.
But in 1873, a financial reporter named Walter Bagehot published a book that shined a huge spotlight on some of this phony prosperity.
Bagehot was Editor-in-Chief of The Economist at the time. He was a brilliant finanical thinker, and the book, Lombard Street: A Description of the Money Market, was his masterpiece.
For example, the book describes how, even though the British banking system was the most widely used and powerful in the world, it was dangerously overleveraged:
“There was never so much borrowed money collected in the world as is now collected in London,” writes Bagehot.
He further shines a huge spotlight on the risks of illiquidity, describing how Britain’s largest banks only held a very small percentage of their customer’s funds in cash:
“[T]here is no country at present, and there never was any country before, in which the ratio of the cash reserve to the bank deposits was so small as it is now in England.”
He continues:
“[T]he amount of that cash is so exceedingly small that a bystander almost trembles when he compares its minuteness with the immensity of the credit which rests upon it.”
Sound familiar?
In Bagehot’s day, banks invested or loaned out the vast majority their customers’ savings, only holding around 10% to 15% of deposits in reserve. Bagehot found this abysmally low.
Yet today some of the largest banks in the world hold as little as 3%. And debt levels have hit records never before seen in the history of the world.
Our system is even more leveraged and more indebted.
But the similarities don’t stop there.
Bagehot reminds readers of the spectacular collapse of banking house Overend, Gurney, and Co… sort of the Lehman Brothers of its day.
Overend had engaged in pitifully stupid behavior, run itself into insolvency, and was not bailed out by the government.
Overend failed in 1866, and it nearly dragged down the entire financial system with it.
It had been only seven years since that crisis when he wrote Lombard Street. But the major banks were right back to their same old reckless, irresponsible behavior. He writes:
“Even the great collapse of Overends, though it caused a panic, is beginning to be forgotten.”
Bagehot also blasts the central banking system (dominated by the Bank of England) which had effective control over the economy:
“All banks depend on the Bank of England, and all merchants depend on some bank.”
Of course, no one truly understood how that system worked. Everyone just had confidence that the central bankers were smart guys and absolutely would not fail:
“[F]ortunately or unfortunately, no one has any fear about the Bank of England. The English world at least believes that it will not, almost that it cannot, fail.”
“[N]o one in London ever dreams of questioning the credit of the Bank, and the Bank never dreams that its own credit is in danger.”
But as Bagehot points out, the data showed otherwise:
“Three times since 1844 [the Bank of England] has received assistance, and would have failed without it. In 1825, the entire concern almost suspended payment; in 1797, it actually did so.”
Clearly these central bankers weren’t particularly good at their jobs. Bagehot sums it up like this:
“[W]e have placed the exclusive custody of our entire banking reserve in the hands of a single board of directors not particularly trained for the duty—who might be called ‘amateurs’. . .”
“But still there is a faith in the Bank, contrary to experience, and despising evidence.”
This is miraculously dim-witted– to assume the men behind the curtain are going to get it right, and to willfully ignore the objective evidence which shows:
- there is an unsustainble amount of debt in the system
- the banking system is dangerously illiquid and overleveraged
- banks are still engaged in the same risky behavior, 7 years after a major crisis
- the central bank has far too much control over the economy
- yet is run by amateurs
- and is itself is at risk of failing
Of course, it wasn’t too long after this that Britain was overtaken as the world’s #1 economy, military power, and reserve currency.
Whew. Sounds crazy. Good thing we learned those important lessons, and that our modern system is so much better.
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"And London was the undisputed epicenter of global finance."
Now it's only the undisputed epicenter of global financial fraud.
There is a reason the symbolic image of the phoenix rising from the ashes was so powerful in medieval times.
Entire cities would occasionally burn to the ground. But people would rebuild. Hmmm.....
On another note, Debt Jubilee, bitchez!
On another note, don't forget that scarce resources are the symptom; the problem is too fucking many people.
Volunteering?
Evil Banks! BANKS! I tell you! Nobody runs them or anything. They're just these evil limestone edifices that smell oddly like gefilte fish up in the corporate boardrooms. Weird!
And the only reason that there is "still faith in central banks" nowadays, is that nobody actually understands what the hell a central bank is...
faith that the central banks will continue to usurp the wealth of the world, solely for the benefit of their anonymous shareholders, leaving their subjects holding the bag of serfdom.
And few places have more faithful believers in FED omnipotence than right here on ZH.
"Amateurs" in charge of "managing" our money? I knows a Con Job when I smells one!
That nasty little bug smashed into my windshield the other day. I hope it's ok.
Cog,
If only . . . .
it was exactly THAT bug that smashed into your car window
We’re living the dream!
I can’t think of a real bad thing in my life that really matters!
That’s why we believe because if all that would or could just evaporate... my god...
and that’s why I prepared for 7 years already. I’m just as scared as any john doe.
And yet... the stress of work is killing me
I’m like on a constant metro at high speed and the only me time is on the toilet if my dog doesn’t keep opening the door.
so it it all crashes... maybe not everything will be that bad...
You are obviously not buying the mind control that banks are more important than people. If it wasn't for banks you wouldn't exist. Please bear that in mind.
And I always tought it was because my parents where just horny...
Criminals in charge. If you want to make this planet a better place you have to get rid of Lloyd Blankfein.
ANNNNND . . .
Corzine,
Geithner
Paulson,
Dimon,
Corbat,
Gorman,
et al,
et al,
et al.
Bullshit, in fact, I see just the opposite.
Full faith and credit. Our trade partners will have the final say. Same as it ever was...
Respectfully, it's not trade when they give you goods and you give them a piece of paper promising to reciprocate; someday. Of course you're right, they will decide the outcome.
“But still there is faith in the central bank.”
You nailed that one: “faith”: a belief with no factual basis.
(A belief with factual basis is “true”, or “truth” – check your dictionary.)
While most people look to the Federal Reserve’s balance sheet for monetary data, they miss entirely what happened owing to the government’s attempt to guarantee bank deposits.
By these guarantees, when a bank failed, or was seized by the government, all deposits over $250,000, for example, would be protected; all amounts over that limit would be lost.
This immediately created massive problems for depositors with accounts larger than the limit (wealthy individuals, companies and corporations).
It would, for example, be a disaster for a corporation with a “cash” position of $500,000,000 to be caught in such a bank failure. (By “cash” a “bank account” is meant.)
This policy of guarantee set in motion mad scrambles by large depositors to protect their “cash”. It led to the creation of so-called zero-balance accounts (which go by many names). By these accounts, positive balances in large checking accounts were swept into US Treasuries at end of each day. Thus, if the bank failed/was-seized after closing that day, the account holder had nothing to lose.
But there was a limit to this remedy: very quickly, there were not enough Treasuries to satisfy demand. This gave rise to the demand for Mortgage Backed Securities (MBS) as a substitute for Treasuries. This demand was world-wide. Now, there are probably $6 to $15 trillion MBS serving as so-called “cash equivalents” on corporate balance sheets world-wide. (Beginning about 15 years ago, corporations began replacing the term “cash” on their asset statements with “cash equivalents”.)
And now all these “cash equivalents” are collateralized by US Treasuries (directly or indirectly): that is, American taxpayers.
Other “cash equivalents” include all US Treasuries; dollar instruments owned by foreign private or central banks; all MBS owned by the Federal Reserve; all currency issued by the Federal Reserve (the scrip we carry in our pockets); and a whole plethora of fruit-cake debt (such as defaulted-SBA loans, defaulted-car-lot loans, defaulted-student loans, defaulted-credit-card debt et cetera).
When we trace all these “cash equivalents” to their collateral, we arrive at the gold that may or may not be at “Fort Knox.”
It makes us wonder, ‘What is the dollar-price of gold needed to collateralize all monetary instruments for which it is the collateral?’ and ‘How did idiots and thieves gain control of the Federal Reserve?’
They lead to the conclusion that the dollar has already been destroyed… it’s just that no one has issued a press release yet.
And, if you need a press release to verify this conclusion, you’ve been watching too much television.
The idiots are the ones who accepted it.
The 'theives' are the ones who conceived it, lobbied for it, and suspended specie convertibility within months of the day it became fully operational.
They were bankrupt, you see. They needed another massive world-class economy to loot, and in which to repose their stolen means, so that when their last one went to a real value of $0 they would be comfortably ensconced in an entirely different economy.
In 1914 that 'different' economy was the United States. In 2014 it is China.
Well, that was quick . . .
Who is it in 2015?
“not particularly trained for the duty…”???
No one is trained for the duty; no one can ever have all necessary information needed to make proper decisions; the economy functions continuously, it requires attention 24 hours a day, every day of the year: no one can remain awake and alert to deal with it on a timely basis… and, most of all, no one can ever own enough property sufficient to provide restitution for mistakes he will make.
The solution is a free market for the issuance of bank notes, with no government regulations – only accountability thru due process of law is necessary.
Don’t forget, up thru 1870, America was a country with thousands of privately-issued bank notes – a time of unprecedented economic innovation and growth.
It was the National Banking Act of 1863 that central banking made its third appearance, and eventually eliminated all privately-issued banknotes. (The Federal Reserve Act was merely a modification of the NBA.)
It was thru central banking that government debt increased to the point where there is now enough of it to financially cannibalize following generations of Americans to the end of time. That’s conclusion based on data and formulas provided by the federal government.
So, what’s next? See my following comment.
Amateurish, reckless, irresponsible and lack of training are not the words that come to my mind in a discussion of the people who run America’s central bank. My thoughts include the words larceny, despotism, secrecy, thievery, conspiracy…
When are our discussions of the Federal Reserve Bank going to move beyond its policy failures, its inefficiencies, and its official personalities and get to the real crux of the problem: its takeover of the economic system of the United States, its grand manipulation and encircling like a prostitution ring around the Congress, the presidency and our vital institutions, forcing its will on them for the personal gain of the private pimps who own the Fed?
Once our discussions about the Fed were complicated with the many aspects of fractional reserve banking, but thankfully we are getting past that to a closer and more simple explanation of what the Fed really does and how it effects our country. It is simply a despotic money monopoly that uses the currency it prints out of nothing to control the lives and property of all American citizens.
In short, the Fed is a secret group, a private money trust, that has gained the necessary economic and political power to seize the human and natural resources of the entire world, to paraphrase the late Dr. Carroll Quigley.
Yeah if we talk about Federal Govt workers we would say they are indoctrinated into a different world with different jargon and where they make up their own kind of accounting. They are "Self Interested", they are Career Oriented, they may speak out and send oppositional feedback up the chain of command, but basically they are followers hoping to lead some day except for the executives.
Now the govt executives probably are networked in smaller groups like former military, political workers, political appointees, and Ivy League Grads, secret associations/fraternities.
But FED Appointees or Employees??
Racketeering is what comes to mind. And it seems just like money & Gift-Giving in Politics.
The Info is out there. What is DOJ & FBI Doing on this. The FED is either involved in Racketeering or they are so Filthy Rich to begin with they don't have any understanding of "Money", "Debt", or "Currency".
Clean House. It is Spring Time. If we had a President of the USA he could do it. If we had a Chief of DOJ or FBI they could do it. If there were 101 Senators who were Real Americans they could do it.
Fire the FED, Abolish Every Single Office after a Full GAO Audit of every last single Transaction. Get William K. Black to put together a Team like RTC within the FBI, make it an Employment Stimulus. Hire 20,000 people to clean up the Financial Control Fraud on Wall Street. Dissolve TBTF.
Then return to Free Markets without Shadow Banking and a Restriction on Derivatives through Standardization.
And it looks worse if you look at SEC & FINRA Chairs, all Ivy Leagues, insiders, political appointees of a different type.
Phenomenally Delusional.
Here are some more signs of a coming recession.
http://michaelekelley.com/2014/12/20/leveraged-loans-predict-crash/
http://michaelekelley.com/2015/02/20/fed-warns-of-two-bubbles/
http://michaelekelley.com/2015/02/24/would-you-pay-39-more-than-asked/
Here is how to prepare yourself.
http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/
Good luck!
Common stock (shares in equity) as private money requires:
1) no central bank.
2) no deposit insurance, much less government deposit insurance.
3) no borrowing or lending, much less at interest.
4) no growth though growth is certainly allowed.
But why "share" when government-subsidized private credit creation allows those with equity to essentially steal the purcharchsing power of the less and non so-called "creditworthy?"