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Unsound Banking: Why Most Of The World’s Banks Are Headed For Collapse
Submitted by Doug Casey via InternationalMan.com,
You’re likely thinking that a discussion of “sound banking” will be a bit boring. Well, banking should be boring. And we’re sure officials at central banks all over the world today—many of whom have trouble sleeping—wish it were.
This brief article will explain why the world’s banking system is unsound, and what differentiates a sound from an unsound bank. I suspect not one person in 1,000 actually understands the difference. As a result, the world’s economy is now based upon unsound banks dealing in unsound currencies. Both have degenerated considerably from their origins.
Modern banking emerged from the goldsmithing trade of the Middle Ages. Being a goldsmith required a working inventory of precious metal, and managing that inventory profitably required expertise in buying and selling metal and storing it securely. Those capacities segued easily into the business of lending and borrowing gold, which is to say the business of lending and borrowing money.
Most people today are only dimly aware that until the early 1930s, gold coins were used in everyday commerce by the general public. In addition, gold backed most national currencies at a fixed rate of convertibility. Banks were just another business—nothing special. They were distinguished from other enterprises only by the fact they stored, lent, and borrowed gold coins, not as a sideline but as a primary business. Bankers had become goldsmiths without the hammers.
Bank deposits, until quite recently, fell strictly into two classes, depending on the preference of the depositor and the terms offered by banks: time deposits, and demand deposits. Although the distinction between them has been lost in recent years, respecting the difference is a critical element of sound banking practice.
Time Deposits. With a time deposit—a savings account, in essence—a customer contracts to leave his money with the banker for a specified period. In return, he receives a specified fee (interest) for his risk, for his inconvenience, and as consideration for allowing the banker the use of the depositor’s money. The banker, secure in knowing he has a specific amount of gold for a specific amount of time, is able to lend it; he’ll do so at an interest rate high enough to cover expenses (including the interest promised to the depositor), fund a loan-loss reserve, and if all goes according to plan, make a profit.
A time deposit entails a commitment by both parties. The depositor is locked in until the due date. How could a sound banker promise to give a time depositor his money back on demand and without penalty when he’s planning to lend it out?
In the business of accepting time deposits, a banker is a dealer in credit, acting as an intermediary between lenders and borrowers. To avoid loss, bankers customarily preferred to lend on productive assets, whose earnings offered assurance that the borrower could cover the interest as it came due. And they were willing to lend only a fraction of the value of a pledged asset, to ensure a margin of safety for the principal. And only for a limited time—such as against the harvest of a crop or the sale of an inventory. And finally, only to people of known good character—the first line of defense against fraud. Long-term loans were the province of bond syndicators.
That’s time deposits. Demand deposits were a completely different matter.
Demand Deposits. Demand deposits were so called because, unlike time deposits, they were payable to the customer on demand. These are the basis of checking accounts. The banker doesn’t pay interest on the money, because he supposedly never has the use of it; to the contrary, he necessarily charged the depositor a fee for:
- Assuming the responsibility of keeping the money safe, available for immediate withdrawal, and
- Administering the transfer of the money if the depositor so chooses by either writing a check or passing along a warehouse receipt that represents the gold on deposit.
An honest banker should no more lend out demand deposit money than Allied Van and Storage should lend out the furniture you’ve paid it to store. The warehouse receipts for gold were called banknotes. When a government issued them, they were called currency. Gold bullion, gold coinage, banknotes, and currency together constituted the society’s supply of transaction media. But its amount was strictly limited by the amount of gold actually available to people.
Sound principles of banking are identical to sound principles of warehousing any kind of merchandise, whether it’s autos, potatoes, or books. Or money. There’s nothing mysterious about sound banking. But banking all over the world has been fundamentally unsound since government-sponsored central banks came to dominate the financial system.
Central banks are a linchpin of today’s world financial system. By purchasing government debt, banks can allow the state—for a while—to finance its activities without taxation. On the surface, this appears to be a “free lunch.” But it’s actually quite pernicious and is the engine of currency debasement.
Central banks may seem like a permanent part of the cosmic landscape, but in fact they are a recent invention. The US Federal Reserve, for instance, didn’t exist before 1913.
Unsound Banking
Fraud can creep into any business. A banker, seeing other people’s gold sitting idle in his vault, might think, “What is the point of taking gold out of the ground from a mine, only to put it back into the ground in a vault?” People are writing checks against it and using his banknotes. But the gold itself seldom moves. A restless banker might conclude that, even though it might be a fraud on depositors (depending on exactly what the bank has promised them), he could easily create lots more banknotes and lend them out, and keep 100% of the interest for himself.
Left solely to their own devices, some bankers would try that. But most would be careful not to go too far, since the game would end abruptly if any doubt emerged about the bank’s ability to hand over gold on demand. The arrival of central banks eased that fear by introducing a lender of last resort. Because the central bank is always standing by with credit, bankers are free to make promises they know they might not be able to keep on their own.
How Banking Works Today
In the past, when a bank created too much currency out of nothing, people eventually would notice, and a “bank run” would materialize. But when a central bank authorizes all banks to do the same thing, that’s less likely—unless it becomes known that an individual bank has made some really foolish loans.
Central banks were originally justified—especially the creation of the Federal Reserve in the US—as a device for economic stability. The occasional chastisement of imprudent bankers and their foolish customers was an excuse to get government into the banking business. As has happened in so many cases, an occasional and local problem was “solved” by making it systemic and housing it in a national institution. It’s loosely analogous to the way the government handles the problem of forest fires: extinguishing them quickly provides an immediate and visible benefit. But the delayed and forgotten consequence of doing so is that it allows decades of deadwood to accumulate. Now when a fire starts, it can be a once-in-a-century conflagration.
Banking all over the world now operates on a “fractional reserve” system. In our earlier example, our sound banker kept a 100% reserve against demand deposits: he held one ounce of gold in his vault for every one-ounce banknote he issued. And he could only lend the proceeds of time deposits, not demand deposits. A “fractional reserve” system can’t work in a free market; it has to be legislated. And it can’t work where banknotes are redeemable in a commodity, such as gold; the banknotes have to be “legal tender” or strictly paper money that can be created by fiat.
The fractional reserve system is why banking is more profitable than normal businesses. In any industry, rich average returns attract competition, which reduces returns. A banker can lend out a dollar, which a businessman might use to buy a widget. When that seller of the widget re-deposits the dollar, a banker can lend it out at interest again. The good news for the banker is that his earnings are compounded several times over. The bad news is that, because of the pyramided leverage, a default can cascade. In each country, the central bank periodically changes the percentage reserve (theoretically, from 100% down to 0% of deposits) that banks must keep with it, according to how the bureaucrats in charge perceive the state of the economy.
In any event, in the US (and actually most everywhere in the world), protection against runs on banks isn’t provided by sound practices, but by laws. In 1934, to restore confidence in commercial banks, the US government instituted the Federal Deposit Insurance Corporation (FDIC) deposit insurance in the amount of $2,500 per depositor per bank, eventually raising coverage to today’s $250,000. In Europe, €100,000 is the amount guaranteed by the state.
FDIC insurance covers about $9.3 trillion of deposits, but the institution has assets of only $25 billion. That’s less than one cent on the dollar. I’ll be surprised if the FDIC doesn’t go bust and need to be recapitalized by the government. That money—many billions—will likely be created out of thin air by selling Treasury debt to the Fed.
The fractional reserve banking system, with all of its unfortunate attributes, is critical to the world’s financial system as it is currently structured. You can plan your life around the fact the world’s governments and central banks will do everything they can to maintain confidence in the financial system. To do so, they must prevent a deflation at all costs. And to do that, they will continue printing up more dollars, pounds, euros, yen, and what-have-you.
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And the collapse will happen in one hour, per Revelation 18.
Of course the corrupt fraud that is the current banking system needs to collapse, the question is when they do will there be another overhaul that allows the banks and government to get stronger as they did in the ‘30’s or will we make the less likely move back toward sound money, like this plan. History favors the prior but I have hope that the latter is possible.
THOSE ARE NOT BANKS.
THAT IS NOT MONEY.
THEY ARE NOT INVESTING.
(pssst, attach words to reality please. A thing is what it is. identify it so.)
So true. And any system that borrows short term and loans long-term is ripe for disaster.
"I suspect not one person in 1,000 actually understands the difference"
It's not absolutely clear that Doug Casey is one of those 0.1%. "mismatched maturities" sums up the problem. It is accounting fraud in the absence of a central bank backstop. He knows "fractional reserve banking" doesn't quite identify the problem so he puts it in quotes, but greater precision would assist.
This is not my beautiful house.
This is not my beautiful wife.
When the Trucks Stop Delivering, ‘The System’ Will Collapse.
“‘Fallen! Fallen is Babylon the Great!’[a]
She has become a dwelling for demons
and a haunt for every impure spirit,
a haunt for every unclean bird,
a haunt for every unclean and detestable animal.
For all the nations have drunk
the maddening wine of her adulteries.
The kings of the earth committed adultery with her,
and the merchants of the earth grew rich from her excessive luxuries.”
Translation:
Fallen Fallen is the Western Monetary System.
It has become the domain of asshats and thieves,
a profession for every dishonest fucker, every slimeball with an MBA or two, and every pig who knowingly makes millions destitute.
And all the nations have engaged in the exact same madness and corruption. These bureaucrats & oligarchs have committed sins against their own people. The bankers and defense contractors have grown rich from these legalized thefts.
Funny, my translation is much simpler. NYC, nuked, the end.
A map consisting of a scrap of paper that says "You are here".
See, this prophesy shit is easy!
What does a banking collapse mean?
It means that the globalist international banks write off bad debt and are refunded by the central banks.
It also means that those banks who are not allowed to do what the globalist international banks can do are purchased by the globalist banks for pennies on the dollar and then the governments borrow money from the central banks which they give to the globalist international banks to either close or refund the purchased banks.
Banking collapse is simply a globalist international bank power play to get rid of any residual competition.
Now, if there were competing currencies, it would be completely different.
What does the banking collapse mean
Bail in, the refund will come from deposits
To me it means the central banks will all collapse too.
Ring Ring
Ring ring
............Hello
Hi Peter
It's Paul here..............
"Central banks were originally justified—especially the creation of the Federal Reserve in the US—as a device for economic stability."
R U FUCKING SERIOUS???
Yes, that is the lie that they told the people after they intentionally caused bank runs to make the people afraid.
The fear card gets people to submit all of the time.
R U ####### serious
Yes
That is why they passed the
https://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Act_of_193
Who repealed it???
Know your enemy
Funny how the ADL was created the same year...
If you wish to know your enemy, first find out who you're not allowed to criticize.
(why else was the ADL created?)
So you're obviously ready for Hitlery too.
Judging by the media facade she is going to make the biggest and most glorious comeback in the history of glorious comebacks to defeat Bernie. Then it'll be Bilton vs Cush, one crime family against the other for ultimate devastati... domination. Stock up on champ-pain now before there is a run on the liquor stores.
Banks do not "collapse," they are looted of the people's deposits, while they also function as a looting operation for the plundering of the society in which they reside.
The grifting thieves of the bank then establish new institutions of grift and plunder, also called banks.
Liberty is a demand. Tyranny is submission..
The banksters plunder and tyranny cycle: You deposit it. They steal it. They print more. You pay them more at the store. They double-down, you lose your job to their overseas cronies. They triple up, you lose your house to them. They go all in at 50 times or more, and they then send tyranny's violence and treason to shake you down for more. And it all starts with you depositing your hard earned wealth into their grifting hands.
i just knew i shoulda joined the mafia instead of opting for a honest living - damn! - next life
However, you were able to keep your humanity and soul. And, unlike them, one day your head as well.
Liberty is a demand. Tyranny is submission..
bought most of my gold at $1550, my stored canned goods are four yrs old now. wheels are gonna fall off any day..
When your canned vegatables and meat start to expand on the tops, that's the best time to eat them...
"your canned vegatables and meat start to expand on the tops"
Inflation, bitches!
You might wanna add some Alpo to your portfolio, it's the good shit.
Don't forget to stake/map out overlapping fields of fire, avenues of approach, prepared firing positions, and routes for egress..
Such important planning is often overlooked,
Liberty is a demand. Tyranny is submission..
That was a large part of the failing of the Davidians at Waco. They were prepared for the assault, hardware wise, but not strategically or tactically. Then, unfortunately, they allowed their enemy to exit the battlefield with weapons and any bargaining chips they may have had to later use to prevent the genocide that was later perpetrated against them.
Regardless of the Davidians' beliefs, their fate contains many lessons for the current American freedom fighter.
"If your enemy is still armed, you have not won."
...The 3rd-Floor Democracy-Bunker of Budnacho is Ready. Enough food and water for 17-days, clear-fields of fire staked and identified out to 160 yards. If they come, it will be between the Burger King and the Dry-Cleaners...know that at that point...they'll taste American Justice.....From my Yugoslavian RPK.
Cats are trained in WW2 Russian "Tank_Dog" Style and fitted with kevlar-vests and Shaped Charges to run under vehicles and detonate. They are trained to run under Crown Vic's and Chevy Astrovans knowing they will meet their 30 Virgin Cats in the afterlife....
Gold for barter.....Silver to melt into Bullets for the inevitable werewolves to come post-tragedy....
>>>Don't forget to stake/map out overlapping fields of fire, avenues of approach...
And a mega shit-ton of No-Doz Plus.
If one is disappointed at ones metal purchases, one can simply sell at a loss and obviously make it all back and more, in "the market".
Nothing to lament over, Yellen & co has one's back.
People at food pantries would most likely appreciate the canned goods.
I understand that even if they are somewhat expired, with enough hot sauce added, they usually taste just fine.
"Sound" & "Banking" in the same sentence is an Oxymoron.
Doug Casey loses the "oxy" part of this.
Da! Unsound = Barking Mad
soooo, no more Spider-Man towels then???
lets pare this paper down a bit, into a one word essay:
fiat
They won't collapse, we got their six
If the criminal banksters were prosecuted for American mortgage fraud back in 2000 the criminals would have been in prison instead of destroying the economies of the world with their New World Order. What is the difference between the $140,000 each American citizen owes to the banksters and the few thousands owed by Greek citizens. Ha. Ha. Ha.
FASCIST (government of, for and by the multinational bankster corporate monopoly) TAKE-OVER is foreign to American representative democracy and Greek direct democracy (government of, for and by the People).
The fascist are criminals to our democracy Justice System that the fascist criminals have overthrown by the criminal tools of corruption and theft: fraud, forgery, bribery, bunko and Ponzi schemes, cohesion, extortion, embezzlement, theft, murder, and any other criminal act to farther their control and power over the People.
The central bankster criminals have declared war on the Peoples of the World with fraudulent debt implemented and foisted on the leaders of democratic nations.
Fraud by representative debt on to the People was the bankster criminal plan from the beginning of the European Union and American debt. The central banksters have set out to bankrupt nations by debt and take over the country assets; to hell with the People.
The People have said emphatically and democratically “NO” to criminal fraud and debt. It is time to hold a Peoples Court for Justice and arrest and charge the criminals with their crimes. Seize all bankster multinational assets until the end of the trials and forfeiture of the assets if found guilty. The criminals have destroyed your democracy set of criminal laws, so a Peoples Kangaroo Court is your only civil defense to restore your universal criminal laws. Don’t destroy your own civic property, seize their property.
And the dollar continues to rise.
Where have all the smart people gone?
I think it most likely that Casey means they were "justified" by those who supported their creation. The lad's a bit of a libertarian.
The debt is never meant to be repaid. The plan of the banksters is to use that debt against you to seize everything and make you a slave.
The problem with this plan for the banksters is a population that has nothing left to lose will have a violent revolution.
steal everything that isn't nailed down & when you get down to the stuff that's nailed down just create a bogus mers record & file a false affidavit w/the local court to foreclose the building to which it's nailed...
good work if you can get it!
"The debt is never meant to be repaid."
It will be paid by peons via inflation.
It will not be paid by Banksters and the .1%ers.
Yes. We know that the game is rigged and set to collapse.
What we need to know is when. Give us the year that this will happen at the very least!
Later this year? Sometime in 2016? 2018? When!?
Wrong. The primary business of banks has always been the monetisation of debt. When the debt was redeemable in gold coin, there was at least a regulator of the quality of that debt.
The regulator of bank debt is today the spurious quality credit of the government central bank. So there is no effective regulator, bad debt continues to expand almost exponentially.
It is no wonder then we're fucked.
sounds like Lucky Luciano nailed it for banking as wellL
After he visited the floor of the NYSE, he commented,
“A terrible thing happened. I realized I’d joined the wrong mob.”
Remember when druggies discovered you could crush Oxycontin and snort it? Pharmacies were getting robbed all over the place, and when they installed better security, thieves attacked other parts of the supply chain.
I thought, why not distribute Oxycontin through the banking system instead? Banks already move around large quantities of cash, so why not use them to deliver other high-theft items?
Enough is enough! Nationalize the banks and requisition them to serve the People and throw the fascist bankster criminals in prison!
If the criminal banksters were prosecuted for American mortgage fraud back in 2000 the criminals would have been in prison instead of destroying the economies of the world with their New World Order. What is the difference between the $140,000 each American citizen owes to the banksters and the few thousands owed by Greek citizens?
FASCIST (government of, for and by the multinational bankster corporate monopoly) TAKE-OVER is foreign to American representative democracy and Greek direct democracy (government of, for and by the People).
The modern fascist are criminals to our democracy Justice System that the fascist criminals have overthrown by the criminal tools of corruption and theft: fraud, forgery, bribery, bunko and Ponzi schemes, cohesion, extortion, embezzlement, theft, murder, and any other criminal act to farther their control and power over the People.
The central bankster criminals have declared war on the Peoples of the World with fraudulent debt implemented and foisted on the leaders of democratic nations.
Fraud by representative debt on to the People was the bankster criminal plan from the beginning of the European Union and American debt. The central banksters have set out to bankrupt nations by debt and take over the country assets; to hell with the People.
The People have said emphatically and democratically “NO” to criminal fraud and debt. It is time to hold a Peoples Court for Justice and arrest and charge the criminals with their crimes. Seize all bankster multinational assets until the end of the trials and forfeiture of the assets if found guilty. The criminals have destroyed your democracy set of criminal laws, so a Peoples Kangaroo Court is your only civil defense to restore your universal criminal laws.
Don’t destroy your own civic property, seize their property.
Due to the Fact, that the paper loans far out strip the currency in circulation the Bankers have in the past called in loans...payable in physical currency. When the currency is not circulated how can people aquire the cash to make payments on their loans. This is what is going to happen.
Get out of debt, when currency becomes nonexistent, the collateral used to support the loan will become defaulted and you will lose your assets. The bank is backed by your taxes, you on the other hand (loans) are backed by nothing and the law will seize it........Just fucked up. Yet the Bankers make huge sums of pay.......and Stock Options....which again should be Criminal.
Get government backstoping out of banking, make the banks assume all the risk. 100% secured lending, AND eliminate their ability use sovereign debt as collateral.
Do this and banking will return to sound lending, it will also be force to secure all their loans with something tangible, historically the best instrument for that was precious metals.
The author is correct about FDIC that was just a scam to create false confidence in the banking system, but why? Depositors should do their due diligence when choosing a bank, examine their books which should be publicly available if the bank has made risky loans then depositors assume the risk.
Sovereign debt should not be used as collateral giving the impression of secured lending because it is not secured. No one knows the future or how big the economy is going to be or how much the government is able to collect in taxes. That is a fraud and should be removed from banking.
If we don't want to do that, then eliminate commercial banking, nationalize all banks and have treasury print up lawful currency, even unbacked by something tangible like gold it would still beat the system we have today.
,
Sovereign debt is the least secured of any debt ---very true--+1
The problem is the Banksters bribe the polititical puppets, they achieve great wealth and favors from the banksters that we the people would not give them. hey know where the hand gets greased.
https://www.youtube.com/watch?v=GArezeBDzLg
sounds good?