STAFF NEWS & ANALYSIS
Central Bank Lies & Consequences
By Philippe Gastonne - June 30, 2015

The European Central Bank says it is not increasing its emergency funding for Greek banks, amid fears that Greece may default on its debts on Tuesday.

The decision not to raise the cap on aid to Greece increases the likelihood of bank closures and restrictions on cash withdrawals, analysts say.

That in turn could eventually result in Greece leaving the euro.

The ECB said that it stood ready to review the decision and would work closely with the Bank of Greece.

The current ceiling for the ECB's emergency funding – Emergency Liquidity Assistance (ELA) – is €89bn (£63bn). It is not clear if all that money has been disbursed.

Those funds are used by banks to provide cash to depositors who want their money back.

The ELA decision may mean Greek banks do not open on Monday to prevent a run ahead of the imposition of capital controls, BBC economics editor Robert Peston says,

That would be a significant step towards Greece leaving the euro, though it would not make it inevitable, he says. – BBC News, June 28, 2015

Fractional reserve banking is intrinsically dishonest. Bankers promise depositors instant access to their money, even as they lend that same money to unrelated persons. The depositor agreement is a contract the bank knows it cannot possibly fulfill.

This pyramid-scheme business model would be unsustainable without the backstop of a central bank as "lender of last resort." Bank runs are (theoretically) impossible if the central bank does its job.

The European Central Bank is failing one of its member countries this week. Greek banks are closed after the ECB cut off funding over the weekend. Depositors drained ATM machines in a vivid illustration of the very behavior the ECB is supposed to stop.

For its part, the ECB argues it had no choice because Greek banks had been abusing its rules. If so, then its rules are irrational. The rules should stop banker misbehavior before depositors lose access to their money. As it is now, the ECB is punishing Greek citizens who had nothing to do with how the banks operate.

A similar bank holiday occurred in Cyprus in 2013, costing large depositors a portion of the money they had placed in supposedly stable and well-backstopped (by the ECB) banks. Central bank defenders could argue, somewhat plausibly, that this was an odd situation in a very small country. Making that argument for Greece is considerably harder.

So, we now have two examples in three years of a major central bank simply walking away from its supposedly most fundamental obligation. The lies upon which fractional reserve banking exists are beginning to catch up to it.

Citizens everywhere in the Eurozone now have good reason to wonder if their banks will be next. After Cyprus and Greece, why should anyone believe anything the ECB says?

Greeks stopped believing it months ago. One clue was a 47% jump in April automobile sales. Why would car sales boom in a country with double-digit unemployment? People were desperate to get their money out of the banking system. You can only store so much cash in the mattress, so Greeks turned to new cars as an easily available hard asset.

It was a good move for those who did it; a €25,000 car in a Greek garage is worth more than €25,000 euros in a shuttered Greek bank. Gold and silver coins would have been even better, of course, but maybe cars were more readily available.

If the ECB is willing to shut banks in a crisis, what assurance do we have that the Bank of England, Federal Reserve or the Bank of Japan won't do the same? Answer: None. Today's highly leveraged banks can fail very fast, stretching the capacity of even the strongest central banks.

This is what happens when honest money disappears. The good news is that the whole world can see it happening. The bad news will come if depositors elsewhere do what logic tells them and stop trusting their own banks. Greece could be the first bullet in a long, ugly battle.

Posted in STAFF NEWS & ANALYSIS
  • Bruce C.

    The ECB is simply demonstrating that it is a political organization rather than just an apolitical “lender of last resort”. The ECB, EU, and IMF are working together to try to make Greece cow tow to their demands. By not providing (“lending”) physical euros to the Greek banks, those banks are forced to impose capital controls (i.e., cash restrictions) literally because they don’t have enough physical currency. (Technically the way it works is the the various mints that would print and deliver the cash to the Greek banks take their orders from the ECB, so they won’t respond.)

    Now, the interesting thing is that most of the money that is on deposit at the various Greek banks were euros created “out of nothing” when those banks issued loans. That is what fractional reserve lending is. Therefore, the amount of euros on deposit in the Banks far exceeds the amount of euros that were ever deposited initially, before more loans were granted. That means that if the ECB were to provide cash to whoever demanded it it would have to print roughly 10 times as much as the Greek banks have on reserve. That is literally another form of quantitative easing. Since the ECB is already engaged in QE by buying sovereign bonds, the fact that they are unwilling to provide the cash as needed makes them look even more hypocritical and political. All of this started when the ECB’s QE program began because it stated then that it would NOT buy Greek bonds (only everyone else’s) which would have helped Greece get the debt relief it wanted. The Greeks who understood how this works started pulling cash out months ago, if not a few years ago.

  • wraft

    It will be interesting to see how the Greek crisis plays out. I’m hoping the government declares the foreign debt to be entirely onerous and frees the Greek economy from all related debt service.

    I’m rather fearful that the referendum might be rigged by the banksters to produce a favorable outcome for them. I’m guessing that is what happened in Scotland.

  • The Rothschild created ‘fractional reserve’ scam was codified in 1694 and has been forced on every nation on the planet by these ruling money changers in the temple. The system is actually even more deceptive than mentioned, as the money changers allow themselves to ‘create’ fiat currency at a ten to one rate. You deposit a dollar, they allow themselves to ‘loan’ out ten dollars. After the public accepted that ruse, the money changers allowed themselves to declare that every BORROWED dollar was a ‘deposit’ and they could loan ten dollars for every borrowed dollar. The whole purpose of this malignant debt cycle is to create more debt than could ever be paid off, then declare the puppet governments insolvent and foreclose on any national assets. America is the jewel, with nationally owned freeways that will soon be tollways, national parks that will be private parks and national forests, national mineral reserves that will be privatized to the PRIVATE Feral Reserve banking crime syndicate. War has always been an elitist method of destroying sovereignty, destroying property and destroying lives to further elitist control. End feudalism.

    “All Wars Are Bankers Wars” a 45 minute video on the suppressed history > youtube.com/watch?v=p-08PMwgKNA

    • dave jr

      Excellent as always FSS. I too have come to refer to them as the ‘crime syndicate’, better yet the ‘highest of high crime syndicate’. The question is, will the next crises (FRN losing reserve status and all its ramifications) be an out of control crash, or a deliberate and highly coordinated crises designed to guide us into a new energy based (carbon credit) monetary, command and control economy? I’d place my bets, except I can’t feel any joy in winning.

    • retired22

      You have a problem with dates,William Patterson was the founder of the Bank of England in 1694.John Law,another swindler,operating at about the same time was the great proponent of paper currency & opposed precious metals as money. Both Patterson & Law were Scottish.The Rothschilds didn’t get to England until a century later!
      And by the way,….. both Scotchmen were early originators of central banking & neither one was Jewish! So if you need some people to blame for today’s banking pyramid,..blame the Scottish!

      • “England was financially exhausted after a half a century of war against France and numerous civil wars fought largely over excessive taxation. By the time of the War of the League of Augsberg in1693, King William was in serious need for new revenue”. King William authorized ‘fractional reserve banking’ by Royal Charter in 1694. [1]

        Mayer Ameschel Rothschild changed his name from Bauer in the mid eighteen century, and dispatched his five sons to royal courts where they have created WAR ever since. [2] Nathan Rothschild did not take major control of the Bank of England until his London Times ruse over the defeat of Wellington at Waterloo. The monopolist bankers then set about conquering the monarchs. [3]

        [1] “The Creature from Jekyll Island” by G Edward Griffin, p 175

        [2] “Rothschild Template for War” at Veterans Today

        [3] “Karl Marx, Oligarch, Wealthy, Elitist” at AbelDanger.net

        • retired22

          I can’t with certainty know where you are going with your ideas,..I can only guess.And seeing as though guessing is not good enough I will pass!

  • disqus_QZX8ENhLyb

    When will you idiots stop calling paper certificates “money”? There is only ONE real true money and it is PRECIOUS METALS. All the other MOEs [media-of-exchange] are currencies. And currencies can be ANYTHING: cigarettes, whiskey, cattle, fish, tobacco, poker chips, company scrip, etc., etc. By calling fiat-currency “money” you give legitimacy to the banksters and plunderer-politicians who are laughing all the way to the bank. They should all be prosecuted for FRAUD and COUNTERFEIT, but by your calling it “money” you have legitimized their shennanigans.

    • dauden

      you discredit yourself by calling people who don’t use your terminology “idiots”, shame on you

    • dave jr

      You could use an education, if you want it. Trade with money ends the transaction. It doesn’t matter if it was done with gold, cigarettes, fish, poker chips or your daughters panties. Record the transaction for your own benefit. Credit/debit i.e.. the stuff of currency is not the end of transaction. Not until the obligation is fulfilled and extinguished. Get that, and then speak out loud.

      • disqus_QZX8ENhLyb

        It matters when GOVERNMENT says “THIS NOTE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE” [U

        • dave jr

          Absolutely. It matters when the trading partner takes advantage of the legal tender law. And by default, don’t we all? The idea that only government can protect us in our trades is what has been sold and bought by the masses. Then the sellers of security take more than previous loses? Who is the new crime boss?

        • dave jr

          I’m sorry, I see I didn’t respond fully. Thanks Gil. The “NOTE” is currency, whether legal tender or not. Notice the note says ‘one dollar’. Also the US Treasury produces Silver Eagles that have ‘one dollar’ embossed on it. Yet it takes +/- 20 one dollar FRNs to purchase one Silver Eagle coin. How can they each be ‘one dollar’? Can you spot which is money and which is currency? Funny thing about the legal tender…huh?

          • Joelg

            Interesting, dave jr. I was in Chase bank closing down a safety deposit box, as you can no longer keep cash (currency) in safety deposit boxes. Main point I wanted to pass on relates to your Silver Eagle one dollar coin (worth about 20 paper dollars). I asked the Chase rep if century old Silver Dollars in a coin collection were considered cash. The Chase rep, said yes, the silver dollars are considered currency. So, presumably could be confiscated from safety deposit boxes.

            BTW, a competing bank said that all banks now have that same policy, which means the policy against cash is coming down from a higher level than the banks themselves (though mum is the word, and no one will give details; and the average bank clerk knows little).

    • Gil G

      Currencies can be anything? How about paper money? The end.

  • esqualido

    It is worth remembering that when banking started, people paid the bankers to securely store their gold. and were given receipts which were accepted in trade. The dishonest practice of fractional reserve banking started when the bankers realized that only a small percent of receipt holders showed up at any given time for their gold, so the began printing up fake receipts- counterfeiting plain and simple. Glass-Stegal separated banks from those accepting deposits from investment banks taking risks, and should never have been repealed.

    • dave jr

      You are on the right track, and your argument should have been heeded decades ago. Fractional reserve is a scam. The paradigm being thrust upon us is the old tried and never accepted idea of a sovereign currency. It never flew. Sovereign money had wings because warrior kings collected that which was desirable….gold and silver. Want something else and the warlords will position themselves between it and you/us…the magic of collectiveness. See?

  • esqualido

    “The decision not to raise the cap on aid to Greece increases the likelihood of bank closures and restrictions on cash withdrawals,which in turn could eventually result in Greece leaving the euro.” Except that, like the Roach Motel, there is no mechanism for any of the rats to get out.

    • Bruce C.

      Since when do laws matter? It’s the intent. Didn’t the US Supreme Court set you straight on that?

      Besides, the EU will want to eject Greece – whatever that means – if Greece votes against extending sanctions against Russia. Sanctions have to be unanimous among all the EU countries, at least as of now.

  • Bruce C.

    “Bankers promise depositors instant access to their money, even as they lend that same money to unrelated persons.”

    Yes, “Fractional reserve banking is intrinsically dishonest,” but not for that reason. In fact, the above statement is largely not even true. The banks lend hardly any of the depositors’ money but they are allowed to “create” about ten times that amount when lending. However, that, in itself is still not what is so dishonest because that’s “well known” and not denied. The truly dishonest and deceitful fact is that the newly created money that is lent has no value either intrinsically or indirectly (i.e., a 3rd party claim). And yet, credit and bankruptcy laws allow the banks to lay claim to real assets if the fake currency is not repaid. In other words, if a bank is not repaid a loan the only “real” loss is perhaps 5% or so that does come from depsitors. The other 95% was simply fabricated via double entry book keeping. The bank loses nothing (other than the 5%) because it gave nothing – literally. That is the true deceit and harm of fractional reserve banking, as FauxScienceSlayer also explained.

    All of this has the potential of becoming much more widely understood if the creditors start to demand real Greek assets (islands, real estate, monuments/art, etc.) in lieu of (inherently worthless and losing value every day) euros. The Greeks, and Finance Minister Yanis Varoufakis is fully capable of calling their bluff. He/they could demand an accounting of the value of their fabricated euros. Euros are not like a real asset like gold which requires energy/money/effort/labor to produce which defines its value (not unlike the argument for the value of bitcoins being the energy and effort to “mine” them.) Euros require virtually nothing to create and have “value” only to the extent most people grant it based on faith and misunderstanding. But that can change in an instant.

    • esqualido

      ” The banks lend hardly any of the depositors’ money .” If that were true, there would have been no need for the FDIC

      • Bruce C.

        Not at all, and that is why the amount the FDIC has is so little compared to total deposits. The portion of total outstanding loan “assets” “owned” by depositors’ is only about 2-5%, and only a portion of that is considered “materially at risk” because the risk of bank runs are expected to be low, partly because of the existence of the FDIC and because the Fed can create as much currency as needed to satisfy any demand. It’s really all just a confidence game. The currency may be inherently worthless but if everyone agrees to trade real value for it then it basically works.

        • dave jr

          I agree with you Bruce. The banks do not lend money, at least not that I have seen in my lifetime. The banks, however, do create currency on others behalf when adequate collateral is pledged. Then there was TARP and several other tricks culminating in the QE’s. This is a galled impersonation of the productive entities. Keynes must be grinning in his sleep.

  • Stephen Gray

    I believe Greece is being used as a “whipping boy” and “test case” for the real agenda of the Money Changers.
    Total control of the world by the elites. These devious unelected money manipulators are
    having their way with us all, helped out by puppet political “leaders.”
    See links below:
    http://graysinfo.blogspot.ca/2010/10/dictators-of-austerity.html
    http://graysinfo.blogspot.ca/2011/12/eu-debt-crisisthe-money-changers-and.html
    http://graysinfo.blogspot.ca/2014/03/the-imposition-of-new-world-order-nwo.html
    http://graysinfo.blogspot.ca/2014/12/is-there-open-conspiracy-to-control.html

    • dauden

      They’re having their way by geo-engineering the weather (climate war) most recently in Texas, creating havoc with people’s lives and property hoping to create fear and submission in the aftermath. With Jade Helm slated to start July 15th, their soldiers are on the ground ready to crush any rebellion.

  • Samarami

    Since the definition of “government” is aggression and coercion, the modus operandi of the psychopaths making up that mindless abstraction is obfuscation. The all-pervading question in “practicing politics” (I wish somebody would one day define what “practice” really amounts to) is always centered around how long the bubble can be made to float before large-scale rebellion — and how it can be constantly re-positioned to appear healthy and well to the hoi polloi.

    The enormity of the truth is incredible. Sam

  • Joelg

    “The European Central Bank is failing one of its member countries this week…As it is now, the ECB is punishing Greek citizens who had nothing to do with how the banks operate…” PG/DB

    Indeed, the Higher Authorities should be more benevolent and perhaps are a bit harsh. But if you look beyond the austerity headlines (media propaganda) and view the bank/hedge fund creditor demands (seizure of Greek national assets like islands and water resources), then the true nature of the game is revealed. This is War, with the ancient goal of looting the enemy and bringing home treasure. Instead of starvation via blockades and destruction of the surrounding farmlands, the modern population is brought into submission via financial tools. Debt is the artillery and infantry. Very cost efficient compared to soldiers and modern weapons. Stealth at its best, too, because it takes place openly and yet is invisible.

    It is the time-honored tradition of sacking and plundering, under a modern guise suited to the current era. The Greek people are irrelevant, and likely will not be killed or captured as slaves if they surrender peacefully. So, perhaps an improvement on ancient ways. Fractional reserve lending and credit need not be evil, though they make excellent tools for the covetous devil in human nature.

    • Bruce C.

      “Fractional reserve lending and credit need not be evil…”

      That depends on what you mean by evil. What it absolutely means is that something that is not earned (i.e., obtained by a voluntary exchange of real value) is traded for a profit, and, furthermore, a lien is created against the real value (collateral) of the borrower.

      Most people understand that it is wrong/corrupt/unsustainable/unworkable that stolen goods be sold for a profit.

      Similarly, most people can understand that it is wrong/corrupt/unsustainable/unworkable for counterfeited (fake) currency to be exchanged for real goods and services.

      Yet that is precisely what fractional reserve lending is. The currency lent is counterfeit (i.e., created effortlessly by a book keeping entry, and transferred as binary digits or if need be physical inherently worthless cash) and yet is required to be repaid with interest (at the least) and possibly by real collateral in the case of default. At best you could say it is a fundamentally “bad deal” for the borrower, and one in which most borrowers don’t realize is such a sham. A bank loan becomes a legal claim on real assets at no cost to the bank.

      Look at it this way, the most profitable loan for a bank is one that ends in default as soon as the loan is granted. (That’s not always true for technical reasons but it’s true enough to make my point.) That is because the bank receives more than just interest at zero cost, but potentially a real asset (the collateral) whose value is that of the entire loan amount (plus the the closing costs) and at essentially zero cost.

      Nice “work” if you can get it.

  • I have family in Argentina. Argentina has a history of IMF loans and political systems failing them. I appreciate Gastonne taking the side of the Greek citizen because I have seen with my own eyes how these things go bad. In 2001 Argentina had a default and in 2014 they had a default. Currently the 2014 default still affects Argentines. My wife and I have a property that we cannot sell because the government says we cannot. We are collecting rent on it, but must put all of our money into an Italian bank because trading pesos for USD and vice versa is currently illegal. All this is thanks to run away spending by Kristina Kirchner’s socialist government and “reforms” that Hugo Chavez helped implement.

    My brother in law Diego is one of the people who helped me develop a libertarian/min-archist outlook, he is industrial device programmer (ada / C++ / Unix-Linux) and his corporate paid salary has been frozen by the Kirchner regime. It sucks and it’s not something I look forward to dealing with here in the US.

  • Joelg

    Fiat currency is an artistic or intellectual creation like a trademark/logo, software, song, poem, book or other creation. Like a rare piece of coinage or famous artist painting, the free market ultimately determines the price or value of a fiat currency. Compared to the Argentine peso, the USA dollar has real value. There is more involved that simply creating it (fiat) out of thin air, like an artist or writer would create an artwork out of thin air. To give the creation “value” and maintain that “value” or the illusion of “value” for an extended time period is the real trick for the issuers of fiat currency. Of course, no fiat matches gold as a store of value. But relatively speaking, some fiat creators are better at the value-creating or confidence game than others.

    As both Argentina and Zimbabwe have recently learned, and many other entities have discovered over the course of human history, maintaining “value” for a fiat currency is rare. The USA puts in a lot of effort, including skullduggery, war and assorted arm-twisting, threats and manipulations at the international level to maintain the USA dollar’s value. Granted the dollar has lost most of its value since the creation of the Federal Reserve in 1913, but at least it is still around and you get a nickel’s worth of value left after a century. Not as good as gold, but better than most of the other fiats in the past century. Holding a van Gogh or Cezanne painting for the past century would surpass them all, and proves that you can create something of value from virtually nothing (a piece of canvas, some wood stretcher bars and a few dollars worth of pigments and adjuvants; perhaps unfairly ignoring the intellectual input of the artist). My point being: It requires a lot of work to create something from nothing, and others valuing it is the equivalent of magic. Nice work if you can pull it off. Of course, it helps that the Secret Service and goon squads of armed enforcers act as The Muscle to keep the fiat currency competition at bay.

    • Bruce C.

      Yes, but don’t forget that the Federal income tax was also adopted in 1913 which became the tangible mechanism for how US Treasury bonds – which are the equivalent of US currency – would have value (i.e, a source of income and a return of principle.) Also, the US dollar/FRN was also “backed” by gold (i.e., was interchangeable at a fixed rate), so dollars became a proxy for gold. Other than the dollar/FRN being declared “legal tender” the dollar was not yet fully “fiat.”

      The real switch occurred when Nixon closed “the gold window” and severed the dollar’s tie with gold, at which time the dollar did become truly fiat. It was then both inherently worthless and legal tender. Things disintegrated quickly after that until the “petro dollar” arrangement was engineered which was/is a good example of a creative way of creating value of “fiat. “By requiring oil to be purchased with dollars automatically created a demand for dollars, and so they had value for that reason.

      The main reason dollars have value now, besides the need to buy oil (though that’s starting to change), is because so many countries/people own dollars. An enormous amount of real goods and services have been exchanged for them and nobody wants to lose their purchasing power so everyone maintains the charade. It’s a fascinating situation. The way out of course, short of fractal catastrophy, is to be the first one’s out. Whoever converts their dollars to tangible assets first and the the most will fare the best. There won’t be enough chairs when the music stops.

      • Joelg

        All good points, Bruce C. I can’t really blame Nixon too much, as it was the policies before him that came to a culmination on his watch; and any president would have had to do the same given that the “fiat” promises exceeded the gold reserves. Yet the bankrupt currency with no commodity backing has continued on for almost half a century with no certain end in sight. Faith and confidence are really amazing, are they not? Perhaps even better than gold. Would be interesting to compare the cost of creating faith and confidence for the fiat currency with the cost of mining gold. In any case, I suspect that over time any paper or digital currency purportedly backed by gold would eventually degrade and head towards bankruptcy from gradually issuing more paper or digital credits than a one-to-one correspondence with gold or the underlying backing commodity. The temptation to do otherwise than inflate the paper/digital currency is just too great; and over time rectitude will gradually give way to opportunism and debasement of the currency. History (empirical) indicates this scenario is recurring.

        Given that the fiat is a matter of faith and confidence and that so much of the USA fiat currency is held outside the USA in countries whose fiat engenders even less faith and confidence, the fiat dollar could still have a long run ahead of it. But who really knows, since faith and confidence are irrational to begin with. Thus, anything, including irrational responses that confound all analysis and prediction, is possible.

  • retired22

    Lord Acton,the great British historian & political thinker of the 19TH century was quoted as saying “The issue which has swept down the centuries & will have to be fought sooner or later is the people versus the banks”

  • chrisyew

    The bankers and the elites had been sacrificing the western nations to grow the world economy. The scheme is simple. Create demand by creating more debt in western nations and send jobs to cheap labour countries, thereby creating more demand as products get cheaper. Cheap labour economies grow richer and create more demand. The whole world becomes richer by creating a huge amount of debt in the western nations. It would have been a good thing if not for the debt bomb and this bomb is growing exponentially which also mean that we are growing rich exponentially. Debt = Asset. So if the top 1% owns most of these debts and if we have to defuse this debt bomb, people to lose the most will be the top 1%. When this happen, governments should make available resources to protect the 99% and this time sacrifice the 1%.

    • retired22

      Many people have the false idea that the 1% are in charge of a great master plan to conquer the world by buying it with I.O.U.’s,….these people are wrong.The 1% are the biggest fools of all,legends in their own mind!They do have a statist master plan,…but it is now a run away & out of control locomotive that will destroy them as well as the rest of us!
      What these billionaires don’t realize is that they can’t survive without the middle class consumers they are impoverishing,..sort of like the people who killed the goose that laid the golden eggs.If they destroy the middle class consumers,which they are succeeding in doing,& they will destroy their own source of wealth!
      They are not ,as they believe,the rulers of the future.The 1% will be swept away with the rest of what remains of the the societies they destroy.
      We may end up with chaos,dictators who will promise to end the chaos,& maybe war!

      • chrisyew

        You are absolutely correct. A stable structure is one with a big base and narrow towards the top. Numerically, in terms of quantity, the structure is that of a stable pyramid. However, financially, the pyramid is getting narrower at the bottom and wider at the top. This is an inverted pyramid and will fall anytime. Money is getting out of the bond market and now gathered at the cash exit looking for an alternative money system or else, if this is not available, this money will go out to flood the real market. It will create unrealistic prices in whatever it move to and if it generate inflation, due to the sheer volume and with momentum play, it will hyperinflate very quickly. At this point in time, it is checkmate. Central banks will be forced to increase interest rate and with the $quadrillion debt, it will be game over. The best solution is to have an alternative money system to transit to so as to maintain the functioning real economy. Let the old system fail on its own so that we will not end up with war, chaos and destruction.

  • GASTONNE: “Fractional reserve banking is intrinsically dishonest. Bankers promise depositors instant access to their money, even as they lend that same money to unrelated persons. The depositor agreement is a contract the bank knows it cannot possibly fulfill.”

    BISCHOFF: Fractional Reserve Banking involving “Money” (Gold) and Bills of Exchange in a redeemable currency regime is one thing. Fractional Reserve Banking involving lending of Central Bank debt monetized currency in an irredeemable currency regime is quite another thing. The above statement refers to the latter.

    It assumes that something positive is loaned out by the banks, when in fact in an irredeemable currency regime banks merely move IOUs around. Banks running short of “money” in a debt monetized currency regime merely means that the control over creating IOUs is held too tight.

    It isn’t Fractional Reserve Banking that is intrinsically dishonest. What is dishonest is to pass around debt monetized paper currency as MONEY.

    • dave jr

      I agree. And I’d also contest that deposits have nothing to do with currency creation nowadays. Currency is a completely different animal than money.

      • Joelg

        Currency and money can be one and the same. Your Silver Eagle worth 20 paper dollars is considered both money and currency. I asked Chase bank recently, as they prohibit cash or currency in safety deposit boxes, as do all the other banks I asked (so a broader federal policy being secretly enforced). Your collection of silver dollars (real money) is also considered currency, according to the bank rep.

        Took me by surprise, as it did a lawyer to whom I related the story. But indeed you can spend the Silver Eagle coin as one dollar of currency. I report this less to make a rhetorical point or point out a paradox than to impart a caution when it comes to storage of silver, gold or platinum coins technically minted as currency but treated by buyers as money (for their precious metal content).

        • JOELG: “Currency and money can be one and the same.”

          BISCHOFF: Without a doubt. “Currency” by definition is a “medium of exchange”. Anything can be a medium of exchange, to include gold and silver. While silver used to be “Money” (silver as “money”, and as “currency” has its own interesting history), today it is merely a “medium of exchange” due to the Gold Act of 1900, and because it is a highly desired industrial commodity.

          Gold on the other hand has been “Money” since the time of Lydia around 500 B.C. Gold is “Money”, because gold is a measure of value.

          What is value…??? Value is created by exerting human energy on a natural resource in the creation of a product. For the pre-1935 U.S. Dollar, the value was pegged by the Coinage Act of 1792 at the amount of human energy required to mine .04838 of an ounce of gold. While the amount of human energy required to mine .04838 ounces of gold has been reduced over the years, due to the improvement in technology, thereby lowering the value of gold, it was the technology applied in mining to lower human exertion which when applied in the general economy, also lessened the amount of human energy required to produce other products or commodities, thus maintaining the level of comparison.

          As long as the “price” of a good or commodity in terms of aliquot parts of gold is kept constant, the value of goods and commodities can be compared to the value of gold and thus compared to each other. This is what is meant by the “gold standard”.

          The “gold standard” can be maintained In a paper currency regime in which bank notes are created against 90-day Commercial Bills of Exchange and gold, as long as the bank notes are redeemable on demand for a fixed amount of gold. To return to this currency regime is the only solution to the world wide irredeemable currency regime now in the process of collapse. Today’s “gold markets” don’t establish the value of gold. To the contrary, they establish the value of the irredeemable currencies in terms of gold.

          As an aside, to establish the value of irredeemable currencies, the only true “gold market” in existence today, is the one in Shanghai, China. In order to sell an ounce of gold on the Shanghai Gold Market, one has to deposit a physical ounce of gold. In contrast to contracts on the Shanghai Gold Market, the LCME in London or the Comex in New York trade contracts which are in excess of 50% “naked” (contracts for which no gold exists).

    • I can’t speak for the EU’s paper currency, but here in the U.S., the legal tender is not ‘debt monetized’. The Fed holds gold certificates and Treasuries as backing/collateral for the note issue and if the congress were to dissolve the Fed system, the Treasury would take back all the notes and all the assets held as collateral. Federal Reserve notes represent a first lien on all the assets of the Federal Reserve Banks, and on the collateral specifically held against them.

      Here are some fun facts; there is no law that grants the power to create money to either the Federal Reserve of the commercial banking system. There is no law that acknowledges the credit generated by the Fed or the banks as legal tender, money or even a currency. All credit generated and held as deposits represent a legal obligation to pay the depositor in legal tender cash either upon demand or over time. Banks must purchase FRNs from the Fed, they don’t get them for free or upon demand. The Fed must hold approved assets of equal value to the FRNs received.

      Fractional Reserve Banking IS intrinsically dishonest, it is banks promising something they do not have and cannot afford to get.

      http://carl-random-thoughts.blogspot.com/
      the Frog

      • Dwain,

        You make some good points. You cite a link, but I am loathe to argue a comment based on a link. I’ll take the points you make to reply.

        Let’s take your first comment.

        “The Fed holds gold certificates and Treasuries as backing/collateral for the note issue and if the congress were to dissolve the Fed system, the Treasury would take back all the notes and all the assets held as collateral. Federal Reserve notes represent a first lien on all the assets of the Federal Reserve Banks, and on the collateral specifically held against them.”

        1. The FED does not hold gold certificates. The FED holds actual physical gold. Where did it get this gold…??? The gold today’s FED holds is gold that was transferred to the FED central bank agency created with the National Banking Act of 1935. The gold transferred to the post-1935 FED was the gold held by the twelve, private, membership bank association regional banks of the original Federal Reserve System established with the Federal Reserve Act of 1913.

        2. The FED does not “hold” U.S. Treasuries. It uses Treasuries in conjunction with decisions by the FOMC in conducting “Open Market Operations” at the “OM Window” of the FRB NY. In essence, the post-1935 FED is the marketing arm of the U.S. Treasury for selling its debentures. By Treasuries is meant U.S. Treasury Bonds. Bonds by definition are “debt instruments”. U.S. Treasuries are issued by the Treasury Department subsequent to acts of Congress in legislating annual budget deficits. U.S. Treasuries are backed by U.S. taxpayers who deliver up to the U.S. Treasury tax money as required by the 16th Amendment to the U.S. Constitution.

        which were replaced District Banks subject to the NBA of 1935. This gold

        3. There is no collateral to the irredeemable Federal Reserve Note, other than the U.S. taxpayer. The Federal Reserve Note represents “debt” sold in open market operations. The irredeemable Federal Reserve Note is an “IOU” which circulates as paper currency.

        4. Federal Reserve District Banks do not hold assets, except a claim on the portion of the gold held by the original private regional reserve banks is now stored in the vaults of the FED in NY City. The gold stored at the Treasury Depository at Fort Knox is largely the 8,400 tons of gold savings of the American people nationalized by FDR with Executive Order #6102.

        Let’s take your second comment.

        “There is no law that grants the power to create money to either the Federal Reserve of the commercial banking system. There is no law that acknowledges the credit generated by the Fed or the banks as legal tender, money or even a currency.”

        1. J.P. Morgan knew something about “Money”. Before the 1911 congressional Pujo Commission he answered: “Gold is Money, and nothing else”. Morgan understood that “Money” is a measurement of value and it is the value created in mining and refining a certain quantity of gold which is set at the standard of measurement. Gold is not a liability to anyone. Therefore, it is no wonder that there is an absence of law which purports the power to create money.

        2. The “Federal Reserve Agent” at the District Bank grants credit to member banks of the reserve district. The original amount of credit was based on the amount of gold transferred under the NBA of 1935. Mergers and FDIC action since then necessitated reassignments of claims on gold reserves. The credits issued by the District Federal Reserve Agent must be paid back in the form of U.S. Treasury Bills prior to obtaining additional credit.

        3. The annual budget deficits are largely based on “ear marks” required to be inserted into the annual budget by every U.S. Congressman, regardless of party affiliation. The Federal Reserve Note created against annual budget deficits was made “legal tender in payment of all debt, public or private” with the Coinage Act of 1982.

        Lets take your third comment.

        “The Fed must hold approved assets of equal value to the FRNs received.”

        1. What is are assets to a bank….??? The are loan portfolios.

        2. The FRNs received by the FED or the FED District Banks are the “monetized ear marks”, congressional ear marks which helped to create annual budget deficit turned into U.S. Treasuries which were then marketed through the OMW at the FRB NY under direction from the FOMC.

        Lets consider your fourth comment.

        “Fractional Reserve Banking IS intrinsically dishonest, it is banks promising something they do not have and cannot afford to get.”
        1. “Fractional Reserve Banking” when applied to a redeemable paper currency regime refers to the amount of physical gold reserves on hand.
        Under a redeemable currency system, the majority of assets held by a bank against which bank notes are created are in the form of 90-day commercial Bills of Exchange . Nearly 90% of all transactions involving the exchange of paper currency represent consumption. Only roughly 10% involve savings. It is for savings that gold is the proper medium. Therefore, a redeemable paper currency takes on the standard of gold, and the “fractional reserve” of gold held by banks is normally sufficient to meet redemption on demand.
        2. “Fractional Reserve” when applied to a central bank, irredeemable paper currency system is a canard. Today’s irredeemable paper currency are “IOUs” in the first place. Bank loans made according to reserve requirements set by the Board of Governors of the FED merely mirror the function of the commercial 90-day Bills of Exchange, except that commercial Bills of Exchange represent physical goods or commodities, while a percentage of “IOUs” held against loan issues are still only “IOUs”. Besides, nobody borrows money today, just to keep it under the mattress.

        • The only ones who benefit from the conflation of money and credit are the issuers of credit with no money, and economists.

          Well, if you had bothered with the link, which also included links to sourced information, maybe you wouldn’t have made so many erroneous, conflated and incongruent assertions that are rife with superfluous information that is not germane to, or refutes, the facts as I’ve stated them.

          Here’s some links to facts that you can ignore in favor of your elaborate tale: [ https://research.stlouisfed.org/fred2/series/TREAST ] [ http://www.federalreserve.gov/aboutthefed/section16.htm ] and [ http://www.treasury.gov/resource-center/faqs/currency/pages/legal-tender.aspx ]
          All links prove the key elements of your argument are wrong.

          Federal Reserve Notes are not I.O.U.s, they do not represent debt of any kind, they are Legal Tender for all debts public and private, says so on every note and in law. They are Payment, final and complete. The Credit created by the Fed and the banks represents ‘I.O.U. Legal Tender’, as specified and directed by Law.

          FRNs are not ‘borrowed into circulation’ by the U.S.G. or anyone else, they are issued, with full backing, into circulation with specific collateral of equal value held. FRNs are issued into circulation based upon depositor demand for the notes, NOT government borrowing and spending. The Legal Tender issue is a separate process from the FOMC open market credit creation and government debt generation process.

          Fractional Reserve Banking was Fraud and Theft when gold and silver were the legal tender moneys, and it remains a Fraud and Theft with paper notes and U.S. coin as the legal tender money today.

          Now, do you have any actual, specific facts that can refute my fact based arguments, or do you want to concoct another convoluted irrelevant and factually inaccurate tale?

          • I am familiar with the links you cite. I have my arguments with the authors there, and they don’t involve you.

            If you want to argue with me about money and banking, please present your own arguments, and do spare me your pointing to other peoples opinions as those of your own.

            If you can’t argue, either because you don’t understand the definitions of terms, or you fail to possess the capacity and the facts to logically argue and you therefore must resort to personal attacks to counter what I have to say, then I am not the person with whom you should communicate.

          • Unlike you, everything I’ve stated is my own, based in fact, supported by evidence and linked sources, which were not “opinions” rendered by others, DA, they were links to the Fed, the Treasury and the law. Saying that you have “your own arguments with the authors” of those Fed and Treasury web sites, is nonsensical and pretentious.

            I posted and conveyed facts and you responded with rote regurgitations of opinions based in ignorance, driven by a ‘gold fetish’ that is/has been replicated, ad nauseum, all across the web over the years. There was absolutely nothing of ‘your own’ in anything you wrote.

            I did not attack you personally, I attacked your rote regurgitations, I provided proof that the arguments you presented as your own were factually wrong, and you responded with lies and a personal attack.

            If you’re going to spend your time on the web pretending you’re an expert on the monetary system, then it might behoove you to actually learn the facts of the monetary system instead or repeating the myths you’ve learned over the years.

            It’s very simple: Post the law that authorizes fractional reserve banking. If you believe the Federal Reserve Act or the NBA of 1935 does that, the post the specific section doing so.

            Post the law that grants to the Fed or the commercial banking system the right to create ‘money’. If you believe the Federal Reserve Act or the NBA of 1935 does that, the post the specific section doing so.

            Post the law that designates the credit created by the Fed and the banks as legal tender money. If you believe the Federal Reserve Act or the NBA of 1935 does that, the post the specific section doing so.

            Post the law that even acknowledges the credit created, is a currency. Any legal source will be fine.

          • I did read your reply. However, I will not respond, only to say that you do not understand “Money”. All the things you ask me to cite have nothing to do with my arguments.

            Because you do not understand “Money”, you do not therefore understand the function of gold in a redeemable currency regime which existed in the United States from 1792 until 1933.

            It would be well for you to read the original Federal Reserve Act of 1913, in particular Section 14, paragraph (a) and (b), and then read the 1934 revision of the original 1913 FRA, in particular Section 14, paragraphs (b) and (c). If after your reading what I referenced, you fail to get an inkling what redeemable currency under the gold standard is all about, then I can’t help you.

            As to the links you cite, these are interpretations of legislation with which I largely disagree. All you are doing is regurgitating those interpretations.

            Thanks for your reply, but I don’t see any possibility for rational discourse between us. I sense a central bank leaning in your comments, and I am totally opposed to irredeemable central bank paper currency.

          • What is your major malfunction? Why are you citing a law that clearly illustrates you don’t know what you’re talking about as a defense? Those sections you’re attempting to use to bolster your argument were amended in 1934, striking out all references to gold, which means all of your arguments revolving around gold are superfluous and irrelevant. Here is a link to the amended paragraphs: http://www.federalreserve.gov/aboutthefed/section14.htm
            But, you won’t read it because you’re not interested in facts.

            And what a big liar you are, please explain how posting a link to a Federal Reserve produced chart that shows how many Treasuries they’re holding as proof against Your False Claim that they don’t hold them, is a link to an “opinion”. Please explain how a link to the very law you cite that proves you don’t know what you’re talking about, is posting a link to an “opinion”.

            You just keep digging yourself further and further into a hole. Word of advise, Stop Digging!

            Here is the facts of the matter, you haven’t a clue and don’t want one, you want to argue irrelevant opinion based upon antiquated notions and obsolete laws. If you don’t understand the true fraud of the central banks, how can you logically argue against them? Remain ignorant as you want, but please, stop inflicting your ignorance upon others.

          • I think, if there is a malfunction in thinking, it lies with you. You don’t seem to know the difference between redeemable currency and irredeemable currency. You flail around trying to discredit me, and yet you don’t understand a thing I am saying.

            All your citations of links to the Fed Statistics, and your discussions about the data found there, is meaningless. Forget about the fact that government data has become very suspect these days, the methodology being used for the financial data on the FED data websites totally ignores the fact that the basic underlying monetary system is not viable.

            I suggested that you to read the Federal Reserve Act, Section 14, Paragraphs 2 (a), (b) and (c), to get an inkling as to how the currency regime was changed.

            I tried to help you to understand it, but you seem to have a close mind, and you become defensive when I point it out. Of course, the last thing I want to do, is to stress you out by asking you to think for yourself.

            For the benefit of others who might read this exchange, I’ll again lay out my point about that discussing any matter about the post 1935 FED is essentially beating a dead horse, because it is the master of an irredeemable, central bank paper currency, and the creation of a bond market which reacts to interest rates set by the FOMC.

            Redeemable currency regimes have existed in the United States since the Coinage Act of 1792. The 1913 Federal Reserve Act did not change it. There was no “Bond Market” before 1913. The interest rate for bonds was established by savers and their willingness to part with their gold savings for annual interest payments. This system was undermined by the FRB NY and its Governor Benjamin Strong through the conduct of illegal sales of Government (Gold) Bonds in secondary markets (illegal OMOs).

            When the rogue acts of conducting illegal OMOs in the 1920s resulted in the banking crisis of the early 1930s, instead of prosecuting the people at the FRB NY who broke federal law, the Congress passed an ex-post-facto law to let those people of the hook by amending Section 14, Paragraph 2 of the original FRA, specifically inserting Paragraph 2 (b).

            As Section 14, Paragraph 2 (a) and 2 (c) prove, bank notes could be created only against Bills of Exchange and Gold under the original FRA.The Federal Reserve Bank Notes were issued by the regional Federal Reserve Banks under their own seal. FRNs bore the imprint that meant they were redeemable by law. Redeemable FRNs had to be redeemed by the issuing bank for gold on demand, or the bank was subject to prosecution for fraud. Here is the text in Section 14 of the FRA to which I referred:

            2. Powers

            Every Federal reserve bank shall have power:

            Dealings in, and loans on, gold

            (a) To deal in gold coin and bullion at home or abroad, to make loans thereon,
            exchange Federal reserve notes for gold, gold coin, or gold certificates, and to
            contract for loans of gold coin or bullion, giving therefor, when necessary,
            acceptable security, including the hypothecation of United States bonds or
            other securities which Federal reserve banks are authorized to hold;

            [12 USC 354. Part of original Federal Reserve Act; not amended.]

            Purchase and sale of bills of exchange

            (c) To purchase from member banks and to sell, with or without its indorsement,
            bills of exchange arising out of commercial transactions, as hereinbefore
            defined;

            [12 USC 356. Part of original Federal Reserve Act; not amended.]

            Purchase and sale of obligations of United States, States, counties, etc.

            (b) To
            buy and sell, at home or abroad, bonds and notes of the United States, bonds
            issued under the provisions of subsection (c) of section 4 of the Home Owners’
            Loan Act of 1933, as amended, and having maturities from date of purchase of
            not exceeding six months, and bills, notes, revenue bonds, and warrants with a
            maturity from date of purchase of not exceeding six months, issued in
            anticipation of the collection of taxes or in anticipation of the receipt of
            assured revenues by any State, county, district, political subdivision, or
            municipality in the continental United States, including irrigation, drainage
            and reclamation districts, and obligations of, or fully guaranteed as to
            principal and interest by, a foreign government or agency thereof, such
            purchases to be made in accordance with rules and regulations prescribed by the
            Board of Governors of the Federal Reserve System. Notwithstanding any other
            provision of this chapter, any bonds, notes, or other obligations which are
            direct obligations of the United States or which are fully guaranteed by the
            United States as to the principal and interest may be bought and sold without regard
            to maturities but only in the open market.

            To buy and sell in the open market, under the direction and regulations of the
            Federal Open Market Committee, any obligation which is a direct obligation of,
            or fully guaranteed as to principal and interest by, any agency of the United
            States.

            [12 USC 355. As amended by acts of Jan. 31, 1934 (48 Stat. 348); April 27, 1934
            (48 Stat. 646); Aug. 23, 1935 (49 Stat. 706); March 27, 1942 (56 Stat. 180);
            April 28, 1947 (61 Stat. 56); June 30, 1950 (64 Stat. 307); June 23, 1952 (66
            Stat. 154); June 29, 1954 (68 Stat. 329); June 25, 1956 (70 Stat. 339); June
            30, 1958 (72 Stat. 261); July 1, 1960 (74 Stat. 295); Oct. 4, 1961 (75 Stat.
            773); June 28, 1962 (76 Stat. 112); June 30, 1964 (78 Stat. 235); June 30, 1966
            (80 Stat. 235); Sept. 21, 1966 (80 Stat. 825) (as amended by acts of Sept. 21,
            1967 (81 Stat. 226) and Sept. 21, 1968 (82 Stat. 856); May 4, 1968 (82 Stat.
            113); July 31, 1970 (84 Stat. 668); July 2, 1971 (85 Stat. 100); Aug. 14, 1973
            (87 Stat. 314); Oct. 28, 1974 (88 Stat. 1505); Nov. 12, 1975 (89 Stat. 638);
            April 19, 1977 (91 Stat. 49); Oct. 12, 1977 (91 Stat. 1131); Nov. 7, 1977 (91
            Stat. 1256); June 8, 1979 (93 Stat. 35); and March 31, 1980 (94 Stat. 140). See
            also 12 USC 2158 and 31 USC 5301. The “continental United States” is
            defined in paragraph 3 of section 1 of the Federal Reserve Act, so as to mean
            the “States of the United States and the District of Columbia.”]

            These were the paragraphs to which I referred. As you can see, only gold and Bills of Exchange were able to be monetized according to the original legislation as evidenced by:

            “[12 USC 354. Part of original Federal Reserve Act; not amended.]”

            Then, starting in 1934, a Paragraph (b) was slipped in between the original two paragraphs allowing the monetization of sovereign debt and all kinds of other debt instruments since. Every time there is another debt classification added
            to the monetization process, the Congress must authorize it. A part of the last changes to Paragraph 2 (b) no doubt involve TARP and QEs.

            However, if you don’t understand the difference between monetizing gold and Bills of Exchange into a redeemable “positive value” bank note currency and monetizing government and any other kind of congressionally accepted debt into irredeemable “negative value” paper currency, then you cannot understand the difference between Government Bonds under a redeemable currency regime and a Bond Market under an irredeemable currency regime in which the interest rate is manipulated by the FOMC.

            The only thought with which I can leave you is this: “Good Money drives out Bad Money”.

            Redeemable currency based on the gold standard is “Good Money”.

            Monetized Debt turned into irredeemable paper currency is “Bad Money”.

            With the nationalization of the gold savings of the American people in 1933, redeemable currency was finished. Furthermore, no sane Supplier would draw a Bill of Exchange for goods delivered, if he has to accept IOU (irredeemable) paper currency upon maturity of the bill.

            The reason why paragraphs 2 (a) and (c) became superfluous is the fact that Paragraph 2 (b) was added to the FRA in 1934. It is not because the amended FRA “strikes out all references to gold….”, as you maintain.

            You are unwittingly or willingly a chill for the irredeemable paper currency system. You argue minutia of a system which is devious in its inception, and which is unsustainable in the long run. Nevertheless, you accept the system as is. It is just the minor parts of this faulty system which seem to bother you. I know plenty of guys who think like you when it comes to redeemable currency or land value taxation. They are so caught up in the bubble created for them by the monetary elites that they can no longer punch themselves out of a paper bag, if their life depended upon it. As I said before, all this talk about FED assets and dissecting the decisions of the FOMC on interest rates or reserve requirements is nothing, but beating a dead horse…..

            Who cares how many irredeemable FRNs are shuffled around via all kinds of bonds and credit derivatives. What kind of assets are loans or bonds consisting of a monetary unit which is an IOU….??? What kind of restrictions on the circulation of irredeemable FRNs is set by reserve requirements in terms of monetary units which are IOUs….???

            Give me a break.

  • I do not have a fundamental issue with a fractional reserve banking system nor with a central bank as a banker’s lender of last resort. What I do have an issue with is ‘the state’ using its monopoly power of violence based coercion (the threat and use of force) to tax the people and underwrite that central bank.

    In a stateless society people could legitimately offer banking services which employed a fractional reserve method of money creation and dealt in a form of money brought-about in this way. These banks, by way of assurance of their eventual solvency, could employ the services of central banks to effectively ‘insure’ their ability to repay depositors.

    What those stateless central banks could not legitimately do is force the public to underwrite their losses. It would then just be up to the prospective customers of such banks to judge if they believed their deposits were safe in such institutions. And if those banks went bust the owners and directors of the bank would be liable to the creditors for their losses, every penny of their personal assets would be liable for forfeit.

    So I think it is important to, truthfully and accurately, identify the real ‘elephant’ in this room. The elephant is not money, not fractional reserve money creation, not the bankers, not the banks, not the central banks, not even the inflation of an over-produced fiat currency. The elephant is the relationship between ‘the state’, money and banks, a relationship which indemnifies the banking system from its losses at the expense of an unwitting public.

    It may be that the bankers have manipulated and cajoled ‘the state’ into the position of offering their commercial interests this indemnity (along with the protection of limited liability incorporation); that much is apparent to those who have studied the history of banking. But that is the prerogative of businesses: take whatever advantage you ‘legally’ can within the prevailing system.

    Clearly ‘the state’ should never subcontract the function of the creation of money to entities outside of itself and yet continue to offer the resources of ‘the state’ to back-up that non-governmental commercial banking system. But whilst there is a central power, such as ‘the state’, it will always be at risk of being subjected to whatever pressures can be brought to avail. Pressures to turn the power of ‘the state’ into the service of those who would see that ‘usurpation of power’ gives them an irreproachable commercial benefit.

    ‘The state’ is, first and foremost, the mechanism by which the money-power and ruling oligarchy does their bidding. That is the purpose of ‘the state’ and all other apparent functions just illusionary ‘window dressing’ to fool the people into the belief that the role of the state is to serve the interests of the people.

  • mutonic2db

    Interesting to read this article re the EU from 2006.

    Vladimir Bukovksy, the 63-year old former Soviet dissident, fears that the European Union is on its way to becoming another Soviet Union. In a speech he delivered in Brussels last week Mr Bukovsky called the EU a “monster” that must be destroyed, the sooner the better, before it develops into a full fledged totalitarian state.

    http://www.brusselsjournal.com/node/865

  • bobjonesxvii

    Agree that fractional reserve banking is dishonest. Who can say why it
    has so many apologists, save that perhaps there are equally as many
    beneficiaries, being so heavily into finance as they are in the States.
    (If I only I had a silver nickel for every, “I don’t have a problem
    with FRB it’s X or Y that is the real culprit…” comment I have read.)
    Meanwhile, one cannot generate 10 titles to a car without incriminating
    oneself. Never mind holding distortion power over all market pricing.

  • Steve Phillips

    The Greeks must be very careful. The EU Poobahs seem to
    be planning a gut-wrenching bout of deflation for them. Deflation is a terrible
    thing. It causes an almost intractable (once started) decline in the standard of
    living, widespread bankruptcies, broad unemployment, and devastating social
    unrest. Central banks and State treasuries tend to be helpless when deflation
    occurs.
    Consider a bit of simplified monetary economics.
    Inflation is defined as the larger of the value of goods over the value of
    money. Deflation is defined as the larger of the value of money over the value
    of goods. [I(D)=VG/VM.] And the value of goods is the demand for goods divided
    by the supply of goods, while the value of money is the demand for money
    divided by the supply of money. [VG=DG/SG, and VM=DM/SM.] (Please note that
    inflation and deflation are always caused by imbalances in monetary policies.)

    So, under a condition of deflation, the supply of money
    is inadequate relative to its demand. This raises VM relative to VG, and I(D)
    becomes D, deflation. This equation can be brought back to a more normal state
    by supplying the demand for money, which would raise SM versus DM, reducing VM
    relative to VG.

    But from the talk of the EU masters, monetary moderation
    will not be permitted under the regime of the Euro. Should that be the case
    which unfolds, Greece has no advantage or business in staying in the EU. She
    should resolve her debt issues via a debt to equity swap, and reissue the
    Drachma in whatever volume is necessary to restore commerce and the peoples’
    confidence in everyday living. If Greece votes to stay in the EU and acquiesces
    to a continuation of austerity, she will likely be getting into very deep
    waters: 1) irresolvable debt overhang; 2) depression/deflation; 3) worsening
    social unrest; 4) personal and commercial bankruptcies; 5) employment collapse;
    6) shortages of goods and services; and 7) governmental collapse.

  • Goethe

    It’s all about the lazy Greeks, their love of Marxism, and their desire to blame everyone but themselves.

    The REPEATEDLY took other peoples’ money, they have scammed the EU and are now out of luck. The unproductive fools that they are deserve what they get.

    They took the money, the terms were not concealed, and now, one way or the other, they must pay the piper. No one forced them to take the money.

    They don’t have the nerve to bring back the laughable drachma. They are incapable of running their country, but want to sponge off the productive Germans. The Greeks are incompetent parasites.

    Marxism, the most failed system ever contrived.

loading