Category Archives: Banking

Dollar decline accelerates as political alliances are being reshaped

Whether you’re a Democrat, Republican, Independent, Green, LaRouchite, or consider yourself apolitical, you need to pay attention to what is happening on the money and banking front, because that is the realm in which World War III is now being fought.

We can’t afford to tune out messengers that wear a different party label or with whom we might disagree on other issues. Listen carefully to what Ron Paul has to say in this Alex Jones interview and use your common sense to separate the “wheat from the chaff.”

How do central banks control interest rates?

Question: How do central banks control interest rates?

Answer: By creating counterfeit money.

Of course, they will never admit that. They see their “purchases” of debt instruments, mainly those of governments, as being legitimate. But such purchases violate sound monetary principles, and even their legality is questionable.

The obvious question that must be asked is “Where do central banks get the money with which to buy those debt instruments?” The answer is, they do not “get” the money, they create it–by fiat. This is  their celebrated “quantitative easing,” which is actually currency inflation. The new “high powered money” thus created puts new “reserves” into the banking system, which banks use to multiply their own purchases of government bonds and other assets.

Without this “monetization” of debts by the banking system, newly offered debt instruments, like government bonds, would have to offer higher rates of interest to attract buyers from the general public.

Interest rates on the ever-increasing amounts of sovereign debts can only be kept low by this sort of central bank intervention. As I put it, central banks are the “buyers of last resort” for bonds that cannot be sold at artificially low rates of interest. The chart below show just how desperate the situation has become since the financial crisis of 2008.

Interest Rate Elephant In The Room

 

Initially, however,  in the case of the Fed, the purchases were of “junk” that the banks had created during the real estate bubble. That was the bailout that saved the banks but put the squeeze on people through foreclosures, layoffs, and loss of income on their savings.

As shown in this chart and others I posted previously, all he major central banks are doing the same thing, so foreign exchange rates are not too adversely affected–yet. But keep your eye on Brazil, Russia, India, China, and other countries that show signs that they may not be willing to play along./ t.h.g.

An open letter to the Financial Times

Dear Martin Wolf,
Your article, Strip private banks of their power to create money, highlights some of the problems of the global money and banking system, but falls short in the proposed solution.

The problem is not private money creation, per se, but the monopolization of credit (money creation) in the hands of a private banking cartel and the collusive arrangement between bankers and politicians.

In today’s world, banks get to lend our collective credit back to us and charge interest for it while central governments get to spend more than they earn in overt tax revenues, relying on the banking system to monetize government debts. These two parasitic drains on the economy, interest and inflationary government debt monetization, create a growth imperative that is destroying the environment, shredding the social fabric, and creating ever greater disparities of income and wealth.

Turning over the money monopoly to politicians (what I call the “Greenback solution”) will not change things very much. It will be the same people wearing different hats. The political process has been so thoroughly corrupted and taken over by this small elite class that political approaches to solving the money problem have no chance of passage anyway. I articulated that argument a few years ago in my Alternet article, The End of Money: Take Power Back From the Money and Banking Monopoly.

True solutions must emerge, and are emerging, from society and from associations of small and medium-sized businesses. Money is first and foremost a medium for facilitating the exchange of goods and services and other forms of real value, but the exchange function can be effectively and efficiently provided outside the banking system and without the use of conventional political money. This is being done for associated businesses through credit clearing exchanges and through the issuance of private currencies or vouchers by businesses that produce real value. Both approaches have the capacity to provide exchange media that can be used by general public as well.

So, rather than ban private issuance of currencies, such private issuance needs to be proliferated and encouraged. There needs to be competition in currency so that there will be a sufficient amount of exchange media, and so that political currencies cannot be abused without losing patronage in the market. Rather than establishing the state as the money power, we need to have a separation of money and state. That argument is more fully developed in my latest book, The End of Money and the Future of Civilization.

Best wishes,

Thomas H. Greco, Jr.

FED: “your gold is safe with us, just don’t ask for it back.”

The global banking farce is becoming ever more hilarious (if you can ignore the tragic consequences of this monumental fraud). Germany is seeking to repatriate its gold that is supposedly held by the US Federal Reserve, but the Fed says, “Nein, you cannot even examine it.”

 Watch this RT report to get the story:

Welcome to Goldman Sachs

I’m a subscriber to Quora.com and receive a weekly digest by email listing things that I’ve expressed an interest in. One item this week consisted of answers to the question: “What are some of the most profound jokes ever?” I found this one below to be especially profound and timely.

Anonymous

5725 votes by Matthew Baldwin, Massimiliano Marangon, Vallabh Anwikar

A manager at Goldman Sachs has this to tell.

Once upon a time in a village, a man announced to the villagers that he would buy monkeys for Rs 10. The villagers, seeing that there were many monkeys around, went out to the forest and started catching them.

The man bought thousands at Rs 10 and as supply started to diminish, the villagers stopped their effort.

He further announced that he would now buy at Rs 20. This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms. The offer rate increased to Rs 25 and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!

The man now announced that he would buy monkeys at Rs 50!

However, since he had to go to the city on some business, his assistant would now buy on behalf of him.

In the absence of the man, the assistant told the villagers, “Look at all these monkeys in the big cage that the man has collected. I will sell them to you at Rs 35 and when the man returns from the city, you can sell it to him for Rs 50.”

The villagers squeezed up with all their savings and bought all the monkeys.

Then they never saw the man nor his assistant, only monkeys everywhere!

Welcome to ‘Goldman Sachs’!

Hmm, sound familiar?

More profound jokes here.

 

End poverty by ending the corrupt central banking system

Thirteen year old Victoria Grant speaks truth to power in calling for a massive change in the way we do money and banking. Brilliant!

Corrupción Extrema, la causa de la Extrema Pobreza. subtítulos en español

Do Banks Create Money out of Nothing?

One of my correspondents recently referred me to an article and asked for my opinion about it. The article is Creating Money out of Nothing: The History of an Idea, by Mike King, dated April 2012 .

I read the abstract, the conclusions, and part of the body text, but could not bring myself to make a detailed read. “The history of an idea” is not relevant to my interests nor to the debt crisis that plagues civilization. Verbose and tedious, it seems to be an academic exercise that I doubt  will be of interest even to historians.

On the positive side, it did prompt me to write a few words of clarification on the question, words that I think are both pertinent and helpful to those who truly wish to understand the nature of money and the role of banks in today’s world.

The accusation that banks create money out of nothing has, according to King, been made by many famous economists, including Schumpeter, von Mises, and Keynes. I too must admit to having once or twice used that statement as a sort of shorthand criticism of the global money and banking system.

It is surely true that saying that banks make “money out of nothing” is an exaggeration that can be misleading to the uninitiated.

Bank actually create money out of something. The question is, what is that something, and what is wrong with it?

The short answer is that banks create money on the basis of the promises of their borrowers to repay.

Mr. King would have us believe that banks simply take in money from savers and lend it out to borrowers. That is clearly wrong. Even the Federal Reserve, in its own publications, says that,

The actual process of money creation takes place primarily in banks.(1) As noted earlier, checkable liabilities of banks are money. These liabilities are customers’ accounts. They increase when customers deposit currency and checks and when the proceeds of loans made by the banks are credited to borrowers’ accounts.

In the absence of legal reserve requirements, banks can build up deposits by increasing loans and investments so long as they keep enough currency on hand to redeem whatever amounts the holders of deposits want to convert into currency. This unique attribute of the banking business was discovered many centuries ago.–Modern Money Mechanics

As I’ve pointed out in all of my books, banks serve two primary functions. They act as both depositories, reallocating funds from savers to borrowers, and banks of issue that monetize the promises of their borrowers. I’ve explained that in detail in Chapter 1 of my book, Money: Understanding and Creating Alternatives to Legal Tender, and in Chapter 9 of my latest book, The End of Money and the Future of Civilization.

But not all promises provide a proper basis for creating money. As Edward Popp, describes it, banks create both bona-fide and non-bona-fide money. (See Money, Bona Fide or Non-Bona Fide at http://www.reinventingmoney.com/documents/bonafidePopp.pdf).

The vast majority of the non-bona-fide money that banks create, is created on the basis of loans made to national governments (when banks buy government bonds). Further large amounts of non-bona-fide money are created when banks make loans to finance purchases of consumer goods and real estate (see my books for details). This is a violation of the principle that money should be created on the basis of goods and services on the market or soon to arrive there, which includes promises of established producers who are ready, willing and able to sell for money the things they ordinarily offer.

The bottom line remains: the present global, interest-based, debt-money system, is dysfunctional and destructive.

The creation of money on the basis of interest-bearing loans is the cause of the growth imperative, and the creation of non-bona-fide money is the cause of inflation.

If we are to achieve a sustainable society and assure the survival of civilization, we must transcend the present money and banking paradigm and reinvent the exchange process.  – t.h.g.

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Too big to fail equals too big to take to trial, or punish, or effectively control…

Senator Elizabeth Warren asks the embarrassing questions.

Davos-What’s missing from the conversation?

Professor Jem Bendel is Director of the Institute for Leadership and Sustainability at Cumbria University in the UK, and a “young global leader” of the World Economic Forum. In this short video interview, he expresses his views on what is, and is not, happening at the Davos forum to address the global crisis.

How did Iceland recover? Report from Davos

In this three-minute interview, Iceland’s President Olafur Ragnar Grimson explains that their recovery from the economic crisis was based on actions that went against the orthodox prescriptions–Let the banks fail, introduce currency controls, provide support for the poor, don’t push austerity measures. Why are banks the “holy churches of the economy?”