Tag Archives: central banking

A Tale Of Usury, Explosions, And A Used Car Salesman

16 Mar

used-car-salesman

Let me tell you a tale.

On a fine and sunny day this past week, your humble blogger accompanied his brother on a long journey.

To inspect a used car.

Having been reassured over the telephone by the salesman that this car – a premium brand convertible – was as-advertised in “excellent” condition, we embarked on our journey from the country to the Big City with my brother in high spirits. And myself in low expectations.

What we found in the Big City failed to live up to even my low expectations.

And yet, on the positive side, what we found may now serve the purpose of guiding you, dear reader, towards a better understanding of the negative impact of usury on our everyday lives.

Picture, if you will, a very small allotment of used cars, crammed mirror to mirror, in what must surely have been a low rent area on the outskirts of an outlying suburb. The sight of this site would have been enough to prompt your humble blogger to immediately turn around and drive away, had it not been for the innocent exuberance of his beloved brother, the budding buyer.

Prospects only sank the further on spotting the salesman and likely owner of this establishment, seated in the shade outside the hut which passed for an office. Perched on a stool, rotund beer gut resting on the table, his well-coiffed bouffant appropriately dyed rust red, talking earnestly on his mobile phone.

As my brother – a truly beautiful, innocent-in-the-ways-of-the-world fruit always ripe for the plucking – followed my advice to “Always go straight up to salesmen and state your purpose clearly, briefly, and confidently; don’t roam around aimlessly looking at stuff, waiting for them to size you up and plan their attack”, I walked to the front of the yard, where stood … actually, where slumped … the object of our long journey. Proudly positioned front and centre. The pinnacle, the most potent object of automotive desire that this particular dealership had to offer to the wandering eye of passing motorists.

Oh dear.

Not one body panel had escaped the telling sign of dents, scratches, or delaminating clear coat. The plastic rear window boasted an inconsistent, weak-piss shade of yellow discolouration, doubtless attained from many a long hour spent roasting beneath our sunny southern skies. The split seams and frayed stitching on the fabric roof loudly proclaimed their propensity to ingest any H2O that may fall in their immediate vicinity. And things only got worse from there.

Our aforementioned salesman approached, wide-eyed buyer in tow, car keys in hand. Having already questioned and confirmed that my brother “hasn’t had one of these before” – my alertly protective ears had overheard their conversation – he proceeded to inform him of a “unique safety feature”. One that “only these models” boast. Rust red-dyed bouffant then proceeded to demonstrate.

Inserting key in the lock, our beer-gutted new friend placed one pudgy paw upon the door, and gently pressed his not-inconsiderable body mass against it, while turning the key with the other.

Fail.

Try again. With rather less gentle application of body mass this time.

Win! We were in.

You see, extolled the salesman, most folks don’t know about this “safety feature”. Brilliantly, it renders the model less vulnerable to thieves, because most people don’t know how to open the door.

Groan.

I did mention that this was a premium brand automobile, did I not?

At this point, having taken but a single stroll around this four-wheeled (and mismatched-tyred) wonder, your humble blogger had seen and heard quite enough. His thoughts turned decisively to “Oh gawwwd!!! How can I get us the flock out of here, quickly, without hurting anyone’s feelings, or denting anyone’s pride?”

You see, my dear brother is, shall we say, a little socially inept. His still-innocent exuberance and enthusiasm for life and people – commonly manifested in an apparent belief in the good intentions of all strangers – typically overwhelms his negligible capacity to pick up on the many and varied non-verbal signals that are part and parcel of human interactions.

Nonetheless, I first tried the subtle, wordless communication medium of body language to convey my message to him.

Standing well aside from said vehicle, leaning against the flaking-painted post of the security fence protecting this yard-full of former automotive glories, spine stiffened, chest thrust out defiantly, arms folded, teeth clenched and jaw muscles twitching, exasperated expression writ large upon my darkened visage, and casting my gaze disinterestedly to yonder hills. The exasperation, it should be said, not wholly feigned, conscious as I was that such subtle signals would inevitably be overlooked by my excited brother with the pocketful of burning cash.

And why not overlook any negative signalling, indeed. After all, the tan leather interior was plush!

That, by the way, is the best thing that can be said of this particular automobile. The tan leather was plush. And remarkably, at a cursory glance, in reasonably good condition. Though not sufficiently so as to distract the discerning eye from immediately noting other significant interior features. Such as the two large, prominent, non-OEM holes in the driver’s door trim. And the numerous zip ties, struggling in vain to hold the roof lining in the position of the manufacturer’s original intent.

Having failed to catch my brother’s attention, I stepped it up. By stepping out. I spent the next minutes – which of course, seemed like hours – wandering off around the yard, arms still crossed and facial expression now transformed into a disinterested annoyance. But to no avail. Indeed, the fun had only just begun.

I gave up on sending the “disinterested wandering” signal and returned to the scene of the crime. How much of a crime we were only now set to discover. The salesman – given the size of the establishment, a sole trader would be my guess – kindly demonstrated the vehicle brand’s most famous attribute. The engine.

Now, you might reasonably be forgiven for expecting an automobile wearing the badge of this particular marque to respond to a turning of the ignition key in a manner rather like that we expect on flicking a light switch. And then, to convey a smoothness of sound and motion rather like that of a sewing machine.

Er… no.

Not to belabour the point – unlike the battery, which was most certainly belaboured – eventually the engine did burst into life. Most of it, anyway. What was immediately apparent, is that at least one cylinder was no longer responding to the spark of life. As evidenced by the engine note. And by the knocking noises. And by a significant rocking side-to-side of the engine, one that was sufficiently in excess of that which the engine mounts had been designed to absorb, that the entire car adopted a most determined lateral gyration in sympathy. Unlike the door locks, apparently this was not a “unique feature” of this particular model. Unless, that is, our now somewhat less enthusiastic-looking salesman simply forgot to mention it.

I do not know if his decidedly less eager expression can be attributed to his having picked up on my oh so subtle body language, or, to the less than encouraging response from his motor. In any event, he clambered clumsily out of the driver’s seat to come around and peer (un)knowingly into the engine bay.

Through the passenger window, I caught my brother’s eye. And rolled mine. Judging from his downcast glance in return, happily, it appeared that my brother too, had belatedly reached a similar conclusion. If not, then the events of the next few moments certainly did successfully transmit the “This is a sh!tbox, let’s leave NOW!!” signal that my own efforts had heretofore failed to do.

Bravely, my brother – who was now ensconced in the plush tan leather of the driver’s seat – tried gently pressing the accelerator. No doubt in a hopeful attempt to “clear its throat”.

The engine stalled.

He turned the key, and prodded the accelerator. Ever so briefly, the engine again sprang to life. And then…

BANG!!!

A very large volume of smoke belched from beneath the engine covers, and mushroomed out into the afternoon sunshine in a manner reminiscent of an atomic explosion. Seated inside the vehicle, my brother was quickly enveloped by a rush of acrid smoke billowing from every orifice in the dashboard.

Quickly escaping the fumes, he informed the salesman that the engine diagnostic warning light was on. Visibly straining to not appear crestfallen, the salesman went through the motions of checking the dashboard light for himself, and then flailing in vain with his rhetorical whip at a now quite dead horse, by quaveringly insisting: “That’s normal, it will go out soon”. After waiting for the interior smoke to clear, he climbed in and engaged the battery and starter motor in a futile struggle to revive the engine of this, the pride of his fleet.

With the salesman earnestly preoccupied and my brother out of the car, I seized the opportunity. Leaning over with a polite-but-firm “Thanks for your time”, I turned to my brother with a steely expression and a flick of the eyes towards our own car, grabbed him by the shoulder … and bolted.

Before my brother had a chance to reengage a pointless conversation.

And before anything else could happen that might cause that poor man’s dignity to melt away entirely, and join company with the other sad stains in the carpet.

I leave you, gentle reader, to imagine the conversation that ensued during the first minutes of our long journey home.

********

Given a little more time for emotions to settle and calm to return, as the kilometers rolled by beneath our wheels and the wind whispered quietly about our windows, I began to reflect on our experience.

And the longer I reflected, the more my feelings altered.

Instead of anger, or annoyance, or disgust, or contempt, I began to feel a great empathy with, and sadness for, that poor fellow soul.

An (other) Aussie brother.

Trying desperately to flog that complete heap of sh!t iron horse. Which had now suffered an apparently terminal myocardial infarction.

After all, what is he really doing, but that which we are all doing?

Just trying to get by.

Or is that, to “get buy”.

To pay the bills.

To feed the family.

To get ahead. Whatever that means.

Doing whatever we can, within and often beyond our personal limits – physically, mentally, spiritually, and morally – to take care of those whom we are closest to, and naturally love the most.

“Me and mine”.

I do not know anything of that used car salesman’s circumstances. His education and skills, or the limits thereof. The size and scale of the difficulties and stumbling blocks in his life’s journey. The pressure he feels to deliver.  Who am I to judge that poor soul, to feel affronted, or to criticise his means-to-an-end?

I reflected on the fact that there are so many in our world in not dissimilar circumstances.  Who find themselves resorting to not dissimilar actions, in order to “get buy”.  Indeed, this is in truth hardly a tale of woe at all, when one pauses to consider the plight of many 100’s of thousands of our brothers and sisters right here in our own “advanced” economy.  Not to mention the billions of others who are born into even less … “fortunate” … circumstances, and are right now living and dying just across the seas from our “Lucky Country”.

I was reminded of a short story that is recounted in a book that I have only just received and begun to read. It is called Rethinking Money: How New Currencies Turn Scarcity Into Prosperity.”

The story appears in an early chapter titled, “A Fate Worse Than Debt – Interest’s Hidden Consequences”. As it explains a subject that is very close to my heart with a style and a clarity far better than I could ever attain, I would like to share that story with you now (emphasis added):

The small village was bustling with locals proudly displaying their wares, chickens, eggs, cheeses, and bread as they entered into the time-honored ritual of negotiations and trade for what they needed. At harvests, or whenever someone’s barn needed repair after a storm, the village-dwellers simply exercised another age-old tradition of helping one another, knowing that if they themselves had a problem one day, others would come to their aid in turn. No coins ever changed hands.

One market day, a stranger with shiny black shoes and an elegant white hat came by and observed with a knowing smile. When one farmer who wanted a big ham ran around to corral the six chickens needed in exchange, the stranger could not refrain from laughing. “Poor people,” he said, “so primitive.”

Overhearing this, a farmer’s wife challenged him: “Do you think you can do a better job handling chickens?”

The stranger responded: “Chickens, no. But, I do know a way to eliminate the hassles. Bring me one large cowhide and gather the families. There’s a better way.”

As requested, the families gathered, and the stranger took the cowhide, cut perfect leather rounds and put an elaborate stamp on each. He then gave ten rounds to every family, stating that each one represented the value of a chicken. “Now you can trade and bargain with the rounds instead of those unwieldy chickens.”

It seemed to make sense, and everybody was quite impressed.

“One more thing,” the stranger added. “In one year’s time, I’ll return and I want all the families to bring me back an extra round – an eleventh round. That eleventh round is a token of appreciation for the improvements I made possible in your lives.”

“But where will that round come from?” asked another woman.

“You’ll see,” said the stranger with a knowing look.

A year passes and on another market day the stranger with the stylish hat returns, and from his vantage point he observes the village below. While sitting under the broad-limbed oak tree, he reaches into his knapsack and pulls out a silver canteen filled with single-malt whiskey, takes a swig, savoring the peaty warmth at the back of his throat, and waits for the village folk to file past him with each family’s repayment of the eleventh round.

Below on the village outskirts, a family begs for alms, having lost everything in a fire. Focused on their obligations, the villagers pass by without as much as a glance.

The eleventh round is a very simplified illustration of an important principle regarding money. The point of the anecdote is that, with all other things being equal, the competition to obtain the money necessary to pay the interest is structurally embedded in the current money system. Somebody will have to be without the eleventh round for payment for somebody else to have it and make the interest payment.

So how does a loan, whose interest is not created, get repaid?

Essentially, to pay back interest on a loan requires using someone else’s principal [Note: that principal is also debt, owing interest in turn]. In other words, not creating the money to pay interest is the device used to generate the scarcity necessary for a bank-debt monetary system to function. It forces people to compete with each other for money that was never created, and it penalizes them with bankruptcy should they not succeed. When a bank checks a customer’s creditworthiness, it is really verifying his or her ability to compete successfully against the other players – that is to say, assessing the customer’s ability to extract from others the money that is required to reimburse the interest payment. One is obliged in the current monetary system to incur debt and compete with others in order to perform exchanges and pay the resulting interest to the banks and lenders.

In a manner of speaking, it’s like a game of musical chairs in that there are never enough seats for everyone. Someone will end up getting squeezed out. There isn’t enough money to pay the interest on all the loans, just like the missing chair. Both are highly competitive games. In the money game, however, the stakes are elevated, as it means grappling with certain poverty or, worse still, having to declare bankruptcy.

Those billions of our brothers and sisters living in poverty and hardship around the world?

These are the families who have been forced to beg for alms on the outskirts of our global village. While the rest of us – focused as we are on our obligations, on the ceaseless struggle of competing for money – we daily pass them by, with neither a thought nor a glance, as we make our way to pay the usurers.

If, like me, you have ever pondered the reasons why people nowadays seem to be even more materialistic than in times past; why the business of doing business seems more cut-throat and profit-driven than ever; why advertising and marketing are seemingly all-pervasive and more aggressive than ever; why there are seemingly so many more, varied, and greater ills in the world than, say, 50 or 100 years ago – poverty, wealth and income inequality, “-ism’s”, dishonesty, disrespect, dishonour, amorality, fraud, corruption, drug and alcohol abuse, pharmaceutical dependency, and increasing physical, mental, and spiritual violence – then I hope you may now begin to see that here is a – and quite possibly the – major culprit.

Usury.

It is a prime cause of slowly but surely, devolving mankind. Of causing us to increasingly behave like … indeed, often much worse than … mere animals.

Just to “get buy”.

Here is a final thought for you to ponder.

It hails from a section of the above chapter, and is sub-titled “Compulsory Growth Pressure”. It concerns the direct relationship between our 300 year-old, central-banking driven, usury-based debt-money system, and the global obsession with economic “growth” that is often (and rightly) blamed for all manner of social and environmental ills.  For those readers who may hold concerns about climate change, natural resource depletion, environmental degradation and pollution, or similar ecological anxieties, please pay close attention (italics in original):

Interest… has hidden dynamics that result in detrimental costs not only to personal relationships, commerce, and society at large, but also to the sustainability of our fragile planetary home, Earth. The effects are so well-concealed, in addition to being so deeply embedded in the money system, that they go, for the most part, unnoticed.

Debt-based money requires endless growth because borrowers must find additional money to pay back the interest on their debt. For the better-rated debtors (e.g., in normal times, government debt), the interest is simply covered through additional debt, resulting in compound interest: paying interest on interest. Compound interest implies exponential growth in the long run, something mathematically impossible in a finite world.

…the exponential growth of money through interest rates has shattering real-life consequences in which entire nations of people are marginalized and stuck in debt forever. For instance, after a G8 summit former President Obasanjo of Nigeria stated: “All that we had borrowed up to 1985 or 1986 was around $5 billion and we have paid back so far about $16 billion. Yet, we are being told that we still owe about $28 billion. That $28 billion came about because of the foreign creditor’s interest rates. If you ask me, ‘What is the worst thing in the world,’ I will say, ‘It is compound interest.'”

See also –

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Why Do We Trust People Who Don’t Even Trust Each Other?

6 Mar

Deceit

Have you ever stopped to reflect on the fact that powerful people need our trust, to accomplish their purposes?

Politicians, and elite bankers, both spring to mind.

Last week I critiqued a speech by one of the world’s most powerful central bankers titled “Rebuilding Trust In Global Banking”.  A primary concern for central bankers, is to rebuild public con-fidence in them, and in their system:

The real economy relies on the financial system. And the financial system depends on trust.

most fundamentally, there has been a significant loss of trust by the general public in the financial system.

Without our continued trust – or at the least, our meek complicity – people who do the wrong thing, who benefit themselves at the expense of harming others, could not continue getting away with doing the things they do.

So, have you ever stopped to reflect on why we continue to trust people, who clearly do not even trust each other?

From the Daily Bell (emphasis added):

The New Era In Gold Repatriation Will Affect Everything

Mexico to audit its gold holdings at the Bank of England … The Mexican Government Audit Office has issued an official statement, criticizing the Bank of Mexico for not auditing the gold it has supposedly bought and stored at the Bank of England. The auditors ask the Central Bank of Mexico to “make a physical inspection with the counterparty that has the gold under its custody, in order to be able to verify and validate its physical wholeness and compliance with the terms and conditions of dealing with this asset.” – Voice of Russia

The move toward auditing gold holdings is getting more pronounced as we can see from this demand by Mexico in the above article excerpt. German officials have asked the US government for gold repatriation and so has Venezuela. Now it’s Mexico’s turn to start the process.

The old era in which central banking trust was ingrained in the system is gone now – and the ramifications are many even though they have not yet been felt. Central banks and bankers rely on joint programs and coordinated currency approaches. Without trust, strategies are difficult to create and programs are hard to implement.

This is not a hypothetical observation. As gold prices have moved up and Western currencies have looked increasingly subject to a currency competition, the pressure on politicians to assure gold reserves has increased. Couple this with the overseas storage of much gold reserves, and the situation becomes combustible.

In the case of Mexico, questions have been raised about the country’s off-shore storage of precious metals and its ability to take possession if necessary. These concerns have been magnified by Germany’s experience. Germany’s Bundesbank intends to repatriate a large portion of gold reserves abroad and by 2020 seeks to have at least 50 percent of its total gold reserves at home.

This amount includes 300 tons from the Federal Reserve – which the US Fed may or may not have available. It is unclear, as the Fed refused to submit to an audit of Germany’s gold.

Bill Gross, the Chief Investment Officer of PIMCO (the world’s largest bond fund) has recently said that “Central banks distrust each other”. The pending audit of the Mexican gold reserves is not a singular case of actions that show a high level of mutual distrust among central banks. The latest move of the Bundesbank, which demanded the repatriation of its gold holding from Bank of New York, Bank of England and Banque de France, is another sign of distrust in the world’s financial system.

Clearly, the elite of the global banking system do not even trust each other.

But you are not supposed to notice that.

Their aim is to restore public con-fidence in them, and the system that supports them in the manner to which they have become accustomed.

How are they attempting to do this?

Propaganda.

Comforting and reassuring news announcements. Of new financial regulations (which won’t change bankster behaviour). “Strong” banks (which means, bigger profits).  AAA credit ratings (which the GFC proved to be fraudulent, misleading and deceptive). Planned caps on bankers’ bonuses (which won’t happen, or, will have as many holes as a kitchen colander). Financial transaction “Tobin” taxes (which will raise slush funds for politicians, but not change bankster behaviour). And more.

The choice is yours.

To believe.

Or not.

Just remember the old wisdom, that “actions speak louder than words”:

It is long past time to replace the bankers, and their global banking system.

The only way I can see of doing that, is by making every one of us our own central banker.

All Wars Are Bankers’ Wars

16 Feb

This is superb. A “must watch”.

Listen carefully.

Share widely.

Because it is the truth.

“The common enemy of all humankind are private central banks…”

Guest Post – The Path Of Easiest Profit

20 Oct

Submitted by reader JMD*.

A lot of hullabaloo is made of the ‘flight to safety’ in ‘investor’ circles, a rising price of the US Treasury bond or rising exchange rate of the US dollar is a ‘flight to safety’. Suddenly ‘risk assets’ become a bit too risky & there is a rush to sell for the ‘safest’ securities. Even a rising gold price is considered a ‘flight to safety’ at times but then when the gold price falls it’s suddenly ‘risk off’. This scenario doesn’t make a lot of sense, either gold is safe or it isn’t & why are ‘investors’ worrying about US dollar devaluation one minute & eagerly bidding for it the next?

The whole concept of ‘safety’ is a false premise, maybe dreamed up by some turkey at the Bank of England decades ago, or some such, to obfuscate the real reason.

What drives the ‘money’ markets is not ‘safety’, or ‘risk on’ or ‘risk off’ but ‘profit‘. A good analogy is water flowing down a hill, it follows the path of least resistance. In the case of the ‘money’ markets, it can be described as the ‘money’ follows the path of easiest ‘profit’.

So what is this ‘profit’ & where is it coming from? The ‘profit’ is rising prices on financial ‘securities’ – bonds, notes & bills – particularly, though not exclusively of the government variety. The ‘profit’ is coming from government, through its central banking arm. As GSI’s Keith Weiner describes, US Treasury bonds (also Japanese, British, Australian, in fact government bonds of most ‘developed’ nations) have been in a ‘bull market’ since at least 1982. By ‘bull market’ is meant rising prices. As an ‘investor’ in government bonds you would have been unlucky not to have made a healthy ‘profit’ from your ‘governments’ at any time in the last 30 years, almost a generation.

Central banks are the ‘purveyors of profit’ in the ‘money’ markets, after all, they issue the currency, they are the market makers. There has been no more consistent ‘profit’ made than in government bonds for the last 30 years. How so? Easy, central banks either lend against or buy outright large amounts of government bonds for their own ‘portfolio’, they bid up the price (denominated in their own obligation) of government bonds. As I alluded to in the paragraph above however, central banks are not restricted to government bonds, they can & do manipulate ‘money’ market spreads by bidding for ‘private securities’. They can, if they wish, hand easy ‘profits’ to ‘investors’ in bank bills, corporate debt & even ‘equities’.

I’ll give you what I think are two good examples of the ‘money’ following the path of easiest ‘profit’, though I’m sure many more can be found.

The first is the recent earthquake & tsunami in Japan. Upon the news, the Yen began to soar against many other currencies, silver fell 6-7% in the space of a few hours, gold was well down, as were share- markets & not just in Japan. It is incongruous that a devastating natural disaster, killing tens of thousands of people & destroying property & livelihoods would have ‘investors’ rabidly bidding up the Yen – natural disasters lead to an increase in productivity? I read how it was Japanese institutions ‘repatriating’ their overseas investments for reconstruction & so on but a more logical explanation was a move to ‘front run’ the ‘big easy’, the Bank of Japan.

The Bank of Japan is notorious for its ‘easy money’ policies. I have no doubt that ‘investors’ speculated on the BoJ ‘easing’ in response to the disaster, that is, they would bid up bond prices & not just government bonds. The ‘investors’ would buy low & sell high.

If you go back to 1995 you will see similar moves in the Yen, right about the time of the devastating Kobe earthquake. Speculating on central bank ‘profit’ has been around for a while.

The second is the very recent announcement by the Fed of ‘Operation Twist’. Upon announcement of the Fed buying, so bidding up, longer term government bonds – gold, silver, oil, share-markets & currencies, in fact you name it, lost their bid against the US dollar & government bonds, particularly the 10 & 30 year. The reason is obvious, ‘investors’ speculating on easy ‘profits’ in the government bond market, as Keith Weiner says “engineered by the Fed”, the ‘investors’ would buy low & sell high.

Having said all this, there is one issue I haven’t addressed & that is as Keith Weiner also says, “the money comes from the capital account of the bond issuer. The speculator carries the bond on the asset side of his balance sheet. The issuer carries it on the liabilities side. No matter whether the issuer marks the liability to market, or not, the loss is taken.” The bureaucrats in Treasury & central banks are neither alchemists or gods, they cannot transmute lead into gold or water into wine. Certainly they can steal the “bread from the mouth of labour” but still, the loss must weaken the credit of the government, there is no way around this. Yet ‘investors’ still rush to bid for government bonds when they think, or know, central banks are handing them easy ‘profits’. This just reinforces my point, ‘investors’ care nothing for safety, the concept is bogus. ‘Profit’ is where it’s at.

It is tempting to speculate that the game will continue until no more ‘profit’ can be given, when the yield curve flattens to a point where it just cannot flatten any further. Can the government issue 30yr bonds with a 0% coupon (no ‘profit’ there) & their credit remain ‘money good’? I guess we’ll find out but I suspect the rising gold price since the Bank of Japan’s overnight rate hit 0% for the second time in 2000, is saying that it won’t.

[This article was originally published by the Gold Standard Institute]

Disclaimer: The views expressed in the above article are the author’s own. They should not be interpreted as reflecting any views held by Senator Barnaby Joyce, The Nationals, or by the barnabyisright.com blog author.

* Please see also JMD’s previous Guest Posts –

Infinite Money

The ‘Moneyness’ Of Debt

Why The RBA Sold Our Gold

Our Government Debt Crisis Is Already Here

Guest Post – Infinite Money

16 Sep

Submitted by reader JMD*.

The central tenet of the Gold Standard Institute is that money is what extinguishes all debt. That is its nature, its function. If you have enough money, you can extinguish any debt you might incur and since there is no limit to human wants and desires, money is the one thing you cannot possibly have enough of. Thus the demand for money is infinite. When debt masquerades as money by government decree, that being the irredeemable obligations of central banks, the infinite demand for money can, at least for a time, be met by infinite supply.

Infinite demand met by infinite supply leads to credit or debt bubbles as the inexhaustible demand for money is met by the infinite supply of central bank obligations, or more accurately, the infinite supply of commercial bank obligations ‘backstopped’ by central bank obligations. The bubbles grow and grow, despite the obvious distortions, becoming ever more fragile as they expand, until the day they burst.

This leads to a sobering conclusion. If you have the ability to issue, without limit, debt that trades as money and the demand for your ‘money’ being infinite, you have the ability to extinguish all possible debt, you can have everything you desire and more, you have ultimate power. It is not a stretch to say you are akin to a God. Government has usurped this power, yet government is composed of humans and humans being humans, not Gods, there is zero chance this power will be given up voluntarily, would you….? Rather, it will be lost through a total collapse in the ‘moneyness’ of government debt. The government will take everyone down with them, as the ‘moneyness’ of their obligations ebb due to their declining quality, rather than admit they have been perpetuating outrageous fraud for decades and cease to enforce their ‘legal tender’. As Melchior Palyi wrote back in 1958;

There can be little doubt of the final outcome, unless the process is brought to a halt.

Alas, it won’t be.

With thanks to Doug Noland and his Credit Bubble Bulletin.

[This article was originally published by the Gold Standard Institute]

Disclaimer: The views expressed in the above article are the author’s own. They should not be interpreted as reflecting any views held by Senator Barnaby Joyce, The Nationals, or by the barnabyisright.com blog author.

* Please see also JMD’s previous Guest Posts –

The ‘Moneyness’ Of Debt

Why The RBA Sold Our Gold

Our Government Debt Crisis Is Already Here

The People’s NWO: Every Man His Own Central Banker

7 Jul

** 7 October 2014:  The concept described in the following essay has since been developed further — visit beta website deror.org for more information.

“To radically shift regime behavior we must think clearly and boldly for if we have learned anything, it is that regimes do not want to be changed. We must think beyond those who have gone before us and discover technological changes that embolden us with ways to act in which our forebears could not.”

– Julian Assange, Conspiracy As Governance (2006)

There is nothing more dangerous than personal initiative: if it has genius behind it, such initiative can do more than can be done by millions of people among whom we have sown discord.

– Protocol V

Are you seeking profit, or protection from the storm?  This is not for you.  Are you here because misery loves company, or to impress with wit?  This is not for you.

This is written for those who have moved to a place beyond fear, and preservation.  Beyond greed, and accumulation.  This is for those who have moved beyond, to a place the Sovereign Man knows not of.

It is the place where un-selfish thoughts roam freely; where the forces of greed and fear are “not of this world”.

If you are seeking comfort in confirmation of existing ideas and beliefs, then I encourage you to look elsewhere.  Here you may be challenged to reconsider.  To research and study.  To think outside the square.  And to take uncommon action.

In the introduction to the movie V For Vendetta, we are reminded that “an idea can still change the world”.  I will share my idea to change the world with you today.  I hope you may have an even better one.

First, an apology.  The basis of my idea challenges common precepts that you may hold as gospel truth.  In the interests of brevity I cannot author a supporting thesis.  So I encourage you to simply adopt a certain mind-flex; to entertain the underlying rationale for the moment, in order to consider the main idea in context.

My idea will particularly challenge those who conflate the concept of a “currency” with a “store of value”.  We have been trained to do this.  We have been taught to identify both of these different concepts, with the singular label of “money”.  This is the first and greatest delusion to be overcome.  If “money” is ever to be made a servant of mankind, and not continue to be his master, then we must begin by taking great care to distinguish clearly between “money” as “store of value”, and “money” as “currency”.

A “store of value” can be anything real, tangible, and (in relative, human lifetime terms) lasting.  Gold, silver, some art, property, gemstones, all these and more may be considered a store of value.

A “currency”, by contrast, should serve only as oil for the wheels of the economy.  To aid the proper, efficient, and right moral function of commerce and industry, in its pivotal role within civilised human society.  To achieve this, our chosen form of currency should have no intrinsic value whatsoever.  Moreover, in the interests of true social justice, the ideal form of currency should be destroyed at a modest, fixed annual rate.  Why?

For an in-depth understanding of the answer, I encourage you to read up on the concept of Freigeld (“Free Money”), as elaborated in the Natural Economic Order by Silvio Gesell.  Before rushing to dismiss this little known genius as some kind of crackpot, you may first wish to consider carefully the profound success of Gesell’s demurrage currency concept during the Great Depression.  The Miracle of Wörgl, Austria is an excellent example.  You will also discover how this alternative monetary “experiment” was promptly shut down; tellingly, at the behest of the Austrian Central Bank.  And how American economist Irving Fisher unsuccessfully petitioned Roosevelt to implement a similar monetary system, as a solution to America’s woes in the Great Depression.

The reason why a demurrage currency is essential for true social justice is this:  The product of labour – the sweat and effort of ordinary people – is subject to the natural laws of entropy.  The farmer’s produce spoils. The manufacturer’s product too has a “shelf life”.  It deteriorates, or is superseded.  The product of labour is compelled by the natural laws of entropy to find a buyer promptly.  If it does not, the producer – who has no personal use for surplus – inevitably suffers loss.  He wears the “carrying cost” of deteriorating product if it remains unsold.

The possessor of currency, by contrast, has an unfair advantage, if his currency is not likewise subject to entropy.  Simply by means of the unspoken threat to “shut his wallet” and withdraw temporarily from the marketplace, taking his non-deteriorating currency with him, he may force the producer – compelled as he is by the law of entropy – to lower the price of his ever-deteriorating goods.

This is the inevitable – and inequitable – consequence of adopting a form of currency that can also be perceived as a “store of value”.  The Supplier of currency (the buyer) is granted an unjust and unfair power over the Demander of currency (the producer/seller).  The very form of currency itself naturally encourages its possessor to mistreat and humiliate his fellow man, by taking advantage of the relative weakness of his bargaining position.  And arguably worst of all, the one who is disadvantaged is the producer of goods.  The engine, the very heart and soul of commerce and industry.  Simply by virtue of the possessor choosing to “save” his currency – since he also perceives it as a “store of value” – the  producer is forced by necessity to continually and ever more urgently lower the asking price for his goods, until the point at which the possessor becomes willing to enter the marketplace and buy.  While many may see this as “good business” or “driving a hard bargain”, it is hardly “to love thy neighbour as thyself”.

In the people’s NWO economy, there will never be a shortage of oil for the wheels of commerce.  Neither will there be an excess.  As with your car, too little and too much oil both are highly damaging.  One starves the engine of lubricant until the mechanism seizes.  The other causes a build up of excessive pressures, until the weakest part blows.

If you will accept this basic premise concerning a “natural currency” – even just for entertainment purposes for now – then the rationale for my idea will follow.

Before introducing it however, a disclaimer for context.  I am vehemently anti debt, and anti usury.  Since early this century, a significant proportion of my own modest material net “worth” has been in physical gold and silver bullion.  Stored beyond the reach of the banking system.  Yet, this choice is predicated by external circumstance, and not by ideology.  My research leads me to conclude that gold and silver “bugs”, “sound money” advocates, and “Constitutional money” proponents, are all most subtly, yet most profoundly, deceived.  There is a very logical and ancient reason why ancient occult (secret) society symbology is a persistent feature of the founding relics of the USA, of Washington DC, and indeed, of the Federal Reserve Note.  To return to a precious metal standard would achieve nothing more than to take one small step backwards – straight into the previous stage of the monetary trap laid for humanity by “the powers that be” (TPTB) over many centuries.

I believe that the current system will collapse.  By accident, or by design.  Waiting for it, and scheming/hoping to profit during or after the collapse, is a fool’s game.  Those who pull all the monetary strings, who have this exclusive “money issuance” power over us now, will have it then too.  Only more so.  Because whatever system is suggested by the authorities to replace the present one, you may rest assured that it will be their system.  Of their design.  For their benefit.  Ordo ab chaoOrder out of Chaos.

Unless We The People beat them to it.  By introducing our own monetary system.  Not by waiting on “democracy” so-called.  By exercising our “dangerous” personal initiative.

My idea for a new monetary system, to undermine and ultimately take over from the collapsing present order, is simple.  Build a complementary currency system.  Starting right now.  One where you, me, and every participant assumes the basic human right to become their own central banker.

After all, if it’s ok for a tiny minority to create their own currency out of thin air – and then enslave us for the privilege of using it – then what is to stop all of us – the great majority – from simply going out and doing exactly the same thing … but with un-selfish intentions?

Here’s how I picture NEO – a Natural Economic Order for the digital age, and a true people’s currency.  Imagine some genius has exercised personal initiative, and created an encrypted software program that you can download.  It functions using peer-to-peer networks (thus, that much more difficult for TPTB to close down).  Let’s imagine that it is called “Jubileeus”.

The Creator.

And the Deliverer from debt slavery.

Using this program, you can create your own digital currency, right out of thin air.  Just like the central banksters.  There’s no cost.  No fees.  No interest charged.  Ever.  But (unlike the banksters’ system) there are encrypted, pre-programmed limits and conditions.  To ensure the system is functionally stable, and socially just.  And most importantly, to encourage right behaviours that are conducive to a stable, just, and equitable society.

You choose the initial amount you wish to create.  This will be your positive bank balance, denominated in “Jubileeus” currency.  When you create new currency, you will automatically have a second, linked account too – showing a negative balance, in the same amount.  That’s because you have taken up the solemn privilege – a future Human Right – of creating your own “credit” for yourself.  In other words, you “borrowed” currency out of thin air, to aid your dealings in the marketplace.  But that’s ok.  Everyone should have appropriate access to (not free “money” but) free currency.  So that everyone is empowered to contribute equally to oiling the wheels of commerce and industry.

In most respects, this currency system functions just like the familiar cash transaction (ie, positive credit) and loan accounts that you might have with your local bank.  Spending your Jubileeus to purchase goods and services will decrease your positive bank balance towards zero, just as you would expect.  When you sell something, or otherwise earn more Jubileeus, there is a subtle difference though.  You do not have a choice to not pay down your negative (“loan”) balance first.  Why?  The system designer believed it best to encourage people to learn to reduce their negatives, before giving thought to increasing their positives.  So any Jubileeus received automatically pays down your negative balance first, reducing it towards zero, rather than simply increasing your positive balance.  Having any income automatically applied in full to your “loan” account first, will create no hardship for anyone – if you are ever short of currency in your positive (“credit”) balance to pay the bills or buy groceries, you simply “borrow” (ie, create) some more currency.

I suspect that there are “sound money” advocates screaming about now, that such a system is ignorant, insane, and doomed to failure.  For many there will be an automatic negative emotive response, because even this kernel of the idea instantly evokes the spectre of free, unlimited “money” supply, and fears of hyperinflation.  Doubtless some will be recalling the many historical incidents of excessive currency issuance by spendthrift dictators and politicians, and recoiling in horror or laughing in derision.  Patience, friend.  Your fears will be addressed by the end.

Two points to consider.  First, the fact of excessive currency issuance in the past does not logically necessitate tying currency issuance to physical commodities (eg, gold/silver).  In point of fact, doing precisely this has been the first stage tactic employed by TPTB over many centuries for gaining control over kings and peoples.  Linking currency issuance to a physical commodity does not limit your ability to expand or contract the total of available currency, if you already control the stocks, and/or the supply, and/or the  public reporting of reserves of that particular commodity.  On the contrary, encouraging, coercing, and/or bribing kings and politicians to pass laws linking currency issuance to a commodity that you already control, actually increases your ability to manipulate the currency irresponsibly, fraudulently, or indeed, nefariously.  It provides another layer of deception. Another curtain behind which to hide, while you pull the levers of power.

Secondly, you are quite correct.  Excessive currency issuance is indeed a real danger to be avoided.  Too much oil in the car eventually blows up the engine. The question is, How to avoid it?  Historical precedent suggests that the real challenge lies not only in the form of currency chosen, but also in the matter of Who has power to control its issuance.

Our “people’s currency” could address this danger simply and effectively, by way of a built-in, automated Honour rating system.  Don’t laugh.  I’m serious.

Let’s imagine again.  You’ve downloaded the Jubileeus software.  You decide to create an initial “loan” to yourself of 50,000 Jubileeus.  You now have a positive “credit” balance of 50,000, and a negative “loan” balance of 50,000.  The system automatically flags your account with a publicly visible Honour rating.  Of just 50%.

Every time you conduct a peer-to-peer transaction with another participant, they can see your Honour rating before proceeding.  And just as with eBay’s feedback system, some will decline to trade with you if they have doubts about your character, integrity, and indeed, your honour, as implied by your Honour rating.  In the people’s NWO of the future, in light of our experiences of the terrible outcome of permissive attitudes to financial corruption, immorality, selfishness and fraud, I suspect that any question mark over your financial “honour” will weigh far more heavily on others’ thoughts and social consciences than we have seen in recent decades.  Having an Honour rating of xx% or worse may result in your becoming a pariah in a society that has, through great pain and suffering, come to see the value of a strong social conscience.

The automated Honour rating system therefore encourages you to carefully consider whether you really need 50,000 Jubileeus.  After all, are you really going to spend it all now?  Since you can create currency for yourself whenever you need it, perhaps it is wiser to just create an initial balance of 5,000 Jubileeus.  And have a 95% Honour rating instead.

How do you improve your Honour rating?  Go out and work.  Create something.  Build something.  Sell something.  Ask for payment in Jubileeus.  After all, every other guy can also create new Jubileeus to pay you with.  (Just as in Wörgl, Austria, how rapidly might Depression-level unemployment rates fall towards zero, if everyone had access to a free people’s currency such as this?)  As you earn more “money” currency, your negative balance is automatically reduced, ever nearer to that perfect zero point.  And your Honour rating improves accordingly.

The zero point is perfect?  Yes.  Having zero represents the perfect moral and social position on personal use of free currency.  And the only way to have a 100% Honour rating, is to have a zero bank balance.

Just because you may completely pay down your previous (interest-free) “loan” balance – or, perhaps you never needed one – this does not mean that it is ok to start hoarding currency.  It is the oil on the wheels of commerce, and is supposed to constantly circulate, remember?  By hoarding currency, you are indulging in anti-social behaviours.  You could and should be passing currency ever onwards, in exchange for the fruits of others labour, thus doing your part to provide employment and opportunity for all your fellow men.  If you truly have no need or desire for more of others products or services right now, then you could and should be investing for the longer term. Perhaps in dividend-paying shares in a sound and ethical public (or private) company.  Or, perhaps simply in a true “store of value”.

So in the same manner as a negative balance, a positive balance is also penalised automatically with a reduced Honour rating.  Should there be a difference between your positive (“credit”) balance and negative (“loan”) balance, then the Honour rating is based on the larger – thus the “worst” – of the two balances.  For example, if you have 10,000 in positive, along with a 5,000 negative balance, your Honour rating will be 90%.  Not 95%.  But pay off your 5,000 negative “loan” balance with 5,000 from your positive “credit” balance, and you will be rewarded with that 95% Honour rating.

Finally, what about the demurrage aspect?  Recall that our basic premise is that the ideal “people’s currency” should be designed to automatically deteriorate if not used to conduct transactions.  Gesell’s original innovation of applying a “carrying cost” to currency – hence Stamp Scrip – is the primary means to encourage proactive circulation of currency rather than hoarding.  (My Honour rating idea is supplemental, but importantly, it also serves to discourage greed in the initial act of creating new currency by appealing directly to our sense of public reputation, personal integrity, and self-worth).

How do you make a purely electronic currency deteriorate?  I imagine some genius out there could simply pre-programme the software to automatically reduce all account balances – positive and negative – towards zero by a fixed percentage, calculated weekly and summed since last log-on.  How much should this fixed percentage be?  Gesell advocated an annual “carrying cost” rate for currency of 5.2%, or 1/10th of 1% per week.  I have no idea if this is an appropriate figure – though it would appear that it certainly worked a treat in Austria until the banksters had it shut down.  Perhaps some free-thinking economist (oxymoron?) will read this, and be interested enough to research and offer advice.

Once again, the system encourages you to use your Jubileeus.  If you have it and don’t use it, it slowly but surely fades away.  Back towards the zero point.

Such a system not only encourages productivity (ie, hard work).  It encourages creativity and innovation (ie, what new product can I make? what new service can I offer?).

It eliminates poverty. No one need ever again have insufficient “money” to purchase the basic necessities of life, when every person is their own central banker.

It also applies natural limits to global “growth”.  And thus, to the impacts on our environment and natural resources.

Under a Jubileeus system, no longer are there cabals of greedy banksters’ creating endless “credit” – at interest – in order to finance the Ponzi scheme of “capitalist” perpetual economic growth. And enslaving humanity to debt servitude in the process.

Instead, Jubileeus means that “growth” is naturally limited by the total number of human beings on the planet, multiplied by the sum of their collective willingness to “Honour” each others’ Jubileeus. Not only are there pre-programmed rules on the amount of currency that an individual can create. There is also a natural limit on how much public “disHonour” that people are willing to take upon themselves by creating more currency than they actually need at any time. And, there is a natural limit on how much “disHonour” that people are willing to accept in others, when choosing whether or not to buy or sell with other individuals.

Jubileeus means a true declaration of individual independence from those who control each and every one of us, through their exclusive control over the creation, and issuance, of  “money”.

Jubileeus means that every day, is independents’ day.

There you have it.  That’s my Big Idea.  I hope it inspires you to think about what is really happening to us all, and what (if anything) you are going to do about it.

For my part, I look forward to reading your thoughts, constructive criticisms, and insights.  Because I’d like to do something more than just ponder all this.  I’d welcome contacts from any who may be of like mind, and wish to get involved in a real project to bring this idea – or something better – to fruition.  Truth be told, I have the time and motivation, but lack the necessary technical skills to realise this alone.

I’d also welcome feedback from anyone who may be inspired to independently try something similar.

There’s plenty of alternative currency ideas out there – the Ripple Project, and more prominently Bitcoin, are two that spring to mind.

There’s also free-spirited genius software developers such as “Jaromil“, who has developed a tool that allows you to connect your computer with your neighbours – essentially bypassing the telecomms infrastructure – using the wireless card in computers and creating an effective “new net.”

Just imagine the revolutionary power of such brilliantly simple low-technology – combined with any number of possible hardware solutions such as One Laptop Per Child, or even just reuse of abundant, “redundant”, discarded-but-functional Western consumer PC hardware – in helping every human being worldwide, especially in developing nations, to each become their own central banker too.

Imagine too, the effect of such a system on human relations and solidarity. In Jaromil’s Dyne:Bolic example, you become reliant on your neighbour to break out into the network.  Inherent in this system is the expression of “love thy neighbour” – we must share, before we can benefit. Imagine how we would all feel about our neighbours, if they were the only way we could connect to (and buy-sell with) the rest of the world.

There’s also the grassroots network of hackers at ‘digital foundry’ dyne.org, and the researchers and developers at dyndy.net. These are all doing sterling work as they “Imagine the Future of Money”.

Unfortunately, in the words of Henry David Thoreau, “There are a thousand hacking at the branches of evil for every one striking at the root”.  My research suggests to me that all the complementary currency systems currently out there are flawed in key aspects, and so represent a less-than-ideal solution if we are to have a sustainable, tamper-proof, boom-and-bust proof, truly egalitarian system of free “money” to serve the human race.  But that’s just my viewpoint, and I wish everyone the best who may have a mind to try setting up a new and better currency in competition with TPTB.

The system that I have proposed here, a “mutual company” so to speak, or a “commonwealth of stewardship”,  represents a singular threat to the #1 weapon which those who would continue to reign over us possess.

Fear.

Their current plan to address the fear of global systemic banking risk – a fear which they have created through control of the boom-and-bust “cycle”, of which the GFC is only the most recent example – is to divorce the transactional currency system from the store of wealth system.

This is precisely what my idea would achieve … without the centralised control.

Mervyn King, Governor of the Bank of England, gave a speech at the Buttonwood Gathering in New York on October 25, 2010. His speech was titled “Banking: From Bagehot to Basel, and Back Again.”

Here’s an excerpt from the speech (emphasis added)*:

Another avenue of reform is some form of functional separation. The Volcker Rule is one example. Another, more fundamental, example would be to divorce the payment system from risky lending activity – that is to prevent fractional reserve banking (for example, as proposed by Fisher, 1936, Friedman, 1960, Tobin, 1987 and more recently by Kay, 2009).

In essence these proposals recognise that if banks undertake risky activities then it is highly dangerous to allow such “gambling” to take place on the same balance sheet as is used to support the payments system, and other crucial parts of the financial infrastructure. And eliminating fractional reserve banking explicitly recognises that the pretence that risk-free deposits can be supported by risky assets is alchemy. If there is a need for genuinely safe deposits the only way they can be provided, while ensuring costs and benefits are fully aligned, is to insist such deposits do not coexist with risky assets.

Straight from the mouth of Bank of England Governor, Mervyn King. Separating the “store of value” system, from the “currency” system. In its effect, precisely what the system I propose would achieve.

But with the banksters still in control of both systems.

Unless We The People beat them to it.

But first, we need to wake up.

We need to understand the true and proper nature of “money”, and “currency”. So that we are not hoodwinked by the next stage of the global bankster scam.

Many are aware of the evils of “fractional reserve banking”. And it is these who will be the first to sing “Hallelujah!” and fall for the trap, when TPTB suggest doing away with fractional reserve banking as a “solution” to the global systemic banking crisis that they have created.

The only way that “money” can truly be rendered a servant to mankind, is with a decentralised system.

One that no one controls. And every one shares.

A “Natural Economic Order”.

With the writing on the wall ever clearer, and financial doomsday drawing nearer, I honestly reckon that we all have little to lose – and everything to gain – by trying to exercise some “dangerous” personal initiative.

Will yours be the one with genius behind it?

Our integrity sells for so little, but it is all we really have.  It is the very last inch of us, but within that inch, we are free.

Valerie

Beneath this mask there is more than flesh.  Beneath this mask there is an idea, Mr Creedy.  And ideas are bulletproof!

– V

* Acknowledgement – reference to Mervyn King speech originally cited and brought to this author’s attention by Dave Harrison http://tradewithdave.com/?p=5310

RBA Says Our Banks Are Stuffed … In Other Words

29 Jun

Yesterday, RBA Assistant Governor Guy Debelle indulged in some MOPE.

Management Of Perceptions Economics.

Lies, deceit, and propaganda, in other words.

But for those with an ear to hear, and an inclination to check the “authorities'” claims, what he really did – unintentionally – was to give us a heads up.

That our Too Big To Fail banks (TBTF) are going to get bailed out, sooner rather than later.

Go grab a modest quantity of your favourite beverage, and settle in.  You are about to learn – in detail – why we cannot trust a word the banksters say.

Ready?

Now as expected, the mainstream press all lazily parrotted the “everything’s fine, move along, nothing to see here” headline that Mr Debelle wanted. Here’s a good example, from the nations’ “premier” newspaper:

Australian banks safeguarded from Greek debt crisis, says Guy Debelle

Our standards are more rigorous here at Barnaby Is Right.

Let’s critically examine what Mr Debelle actually had to say in his official Address to Conference on Systemic Risk, Basel III, Financial Stability and Regulation (emphasis added):

Today I am going to talk about a few interrelated issues concerning the banking system: collateral, funding and liquidity.

The financial crisis brought into sharp relief the liabilities side of a financial institution’s balance sheet, that is, the funding structure. This had previously been somewhat neglected, but the fates of Northern Rock, Bear and Lehmans were clearly affected by the nature of their funding. While their funding structure played a significant part in the downfall of those institutions, I would argue the ultimate concern was about the quality of their assets. The funding problems were symptomatic of concerns about asset quality.

The solvency of any bank first and foremost is a function of the quality and value of its assets. This is, of course, true of any entity, but it is particularly true for banks because of the implications asset quality has for liquidity and because of the leveraged nature of financial institutions.

The crux of my argument today is this: if I am a creditor of a bank, my due diligence should be spent mostly on assessing the asset side of the bank’s balance sheet in determining whether or not I will get repaid in full.

Exactly.

Now, in the classic British political satire Yes Minister, master of obfuscation and manipulation Sir Humphrey Appleby said that it is always best to “dispose of the difficult bit in the title; it does less harm there than in the text.”

And by beginning his speech with this quite correct and valid talk of asset quality – and then not examining those “assets” in any detail – this is the clever game that Mr Debelle has played here.

No doubt he expected that no one would actually bother to check the banks’ asset quality.  They’d just take it on presumption, and Mr Debelle’s inference, that they’re fine.  And indeed, none in the mainstream press have bothered to check.

So let us do just that, shall we? Let us assess our Australian banks’ all-important “asset quality”.

Just two days ago ( “Our Banks Racing Towards A ‘Bigger Armageddon'” ), we saw that our banks held a combined $2.68 Trillion in On-Balance Sheet “Assets” at March 2011. So $2.68 Trillion is the claimed “value” of their Assets.

Now, about Mr Debelle’s “ultimate concern”.  The all-important “quality” of those Assets.

What exactly are these bank “Assets”?

$1.76 Trillion (65.56%) of these “assets” are actually loans.

That’s right – your loan is considered the bank’s “Asset”. They own you, as their debt slave.

$1.018 Trillion (57.84%) of those loans, are Residential loans.

That’s right – fully 38% of our banks’ Total “Assets” is the notional value of their loans given as mortgages.

Here’s a chart sourced from the RBA’s own data, showing the % breakdown of our banks so-called “Assets”:

Click to enlarge

Now, in light of the recent housing-triggered banking and debt crises in the USA, UK, Ireland, Spain, and many other nations throughout the Western world; and in light of the fact that our property market is widely considered “the most overvalued in the world”; and in light of the fact that our property market has recently suffered its biggest quarterly fall in 12 years; and in light of the fact that arrears on mortgage payments have spiked to a record high, in the same quarter as house prices had a record fall … do you really think that having over 65% of your “Assets” in the form of loans, with 38% in the form of home loans, could be considered as high “asset quality”?

In light of the fact that business failures have risen 25%, with more than 10,000 going under in 2010; and in light of the fact that a leading Australian businessman has said that Eastern Australia is in “deep recession” and NSW and Victorian manufacturing is “stuffed”; and in light of the fact that the only Australian economist to predict the GFC has recently said that we will “almost certainly” be in recession in the second half of 2011 … do you really think that having 24% of your “Assets” in the form of commercial (business) loans, and 4% in the form of personal loans, could be considered as high “asset quality”?

In other words, do you really think that having over 65% of your Total “Assets” in the form of loans to households and businesses, who are all increasingly vulnerable to (eg) cost-of-living pressures, loss of employment, house price falls, and/or a recession, could be considered as having high “asset quality”?

Don’t answer that yet.

There’s more to consider.

Our banks presently hold a staggering $16.83 Trillion in Off-Balance Sheet “Business”.  That’s around 15 times the value of Australia’s entire annual GDP.  And most of that Off-Balance Sheet Business, is in derivatives. The exotic financial instruments at the very heart of the GFC.  These are the instruments of intergalactic-scale gambling that the world’s most famous investor, Warren Buffet, famously called “a mega-catastrophic risk”, “financial weapons of mass destruction”, and a “time bomb”.

(They are also the reason why it is the banking industry that is pushing so hard for a CO2 trading scheme. Because for banks, it means trading in a juicy new mega-market casino, with a whole new type of “derivative” – carbon permits).

Here’s a chart of our banks’ On-Balance Sheet “Assets” (blue line), compared to their Off-Balance Sheet derivatives “Business” (red line):

Click to enlarge

But wait, there’s still more!

Just 6 days ago, we saw the global head of HSBC’s foreign exchange division warn of “a bigger Armageddon out there”, in foreign exchange markets.

And just 5 days ago, we saw a warning given by Fitch Ratings that Australia’s banks are the “most vulnerable” to Europe’s debt crisis, due to their heavy reliance on wholesale funding from abroad.

In other words, whether it be Greece, Portugal, Spain, Italy, Belgium, or any of the other massively indebted EU nations embroiled in a debt crisis, when one (or more) of them finally does go under – an inevitability – our “safe as houses” banks will go under with them:

Now, yesterday Mr Debelle contradicted the HSBC and Fitch Ratings’ warnings. While admitting that Australian banks’ reliance on funding from overseas does represent a foreign exchange risk, he argued that there is nothing to worry about.

Why? Because, quoth he, our banks’ foreign currency exposures are “fully hedged” into Australian dollars (emphasis added):

If a liquidity issue were to arise around this funding, it is of critical importance that the foreign-currency denominated funding is fully hedged into Australian dollars, which indeed it is.

Now, that critical claim is one we should all take with a crate of salt.

Here’s why.

In supposed proof of his claim that our banks’ foreign exchange exposure is “fully hedged” into Australian dollars, Mr Debelle referred (in his speech’s footnote #9) to a paper that appeared in the RBA Bulletin, December 2009.

Doubtless no one in attendance bothered to check that old paper. Certainly, not a single journalist who reported on Mr Debelle’s comments in the mainstream press bothered to check first, and then report the truth.

But I did.

In that old paper, we see that the authors did claim that our banks had their foreign exchange exposure fully hedged.

Well … sort of.

Here is what they actually wrote.  Note carefully the all-important weasel words (my emphasis added):

Summary

The 2009 survey of foreign currency exposure indicates that Australian institutions remain well hedged against the risk of sharp movements in the exchange rate. Australia’s foreign currency debt liabilities are essentially fully hedged into Australian dollars using derivative instruments…

Hardly a categoric affirmation.

And here’s the really crucial point. Mr Debelle’s referencing this paper in support of his claim is a nonsense – and thus, suspicious – simply because the data in that old paper is (obviously) now completely out-of-date!

Mr Debelle must know this.  Because the RBA publishes its own statistical data for our banks’ derivatives exposure – and their most recent data is current to 31 March 2011.

Moreover, the data used in that old paper was sourced via an ABS survey – that is, it relied on the banks honestly reporting their true positions (!?!).  And, the data was only current to 31 March 2009 – more than two years ago.

At that time, the banks’ admitted to holding a notional value of foreign exchange derivatives positions, allegedly for “hedging” purposes, totalling gross $2.802 Trillion:

Table 2: Residents’ Gross Outstanding Foreign Exchange Derivative Positions By counterparty, notional value, A$ billion, as at 31 March 2009(a)
Counterparty Long foreign currency/short AUD positions Short foreign currency/long AUD positions Net positions
(a) Positive values represent derivative positions under which the holder will receive foreign currency in exchange for Australian dollars at a predetermined exchange rate (that is, a long foreign currency/short AUD position). Negative values represent derivative positions under which the holder will receive Australian dollars in exchange for foreign currency at a predetermined exchange rate (that is, a short foreign currency/long AUD position).
Source: ABS
Resident 554 −554 0
Non-resident 991 −703 288
Total 1,545 −1,257 288

As you can see, the breakdown of our banks’ foreign exchange derivatives “positions” at March 2009, was Long foreign currency $1.545 Trillion, and Short foreign currency $1.257 Trillion.  For a net Long position of $288 Billion.

And the counterparty to that $288 Billion Long “position” (ie, gamble) was … “Non-resident”.

Now, a few important points to consider.

Firstly, these 2 year old figures did not represent solid proof of a “fully hedged” foreign exchange position.  And it certainly is not proof of that claim being true now, 27 months later, in June 2011!  Instead, what it represented was a $288 Billion Long foreign currency position, at 31 March 2009. A net $288 Billion bet that foreign currencies would improve in value, compared to the Aussie Dollar.

Secondly, why do you think Mr Debelle would seek to reassure us that our banks’ foreign exchange risk is “fully hedged”, and back his claim by reference (in the footnotes) to a 2 year old, redundant paper – just 4 days after Fitch Ratings warned of the vulnerability of our banks to foreign exchange volatility, and 5 days after the global head of HSBC foreign exchange warned of “a bigger Armageddon out there” in foreign exchange markets?

[Hint: These days it’s euphemistically – and deceitfully – called “spin”, or a “smokescreen”]

Thirdly – and perhaps most importantly – as we saw just 2 days ago, at 31 March 2011 our banks’ gross foreign exchange derivatives position has grown (blown?) from the claimed $2.80 Trillion … to $3.98 Trillion:

Click to enlarge

Let us not even bother going into the huge question marks over this.

Including very basic questions.  Such as, why did the banks report a $2.80 Trillion FX derivatives exposure to the ABS survey … when the RBA’s own statistics report that they had a $3.58 Trillion exposure at that date (see highlight in chart above). Or, the basic question of why did Mr Debelle fail to reference the current, and much larger, foreign exchange derivatives exposure of our banks.

And let us not bother going into the even bigger questions (and dire implications) over our banks’ $11.68 Trillion exposure to Interest Rate derivatives – that’s the going-parabolic blue line on the above chart.

We’ve seen more than enough to know that Mr Debelle’s belated assurances about our banks are a sham.

It is my view that Fitch Ratings’ and HSBC’s warnings are most likely closer to the real truth.

And the reality of our banks’ extreme vulnerability, due to their off-shore funding reliance, their truly staggering derivatives exposure, and perhaps above all, their poor “asset” quality, is the real reason why Mr Debelle gave the speech that he gave yesterday.

Whether he meant to or not, the simple message for the wise and prudent to take away from (the inconsistencies, lies, and deceptions in) his speech is this.

He is essentially saying, “Don’t worry folks … our banks are going to fail … but the RBA can just print money to bail them out”.

Don’t believe that printing money is what Mr Debelle was saying?

Here it is in his own words:

As I discussed earlier, an Australian dollar liquidity issue can be addressed by the Reserve Bank. The Reserve Bank can meet a temporary liquidity shortfall by lending Australian dollars against the stressed bank’s assets denominated in Australian dollars.

Where does the RBA get its dollars from, in order to “lend” support to our soon-to-be-insolvent, imploding banks?

It creates them. Out of thin air.

Click click on the mouse button. Tap tap on the keyboard.

Just like all “independent” central banks.

And then lends those dollars, at interest.

As we have seen previously ( “Our Banking System Operates With Zero Reserves” ), thanks to the way our banking system is designed, printing more money is the only thing that the RBA can do in response to a bank insolvency crisis.

And as we also saw previously, that is exactly what they did do, in the GFC.

Welcome to the Grand Opening of our Zimbabwe Experience, dear reader.

Brought to you by your friendly “independent” RBA banksters, and their Big Four cronies.

A final thought.

It is particularly interesting that Mr Debelle was effectively reassuring everyone that the RBA is able to provide “liquidity support” (ie, money) for our banks in the event of their running into trouble with their wholesale funding from abroad.

What he did not mention, is that our government – that is, we the taxpayers – has provided both explicit and implicit support for the banks through the Government Guarantee Scheme For Large Deposits And Wholesale Funding.

(Indeed, when Moody’s recently downgraded the credit rating of our Big Four banks, they made it quite clear that if these taxpayer guarantees were not there, our banks’ credit ratings would be slashed by at least another two ‘notches’)

So, if Mr Debelle is arguing/reassuring that the RBA is able to provide liquidity support for our banking system, then why is the Australian taxpayer on the hook to backstop the banks?

And why did Mr Debelle not mention this very important fact in his speech?

SNAFU.

As with anything involving the “unholy alliance of politicians and bankers versus ordinary people”, everything about this stinks to high heaven.

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