Towards A Sound Economy

Source: Leap

By Rudo de Ruijter*

06/06/2009

Sometimes money is compared with the blood of the economy. The credit crisis painfully demonstrated, that the economy depends on a permanent infusion of credits. As soon as the banks deliver a bit less credit, enterprises fail and the mass dismissals succeed each other.

We are made to believe, that the problems with the subprime mortgages were an incident. With a giga-capital injection, a bit more rules and better supervision the banking system would function correctly again. And oh yes, we must trust the banks again.

Main cause of the credit crisis

The main cause of the credit crisis lies in the bank/money system itself. The principle of the money system is, that money is brought into circulation by supplying credit and vanishes again at the moment the credit is paid back. Western banks use two game rules: 1. in comparison with the lent-out amounts, they have to dispose of only 8% of their own capital. [1]; 2. they have to keep a small percentage of reserves in their pay-desk to perform payments for their customers and to hand out cash money.

With these two rules the major part of the money, that customers have in their checking and savings accounts, is lent out (at Triodos bank this is 65% [2], at most other banks much more.) The lent out money is spent by the borrower and subsequently arrives in accounts at other banks. Now, the customers of the first bank can still dispose of their bank balance, while new bank balances have been created at the receiving banks . These new bank balances are the pretext for supplying new credits. This goes on and on. The bank balances are multiplied each time.

This system is called "fractional reserve banking". [3] The banks can fulfil only a fraction of their commitments. They have lent out their customers’ money, although this money can be claimed immediately. They just gamble, that customers will never claim more than they have reserves in their pay-desk and that, if needed, the central bank will come to their rescue. The percentage that banks are not allowed to lend out (the so-called cash reserve) can be determined by law (in the US it was 1:9). In many other countries the central bank dictates the minimum percentage. (Before the crisis, for the Netherlands, I read there was a cash reserve percentage of only 3%.)

Each time a borrower spends money of his loan, the money moves to a following bank, that takes advantage of it to lend out most of it. So, the same money is lent out over and over again. In a 1:9 system the same money can be lent out 9 times. With a cash reserve of 3% it can be lent out 32 times. And each time when it is lent out, a bank collects interest.

The classical risk for banks is, that loans may not be paid back. That risk increases, when fewer new loans are put into circulation than those that are paid back. Then the available money in the country decreases. For the banking industry an environment in which the money supply permanently grows has fewer risks. The central bank sees to it, that the money supply keeps growing (the so called 2% inflation.) When needed, banks can borrow from the central bank, with stocks or bonds as collateral.

When the government borrows money, the amount of money in the country increases, too. Of course, the biggest increase is caused by the multiplier factor, that banks realize themselves. When the multiplier factor rises, loans can be paid back more easily. The income of the bank rises, too. So there is a natural tendancy to lend out higher percentages each time. The banks can also impose more and more requirements on the borrowers to lower the risks. However, the consequences of this dynamic is that the cash reserves decrease.

The purpose of the cash reserves is to supply cash money to the customers and, mainly, to perform payments between the accounts at different banks. When a customer of bank A makes a payment to an accountholder at bank B, a bit of the cash reserve of bank A moves to bank B. And as soon as a customer of another bank makes a payment to a customer at bank A, it increases its cash reserve again. So, the money goes forward and backward between the banks. In the past, it could take three days to make a payment to a customer at another bank. Banks then needed quite a lot of cash reserves. Since then, the payment system has been modernized. Payments go to the destination bank the same day, and the same money can be used for thousands of payments between banks the same day. For mutual clearance of payment orders only a little cash reserve is needed.

The banks have also taken care, that their customers hardly need bank notes (cash) anymore. At first, employers were obliged to pay wages in bank accounts. Everybody at one time got checks or forms for payment orders, which have been followed by plastic payment cards and internet banking. In the Netherlands, for a few years now, the debit card is more and more imposed for all small expenses. For each euro we don’t keep in our pocket, the banks can lend out a multiple amount...

Although a growing money supply is needed to lower the risk of system crashes by failing loans, the multiplier factor ends up causing more and more instability in the money supply and causing smaller cash reserves. As soon as a bank has to book a loss, this not only decreases its capital, but often also its cash reserve. When a bank has less than the 8% required capital (compared to the outstanding loans), or too little cash reserve left, then, according to the rules, the bank has lost the game. The subprime mortgages caused the system to get stuck in 2007, but, in fact, any somewhat bigger losses, like for instance on Third World loans, could have triggered the crisis. The banks simply had too few reserves left to take losses. And once one bank gets in trouble, it can easily spread to other banks, because banks borrow money and buy securities from each other to optimize their balance sheets. The fact that the subprime mortgages were wrapped up as a complex financial product only made the effect bigger. But the main cause of the crisis is not the loss on the subprime mortgages, but the structurally decreased capacity of banks to take losses. And that is the consequence of the natural dynamic within the "fractional reserve banking" system.

Taken hostage

In many countries the governments were called on for help to save the banks. This is remarkable, for the banking system functions outside any democratic control. The directors of central banks took the ministers of finance to international meetings (or took them in) and extracted inconceivably high loans for the banks. All of us, we are guarantors with our future tax money. However, the banks would pay a market conform interest on these loans. To put it otherwise, they will charge their customers for it: you and me. In fact the ministers of finance were put against the wall. The banks were not allowed to fail; they were too important.

The power over the money has been given away by members of parliament in the past. They had no idea about what money was and how the system worked. Now the banks determine how much money there is in circulation and how much the population must pay for this service. The multiplier factor of money also leads to a shift in power within the country: banks make more and more investment decisions, while the government makes fewer. And because there is more and more money available, more and more things become buyable. This has led, for instance, to the dismantling of many state tasks. Services, that are important for the functioning of society, like public transport, post, telephone, water and energy supply have been thrown in the hands of the financial benefit seekers. Private companies would perform better. But in fact, it hides a shift in power due to the "fractional reserve banking".

We still pretend, that we live in a democracy, but the parliament has no say anymore over money, one of the most important factors in society. To get the power over money back inside the democracy only small law changes are needed. Unfortunately, today’s parliamentarians, except a very little number of them, still don’t understand anything about the money system. That is a pity, because by taking back the power over money and with an adequate bank reform, they would be able to stop the credit crisis almost immediately. [4]

Bank reform

Described in short, this bank reform could look like this: the central bank becomes a state bank, part of the ministry of finance. The state bank is the only bank that creates money for loans. The parliament decides which sort of loans must get priority in the interest of society. These loans can be supplied at favorable conditions. This way, the parliament gets much more influence over the shaping of society.

Todays’ commercial banks become server counters for the loans from the state to the public. They manage the checking and savings accounts of their customers on behalf of the state bank. They cannot dispose freely anymore of this money and cannot multiply the balances. However, they will be allowed to collect funds to lend out.

Ethics

If the treasurer of the local sports club would use the money unseen to invest it and enrich himself this way, he takes the risk to be condemned. But when bankers manage the money in our checking accounts in this way, they go free.

The corrupt rules for banks have originated long ago, when gold smiths, and later bankers, were bent upon fooling their customers. [5] The only difference between what happened then and what goes on now is, that the system has become official and the law allows it. Of course, this practice is kept secret as much as possible. You will not find any website of a bank or of a central bank, that clearly explains how a bank works and how the system functions. At schools - except for a few very rare exceptions - the subject is not covered, and even in most economics studies it is not part of the curriculum.

In particular from 1913, after the establishment of the Federal Reserve Bank in the US, the bankers have succeeded in obtaining their own legal framework in many countries and have seized the power over the local money. In each of these countries one bank has been given the role of the central bank. The names of these central banks keep up the appearance, that they are governmental entities, whereas, on the contrary, they became independent from the local parliament and government, be it step by step in some cases: De Nederlandse Bank N.V. (1914), Bank of Canada (1935), National Bank of Danmark (1936), Deutsche Bundesbank (1957), Banque de France (1993), Bank of Japan (1997) and so on. On their bank notes, there were often portraits of kings and statesmen. In many cases the appearance that money would be of the state was corrobated by the fact that the state kept the responsibility to mint coins. On the coins too, there were often trustworthy portraits. When necessary, even religion was invoked. The Dutch guilder coin had the inscription "God be with you" in the side. (Note of Alice Cherbonnier: US money says, "In God we trust.")

Eternal economic growth

It is thanks to the potential for economic growth and the increasing availability of raw materials and energy during the last century, that the money multiplier did not lead to problems, but even pushed the economic growth.

My thesis is, that today’s bank system is a danger to the future of humanity. The permanent inflation, that is inherent to this system, forms an impulse for ever more economic activity in order to compensate for the loss of value of the money unit and to obtain a bit of the additional money put in circulation. In my opinion, this is also where the stubborn believe comes from, that an economy must grow to be healthy (and not, for instance, from a spontaneous desire of the working class to work harder all the time.)

Sustainability, on the contrary, supposes an equilibrium with our environment. Our environment does not grow along with the increase of our economic activity and population. It is destroyed by it. [6]

We need to get rid of our inflationary banking system as soon as possible and put the power over money back where it belongs in a democracy: in the parliament.

---

* Rudo De Ruijter is an independent researcher based in the Netherlands. For reactions and reply you can contact the author via www.courtfool.info

If you wish, you may copy this article and forward it or publish it in newspapers and on websites.

[1] The 8% capital requirement is the standard from the Basel Accords of 1988, on which all kinds of exceptions apply. This way, for loans with mortgages on housing, banks only need to have a counterpart of capital equal to 4% of the outstanding loans. For loans to other banks the requirement is still lower most of the times and for loans with a state guarantee it is 0% (http://www.bis.org/publ/bcbs04a.htm & http://www.bis.org/publ/bcbs04a.pdf?noframes=1). In 2004 the European Commission proposed to lower the 8% to 6% and the 4% to 2.8% (http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/04/178&format=HTML&aged=1&language=EN&guiLanguage=en). The Basel II Accords of 2006 offer more possibilities to (big) banks to choose the most favorable method to determine their risks (http://www.bis.org/list/bcbs/tid_22/index.htm)

[2] At Triodos Bank 65% is lent out (http://www.triodos.com/com/whats_new/latest_news/general/response_fin_crisis)

[3] http://www.mises.org/story/2882#3 : see chapters Fractional Reserve Banking, Central Banking, Deposit Insurance. Note, that Murray N. Rothbard (1926–1995) was a defender of the return of the gold standard, like, for instance, US Congressman Ron Paul still is. Although understandable, seen from a historical US’ perspective, a money system based on gold has many disadvantages. Countries without gold mines would have to buy gold (which means deliver goods and services to the gold mining countries) for the only purpose of disposing of a national means of payment. Each time when more gold comes on the market, they will be obliged to buy more of it, to prevent their currency to devaluate against currencies of countries with increasing gold stocks. The gold mining industries would, in many aspects, get supra-national power, even more than the Fed today. Gold has no stable value. Its pricing can be influenced by holders of big stocks, like the gold mining industries and central banks. Even big numbers of small buyers and sellers, when triggered by fear or greed, can influence its price. All these price fluctuations can form a danger for any economy that has its money pegged to gold. Still more than today, gold would trigger conflicts, oppression and wars.

[4] Bank crisis? Reform! (http://www.courtfool.info/en_Bank_crisis_Reform.htm)

[5] Secrets of money, interest and inflation (http://www.courtfool.info/en_Secrets_of_Money_Interest_and_Inflation.htm)

[6] Energy crisis: turning-point of humanity (http://www.courtfool.info/en_Turning_point_of_humanity.htm)

Is the Euro Doomed? (2)

Source: The Daily Reckoning

06/11/09 Baltimore, Maryland 

Despite all the U.S.’ woes, the dollar is holding pretty steady. The dollar index is just a hair lower than yesterday, now at 79.8. Thus, the dollar’s major competitors are just a few cents off recent 2009 highs… euro: $1.40, pound: $1.64, yen: 97.

Interestingly, the pound is currently at a 2009 high versus the euro, at 85 pence. Trader fears are mysteriously shifting out of the U.K. and into Europe, where the “one currency fits all” model is again in question.

“It only makes sense,” writes our currency trader Bill Jenkins, “that given the present situation, a country like Ireland should not be able to borrow at the same rate as a country like Germany. Yet that has been the very working policy of the ECB. One size fits all. Everybody borrows at the same rate, so theoretically, as they put that money to work, they all profit at the same rate. It supposedly provides some synchronicity to the economies. The only problem is, it doesn’t.

“Germany is putting the squeeze on other members. The more trouble the PIGS (Portugal, Ireland, Greece and Spain) are in financially, the worse they feel the squeeze of Germany’s unrelenting and strong fiscal discipline. And it provides yet another reason for Germany to exit the Union. Simply staying on just to feed the PIGS isn’t going to do it.

“At the same time, the incentive for the PIGS to join the Union in the first place was to piggyback on the strength of the Germans — it offered them lower rates at which to borrow. Now they are seeing rising rates, as they are forced to borrow outside the ECB. Rising rates with a stable currency they cannot control forces them to lower wages on their citizens as the only outlet for financial pressures. No politician wants falling wages on his term record!

“In short, I don’t think the euro has any lasting strength in the years ahead.”

Source: Counter Punch (from Le Monde Diplomatique)

Solution of Last Resort

Is the Euro Doomed?

By LAURENT JACQUE

Will the tsunami devastating the global financial system undermine the stability of the euro? Its advocates say not. Doomsday scenarios of a partial break-up of the Eurozone have, as yet, failed to materialise. They argue that, over 10 years, the Eurozone has become a haven of peace and stability giving the second world economy a stable currency. In January, the Eurozone acquired its 16th member, Slovakia. And even the Eurosceptics (Denmark, Sweden and the United Kingdom) who snubbed the launch of the single currency in 1999 are having second thoughts: the Danish crown may join up shortly.

The independent European Central Bank (ECB) has single-handedly reined in the growth in the money supply, bringing inflation down to approximately 2 per cent. Average nominal interest rates have stabilised at around 2.5 per cent, while real interest rates are at their lowest since the 1960s. And the abolition of 15 national currencies eliminated exchange risks (1) and transaction costs, galvanizing intra-euro zone trade and investment, which now form a third of its GNP.
In 2008 the euro reached its high against the dollar as the pound collapsed and Iceland went bankrupt. Reassuringly for those in the Eurozone, the euro is emerging as an alternative to the mighty dollar: today it accounts for more than a quarter of all central banks’ foreign exchange reserves and has become the currency of choice, ahead of the dollar, for all international bond issues. As ECB chairman Jean-Claude Trichet said cheerfully: “We are contributing every single day to an ever-higher level of prosperity and we are therefore playing a critical role in the unification of Europe” (2).

For all these glittering achievements, there are signs of malaise. During the last decade the Eurozone’s economic growth was sluggish, unemployment continued stubbornly high and many EU members’ budgetary deficit exceeded the 3 per cent GDP ceiling mandated by the Growth and Stabilisation Pact. By contrast, the Eurosceptics had far lower rates of unemployment (half the Eurozone average), higher growth rates and very low budget deficits (if not surpluses).

The euro has failed to deliver any significant benefits to Eurozone countries, mainly because of structural economic problems for which the euro was never meant to be the panacea. Even so, hopes of reduced unemployment or higher economic growth have not come true. So could the euro be partly responsible for the vicissitudes of the last decade? And will it survive unscathed the crisis engulfing the global economy?

The launch of the euro in 1999 was a politically motivated event which never met the acid test of what economists call an “optimal currency area”. A group of countries (or regions) is deemed to constitute an optimal currency area when their economies are closely interwoven by trade in goods and services, and characterised by mobility of capital and labour. The United States is the longest surviving and most successful example of a well-functioning currency area.

Is the European Union also an optimal currency area? Intra-EU trade hovers at around 15 per cent of the Eurozone’s GNP – significant but considerably lower than in the US. While footloose capital is increasingly the EU norm, labour mobility across Europe is only a fraction of what it is in the US and remains very low within each of its national economies.

Ignoring these problems, the EU launched the euro in 1999 and created a single monetary policy, establishing a central bank and depriving each country of two (out of three) critical policy instruments: an independent monetary policy to tame inflation or spur growth through interest rate adjustments and a flexible exchange rate to keep its economy competitive.

Furthermore, fiscal policy – the third critical instrument – is sharply constrained by the Growth and Stabilisation Pact which caps the budget deficit for each country at 3 per cent of GDP. National debt should not exceed 60 per cent of GDP, with notable exceptions such as Italy and Greece, which breached the ceiling at 104 per cent and 95 per cent of their GDP respectively. Structural and cyclical differences between individual EU members are clear; so the Eurozone’s reduced economic policy deftness is of particular concern in the event that one member country suffers an economic shock that does not affect the rest.

If the Eurozone were really an optimal currency area, a country in trouble would be able to adjust through the mobility of its labour force within the rest of the Eurozone, the flexibility of wages and prices, and/or a budgetary transfer from Brussels to help it out. None of these conditions were met when the euro was first launched, nor is there any sign that member countries are putting in motion structural reforms to bring the Eurozone any closer to becoming an optimal currency area.

The third condition – which is easier to meet – calls for a hefty dose of “fiscal federalism” and would transfer significant taxing and spending power away from national governments to the EU. This transfer remains elusive for fear of further diluting national sovereignty.
Indeed the EU – which itself has limited taxing power (no more than 1.27 per cent of GNP) – cannot make stabilizing fiscal transfers to smooth out national shocks. The brunt of the responsibility for fiscal policy remains in the hands of national governments, with Brussels accounting for less than 3 per cent of Eurozone government expenditures.

This stands in stark contrast to the United States where more than 60 per cent of government expenditures occur at the federal level. The US also has high labor mobility and greater wage flexibility than Europe. Even Germany’s reunification, which joined east and west in a single mark in 1991, hardly created an optimal D-mark zone: in spite of fiscal transfer in excess of 200bn euros over a 10-year period, unemployment remained stubbornly high (close to 20 per cent) in East Germany.

In its first 10 years the Eurozone has experienced at least two main “asymmetrical” shocks which did not impact all its members uniformly: the overvalued dollar from 1999-2002 and the oil shock from 2005-8. In the case of the dollar, those Eurozone countries dependent on international trade have experienced faster imports-induced inflation than those oriented to Eurozone trade. Ireland – more of an international than a European trader – experienced inflation at the rate of 4.1 per cent over the 1999-2002 period, whereas Germany – more of a European than an international trader – remained in the slow inflation lane at 1.2 per cent over that same period.

Similarly, the quadrupling of the price of crude oil is impacting on national rates of economic growth and inflation more or less in proportion to their dependence on oil. France, with its lower dependence on oil (35 per cent of its energy supply because of its high dependence on nuclear power), is less affected than Greece, Ireland, Italy, Portugal or Spain, which rely on oil for more than 55 per cent of their energy supply.

The combination of centralized monetary policy and decentralized fiscal policy is resulting in localized differences in inflation which are affecting the euro’s purchasing power in each Eurozone country. Under a national exchange rate, this is easily corrected through monetary policy and “competitive” depreciation/appreciation of the national currency. But this is no longer a possibility: the straightjacket of the euro killed the exchange rate policy instrument and froze monetary policy at the national level. Because of this inability to respond flexibly to inflation, the purchasing power of the euro is rapidly eroding in several countries.

On the basis of labour cost indices in Italy and Germany over the period 1 January 1999 to 30 September 2008, the euro in Italy is overvalued by 41 per cent against the euro in Germany, and Spain and Greece are not far behind. Unless countries suffering from overvaluation can correct the problem through faster gains in productivity and/or wage and price downward flexibility, the problem is not reversible. More importantly, overvaluation is a cumulative process which becomes harder to correct over time. In this vein, the latest round of EU enlargement may – to a limited extent – bring about some price and wage downward flexibility to the Eurozone as firms can make increasingly credible threats to outsource from or to relocate manufacturing operations to Eastern Europe to take advantage of cheaper labour.

To make matters worse, EU countries cling to their own electoral calendars for presidential, parliamentary or municipal elections. This exacerbates cyclical discrepancies across the Eurozone: the run-up to an election is often accompanied by expansionary fiscal policy.

As the world economy digs itself in a deeper hole, the main economic policy goal is becoming to combat the relentless rise of unemployment, which could rapidly reach 10-12 per cent. Spain’s unemployment has already skyrocketed to 13 per cent in the last six months. But fighting unemployment will result in massive budget deficits, which will unravel the Stabilisation Pact and jeopardise the stability of the single currency. Stimulus plans that are being implemented are blowing big holes in the deficit ceiling set at 3 per cent of GDP, pushing national debts way beyond the threshold of 60 per cent of GDP and raising new threats to the independence of the ECB.

Under duress, and facing the bleak prospect of a prolonged economic crisis and deepening structural unemployment, some countries may be tempted to follow the example of the brutal devaluation of the pound. Greece, Italy, Portugal and Spain (whose unemployment often exceeded 10 per cent in the last decade) will not agree to remain “under-competitive” because of the “over-valuation” of the euro.

However traumatic it may be to reinstate national currencies, some countries could decide to abandon the euro to recover their economic competitiveness. This scenario is reminiscent of the major currency crises that rocked the Bretton Woods system of fixed exchange rates between 1944 and 1971, and more recently the European Monetary System from 1979-99 (3). But this is unlikely in the short term, if only because national debts denominated in euros would become very expensive to service with a newly restored but devalued currency for the seceding country. Even so, further deterioration of an already fragile social climate (such as the recent demonstrations in Greece) fuelled by a brutal acceleration of unemployment, may push some countries to this solution of last resort.

Laurent Jacque is the Walter B Wriston professor of international finance and banking at the Fletcher School (Tufts University, US) and HEC School of Management (France)

Notes.

(1) Risks due to exchange rate fluctuations. Prior to the creation of the euro, investors would routinely speculate against the franc, lire or pound. In September?1992, George Soros successfully speculated against the pound as the United Kingdom abandoned the European Monetary System.

(2) Interview in Die Zeit, Hamburg, 23?July?2007.

(3) The European Monetary System was established in 1979and aimed at stabilising exchange rates among European currencies, in effect re-enacting on a European scale the Bretton Woods system of pegged exchange rates. Each currency was pegged to an artificial currency unit known as the ecu, the predecessor of the euro.

This article appears in the March edition of the excellent monthly Le Monde Diplomatique, whose English language edition can be found at mondediplo.com. This full text appears by agreement with Le Monde Diplomatique. CounterPunch features one or two articles from LMD every month.

 

Κίνδυνος χρεοκοπιών στην ευρωζώνη

Ta Nea On-line

©Τhe Τimes, 2009

19-05-09

ΤΗΝ ΠΕΡΑΣΜΕΝΗ Παρασκευή η Ευρωπαϊκή Επιτροπή δημοσίευσε τις πιο καταστροφικές οικονομικές στατιστικές που έχει ανακοινώσει ποτέ επίσημη αρχή από το 1945. Τα στοιχεία αυτά έδειξαν ότι η Γερμανία υπέστη τη μεγαλύτερη οικονομική συντριβή που έχει καταγραφεί ποτέ σε μεγάλη βιομηχανική χώρα. Τα ίδια στοιχεία έδειξαν ότι αρκετές από τις χώρες της Κεντρικής Ευρώπης αλλά και της περιφέρειας στην ευρωζώνη αντιμετωπίζουν οικονομική κατάρρευση.

Η «τέλεια καταιγίδα»
Τρία στοιχεία έχουν δημιουργήσει την «τέλεια καταιγίδα» στην Ευρώπη:

Το πρώτο είναι η εξάρτηση της Γερμανίας απο τις εξαγωγές. Σε μια περίοδο παγκόσμιας μείωσης στη ζήτηση, αυτό εξελίχθηκε σε αχίλλειο πτέρνα της χώρας.

Το δεύτερο είναι ο απερίσκεπτος δανεισμός στην Κεντρική Ευρώπη και τη Βαλτική, ιδιαίτερα από τράπεζες που έχουν έδρα την Αυστρία, τη Σουηδία, την Ελλάδα και την Ιταλία οι οποίες με τη σειρά τους δανείζονταν από Γερμανούς επενδυτές και τράπεζες.

Το τρίτο στοιχείο είναι το ίδιο το ευρώ. Την πρώτη δεκαετία της ύπαρξής του, το ενιαίο νόμισμα συνεισέφερε στην ανάπτυξη επιτρέποντας σε χώρες όπως η Ισπανία, η Ελλάδα, η Πορτογαλία, η Ιρλανδία και η Δανία να διατηρούν τεράστια ελλείμματα στο ισοζύγιο τρεχουσών συναλλαγών και να απολαμβάνουν έκρηξη στην αγορά ακινήτων και τον δανεισμό. Η ανάπτυξη αυτή δημιούργησε αγορές για προϊόντα που παράγονταν στη Γερμανία όπως αυτοκίνητα και άλλα αγαθά.

Τους τελευταίους μήνες όμως το ευρώ από παράγοντας σταθερότητας έγινε παράγοντας αστάθειας και πλέον οι κυβερνήσεις στην ευρωζώνη, αν φτάσουν στο απροχώρητο, δεν μπορούν να τυπώσουν χρήμα για να πληρώσουν τα χρέη τους όπως μπορούν να κάνουν χώρες εκτός ενιαίου νομίσματος. Απειλητική τραπεζική κρίση
Ο κίνδυνος χρεοκοπίας είναι ιδιαίτερα σοβαρός για κυβερνήσεις που αντιμετωπίζουν μεγάλη τραπεζική κρίση. Στην Ιρλανδία, την Ελλάδα και την Ισπανία, οι κυβερνήσεις αναγκάστηκαν να εγγυηθούν για τράπεζες με υποχρεώσεις μεγαλύτερες του κρατικού προϋπολογισμού. Στην Αυστρία, την Ελλάδα και την Ιταλία, μάλιστα, οι κίνδυνοι αυτοί έχουν μεγεθυνθεί από την έκθεση των τραπεζών στην Κεντρική Ευρώπη.

Η οικονομική κατάρρευση στην Κεντρική Ευρώπη είναι σχεδόν σίγουρο ότι θα δημιουργήσει κύμα χρεοκοπιών από δάνεια.

Αυτό θα μπορούσε, με τη σειρά του, να φέρει καταστροφή στο ευρωπαϊκό τραπεζικό σύστημα και να αυξήσει την πιθανότητα κρατικών χρεοκοπιών στην Ελλάδα, την Αυστρία, την Ιρλανδία και άλλες χώρες της ευρωζώνης.

Ο καλύτερος τρόπος να βγει από την κρίση η Ευρώπη, είναι να εγκαταλείψει η Γερμανία την αυστηρή δημοσιονομική πειθαρχία, να λάβει νέα δημοσιονομικά μέτρα μεγάλης έκτασης και να εγγυηθεί τα χρέη όλων των εταίρων της στην ευρωζώνη. Οι κυβερνήσεις, όμως, δεν λειτουργούν πάντοτε με γνώμονα τη λογική, όπως απέδειξαν οι ΗΠΑ που άφησαν τη Lehman Βrothers να καταρρεύσει. Ελπίζω να έχουμε μάθει το μάθημά μας τους τελευταίους δώδεκα μήνες.

Πωλείται - Maison à vendre

Maison avec grand jardin, très ensoleillé, quelques travaux de finition à effectuer.

Source

Greeks seek refuge in coffee shops amid slump

Greeks seek refuge in coffee shops amid slump

Apr 20, 2009

ATHENS (AFP) — Determined to keep their cheer in the gloom of the economic downturn, Greeks are holding on to the nation's unofficial shrink couch -- the coffee shop -- for a few hours of escape from their bills.

At a time when hundreds of small businesses around the country teeter in a market plagued by falling consumer demand and a loan drought, cafeterias are doing a brisk trade with millions refusing to forego their daily coffee fix.

"Crisis or not, Greeks will have their coffee," said Phaedon Vaimakis, 29, a junior financial analyst enjoying his cup on a warm Athens spring afternoon.

Though not a coffee producer, the country swears by the bean -- Greeks go through an estimated 5.8 billion cups a year whether on a date, a business appointment or just to get out of bed in the morning...

Greeks seek refuge in coffee shops amid slump

Judd Gregg Slams Obama 'This Country Will Go Bankrupt'

Απλά συνδέεις τα ψιψιψίνια με τα κοκοκόψαρα...

http://epicurus2day.blogspot.com/2009/02/blog-post_17.html

Déforestation en Amazonie

Déforestation en Amazonie Ανέβηκε από Orelie76

Bank(st)ers are lucky We have no guillotines in stock

Source: Bring back the guillotine... for bankers (This is Money.co.uk)

The crass behaviour of Britain's financial aristocracy rivals the last of the Bourbons. Marie Antoinette famously patronised the Parisian mob with her 'let them eat cake', while dining in luxury in the Tuileries.

The City bankers who ruined their banks but have been kept in employment by the taxpayer now demand we pay them their bonuses to maintain the aristocratic lifestyle to which they have become accustomed. They know no shame and take no blame. They are lucky the British have no guillotines in stock...

...

The academic economists are silent... this is a silence of unindicted co-conspirators

Source: LewRockwell.com

...They say nothing, except when they say it is a good idea, because it is necessary, because we have got to save the banks, because we have got to regulate the economy, and, most of all, because the unhampered free market system really does not work. This is what we are getting from people who have generally been known as free market economists. They are lining up as cheerleaders as the banks go to the Federal trough. 

The Federal deficit soars into astronomical regions, and the monetary base soars just as fast, yet the academic economists are silent. This is not the silence of the lambs; this is a silence of unindicted co-conspirators, most of whom teach in tax-supported universities and spend their careers writing unreadable articles in unread academic journals in order to get tenure, so that the taxpayers can never fire them. 

These people are apologists for the State. Most of them have been on a public payroll all of their lives. These are the people who, in the name of conservative free-market principles, are supposed to stand in the gap to warn us that the ship of state is going over the falls.

Don't hold your breath.

...

Paper Money...

Source: Goldseek.com

The Goldsmiths - Part I

“Of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money...”

http://news.goldseek.com/GoldSeek/1219039500.php

Pigs, can't fly - But they sure do try (!)

Pigs (economics) 

PIGS is a xenophobic acronym used by some journalists in finance and economy to refer the four main countries of southern Europe: Portugal, Italy, Greece, and Spain.[1] These are Eurozone countries that have had mixed economic perfomances in the last few years, and therefore the acronym seems just a case of bad taste that aims to pass as witty and smart. [2] These countries suffer from large current account deficits and high unemployment. But little more can be said to put them together, besides their location in the Mediterranean and rich cultural heritage, which do not fit with the derogatory term[3] The Economy of Ireland is sometimes added as an additional "I."[4]

Banker + gangster = bankster

Urban dictionary:

bankster gangster

1.

bankster

Noun 

A portmanteau or blend word derived from combining "banker" and "gangster." Usually referred to in the plural form "banksters" to refer to a predatory element within the financial services industry, such as those offering "too good to be true" adjustable mortgage rates for home buyers

"The banksters just foreclosed on my mom's Mcmansion, and now she's living in her SUV."

The Greatest Depression in History

Source: Economicrot blog

Gerald Celente (link), the world's #1 Trends forecaster states that we're moving into the Greatest Depression in history - starting in 2009!

If you're running short on time and can only listen to one of the two below - I suggest you select part 2.

Part 1

Part 2

Επειδή ο Έλληνας πληρώνει (τα μάτια που αγαπά)

Η ιστορία γνωστή, αλλά έχει και ενδιαφέρουσα συνέχεια...Ρίξτε μια ματιά στα δύο παρακάτω άρθρα...:

1) Standard & Poor’s: «Οι τράπεζες ίσως χρειαστούν ακόμη 8 δισ. ευρώ»

Στα 13 δισ. ευρώ (από 5 δισ. ευρώ σήμερα) ανεβάζουν οι αναλυτές του διεθνούς οίκου τις πιθανές ανάγκες κεφαλαιακής ενίσχυσης των ελληνικών τραπεζών 

Προτού ακόμα ολοκληρωθεί η ενίσχυση των ελληνικών τραπεζών με τα 28 δισ. ευρώ, ο διεθνής οίκος αξιολόγησης πιστοληπτικής ικανότητας Standard & Poor’s κάνει λόγο για ανάγκη περαιτέρω ενίσχυσής τους με άλλα 8 δισ. δολ.

Σε έκθεσή τους σχετικά με τις επιπτώσεις της κρίσης στα δημοσιονομικά μεγέθη των αναπτυγμένων οικονομιών, οι αναλυτές της S&P εκτιμούν ότι με τα σημερινά δεδομένα οι ελληνικές τράπεζες θα χρειαστούν κεφαλαιακή ενίσχυση ύψους 5 δισ. δολ. - ποσό που προβλέπεται στο «πακέτο» των 28 δισ. ευρώ.

Στην ίδια έκθεση, όμως, υπάρχει αναφορά και στο «χειρότερο σενάριο», σύμφωνα με το οποίο οι ελληνικές τράπεζες θα πρέπει να ενισχυθούν με 13 δισ. ευρώ. Αυξάνεται, έτσι, το απαιτούμενο ποσό από 2% σε 5,1% του ελληνικού ΑΕΠ. Στον βαθμό που η άποψη αυτή δικαιωθεί, η κυβέρνηση θα πρέπει να βρει τρόπο να δώσει άλλα 8 δισ. ευρώ στις τράπεζες...

http://www.imerisia.gr/article.asp?catid=12336&subid=2&tag=12734&pubid=5195104

2) Ερωτήματα για τα 28 δισ.

 Ελληνικές τράπεζες, με έγκριση των Βρυξελλών, ενισχύουν με κρατικό χρήμα θυγατρικές τους στα Βαλκάνια, ενώ περιορίζουν τα δάνεια στο εσωτερικό

Το πράσινο φως για την ενίσχυση των θυγατρικών των τραπεζών στα Βαλκάνια με το ελληνικό πακέτο στήριξης των 28 δισ. ευρώ έδωσε χθες η Ε.Ε., τη στιγμή κατά την οποία στην Ελλάδα τα πιστωτικά ιδρύματα χορηγούν όλο και πιο δύσκολα δάνεια προς τις επιχειρήσεις και τα νοικοκυριά. Η εκπρόσωπος της Κομισιόν Αμέλια Τόρες δήλωσε χθες ότι τα σχέδια διάσωσης που έχουν υιοθετηθεί σε όλη την Ευρώπη αφορούν τους ομίλους στο σύνολό τους. Δηλαδή, τα κρατικά κεφάλαια μπορούν να χρησιμοποιηθούν και για τη χρηματοδότηση των θυγατρικών τους στο εξωτερικό.

Η δήλωση της κ. Τόρες έρχεται σε πλήρη αντίθεση με τη σύσταση που απηύθυνε προς τις τράπεζες ο διοικητής της Τραπέζης της Ελλάδος Γιώργος Προβόπουλος να μην «εξάγουν» τα κεφάλαια στήριξης στα Βαλκάνια, λόγω του κινδύνου που υπάρχει στις συγκεκριμένες αγορές. Σύμφωνα με τα στοιχεία της Τραπέζης της Ελλάδος, τον Δεκέμβριο χορηγήθηκαν δάνεια 2 δισ. ευρώ έναντι 5 δισ. ευρώ τον Δεκέμβριο του 2007.

ttp://news.kathimerini.gr/4dcgi/_w_articles_economy_1_30/01/2009_301444

Χ.Α.: Σε ελεύθερη πτώση ο γενικός δείκτης

Naftemporiki

Κατακρημνίστηκε σήμερα ο γενικός δείκτης τιμών του Χ.Α., ο οποίος υποχώρησε στα χαμηλότερα επίπεδα από τον Απρίλιο του 2003.

Ο γενικός δείκτης έκλεισε στις 1.660,04 μονάδες, κοντά στο χαμηλότερο σημείο της ημέρας, σημειώνοντας κάθετη πτώση κατά 5,14%...

Πήγα σε μάντισσες, σε χαρτορίχτρες...

La crise économique va-t-elle encore durer longtemps? 

'The Bailout Game': πατήστε play

   

'The Bailout Game': play

American Freedom (Made in China...)

'The End Game'

Source: Money and Markets

"The notion that the U.S. government might even contemplate such a Herculean task is so naive and so preposterous, it doesn't even rise to the level of B-grade science fiction."

by Martin D. Weiss, Ph.D.   01-19-09

Just a week after Wall Street was still rejoicing with a great “Obama rally”…

And only hours before the new president takes the oath of office …

A larger, more menacing banking disaster has burst onto the scene.

Why? The fundamental reason is obvious:

Back in September, when Wall Street’s largest firms were feared to be sick or dying, the financial epidemic was largely limited to Wall Street. Most of the broader economy was still holding up. Except for housing and mortgages, the contagion had not yet hit Main Street.

Now, just four months later, all that has changed. Unemployment has gone through the roof in almost every industry. Nonfinancial firms are failing in large numbers. The entire economy has tanked.

Back in September, the big losses at major banks and Wall Street firms were limited primarily to mortgages and mortgage-backed derivatives. That was bad enough. But it was just the beginning.

Now, due to the sinking economy, the stated value of virtually every asset on the books of every bank in America is highly questionable. Whether you call this a severe recession, a depression or just an economic free-fall, the value of almost every bank asset is greatly overstated.

Even back in September, it was virtually impossible for any government, even ours, to muster sufficient resources to save the nation’s megabanks. The banks were simply too big. There were too many of them in trouble. Their losses were too large; their capital deficits too deep.

Now, with the losses spreading and mounting, the idea that, somehow, the government can save them all has been carried beyond the threshold of absurdity. Now, we are near the end game — and the government is likely to lose.

Ask yourself these basic questions:

• Can the U.S. government save two of the nation’s three largest megabanks — Citigroup and Bank of America — despite the worst asset quality in their history and the worst economic collapse in a half century?

• Can the U.S. government save these two banks while nearly every major investment bank, including Merrill Lynch, has already collapsed?

• Can it pull it off even as thousands of large and small retail companies, air transport firms, auto companies and others file for Chapter 11?

• Can it engineer this feat even as Europe and Asia sink into an abyss?

If your answer to these questions is “no,” you’re at odds with virtually the entire Washington and Wall Street establishment, whether Republican or Democrat, whether in the old administration or the new one.

Strangely, though, if your answer is “yes,” you’re out of synch with a reality that’s abundantly obvious to any objective observer...

Η συνέχεια εδώ

Systemic Economic Crisis: The Sequence of Global Insolvency Begins

Source: (GEAB) Global Research

In 2007, LEAP/E2020 announced that US banks and consumers were both insolvent. More than a year ago, our team estimated that USD 10,000-billion worth in « ghost-assets » would vanish in the crisis. Both announcements came in complete opposition with the common opinion of that time; however they proved perfectly justified in the months after. In the same line, LEAP/E2020 today estimates that a new sequence of the fourth phase (so-called « decanting phase ») of the unfolding global systemic crisis has began: the sequence of global insolvency.

The heavy consequences conveyed by the global insolvency are anticipated in this GEAB N°31, of which this announcement presents an excerpt meant to put clearly what is at stake in this new sequence of the crisis. GEAB N°31 also details the 20 "ups and downs" of the year 2009 according to the LEAP/E2020 team : fifteen upward trends and fourteen downward trends, as many decision- abnd analysis-support instruments for all those worried or intrigued by the coming year.

Contrary to what political leaders and their central bankers seem to believe worldwide, the problem of liquidity that they are striving to solve by means of historic interest rate drops and unlimited money creation, is not a cause but a consequence of the current crisis. It is in fact a problem of solvency which is digging « black holes » where liquidities disappear, whether we call these holes bank balance sheets (1), household debt (2), corporate bankruptcies or public deficits. In consideration of the fact that a conservative estimation of these “ghost-assets” reaches already USD 30,000-billion (3), our team considers that the world is now facing a situation of general insolvency affecting in the first place the most indebted countries and organizations (public or private) and/or those depending most on financial services.

...

Η συνέχεια και εδώ: GEAB

Roubini: 'Synchronized Global Recession'

Τρισέ...

Ημερησία

Τρισέ: Αποκλείεται να χρεοκοπήσει χώρα της ευρωζώνης

Ο κ.Ζαν Κλοντ Τρισέ δήλωσε την Πέμπτη ότι αποκλείει κάθε υπόθεση κίνδυνου χρεωκοπίας κράτους μέλους της ευρωζώνης.

Σημ: ok...

I need to be... subsidized

Calvin and Hobbes

Gold vs Sterling...

Source: Money Week

 'Why you should hold on to gold'

By Dominic Frisby Jan 07, 2009

...If you look at how gold has traded vs sterling since Gordon Brown sold our gold, you will notice a distinct staircase pattern. It shoots up, then consolidates at the higher level, then shoots up.

...Based on this repeating pattern, since we have just had a sharp shot up – and this could continue for a short while longer - a period of consolidation is now likely, before the inevitable march to £1,000 an ounce and beyond. But I would not sell a flake of your physical gold yet. It is your insurance - if sterling implodes, you'll need it.

...When measured in gold, this is already the worst house price crash in history

I don't know if this sell-off in sterling has been orchestrated, but it suits the government. The economic downfall doesn't look nearly so bad measured in weakened sterling as it does in, say, dollars. House prices are down some 15-20% from the highs, depending whose figures you use, measured in sterling. But measured in gold, this is already the worst crash in history, as the chart below shows.

What's more, this crash still has a lot further to go.

In this chart, having risen by the most, London prices look set to fall by the most:

What is a Recession

Source: itulip.com

Recession, standard version: 

Recession, parody version:

The Deal

Source: itulip.com

'China's political response to its first recession in 30 years will challenge the world in 2009 as rising global unemployment challenges governments world wide. Formerly cocky dictators and single party governments will have to reconsider strategies and alliances.'

Looming Collapse of Russia, China and more …

Source: Money and Markets

By Martin D. Weiss, Ph.D.   5 Jan 2009

I hope you’ve 

had a great start to your New Year!

At the same time, however, I trust you are not counting on the latest holiday rally in the stock market — or the most recent incarnation of the Obama rescue package — to transform 2009 into a positive year for the economy.

The reasons: In addition to the massive wealth destruction I told you about two weeks ago and the continuing debt collapse I’ve been warning you about for many months now, the overseas engines of global growth are also collapsing.

This does not negate my long-term view that certain overseas economies offer great future opportunities. But it does represent a major short-term threat to U.S. investors, U.S. companies and the U.S. economy as a whole.

The undeniable reality: The debt crisis that first appeared in the U.S. subprime mortgage market … then precipitated a Wall Street meltdown … and has now driven the American economy into its sharpest decline since the Great Depression … has now spread to the entire world.

It is driving the economies of Western Europe and Japan into an unprecedented tailspin. It threatens the economic — and potentially political — stability of Russia, China and several emerging market nations. And it’s setting the stage for a global depression of epic dimensions.

Here are some of the most vulnerable major economies …

Russia Smashed by Oil Price Collapse

Never in modern history has the success or failure of a major emerging economy been so dependent on one single commodity! And never before has that commodity fallen so far and so fast as Russian crude oil!

Russia does have other resource and revenue sources. But in just the past six months, Urals crude, Russia’s primary export blend, has plunged from a high of nearly $141 per barrel to a low of a meager $32.34 — a 77% crash that’s pounded Russian stocks like a sledgehammer and sliced through the Russian economy like a serrated sickle.

The big dilemma: To balance its federal budget, Russia must get a minimum of $70 per barrel for its crude oil. But at $32 and change, it’s getting less than HALF that amount. The entire country is losing money hand over fist.

No wonder Russia’s stock market has plunged 72%, forcing 25 separate stock exchange shutdowns!

Transneft, the Russian oil transporter, is down from $2,025 in January 2008 to a recent low of $270. Gazprom, the natural gas monopoly, has lost more than two-thirds of its market capitalization since May. Meanwhile, Lukoil fell from a May peak of $113 to a recent low of $32.

Russia’s oil-driven real estate bubble is also collapsing. That’s why Russian construction and real estate giant Sistema-Hals lost more than 94% of its value last year alone … why PIK Group, another major construction giant, collapsed by 96% … and why the entire RCP Shares Index of Russian developers has sunk 92% since its record high in June 2007.

Ford, Renault and Volkswagen are halting production at Russian assembly lines. Unemployment is likely to surge to 10% and beyond. Massive amounts of foreign capital are fleeing the country.

In a desperate attempt to stem the tide, the Russian government has devalued the ruble 11 times since November, and thrown a quarter of its foreign currency reserves at the raging debt crisis. But it’s still not enough. Russia’s primary source of revenues — energy exports — is in shambles; and unless crude oil prices could somehow DOUBLE in a big hurry, Russia’s economic and financial decline cannot end.

Standard & Poor’s has cut Russia’s long-term debt rating for the first time in nine years, citing dangerous outflows and a “rapid depletion” of currency reserves. And more downgrades are in the offing. Even a major debt default is not unthinkable.

The biggest danger: Political upheaval and social unrest.

Even before this crisis, Russia’s middle class earned less than $500 per month. Now, with the devastating plunge in oil revenues already in place, those numbers are falling to even lower levels. For a nation with a cost of living that rivals that of the U.S., Western Europe and Japan, the last thing the Russian people needed was a depression. Yet that’s exactly what they’re getting.

I visited Russia last year before the collapse in oil prices. I spoke to a variety of professionals and people on the street. And I stayed with friends who work in government jobs.

From everything I had read, I had anticipated signs of greater prosperity. Instead, I was surprised to see how little average citizens had benefited from the recent years of rapid economic growth.

Yes, they have more access to a wider variety of goods that were scarce during the Soviet era. But most professionals — such as teachers, doctors, nurses and government employees — are still living on the edge of poverty.

Equally surprising is the popular disgust and disdain for the government. Public opinion surveys and press reports may indicate broad support for the Kremlin’s foreign policy, and they seem to be accurate. But support for domestic policies is another matter entirely.

My view: Any major disappointment with respect to pocketbook issues could lead to major political changes, the outcome of which is largely unpredictable.

China Far More Vulnerable Than Expected

China’s extraordinary expansion of the past decade fueled booms in global trade, commodities and emerging markets. It was a major growth engine that turbo-charged Australia, Brazil, Southeast Asia and even Japan.

Now, however, that engine is grinding to a screeching halt. Indeed, when historians look back to major pivot points of this global economic crisis, they will undoubtedly point to the abrupt end of China’s boom.

Many of us assumed that because China’s economy was growing so quickly — at a breakneck pace of 10% or more per year — it could easily afford to slow down by a few percentage points and still be in far better shape than most other economies.

But now I seriously question that theory. Indeed, more often than not, companies, industries and entire nations that enjoy the biggest booms are also vulnerable to some of the biggest busts. Instead of a mere slowdown, as many still seem to expect, China’s economy could suffer a wholesale collapse.

Exports, which still represent two-fifths of the Chinese economy, are already sinking fast. And the domestic economy, much of which depends directly or indirectly on the revenues flowing from exports, is also beginning to sink.

Warning signs are everywhere: Stocks, down 60% just in the last 12 months; imports, down 17.9% in November alone; foreign investments to China, off 36.5% last year.

In response, the government has slashed interest rates and pledged a $582 billion stimulus package. But that’s mere pocket change compared to China’s trillions in vulnerable exports. Moreover, it has done little to help millions of small- and medium-sized businesses which are already shutting down and laying off millions.

A big problem: 45% of the Chinese government bailout is earmarked for the cement and housing industry. Meanwhile, cash-flow problems are sweeping through the entire economy, downing airlines, manufacturers and property companies.

Airlines like China Southern and China Eastern, for example, have been losing money hand over fist. China’s auto sales are plunging. Its shipbuilding industry is in a tailspin. And its real estate market is collapsing.

Next, expect surging unemployment … mass reverse migrations from urban centers to the countryside … spreading popular unrest … and a major challenge to authority. Chinese leaders have already admitted that an economic downturn would test their ability to govern. Now, that downturn is here — and the ultimate test, on the near horizon.

Meanwhile …

India, also heavily dependent on foreign demand for its goods, is suffering its worst export slump in recent memory. Overseas shipments plunged 12.1% in October and another 9.9% in November, forcing companies like Tata Motors, India’s biggest truck maker, and Hyundai Motor to cut output, fire workers and shut down factories.

Brazil, which was growing at a record pace until the third quarter, has suddenly frozen in its tracks. Much of the foreign money it counted on has vanished, leaving acute capital shortages in its wake. Auto sales have gone dead, leaving biggest-ever inventories of unsold cars. Credit, abundantly available just a few months ago, is now gone.

Japan has been slammed by its worst recession since World War II … with stock prices plunging to new 18-year lows … industrial output suffering the largest monthly drop since records were kept … Toyota reporting its first loss in 70 years … layoff victims filling tent parks … and worse.

Everywhere from Argentina and Mexico to Australia, New Zealand and even the once-rich Middle East, the worldwide debt crisis, the bust in commodities and the sharp slowdown in global trade are transforming massive booms into instant recessions.

It’s happening fast and it’s accelerating. Government rescue programs aren’t nearly enough to turn the tide. And it’s another key reason you must approach 2009 with great caution.

Stick with safety. Don’t veer from the course I have laid out for avoiding the dangers. Wait for the truly big price declines ahead before reinvesting!

Good luck and God bless!

Full-reserve banking (100% money)

http://en.wikipedia.org/wiki/Full-reserve_banking

Full-reserve banking is the banking practice in which the full amount of each depositor'sfunds are available in reserve (as cash or other highly liquid assets) when each depositor had the legal right to withdraw them. Full-reserve banking was practiced historically by theBank of Amsterdam and some other early banks but was displaced by fractional reserve banking after 1800.[citation needed] Proposals for the restoration of full-reserve banking have been made, but are generally ignored or dismissed by mainstream economists.

 

The case for full reserve

This would eliminate (or at least greatly reduce) the financial risks associated with bank runs, as the bank would have all the money in reserve needed to pay depositors - regardless whether depositors actually claimed their money.[6][7][5]

This form of banking would also eliminate the need for a lender of last resort (such as acentral bank), which is normally needed to support the banking system in times ofsystemic risk or financial contagion, as these financial risks would not exist in a full-reserve banking environment.[8]

This simply requires that the resources available to the banks issuing credit money and demand deposits would be sufficient to convert all currency at once if so required. It was a central component in Social Credit proposals.[9]

Because fractional-reserve banking necessarily increases in the money supply and causesmonetary inflation, some economists (most notably the Austrian School) consider this aspect of fractional-reserve banking to have deliterious and destabilizing effects on the economy over time.[10][11][5][12]

It is argued by these economists that, in contrast to fractional-reserve banking, full-reserve banking guarantees a stable money supply, which ensures that the means of exchange is not debased over time. This improves the efficiency of the price mechanism, promotes saving and the deferral of consumption, provides much greater confidence in the financial system and in the integrity of all commercial transactions and therefore encourages sustainable, non-speculative productive investment...

 

The great depression in Irving Fisher's thought download pdf

...In essence, if not adequately countered by the monetary authorities, the deflationary process will set in motion a perverse, self-fueling spiral bound to cause “almost universal bankruptcy” (Fisher, 1932a, 1933a).

...Fisher realised that the open market operations promoted by the Federal Reserve had been only partially successful. His response was to promote a radical revision of the credit system, based on the abolition of fractional reserves (Allen, 1993). With this method, wrote Fisher, the “circulating medium” was in fact simply a by-product of the private debt, and monetary policy was unpredictable: an increase of the monetary base could bring about a sustained inflation or be almost ineffective (Fisher, 1936a, p. 105). This latter was exactly what had happened during the Depression: for fear of

bankruptcy, banks had used most of the liquidity obtained from the Fed to inflate their own reserves. If the situation improved, these excess reserves could fuel a surge in

inflation.22 These dangers could have been avoided by requiring the banks to hold reserves equal to their demand liabilities (so-called “100% money”)23. In this way, financial

institutions’ lending function would be clearly separated from that of money creation. The central bank would thus gain full control over the money supply. Even in this case, however, monetary policy could only be effective if the velocity of money and of the demand deposits (V and V’) were stable...

How Soros Financed Obama's Campaign

Source: LaRouche Political Action Committee

May 30, 2008 (LPAC)--In late 2006, George Soros, the British empire/Wall Street gatekeeper of the Left, vetted Senator Barack Obama's potential Presidential candidacy on behalf of financier oligarchs. Soros then introduced Obama to a selected financier group, and Obama soon afterwards announced he would seek the White House.

Soros's involvement with Obama's brief national political career had begun two years earlier with Soros fundraising for Obama's campaign for U.S. senate, and continued through the 2007 Presidential campaign launch with huge fundraising operations by Soros and his circle.

SOROS AND OBAMA - A Preliminary chronology

2004: The London-Wall Street axis singled out Obama, then an Illinois state senator, as their "Rising Star" in U.S. politics. The Rockefellers' family political agency known as the League of Conservation Voters endorsed Obama in the Democratic U.S. senate primary, ran TV ads on the Rising Star theme, and directly funded Obama's national career manager, consultant David Axelrod.

Obama's opponent in the Democratic primary, Blair Hull, was a self-financed millionaire, so Obama used the "millionaires' exception" to the campaign finance law to take $12,000 each from donor, six times the ordinary limit at that time. Thus nearly half of his $5 million primary funding came from 300 donors.

George Soros raised $60,000 of this Obama funding, with his own donations and those he procured from his family. Soros reportedly met with Obama first in March -- a mere state senator, Obama was the only candidate in the country with whom Soros met personally during the 2004 election cycle, according to Soros spokesman Michael Vachon (quoted by CNS News, July 27, 2004). On June 7, 2004, Obama was in Soros' New York home for an Obama campaign fundraising event.

December 4, 2006: Obama met with George Soros in Soros' mid-town Manhattan office. After an hour interview, Soros took Obama into a conference room where a dozen plutocrats waited to talk with Obama. Key among them were UBS (Union Bank of Switzerland/Swiss Bank) U.S. chief Robert Wolf, and hedge fund manager Orin Kramer.

December, 2006, a week later, Robert Wolf had dinner in Washington D.C. with Barack Obama to map out campaign strategy.

Early January, 2007: Obama announced his Presidential candidacy. The New York Times announced that candidate Obama had nailed the support of two highest-level Democratic fundraisers: George Soros and Robert Wolf. By mid-April, 2007, Wolf had raised $500,000 for Obama.

Mid-January, 2007: Wolf ran a dinner for Obama in Washington, with potential bundlers Jim Torrey, Brian Mathis, Jamie Rubin, and (again, from the original Soros meeting) Orin Kramer.

Early March, 2007: There were two fundraisers by Wolf and one by Edgar Bronfman, Jr.

Mid-March, 2007: George Soros began a staged dance with Obama. Writing in the New York Review of Books, Soros denounced the rightist Israeli lobby, AIPAC.

March 21, 2007: Continuing the dance, the Obama campaign rebutted Soros (as in, "Obama distances himself from Soros"), and denounced the Hamas movement.

April 9, 2007: An Obama fundraising party for the New York elite was held at the home of financier Steven Gluckstern, the former chairman of George Soros' Democracy Alliance. A photograph of the event, published (April 16, 2007) in New York magazine, showed George Soros seated immediately next to the standing, speaking Obama. Soros was enthroned as the only one in the room seated, stationed between host Gluckstern and Obama. Two months earlier Soros's Mr. Gluckstern had been quoted in the New York Observer saying he MIGHT be raising "well over a million dollars" for Obama.

May 18, 2007: George Soros hosted an Obama party at the Greenwich, Connecticut palatial mansion of Paul Tudor Jones, who runs the giant hedge fund Tudor Investment Corporation. They collected $2,300 from each of the approximately 300 attendees, the local newspaper Greenwich Time reported.

Niall Ferguson about the current crisis

'The Take' Argentina

December COMEX potential failure - Gold $2000 in a day

“Liquidity Trap” Bermuda Triangle...

Nouriel Roubini

The Deadly Dirty D-Words: “Deflation”, “Debt Deflation” and “Defaults”. And How
Central Banks Will Have to Resort to “Crazy” Policies as We Have Reached Such
Bermuda Triangle of a “Liquidity Trap”

Nouriel
Roubini Nov 21, 2008

I have been warning since January 2008 that the biggest risk ahead for the US and the global economy is one of a stag-deflation, the deadly combination of an economic
stagnation/recession and deflation. Let me discuss the details of this toxic mixture of deflation, liquidity trap, debt deflation and rising household and corporate defaults: