天下縱橫
隨筆而已。不必當真。
正文
Smoke and mirrors.
What is the problem? It is the "solution" they came up with hundreds of years ago. That solution was created to "help growth."
Look at it this way. A gentleman that owned gold shop, had gold deposits (true story by the way) from people, also lent money out so those deposits would earn money for the owners of those deposits and for his cost of protecting the deposits.
Gold being "awkward" for small dealings, caused a "need" for paper "notes" the depositors could use for daily spending needs. The gold shop owner started giving them "notes" that showed they had "X" amount of gold and the "notes" were used like money. The gold shop owner noticed that very little gold was ever taken out, only about 10% at the most at any given time.
(this part is fiction).
9 people come in to his shop and they all want a loan for a new tailor shop. The loans total ten times what he has in gold on deposit. But, they don't want gold, they just want "credit" to buy a building with and cloth and needles and tools. So, he loans them all what they want with "notes" saying they have an account with him backed with gold in his shop.
They buy the shops, they pay the interest (with gold) and the people they bought from also deposit the "notes" back with the same gold dealer who then gives them another note saying they have "X" amount of money. As long as the money keeps circulating and nobody is taking too much gold out, the gold dealer keeps adding more gold from interest and principle on 10 loans while only paying interest on one deposit.
As you can see, there is risk. Not only the risk more than 10% might be drawn out before he builds up enough gold being given him as interest (since he loans that out too, at 10 to 1 ratios) but, since these are all "tailor" shops, there may not be enough customers to support ten new tailor shops. The "collateral" also, for the loans, may not be sufficient in a down real estate market to cover the loan.
(back to reality)
That is how the Central Banking system of fractional banking that eventually became the Bank of England (and others) and the Federal Reserve system of the U.S. began in a shop with a "red-shield" (Rothschild) over the door. But, it was at least based on gold and it limited the loans to what people normally took out from deposits.
Now, we have left the gold standard and there really aren't any limits. We have $500-700 trillion in "risk" (derivatives) out in the world now. The chance that 10% would be needed may not be that great but, the problem is that we don't even have 10% to cover the risk. The reason our financial system is in so much trouble is that we leveraged, in many cases, not 10 to one in "regulated banks" but 50 to 1 and 100 to 1 in "unregulated" investment banks and financial institutions.
We did that because everyone believed "federal reserve inflation" would always keep the system from imploding the value of assets. Inflation is "required" not just desired, by a fractional banking system because any reduction in assets (deflation) affects the number of loans, the rating of loans and the collateral loans are based on which also affect the interest rates.
That is why, as long as home prices are falling, we are in trouble. They are part of the "assets" that are deflating and undermining fractional banking. They are not only undermining it directly but indirectly. As they lose value, owners are unable to borrow and keep spending as much as they were. That lowers profits and makes some business loans less sound. That also lowers some tax revenues that make the city bonds less sound. That lowers ratings and drives up interest rates or at least doesn't let them drop enough to restore the financial system and consumption and city budget.
What is the problem? It is the "solution" they came up with hundreds of years ago. That solution was created to "help growth."
Look at it this way. A gentleman that owned gold shop, had gold deposits (true story by the way) from people, also lent money out so those deposits would earn money for the owners of those deposits and for his cost of protecting the deposits.
Gold being "awkward" for small dealings, caused a "need" for paper "notes" the depositors could use for daily spending needs. The gold shop owner started giving them "notes" that showed they had "X" amount of gold and the "notes" were used like money. The gold shop owner noticed that very little gold was ever taken out, only about 10% at the most at any given time.
(this part is fiction).
9 people come in to his shop and they all want a loan for a new tailor shop. The loans total ten times what he has in gold on deposit. But, they don't want gold, they just want "credit" to buy a building with and cloth and needles and tools. So, he loans them all what they want with "notes" saying they have an account with him backed with gold in his shop.
They buy the shops, they pay the interest (with gold) and the people they bought from also deposit the "notes" back with the same gold dealer who then gives them another note saying they have "X" amount of money. As long as the money keeps circulating and nobody is taking too much gold out, the gold dealer keeps adding more gold from interest and principle on 10 loans while only paying interest on one deposit.
As you can see, there is risk. Not only the risk more than 10% might be drawn out before he builds up enough gold being given him as interest (since he loans that out too, at 10 to 1 ratios) but, since these are all "tailor" shops, there may not be enough customers to support ten new tailor shops. The "collateral" also, for the loans, may not be sufficient in a down real estate market to cover the loan.
(back to reality)
That is how the Central Banking system of fractional banking that eventually became the Bank of England (and others) and the Federal Reserve system of the U.S. began in a shop with a "red-shield" (Rothschild) over the door. But, it was at least based on gold and it limited the loans to what people normally took out from deposits.
Now, we have left the gold standard and there really aren't any limits. We have $500-700 trillion in "risk" (derivatives) out in the world now. The chance that 10% would be needed may not be that great but, the problem is that we don't even have 10% to cover the risk. The reason our financial system is in so much trouble is that we leveraged, in many cases, not 10 to one in "regulated banks" but 50 to 1 and 100 to 1 in "unregulated" investment banks and financial institutions.
We did that because everyone believed "federal reserve inflation" would always keep the system from imploding the value of assets. Inflation is "required" not just desired, by a fractional banking system because any reduction in assets (deflation) affects the number of loans, the rating of loans and the collateral loans are based on which also affect the interest rates.
That is why, as long as home prices are falling, we are in trouble. They are part of the "assets" that are deflating and undermining fractional banking. They are not only undermining it directly but indirectly. As they lose value, owners are unable to borrow and keep spending as much as they were. That lowers profits and makes some business loans less sound. That also lowers some tax revenues that make the city bonds less sound. That lowers ratings and drives up interest rates or at least doesn't let them drop enough to restore the financial system and consumption and city budget.
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