Stocks Up and Down/Where are we with the banking situation?
By Ron Chapman
Written about August 20th, 2007
Currently banks generally do not want to lend money, even to other
banks and institutions (this is usually signaled by banks hiking the
interest rate at which they are prepared to lend to other banks). That
inter-bank "offered" lending rate (called "LIBOR" in London) jumped on
9-10 August implying banks did not want to lend to other banks because
they had LOST CONFIDENCE. The obvious implication is that banks also
do not want to lend to ordinary punters.
Query also that if banks do not want to lend because they have lost
confidence – WHY would any ordinary punter WANT TO BORROW FROM THEM?
The current misinformation spread around by the banks and media is
that this is a "liquidity crisis". But is there a lack of "money"? NO
there isn't. Reuters reported on 10 August that Central Banks (CBs) in
Europe, North America and Asia pumped over $US300 billion into the
global monetary system on 9-10 August. If that's the amount admitted
to, the actual amount was higher.
Other countries like Australia did the same thing. For instance the
Reserve Bank of Australia (RBA) decreed an increase in interest rates
(ie ostensibly tightened liquidity) in Australia on Wednesday 8/8/07
saying it was necessary because INFLATION (ie an excess amount of
money chasing too few goods) was rising and had to be contained.*
THEN, two days later the RBA issued over $A5.95 billion dollars via
Open Market Operations (purchase and resale agreements called Repos)
because allegedly it had to increase LIQUIDITY in the system!
This week it issued a similar additional amount but said that on balance
liquidity had only been increased by $A 2.65 billion! At the same
time the RBA's Chairman told an Australian Parliamentary Committee
that the RBA will probably have to increase interest rates again in a
couple of months because of increasing inflation! The professional
financial and economics commentariat keep saying much the same thing.
Note: One of the huge lies about monetary policy promulgated by
economists, politicians and the media is that interest rates control
inflation whereas the reality is that the key factor in inflation is
money creation (which means credit creation) which determines the
total supply of money – a factor controlled and manipulated by CBs and
banks generally, not workers' wages. The media and our puppet
politicians pretend that inflation is caused by excessive spending by
wage earners BUT, on average, wage earners do not earn enough to live
on so they must borrow to survive.
Why do I say that? Because the need
to borrow to survive is evident in ever-increasing credit card and
mortgage and loan debt levels. If wage earners are really flush with
money from their labours they could bid up prices (ie cause inflation)
without borrowing money but they cannot. SO, inflation is caused by
banks creating credit (debt money) out of thin air and lending it at
Astute students of our fiat, fractional reserve banking system will be
aware that real money (coins and notes issued by the nation's
Treasury) constitutes perhaps 5% of the so-called "money supply" in
real national economies AND is miniscule compared to the virtual
"money" sloshing around in the somewhat unreal international, global
debt-money financial system. As discussed elsewhere, the modern CB
monetary system in the US and the world generally is not commodity,
productivity or wealth based. Money is simply created out of nothing
by banks using keystrokes on computers.
Most money is virtual, fiat(created by decree) money that has no substance and no real physical existence. It springs to "life" when a lender (licensed to do so by a
relevant CB which is authorized by government to license "banks" to
create money in this way) creates it out of thin air by typing an
amount into a computer. Incidentally this is how the CBs themselves
created the hundreds of billions of dollars of "money" (liquidity)
trumpeted around the media in the last two weeks. Of course if you or
I tried the same trick we would go straight to goal as fraudsters.
In effect then, money is essentially created in the form of credit ie
as DEBT money. It comes into existence when a bank (however described)
creates a mortgage or loan under which a "borrower" of this fictitious
"money" agrees to repay the sum of money specified in the credit
(debt) contract back to the bank using REAL money, in the sense that
the borrower has to exert real effort and work to earn the "money" to
repay the mortgage or loan. The credit contract also specifies that
the borrower shall pay interest on the amount of the "loan"
outstanding until the principal sum is fully repaid.
Note: The money needed to pay interest on the loan to the bank is NEVER
created by the lender or anyone else. Also, as a loan is repaid the
so-called "money" created for it ceases to exist. So the money supply
does not keep escalating. Thus there is always a shortage of money in
the system and borrowers (ie the general population) as a whole cannot
ever repay to the banks the virtual money borrowed plus the interest
charged thereon. Banks alleviate this problem by spending freely the
interest payments they get FOR NOTHING, ie without providing any real
consideration to the borrower for it. Essentially the system can only
keep functioning if the economy as a whole (in this "globalization
age" that means the whole world) keeps borrowing ever-increasing sums
of virtual money. Do you *GET* that?
Once banks stop lending, usually because the Illuminati banksters (the
Hidden Hand) who control our world's money supply and financial system
decide to crash the system totally (as occurred in 1929-33 and is now
occurring again) or in individual countries (Russia in the 1990s,
Argentina and many other countries over the years, and so on) or
regional areas like South East Asia in the late 1990s, money ceases to
be available in sufficient quantities to enable civil society to
continue to function properly; and sometimes at all. Of course the
Hidden Hand does not publicize its real intention – which is to
bankrupt most people in the target nation, region or world and take
(or buy, as necessary) the borrowers' property (and livelihood) for a
few cents on the dollar.
The intentions and machinations of the Hidden Hand are of course well
concealed and obfuscated by its many henchmen and minions, especially
those in politics, the media, academia and the so-called finance and
economics professions. That is why you will have difficulty finding
any clear analysis of what is occurring NOW and what has led up to it.
But I digress.
What is a Liquidity Crisis such as we are now in?
As mentioned our global monetary system is totally "credit based". SO,
our liquidity crisis is occurring because the demand for DEBT PAPER
has started to dry up. This is because our credit based monetary
system depends on money being "borrowed into existence" and hence a
continually increasing demand for loans and debt money (paper) must be
maintained to keep the system functioning smoothly. Even a levelling
out of demand for debt is dangerous and a drop in demand and/or
unwillingness to lend by banks can quickly become fatal to the system.
As I see it, the system has three distinct tiers. The base tier is
where the masses live. The middle tier is inhabited by the operators
of the banking and financial system that fleeces the base tier on its
own behalf and for the Hidden Hand. This middle tier also encompasses
most political and senior bureaucratic puppets, corporatist "hit"
persons and academic and finance gurus and commentators who keep the
masses ignorant, distracted and too busy to notice what's happening,
while doing their best to skim and scam what they can from the system.
This tier generally has rather strong vested interest reasons for
maintaining the status quo. The top tier consists of the tiny group of
Illuminati families who "own" our world together with those non-core
senior Illuminati henchmen and media lieutenants who direct and
control the media and all other day-to-day Illuminist functions as
directed by the Hidden Hand. The Bush/Clinton crime family would be an
example of senior henchmen while the six or seven men who control the
US media would probably typify the media lieutenants.
Thus we have two distinct causal trenches of the current global
financial meltdown. However only one is currently publicly
acknowledged, namely the sub-prime mortgage lenders who, in any event,
only represent a part of the base tier, excess credit problem.
Sub-prime mortgages are merely the visible tip of the problem even at
this level. Why? Because the consumer debt problem really intrudes
into most US homes in the form of excessive credit card debt and/or
second mortgages or equity loans using recent excessive home
valuations as collateral. And then of course there are car loans from
the major US manufacturers, interest free retail purchase "holidays"
and so on. This excessive consumer debt is the real gorilla in the
consumer credit room along with the sub-prime monkey.
Even so, the real current problem for the global monetary system is
the astronomical financial gambling, and resultant debts, of the banks
themselves along with credit extended to huge financial institutions
and various criminal corporations (some of which are run by secret
service agencies for drug and gun running purposes, money laundering
etc) and hedge funds et al. Some idea of the enormous effect of this
criminal element in the equation can be gathered from a reading of the
Wantagate and V K Durham matters. To comprehend this aspect of the
problem – and the fact that it constitutes the ELEPHANT in the room –
you have to appreciate the incredible size and scale of the scams and
the betting on currencies and other things that is undertaken by the
hedge funds et al; and the US Treasury/Federal Reserve Bank
interventions via the Plunge Protection Team* and so on.
*NB The Plunge Protection Team usually has a lot to do with distorting
stock market, currency and gold prices. It often does this by the
judicious buying or selling of futures, stocks etc near the close of
business. Thus some times the market will fall a long way and seem to
make a big recovery late in the day. Professionals understand what is
going on, only ordinary folk are mislead.
Suffice to say that trillions of dollars in virtual form typically
cruise around the world in nanoseconds all the time seeking to batten
parasitically on any opportunity to skim money from unprotected and
unsuspecting nations and their citizens. The movement of these "funds"
is neither controlled nor regulated nor is it taxed in any way. Even a
1% Tobin tax, properly enforced, may have obviated the worst
international aspects of the current crisis. After all, the fact that
USans have grossly overspent on housing and consumer items they cannot
afford should primarily be a problem that the USA needs to face.
One aspect of this excessive, parasitic global gambling was the
Japanese "carry" trade where hedge funds and others borrowed Yen in
Japan at, say, 0.5% pa interest or less, convert those Yen into US or
Australian dollars and invest them in US Treasury notes or Australian
bonds paying interest of between, say, 4% to 6%, and pocketing the
difference with little risk.
However, now that Japan's economy has
started to pick up the Bank of Japan has started to increase the
interest rate on Yen borrowings so that the Yen carry trade is being
faced with a potential double whammy: First the Yen is rising in value
vis a vis US and Australian dollars (exacerbated by sales of those
currencies by investors/gamblers unwinding their carry trade bets so
that they can buy Yen to cover those borrowings): Second, the interest
being charged for Yen is getting higher whereas the Federal Reserve
has been forced to lower interest rates charged for the US dollar.
This is also causing angst in Australia where the RBA should be
reducing interest rates but instead it is increasing them, presumably
in an effort to stop investors selling the Aussie dollar in order to
buy Yen. And so it goes.
By 16 August so many traders were trying to unload the Australian
currency that the RBA had to intervene in the market to stop the fall
in the Aussie dollar for the first time in six years. At the same time
a group of banks and investors in Canada had to rescue faltering
issuers of 130 billion Canadian dollars (US$121 billion) in commercial
On 17 August the Fed cut the discount rate back from 6.25% to 5.75%
and told banks they could wait up to 30 days, instead of just a day,
to pay back their discount-window loans. Although investment banks and
hedge funds that hold mortgage-backed securities can't borrow from the
Fed directly, they can now bring those securities to commercial banks
which can then offer the paper as collateral to the Fed for a 30-day
loan! This is a radical step and potentially adds significantly to
inflation especially if the policy is used, in effect, to roll over
such loans on a repetitive basis.
This policy exposes the rhetoric by the Fed (and the RBA and CBs
generally) about interest rates being the "lever" needed to control
inflation for the ludicrous lie that it is. Wage increases to wage
workers do not create inflation banks do, by flooding the economy with
excessive amounts of credit. Interest rates don't control inflation
banks do, by calibrating their lending rates. Interest rates (usury)
merely steal from the poor to give to the rich. This policy is just
another example of there being one rule – the higher discount rate –
for ordinary borrowers and another (lower rate) for corporate entities
facing default and insolvency.
Last week Wall Street executives are said to have urged Fed officials
in New York and Washington to widen the type of assets it accepts in
its "open-market operations," when it pumps cash into the economy by
buying U.S. government bonds and the like. The Fed was urged to buy
so-called "lower-quality mortgages". Presumably that means sub-prime
On 16 August three big banks - J.P. Morgan Chase & Co., Citigroup
Inc., and Bank of America Corp. - discussed with the Fed the
possibility of borrowing a total of $75 billion to be used to buy
asset-backed commercial paper, mortgage-backed securities, and other
instruments. This constitutes a real break with Fed (and CB) policy
since it requires the Fed to offer to buy, ie monetise, bank debt
paper. Buying potentially dodgy mortgages and other commercial bank
paper and instruments (ie not just accepting dodgy mortgages etc as
collateral but BUYING THEM) is fraught with problems not the least of
which will be the rampant inflation that will ensue if the practice
becomes widespread. Also, once CBs start such practices where would
they stop? Will CBs "play favourites" and bail out some banks but not
all banks? Moreover, in cases where the CB is a government statutory
authority, as is the case with the RBA, what possible justification
can there be for the government to bail out defaulting private
corporate banks? The mind boggles.
For individuals the key questions needing answers in relation to the
current financial crisis are:
* How safe are the other "investments" managed by your bank?
* How safe is your bank?
* How safe is your money?
The first two questions were asked and answered in 1931-33.The third
question is exclusively the preserve of a monetary system ENTIRELY
based on debt.
Globally CBs have injected perhaps the equivalent of half a trillion
US dollars into their respective banking systems and they stand ready
to inject more. BUT it doesn't matter how much "liquidity" they pour
into their systems because it cannot make any difference if the banks
are afraid to lend to each other. Worse yet, no one wants to borrow
The situation in the Great Depression came to be described by banks as
"pushing on a string". That same situation faces our global monetary
system today at every level up to and including the CBs. The CBs are
described as "the lenders of last resort" but the problem is whose
prepared to be the "borrowers of last resort"? Only governments can
fulfill this role. But what then happens to economic rationalist
ideology, balanced budgets and all the rest of the horse manure spread
all over the world for the last 30 years by neo-liberal economists and
Illuminati political puppets spruiking "Globalization" and the "New
World Order" for the Hidden Hand?
When, as now, money is based on debt and the system is in meltdown a
severe DEFLATION AND DEPRESSION is CERTAIN unless governments step
into the breach, which they almost always do. But when governments do
intervene A RUNAWAY HYPER INFLATION (like that suffered by Germany in
1920-1923) is CERTAIN. Thus the ultimate financial and economic catastrophe
is already assured unless the Celestials and the GF can help us to
engineer GESARA within weeks. Moreover, the socio-economic catastrophe
confronting our world RIGHT NOW is potentially far worse than the
Great Depression that struck the world in 1931.
The Light At The End Of The Tunnel?
Is there any hope? Well "yes" there is but it seems to be reliant
upon the implementation of GESARA. IMHO without GESARA we are toast.
Although I have no personal knowledge whatever on the timing of
stasis, GF intervention and GESARA my take on the Celestial and GF
intervention is that the divine plan seems to be predicated upon
finessing the deteriorating financial situation so that the global
population is sufficiently fed up with current political and economic
governance that it welcomes the radical transformation of the entire
currency and banking systems and all forms of governance around the
world. So be it.
PS It is reported that the European Central Bank gave Eurozone banks
more than $371 billion in extra funds Tuesday, $62 billion more than
they need for routine business.
Similarly, the Bank of Japan injected $7 billion into the market
Tuesday after pumping in $8.7 billion Monday in the hope of keeping
key interest rates from rising amid the U.S. credit concerns.
The Reserve Bank of Australia bought $2.9 billion in short-term
securities Tuesday after making a similar move Monday.
Thankyou for this nicely written piece Ron! Take care, Candace