O Gold! I still prefer thee unto paper,
Which makes bank credit like a bark of vapour. Lord
Byron, 1815.
It was 1:30 am on Thursday March 28 on the West
Coast of North America. Still jet-lagged a week following my return from
Asia, I awoke after a mere three hours sleep to an epiphany.
The thought evidently coincided with the time that banksters in Cyprus braced for a run on reserves. Their
intervening measures to prevent bank failures included severely discounting
the value of large investors’ deposits and radically limiting cash
withdrawals for peones to 300 euros a day.
Here’s the idea that woke me up: If
you keep your money with the Banksters, they are
LOL.
I must question why any smart person with financial
assets in any fiat currency held anywhere in the world would freely choose to
keep the majority of that cash in any bank anywhere in the world.
At its very best, a bank is a 10:1 fractional
reserve system; i.e., the bank backs 10% of its outstanding loans by the
equivalent in paper money. In actuality, the majority of banks are leveraged
much more than that. Fractional banking has existed for centuries. In the
early 1600s, central governments in Europe began to manipulate money supply
and credit in order to regulate banks, restrict bank runs, and prevent bank
failures.
In early 1700s, England formed a joint
public-private banking monopoly designed to alleviate its national debt. The
South Seas Company was a conspiratorial scam involving government
accountants, stock promoters, and politicians based on a purported but
non-existent trade monopoly in South America. In 1720, the “Bubble
Act” was designed to preserve the monopoly by outlawing competition,
but it soon resulted in massive bank failures, financial panic, and economic
collapse. Henceforth, the term “bubble” refers to any market that
goes parabolic over a short period of time.
I know an ex-banker in Albuquerque whose hometown
bank failed during the US housing market collapse in 2008. He was ruined but
at least his small clients’ investments were backed and honored by
central government-issued bank insurance, made whole by the keyboard creation
of fiat dollars. His creditors were less fortunate, writing off huge sums of
bad debt.
The current Cypriot bank crisis and the resulting
closure of its stock market for two weeks illustrates that banking remains an
inherently risky business, often fueled by speculative credit markets that
are subject to collapse.
History has shown us repeatedly that all fiat money
systems eventually fail and lead to government default and demise. Even the
value of the United States dollar has been rolled back twice in the past 80
years.
In 1933, President Roosevelt devalued the dollar 70%
by raising the fixed price of gold from $20.67 to $35.00. His executive order
also reneged on the government’s promise to redeem paper currency in
gold upon demand and made it illegal for citizens to own more than five
ounces of bullion.
The Breton Woods Agreement of 1944 made the US
dollar the world’s reserve currency and it alone was decreed as redeemable
in gold and only by other central governments. In 1971, the US defaulted
again when Nixon closed the gold-for-dollars option and floated its money on
world exchanges. Since then, greenbacks have had no backing except the United
States of America’s promise to pay.
Since the first baby boomers were born in 1946,
American citizens have been taught, cajoled, and perhaps even brainwashed
into thinking that the almighty dollar, the world’s reserve currency,
is a stable fiat money beyond question and reproach. Acceptance of this idea
requires a belief that the US government is solvent and will remain so into
the future.
But this very same government has gone bankrupt and
defaulted on its financial obligations twice during my parents’
lifetimes. Why would you think they will not do it again in yours? Is it your
faith, belief, or a combination of both?
I kindly remind you what Mark Twain had to say about
that: Faith is believin’ what you
know ain’t so.
Face the truth folks, your money is not real money
unless it is held in physical gold.
Let’s look at current facts about the American
banking system and how it takes care of your money:
· The central bank
(Federal Reserve) creates more dollars (inflation) and devalues the
purchasing power of your money every minute of every day to the tune of
several percentage points per year. The Fed has been doing this at an
exponential rate since the financial crisis of 2008, more than tripling the
dollars in circulation.
· Your local bank is
paying you a tiny fraction of a percent in interest for the privilege of
holding your money in checking, savings, and money market accounts. At
current average rates for a $100,000 account, the bank will pay you interest
income of about $110 per year, subject to federal taxes up to 39.6%.
· However, the bank
doesn’t actually hold your money; it lends it out to debtors at much
higher interest rates. That’s how a bank makes most of its money, or at
least it used to.
· The bank also
takes in money by charging you fees for its privilege of lending your money
to debtors. The charges you incur for check printing, ATM withdrawals,
overdraft protection, foreign transactions, wires, and exchange rate spreads
have skyrocketed since 2008 and are likely to far exceed the aforementioned
interest you earn.
· Banks always have
a percentage of loans in which the debtor defaults. These are actually
liabilities but are euphemistically called “non-performing
assets”. If this percentage exceeds cash reserves and liquidity becomes
a question, many depositors will try to remove their money quickly before the
bank fails. That creates a bank run and the bank will default on its
obligation to you.
· At that point the
bank is taken over by a federal government agency and placed into
receivership. Small depositors’ funds up to $250,000 per account are
protected by the agency via a bank insurance program and are reimbursed
simply by creating more fiat money.
· Liabilities are
absolved and the bankrupt bank’s remaining assets are sold at
discounted prices. Partial returns of capital are distributed to its
first-in-line creditors. Most of the creditors however, are left only with
bad debts to write-off against their taxes.
Despite their many flaws and shortcomings, banks are
a necessary evil within our modern-day system of business. As a law-abiding
citizen, you are required by the government to use a bank to move any
significant sum of fiat currency from one entity to another. Transfers of
funds can include not only the old
in-out (re: Alex from A Clockwork Orange, 1962) but also the over, under, sideways, and down (Yardbirds,
1966).
If you are
still reading this rant, I assume that you accept the above as more or less
correct. Or perhaps you just got a chuckle out of my reference to the early
to mid-1960s when US government debt was about $300 billion. Federal debt is
now 56 times that figure, at well over $16.8 trillion and growing rapidly.
Note this astronomical number does not include unfunded future liabilities such
as pensions and health care for the old folks at home. Yikes!
The simple fact
is that by keeping your money in a bank, you are losing wealth each and every
day.
I have no faith and refuse to use the word believe (Mercenary Musing, December 28, 2009). Therefore,
logic demands that I question the viability and longevity of our current
monetary system and beg the following questions of you:
· Should you not
keep only enough fiat money within the world’s banking system to carry
on your daily requirements for personal and business affairs and nothing
more?
· Should you not buy
more gold with those constantly depreciating dollars that you remove from
said banking system?
· Should you not
hold your excess, discretionary, and/or emergency fiat dollars in your
personal possession at all times, the same as you do with your physical gold
bullion?
I’m just sayin’:
If all your money is stored by the Banksters, then I surmise that they are occasionally LOL
while sipping Dom Perignon and being serviced by
$1000 per hour hookers in their bullet-proof Lincoln limousines at your
expense. After all, much of those multi-tens-of-millions-of-dollars in annual
bonuses ought to be expensed to avoid onerous government taxes, no?
If you have your fiat
currency in your physical possession, the Banksters
can only devalue it and that’s exactly what they are doing now. But the
bank and/or the government cannot confiscate your gold or your money that you
physically hold without engaging you directly.
Unless of course, you are
already dead. When that happens, the government confiscates a significant
portion from rich people’s heirs in another scheme called the estate
tax, levied for the privilege of dying. After all, life is a death sentence.
Because of periodic wars
and central bank interventions, US baby boomers and
subsequent generations have never witnessed a long financial collapse.
However, my long-gone grandparents lived thru en masse bank failures and an
entire generation struggled to make ends meet during the decade-long Great
Depression. Colored by that experience, many folks abandoned banks altogether
and kept their paper money and illegal gold coins stuffed in mattresses or
hidden in old coffee cans under the crawl space.
I remember that my Granny
Alexander used to put her change in a piggy bank every day. Periodically she
would roll the coins up and take them to the bank for exchange into paper
money. Those paper dollars were then taken home and stashed away in her secret
place, ready and waiting for a rainy day.
At her urging when ten and
eleven years old, my brother and I collected pennies of different years and
mints in little blue books. I still have that collection of pennies, some of
which are worth way more than a pretty penny now. Rest assured this book is
not stored by a bank in a safety deposit box that I do not own, to which I am
afforded access for only 35 hours in any 168-hour week, and in which the
government upon a whim can order the bank to open and confiscate its contents.
My parents’
generation lived thru the 1930s and savvies bad financial times. These old
folks are not only likely to own gold but also have a considerable stash of
cash in the cookie jar, a home safe, or another hiding place with easy access
at their leisure or in a monetary emergency. In my opinion, that’s not
a bad idea.
We came pretty darn close
to a monetary emergency when the banks crashed in 2008. A bank run in the US
likely would involve the invoking of martial law, the shut-down of ATM
machines, lengthy bank holidays, long waits in queues upon re-opening, and
severe limitations on personal withdrawal amounts.
That sounds a lot like the
past month in Cyprus to me.
In the 42 years after
remaining vestiges of the gold standard were dissolved, numerous countries
have defaulted on their currencies and debts, leaving their suddenly poor
ordinary citizens to suffer the consequences. Meanwhile, their Banksters merely re-organized and promulgated perpetual
paper pyramid schemes again.
Rest assured it will
happen in the good ol’ US of A once again; we
just do not know when.
Please do your own due
diligence and research before seriously considering my maniacal musings,
radical raves, libertarian literalisms, or inane ideas.
Don’t let the Banksters’ have the last laugh on you. Buy more
gold and mattresses.
Ciao for now,
Mickey Fulp
Mercenary
Geologist
Acknowledgement: Michelle Lopez is the editor of MercenaryGeologist.com. I thank Blake Desaulniers
and Rana Vig for hearing
out my stream of consciousness diatribe on banks and providing early feedback
on ideas presented in this musing.
The Mercenary
Geologist Michael S. “Mickey” Fulp is a Certified Professional Geologist with a B.Sc. Earth Sciences with honor from the
University of Tulsa, and M.Sc. Geology from the University of New Mexico.
Mickey has 35 years experience as an exploration
geologist and analyst searching for economic deposits of base and precious
metals, industrial minerals, uranium, coal, oil and gas, and water in North
and South America, Europe, and Asia.
Mickey worked for junior explorers, major mining
companies, private companies, and investors as a consulting economic
geologist for over 20 years, specializing in geological mapping, property
evaluation, and business development. In addition to Mickey’s
professional credentials and experience, he is high-altitude proficient, and
is bilingual in English and Spanish. From 2003 to 2006, he made four outcrop
ore discoveries in Peru, Nevada, Chile, and British Columbia.
Mickey is well-known and highly respected throughout
the mining and exploration community due to his ongoing work as an analyst,
writer, and speaker.
Contact: Contact@MercenaryGeologist.com
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