Saturday, December 26, 2015

1 Samuel 8-10: The Swiss to Vote on Oppression

There is a similarly delusional effort in the USA called "greenbackism."  Here is a Swiss version:
Switzerland will hold a referendum to decide whether to ban commercial banks from creating money.
Wrong before the sentence is finished.  Banks do not create money, and if you think so, your understanding of economics will be delusional at best.  Now on to the good intentions grounded in delusion:
The campaign - led by the Swiss Sovereign Money movement and known as the Vollgeld initiative - is designed to limit financial speculation by requiring private banks to hold 100pc reserves against their deposits.
That is as it should be, but note the "private" exception.  Will anyone be able to commit fraud, that is lend what they do not have?
If successful, the sovereign money bill would give the Swiss National Bank a monopoly on physical and electronic money creation, "while the decision concerning how new money is introduced into the economy would reside with the government," says Vollgeld.
Ah, ok... fraudulent credit extension would be limited to politicians.  What could ever go wrong?  The Soviet Union had this system.
The idea of limiting all money creation to central banks was first touted in the 1930s and supported by renowned US economist Irving Fischer as a way of preventing asset bubbles and curbing reckless lending.
Because the hegemon would never blow a bubble or lend recklessly.  In the 1930s, everyone looked to the Soviet Union as "we've seen the future, and it is perfect."  There are still people who think like that.

Read this note of explanation:
In modern market economies, central banks control the creation of banknotes and coins but not the creation of all money, which occurs when a commercial bank offers a line of credit. Central banks aim to influence the money supply with monetary policy and regulatory tools.
Ungh.  So complexly wrong.  In the USA, the US Treasury, not the central bank, prints the currency (banknotes).  The treasury delivers these to a legal fiction association of private banks called the federal reserve system, for distribution.  Coins are minted, by the Mint, and likewise distributed, except for gold and silver coins, which the Mint itself sells.   The Mint is probably the only USA hegemon agency that actually deals in money.  But then, the word money comes from mint.

OK, but which is it they create?  Money or credit?  Banknotes can represent many things, I have two one dollar notes in my wallet, one represents unbacked credit (an IOU), the other is a receipt for $1 worth of silver from Ft. Knox, at 1957 silver prices.  (The warehouse receipt for silver is worth $3 to coin dealers, but Uncle Sam broke his promise to pay in silver and now the notes cannot be used as a claim on silver.)

But buried in this confused paragraph is exactly how the game is played, the source of much of the problems today:
which occurs when a commercial bank offers a line of credit.
There are maybe 20,000 people on the planet that understand this.  I know only because in my work I had to understand the arcane world of letters of credit, and eventually came across a seminar handbook for a banking meeting on how to lend credit not money.  Note bankers know the difference, but use confusing terms when explaining what they do to their victims.  Like the doctors running the Tuskegee Experiments.

One service banks may offer is a letter of credit.  It is an agreement to a payment mechanism, and it is normally backed by a line of credit.  A line of credit is based on the assets of the entity (business, person) opening the letter of credit. Normally banks take an abundance of caution when involving themselves in a letter of credit, since putatively (but not actually) the banks credit is at exposure when they facilitate a letter of credit.  Banks never lose.

Now there is a flavor of letter of credit called a stand-by, in which a bank promises to pay not for performance, but for non-performance.  If XYZ company is paid $1 million by ABCo. via letter of credit for an oil rig it delivers, what if the oil rig does not perform?  Well,  as ABCo opens a letter of credit for an oil rig that performs, XYZ  at the same time opens a letter or credit to ABCo to pay them if the oil rig does not perform.  Pretty arcane stuff.

Well, this unusual arrangement is both off the books of the bank (a mere footnote at best to its financial statements) and there is no reserve requirement.  It is up to the banks how much they want to extend in this unusual instruments.

And note, there is no money involved, just promises to pay, here and there.  It is all whimsical credit, that is why banks, when speaking among themselves, accurately refer to it as lending credit.  Only victims call it money, and people who want to be victims.

So the entire model of banking is now creating credit on the fly, call it money, and then lend it to whomever.  In the USA when a jet is sold, it is on this whimsical credit.  When an indigent uses an EBT card to pay for a meal at a gas station, it is on this whimsical credit.  When the entity ultimately backing all this credit can no longer create credit, and people (the Chinese) begin to doubt Uncle Sam is good for it, then the credit will begin to disappear and people will wonder what happened to their money.  Well, it never was money.  The above cannot happen with money.

And then this:
Referenda on monetary matters are not new in Switzerland. Last year, the country voted by more than 78pc to reject a law calling for the central bank to increase its gold reserves from 7pc to 20pc.
Yes, people understand that hardening the currency means less "free $#!+" and so they reject it.  The victims of this system are not so innocent.
Unlike the gold vote - which was seen as a precursor to re-introducing the Gold Standard in Switzerland - economists have been more supportive of the idea of "sovereign money" as a way to stabilise the economy and prevent excess credit growth.
Iceland - which saw its bloated banking system collapse in spectacular fashion in 2008 - has also touted an abolition of private money creation and an end to fractional reserve banking.
There are no economists who are not working for the hegemon, one way or another.  The majority of people will always vote for "free $#!+" (wherein credit is substituted for money and the payment is passed onto the next generation) if given the opportunity, and the main reason Switzerland had 600 years of peace and prosperity was its hard currency. With the last crash enabled by lending credit, Switzerland is getting wobbly.  So the idea is to turn to the state for salvation.

Swiss businessmen are protecting themselves by having developed a alternative currency, the WIR.  It will be interesting to see if they can save Switzerland from themselves.

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