Fractional Reserve Gold Banking

There is a nice point in here...  people who are investing in gold to avoid the currency crash are investing in the exact same problems...

This is an accident waiting to happen, because when enough holders of paper gold ask for delivery, the default that will follow will trigger the biggest bank run for gold in history, which due to gold’s significance as a monetary proxy, will shake the entire monetary system.
When there is no longer any physical metal to deliver, the ensuing shortage will result in a disconnect between prices, in which paper gold will become worthless while the price of real physical gold will be revalued at a much higher level based on the market equilibrium for physical supply and demand of gold.

You cannot beat the house.  Start your own business.

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Gold and Silver Price Manipulation

Y'all know I love HSBC, the Scottish Hong Kong Shanghai Banking Corporation, for they know banking and worldwide and history.  I loved it when they fired the officers in 2008 at their subprime USA loan subsidiary, "We are bankers.  Bankers do not lose money." Yes!

Yes, they know from banking, and are as in deep as any bank with any and all shenanigans. If there is a international financial scandal, you can bet they are involved too.  And why not?

So when one of their international bankers complained to me of not being able to trust anyone's financial statements, that was rich, coming from an HSBC officer.  Everyone, even the bankers, are out of hand.

With ex nihilo credit, everything is tallied in whimsically appraised assets.  Yes, a home in the neighborhood sold for a million, so your comparable home in the same neighborhood is also now worth a million too.  Feel good?  The taxman sure does, cuz he gets more for nothing too!  It is just a coincidence that the word for property tax is 'mill', the same word grinding down into a powder.

When nothing is priced based on anything, then assets are so far out of whack that at some point it ends.  Look out below.

What is the basis upon which assets should be assessed?  Well, money.  But money properly defined, and this would be gold and silver.  Not knowing this is dangerous.  Knowing this only partially can be dangerous too. For those who speculate in gold and silver as money are acting as rent-seekers, and denying us the good of their productive capacity.  Time spent gaming the system is time not spent sharing your divinely given talents.  Greed over prosperity, rather rule in hell than serve in heaven.

When the focus on the game is playing with ex nihilo credit, the Hegemon can ignore gold and silver for the time being.  The bankers can play with it to their advantage, inadvertently meting out condign punishment to those who deny the rest of us the good of their talents.

But now the Hegemon is allowing the pitchfork brigades a chance to perhaps restore the market price of gold and silver, after decades of uninterest in fraud.

It appears Judge Caproni, former FBI General Counsel, was on the money when considering the potential of ineptitude in government investigations of precious metals markets at April’s gold hearing: “I don’t put a lot of stock in the fact that there are investigations because I was a government lawyer for a long time and I know what you need to open an investigation. By the same token, the fact that they closed it without charging anybody doesn’t mean that everybody is innocent. So I don’t put a lot of stock in it one way or the other.”
The CFTC proudly announced in September 2013 they had spent five years and seven thousand enforcement hours investigating complaints of manipulation in the silver market, including with assistance by the Commission’s Division of Market Oversight, the Commission’s Office of Chief Economist, and outside experts, but yet found nothing.
The Department of Justice Antitrust Division which were so confident of their investigation of collusion in precious metals they went to the extraordinary lengths in January of this year of providing a letter to silver and gold lawsuit defendants advising they had closed their investigation without findings of wrongdoing.

Trump won because change was coming, and he was the face of change.  With retired cops burning working cops on pension distribution, things are getting dicey.  Nothing bad will happen to the hegemon, the Trump "revolution" is hiring the very people who made this mess to manage the change. It will be at the beat cop, street level that suffering will occur.

Gold and silver will not save you.  Only self-employment offers the opportunity to develop your talents, and it is the only safety net available.  I've got my winter course dates up here.

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China Working to Replace USA as #1, The Way USA Did It

If you want a key to understanding China policy, just keep this mantra in mind: China is working to replace the USA as the worlds sole superpower, using the exact same means USA did it.  There is no policy too arcane to miss being adopted.

To be supervised by the People’s Bank of China, it will be the official platform for the trading of bills of exchange in China’s interbank market, according a PBOC document.
With an initial registered capital of 1.85 billion yuan (US$269 million), the platform will allow the first batch of 43 financial institutions, mainly banks, to conduct a trial run from today to February 17, Caixin said earlier.
Financial institutions participating in the platform will need to register the relevant details of the paper bills into the system, and switch the transactions from offline to online, the central bank’s document said.
Bills of exchange, a short-term debt instrument commonly used in financing international trade and small businesses, can be sold among banks at a discount before they mature.

When the USA FED system was deployed in 1913, a huge effort was expended trying to get private credit extended between businesses (vendor financing) pulled into the banking system (where it could interest could be applied and also taxed, a double whammy).  (Search "bills of exchange" on this page to read the new provision in law that he FED so assiduously attempted to foist on industry.)

Even when companies pledged receivables against loans, this too (factoring) was in private hands.  Now the banks have it.  And it gets taxed.  Ouch.

The effort failed miserably, for at the time no business was foolish enough to take up the offer to lose money on sales (the discount mentioned in the quote) and in essence make taxation likely as transaction ran through the banks.

Getting businesses to screw themselves failed, but getting end-users, the consumers to do so succeeded wildly.  Issuing ex nihilo credit based credit cards did the trick, but not until the 1980s, over sixty years later.

Part of China's spectacular growth and success is when they adopt a USA practice, they can skip all the learning hat took 60 years, and on day one match the USA.  China has the ex nihilo consumer credit card system in place, plus the internet and computers to tax immediately and at the most granular level.

When China matches USA, and has the system proofed, they need only back off a few degrees and then China services to the world are preferable to the USA services.  And as anyone in the China trade knows, the Chinese can and will always go a penny less than you, for the same thing.  Trump calls China beating us at our own game "cheating" and "currency manipulation."

The upshot is the entire system is market-distorting, leading to malinvestment and misalloction since we have goods and services called forth based on ex nihilo credit, not wealth as defined as the range of goods and services called forth by people using their own money to purchase.  The Chinese take over of all this will not make the world a better place, except for the fact it will cost a bit less now that the overhead-driven USA economy will lose out.

Of course with free markets we could beat the Chinese, but as a nation there is no interest in free markets.  It is down to individuals to trade in a free market mindset in order to avoid the disasters coming.  Free markets are always unilateral in action.

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Gold And Money

These two articles are terribly useful if only to understand what one is up against.

First, this fellow is self-employed.  He was caused much pain given nonsensical gold trade statistics, so he found joy in just validating (or more often invalidating) gold trade data and its sources.  So now he makes money with his work, and is a big draw at conferences.

What came to light as on odd discrepancy between GFMS’ Chinese gold demand and “apparent supply” has proven to be a tenacious cover-up by the oldest consultancy firm in the gold market. And not only does GFMS publish incomplete and misleading data on Chinese gold demand, all its supply and demand data is incomplete and misleading. As a result, the vast majority of investors across the globe has been brainwashed to believe total gold supply and demand mainly consists of global mine output and jewelry demand. In reality, the supply and demand data GFMS publishes is just the tip of the iceberg. But the firm is reluctant to admit this publicly, lest their business model would be severely damaged.

Next, as I have said repeatedly here, it is definitions of money that are so misleading, as to malinform thought.  Frank Shostak is brilliant, and his essay good, but I disagree with him here as well.  This new definition surprises me, but it is in the context of his certain argument here, and he may merely be making a point.

No definition, however, can be established by means of a correlation. The purpose of a definition is to present the essence, the distinguishing characteristic of the subject we are trying to identify. A definition is to tell us what the fundamentals of a particular entity are.
In this sense money is that for which all other goods and services are traded. The distinguishing characteristic of money is that it is the general medium of exchange. It has evolved from the most marketable commodity. 

In any event, he debunks most other definitions of money in this post.

I've defined money here classically (search the blog for "money"), to have a solid basis for thinking and analyzing.  It is no guarantee that my thinking is sound, but to start with mal-definitions is to guarantee others is unsound. Take the trouble to define terms correctly, to have a better chance.

J. K. Galbraith: ‘The study of money, above all other fields in economics, is the one in which complexity is used to disguise truth or to evade truth, not to reveal it.’ Money, p. 5

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Correcting Mish Again, This Time On India

Mish has a post on the problems caused by annihilating some ex nihilo credit currency in India.  Some point he does not make, that he should.

First, if the currency were mere notes representing gold, as currency ethically ought to, and once did, then there would never be a "liquidity crisis."  Of course I am talking free markets here, and these problems come from managed economies.

Second, as spooner pointed out, the amount of gold and silver as money is always pitch perfect.  What gold that is dug up enters the market as bullion, and the market is constantly converting bullion into jewelry, plate and decoration as the price drops, and converting jewelry, plate and decoration into bullion as the price rises.  The newly dug-up bullion joins in on one trend or the other, but normally at lower prices the gold stays in the ground.

Third, it is credit, not currency, that matters.  Rich men use gold to settle debts and liquidate relationships, poor men use silver. Currency representing gold and silver is ethical. Ex nihilo credit based currency is evil and has the problems India is experiencing, but the traders with relationships and authentic credit will see this problem through.

I don't know about India, but I hear people say "I can buy things with dollars that I cannot with gold.  Gold is useless."  Well.

1. Why are Indians trying to exchange those doomed rupee notes for gold?

2. You certainly can, for now, take gold anything into a dealer and get USA Fed Res Notes (ex nihilo credit items.)

3. Fed Res ex nihilo credit notes are legal tender, meaning they must be accepted for "all debts, public and private" says so one each bill.  Further, there is a monopoly issued to private banks by the government on these notes. The Secret Service protects the notes.  Talk about privatizing profits, socializing losses!

4. If you had gold, and a store of ex nihilo credit notes from commerce, which would you use to buy a house?  Or anything for that matter...  you'd obviously get rid off the ex nihilo credit notes, the Fed Res Notes.  As Gresham repeated Copernicus's observation, "bad money drives out the good."  Certainly in India it is clear people are using notes to buy property, not their gold.  You'd use up fed res notes to buy a coffee before you'd use a silver dime.

Credit is unitive and creative.  People cooperate, trust, support and introduce solutions in a credit economy.  The barter economy upon which economics insist gave rise to money is an unlikely step in history.  Credit solved the problem of needful double coincidence.  Money (gold and silver) has existed to use when relationships will be extinguished, when you trade, but may never see each other again, as at at an Oasis on the Silk Road,

Ex nihilo credit destroys a credit economy sowing un-cooperation and distrust, calling forth goods and services no authentic economy would support.  It looks like credit, acts like credit, but it is demonic, a lie.  There is nothing behind it.

There is never a "liquidity crisis" with credit, since it originates between two market actors who trust each other to see a project through, from paying for a hamburger today by Tuesday, or building a smartphone factory.  They create credit based on assets and extinguish credit on an as agreed basis.  no need for regulation.

Ex nihilo credit distorts the entire economy by allowing people who have produced nothing to call forth goods and services attractive to people who produce nothing.  Where do they get the means to "pay" for it?  Tallies of ex nihilo credit issued.  There is still an authentic market too, but is wanes as the ex nihilo credit part of the economy waxes, the boom.  The damage is done during the boom generated by the issuance of ex nihilo credit.  The bust is where the losses are assigned to those participating.

What is new in USA is the combination of the size of the issuance, the universality (both Boeing and the fellow buying a corndog at a gas station with his EBT card depend on it), and that it bears usury.  Fantastic!

Next, here Mish goes again, with the internal contradiction.

Negative Interest Rates Logically ImpossibleNegative interest rates and currency bans are nothing more than government sponsored financial repression.

Logically impossible, but exist?  Twelve trilliion in Euros at this point?  That is an internal contradiction

Negative interest rates imply logical absurdities such as one would rather have $90 in ten years than $100 today.

Obviously people do in reality, to the tune of $12 trill.  When you know the stock market is going down 50-90% within those ten years, and will say down for at least 25, then the hit is preferable. 

Negative interest rates do not occur naturally. Rather, the must be imposed on savers by repressive forces.

Correct.  The Hegemon can and does, as we see in reality.

There can never be negative time preference.

Maybe this is where Mish goes off...  negative interest rates do not establish negative time preferences but a bet that this investment is the least risky.  (But many a fortune was made or lost when bonds drop to pennies on the dollar.)

Note that I am talking about interest rates, not storage fees, a completely different thing.

The Church allowed a storage fee, under the term was interesse, denoting a loss, from which we get the word "interest."  The word has been twisted from meaning an unavoidable loss to meaning a necessary gain on a loan.  A Savings and Loan was once an example of charging only the processing costs of loans, etc, as a mutual aid society, in the sense of loans as charity work.

(There is another aspect to loans as charity forming in my mind, and that has to do with loans as strictly charitable events being among peers only.  To lend to an inferior status individual implies the inferior status individual "owes" more than the loan to his benefactor.  Whatever the "owes" constitutes is in effect usury.   Something there, have to develop this. Islam is good on this, so I must, as much of Western Civ has done before me, depend on Islamic sources for elucidation.)

Free Market in CurrencyI am in favor of a free market in currency. Whatever consumers decided would be fine by me. Gold and silver would be the logical choices, as they have been for thousands of years.

Ungh...  gold and silver were never currency, currency is a note backed by gold or silver or both.  What he means is he'd like to see a free market in currency, as we have in Hong Kong today, with various private companies issuing their own currency, on agreed denomination notes (to remain within the confines of cash register design.)  USA had this until 1913.  No more.

To have a free market in currency, with which I agree wholeheartedly, we need to deregulate banking, get rid of their monopolies and regulations (the result of regulatory capture), watch ex nihilo credit and its currency die,  and then have a renaissance in the unitive and creative aspects of a credit based economy.

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Export Ex Nihilo Credit, Import Gold

Singapore had a tax on gold and silver coins, which it has dropped.  One thing a government does not want to do is dissuade its people from hoarding gold and silver.  When things get tough, a government will need that gold and silver.  What's interesting about the list of tax exempt coins is how so many countries are making the coins, to earn a bit of vig.

The Chinese are actively encouraging citizens to stock up on gold, and pretty much prohibit gold exports.  Ex nihilo credit flows out of China into the USA real estate and stock markets.  But that will crash, and likely the price of gold with it.  But with prices down, gold will still buy then what it buys today, a house, a car, a suit, a gallon of gas.  Ex nihilo credit will not, because it goes "poof"...  all gone.  Gold does not go "poof"... all gone.  That is an advantage of gold.

But better than ex nihilo credit tallied to your account, or gold stored under your mattress, is the means of production, even if it is an awesome rolodex.

Oddly, google has few pics of Chinese gold bullion, but of course baidu, the Chinese google has plenty.

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Understanding Ex Nihilo Credit and the Coming S&P Crash

There are all these hints out there, but what to make of them?

Indeed, if one left it at that, the answer would not be exactly wrong, however there is one more factor which is rarely discussed, and which – according to Deutsche Bank – explains virtually the entire equity rally of the past four years: the collapse of the equity risk premium as a result of plunging bond yields, which as a reminder, is the direct pathway by which central banks operate, by monetizing government, and now corporate, debt.

How do you monetize debt?  I know what they say they do, but certainly it cannot actually happen.  Something else happens when they do that to which they refer.

Debt itself is already the result of a monetization event.  When I lend you $20, you have a debt of $20.  the books are balanced.  My currency is converted to debt.  If I ship you $500 in goods net 30, you owe me $500, a debt.  In both instances there is a monetization event, and the books are balanced.

Now to take that $20 you spent and you owe me, and then say the debt can be monetized, that is counted as money, well, folks, now the books don't balance.  You have an asset, a liability, and another equal liability.  One asset two liabilities.

If a loaf of bread is a dollar today, and tonight you print 100% more currency, soon enough a loaf of bread will be $2.00 to absorb the increase in currency.  This is the definition of inflation.

But things get tricky when we are talking debt, not currency.

If debt is priced at 6%, and you "print" (monetize) again as much debt, then do prices of debt drop, deflate?

Does the interest rate drop from 6% to 3%?

Do the assets which now have a double liability drop in value, or wait, the reverse?  Do they rise in value, denominated in currency?

What happens to credit, or underlying assets, when the above occur?

The article is in relation to the price of the S&P, and notes a logical drop in the market of 40%.  But none of this is rational, for ex nihilo credit has no rational basis.  And there is always regression to the mean when there is a bubble burst.  The drop would be more like 60%, and when the short sellers start unwinding their positions, in a month or so it would stabilize at a 40% drop.  Smart money is in cash waiting to pick up that 50% bounce from the crash bottom to stabilized bottom.  That for the insiders, politicians, Foundations, etc.  You just lose 40%  And anyone who does lose money in the market, when everyone is screaming crash, well, don't they deserve it?  Anyway....

As Deutsche Bank’s Dominic Konstam writes over the weekend, “various Fed officials have raised the issue of financial stability in the context of the reach for yield and riskier products to make up for low rates. This is part of financial repression. The logic might be that once the Fed has normalized, elements of that reach for yield and risk would be unwound and this could lead to disruptive financial market volatility.”

Since when does getting my $20 back create instability?  Since when does getting my invoice for $500 paid create instability?  Getting paid means the monetization event on the books is unwound.  Well, both sides desire this above all things.  Bt what is disrupted in the FED scam is when getting paid zeroes out our mutual deal, but there is still that second liability out there.  There is nothing to which to relate it.  Yes, before it was fraud, but there was some pig in a poke, the mark did not open the bag yet to find it empty, as it is with the pigeon drop scam. The point at which the mark realizes he's been scammed can be quite disruptive, for the mark.  The FED's job is to keep the scam going (at least past the election).  When the mark is hapless citizens, and they realized they have been scammed, then it is pitchfork, tar and feathers time.

Is it not amazing that every top criminal fraud scam becomes a government program?  Social Security is based on the Ponzi scheme, the Federal Reserve System counterfeits, Treasury runs the pigeon drop scam,  Romney/Obamacare is the pig-in-a-poke,  Section 8 housing is price fixing...    unh, one could go on ad nauseum.

Anyway, back to the scam at hand.  As everyone says, this is all new.  There has never been a negative interest rate phenomenon in history. So the dynamics are yet to be recognized.

I do not know if I have any of the above relating to negative interest rates and ex nihilo credit correct.  I don't think an economist can figure this out, since they do not have the forensic tools to do so.  I think an accountant could, assuming they have the ability to define terms correctly, and not just GAAP everything.

I'd be delighted to hear from an accountant who can critique my analysis.  In so doing, maybe we can figure out some of the dynamics, and then figure out the great "so what?"

If you know a working CPA who is game to critically assess all this, I'd be delighted to entertain their views on this blog.  Who knows, maybe we'll both become famous.

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Are Negative Interest Rates Debt Deflation?

I've repented of using the terms malcredit and benecredit, since modifying perfectly good words to account for degeneration cedes ground to the bad guys.  There are apples, and there are rotten apples. There is credit, and then there is ex nihilo credit.  Clear and simple.

Credit and debt necessarily balance out.  If I lend you $20, you owe me $20. Everbody does that.  It is not ex nihilo, cuz if I am not paid back, I've lost $20 in purchasing power.  This is private extension of credit, and there is a debt on the other side.

If I ship you $500 in goods at net 30, you owe me $500, and I have an accounts receivable, an asset, worth $500.  If you don't pay, I am out my income, and the books I sold you. This is commercial extension of credit, and there is a debt on the other side.

That's all just credit.  And debt. At no interest.  All good.

Now, sometimes, some people would extend their $20 at interest. In most of history, this was illegitimate, if not illegal, since lending any amount at any rate of interest for any duration causes damage.    People lending at interest had no recourse to courts for enforcement, any more than a casino operator can enforce gambling debts (hence extra-legal enforcement of gambling debts).

In any event, credit is good, but it can be abused by adding interest.

Now banks, where gold and silver were stored, at first could not lend out their stores, for example, it was illegal in ancient Rome.  In time things change, so just like I might lend you $20, a bank could too. OK, if the owner of the deposit agreed.

But the temptation to lend money out at interest is of course just too strong.  So that happened.   It distorts an economy, but that is not as bad as it can get.

Instead of releasing gold as a loan, the depositor could write a note stating the note-holder was as good as gold.  These notes could move around, the proto-currency.    Nothing wrong with that.  It's a loan, and there is an asset on the other side.  But of course it also could have interest attached.

One currency happened, bankers figured out they could write more currency than there was gold, initially a crime that carried the death penalty.  We call this fractional reserve banking now.   In the measure there is only a fraction of reserve backing loans, that measure is ex nihilo credit.  If your bank holds 100 pounds of gold, and you write 200 pounds in currency notes, then you have a 50% fractional reserve.  Of course this is fraud, and "bank runs" followed discovery.  If ruined depositors did not kill the bankers, it was only because he authorities hanged them first.

Things change.  It's quite common for what is criminal among citizens becomes de riguer for the Hegemon.  Now our entire banking system worldwide is built on fractional reserve, hard to say exactly, but best estimates is 3%.  97% ex nihilo. Fractional reserve is so dicey it is stupid without some insurance premium so to speak, and that is interest on the loans of the fractionally reserved credit.

So imagine that.  For the portion of the economy which depends on bank credit, some 97% is ex nihilo credit.  There is a debt on one side, but no asset underlying credit on the other side.

It sounds like there is.  Ford got credited ex nihilo for the Mustang of which title was transferred to you, upon your promise to make payments, in ex nihilo credit, plus interest, out of your income stream, largely tallied in ex nihilo credit.  Whole lotta ex nihilo credit going' round.  Ford is zeroed out, the bank is zeroed out, you've got a Mustang and payments.  What's wrong with that?

Before I explain what's wrong with that, let me translate the previous paragraph from reality to capitalism.

You get a loan from a bank for the money to buy a Ford Mustang. Ford gets that money for the Mustang and transfers title to you, upon your promise to make payments, in money, plus interest, out of your income stream.  Ford is zeroed out, the bank is zeroed out, you've got a Mustang and payments.  What's wrong with that?

Well, it's not money.  (But experience the social conditioning: the second version sounds correct, but it is utter fiction.) It's ex nihilo credit. It suggests a wealth that is not there, and people calculate economic decisions in prices, prices that are not denominated in money, but in ex nihilo credit.

Ex nihilo credit has no rational limit.  Ex nihilo credit appears to be wealth.  People who would not qualify for asset backed loans certainly qualify for ex nihilo credit.  They want more better cheaper faster, and as ex nihilo credit-based demand grows,  Ford can deliver, at least what is advertised as such.

What's wrong with that?  Well, as Bastiat noted, there is the seen and unseen.  We like what we see.  And as I note, we all love a system that works for us.

Ex nihilo credit is paid into the economy, causing inflation, and an appearance of wealth that is not there.  People overextend.

With false wealth, the most egregious borrowers are necessarily calling forth what array of goods and services we see.  The least perspicacious are the most powerful economic actors, given the leverage ex nihilo credit offers. A Dick Cheney tells us "deficits do not matter" (ex nihilo credit is also deficit spending) as he gleefully prosecutes criminal wars with impunity, and immunity.  The poorest person in USA can whip out his EBT card to pay for a couple of corn dogs and a supersized Coke at a gas station. There is no difference in kind between those two people, only in scale. Neither has any money.  Both are dependent on ex nihilo credit.  Both are economic actors. Both simply put their purchases on the tab denominated in ex nihilo credit.  It all adds to the power, denominated in ex nihilo credit tallies, of the bankers, etc.

Sure auto payment delinquencies are up, but only to 2.6%.  So what?

On the margin, much of the recent growth of auto sales has been attributable to sub-prime borrowers, which are now up to 31% of all loans. These loans carry onerous interest rates—often 20% or more—-and are available primarily due to junk debt financing of non-bank lenders. That is, fly-by-night start-ups organized by Wall Street and private equity funds.

What is unseen is what that 31% would be buying if they were not

A. using credit or money to buy a car (public transportation?  different car?)

B. forking over the 20% interest on their ex nihilo credit loan to the bankers.  We'll never know.  the only thing we do know, is they cannot afford to what they are "buying" with ex nihilo credit.

Their losses go on our tabs.  Recall it is ex nihilo credit, the banks are out nothing. The delinquent buyer may have a note on a credit score, but Ford has the $35,000 in ex nihilo credit on the books as an asset.  Where is the asset underlying the deal?  Why, the Mustang itself, right?  Well, it's been repo'd and sold for $20,000. That's a $15,000 difference.  Is the bank out?  No.....  Is Ford out?  No....  Is the borrower out?  No....  well, then who picks up the $15,000 loss?  If you cannot tell who is the mark in a poker game within the first 20 seconds, it's you.

Hi Ho Hi Ho, it's off to work you go...  You have to work to pay down the tab of everyone from Dick Cheney to the delinquent Mustang short-faller to the unemployed fellow dining on corn-syrup dogs and diabetes-bev at the Mini-mart.  That's capitalism.

What is unseen is what we would have without ex nihilo credit.  Less war?  Less surveillance?  Better medicine, education, clothing, food, housing?    More peace and prosperity?  History says yes, but we see the Mustang in the driveway and say "what's wrong with that?"

We all love a system that works for us. 150 years ago the English would look at the Irish for whom the system did not extend, dining on the 1850s version of corndog and coke, and say they are genetically inferior.   Today we look at those who do so and say the same things.

Ex nihilo credit distorts the array of goods and services we would reckon we could buy.

It retards true wealth creation by tapping into income streams with interest payments.

It concentrates wealth in ever fewer hands, by means of interest stream if no default, and titles returned to the lenders if default, who in turn then hold sway over those who borrowed ex nihilo credit (we've noted in your file), if not enslave them as with student loans.

What do we care?  We have big screen TV, KFC, Mustang, iPhone and a house.  And Romney/Obamacare.  And poverty draft.

Well, you might not care, but the 1% are sure worried.  There was no rational limit to lending ex nihilo credit at interest.  But something that defies understanding, never seen before in history, is happening.  An utterly irrational negative interest rate phenomenon.  With wealth tallied in ex nihilo credit, an undoing could result in all tallies being marked to market.  Pro rata?  Or politically distributed (OK, I know the answer.)  Or war?  If the 1% is worried, you should, because they decide.

Inflation comes from printing too much currency.  We have inflation in housing, medicine, education, some categories of food, and certainly equities.  So what happens when you "print too much credit," or more accurately too much ex nihilo credit?  That is the head scratcher.  Deflation?  We do see prices dropping in shipping, but that is overcapacity based on misallocation of resources and malinvestment due to reckoning prices in ex nihilo credit. Dropping prices is not necessarily deflation.

Perhaps deflation in relation to ex nihilo credit is not in the price of goods, but the price of debt.  The negative interest rates are showing up in bonds, in other words, debt.  So if we had hyperinflation of credit with ex nihilo incontinence, is the reverse hyper-deflation in debt?

Is negative 2/10th of 1% interest on a ten year bond an abberation, or just the beginning?  We can see various actors chafing with ten trillion at negative 2/10ths of 1%. Has anyone studied the impact of negative interest rates to 2%, 5, 10, 25%?    Is that the denouement?  Deflation in debt, the debt on the other side of the balance sheet for ex nihilo credit?

If the hegemon's power is tallied in ex nihilo credit-based debt (for the one who holds the paper is in control) the debt deflation means a commensurate loss of power.  Is that what is going on?  You tell me, I haven't figures it out yet.

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Bank of England and Ex Nihilo Credit Regime

I hope this is clear:

Once upon a time, people would build a mill financed by a collection of homeowners whose homes were at risk if the credit (backed by the homes) could not be repaid by the revenue from the mill's operation.   There was some reward in building a mill and getting an agreed percentage of the income from the mill for having financed the mill, not to mention the fact that a mill also helps build up a community.  Think of the probity and due diligence in such an arrangement, with direct skin in the game.

An individual may do this as well, if his resources commanded enough credit to back such a project.  Again, this is a business arrangement.  It was either a joint venture, or a sole entrepreneur.  Everyone had skin in the game, no loans involved.  Especially no loans at interest.

Such business arrangements are creative and unitive.  They create something good, the unite the community.

Today a bank, as you see in the essay to which I link here, lends absolutely nothing.    Please note, as usual, they say "money" when they mean "credit."  Funny thing is, bankers are quite careful with these terms when they discuss business among themselves, but switch to confuse-ish when they communicate outside of the banks.

As mega-economist JK Galbraith said:

‘The study of money, above all other fields in economics, is the one in which complexity is used to disguise truth or to evade truth, not to reveal it.’ Money, p. 5  J. K. Galbraith

Indeed, and nothing is more fundamental to the deception than calling credit money.

In spite of backed by nothing, as the cited essay notes, that credit does call forth goods and services.  He who provides the goods and services wants to be paid, and is paid, in credit (not money!)  Credit against whom?  For the credit was created ex-nihilo.  "We owe it to ourselves" comes the answer.  That answer is actually quite true, but disguises the implications.  In essence, ex nihilo credit is the apotheosis of capitalism: privatize the profits, socialize the losses. The Hegemon's minions get the profits, we get the liability, the losses.  We owe it to ourselves.

Yes, a mill is built, as are bridges to no where and wars for profit and defense against blowback, and Tuskegee experiments, are all financed as well backed by absolutely nothing.  Yes, there are also homes financed this way, backed by absolutely nothing.  But what homes?  To whom?  Where?  Although economics prides itself on being a value-neutral science, it is the branch of study that produced the term "moral hazard."

We, ourselves, make good on the ex nihilo credit extended with inflation, a degradation of  current goods and services although the prices remain constant, we pay for it by less in terms of wages, as the fruit of our labors is diverted to paying down what "we owe ourselves."  When that credit is maxed out, we borrow, from say the Chinese.  And when that is maxed out, we pile the debt on to future generations.  Now note, for all of that, there is no money.  It is all credit, ex nihilo credit.

But here is the problem.  With bank credit created ex nihilo, by charter from the Hegemon, the range of goods and services that may be called forth is not the same that would be called forth in a money-based economy.  There is no probity with ex-nihilo credit, only politics.

It is an undisputed fact that Nixon went off the gold standard (lite) because the Vietnam war was bankrupting USA.  The first thing we bought on ex nihilo credit was 4 more years of defeat.  Then we got around to other things no sane people would finance: Fukushima nuclear power plant in 1976, and the other USA power plants, and so much more.  But but but, Fukushima is in Japan!  Yes!  And EximBank lends ex nihilo credit to Toshiba so Toshiba can buy from GE that in which no sane person would invest: crazy dangerous unstable massive nuclear power plants in an earthquake and tsunami zone.  Am I editorializing?  How come GE requires 100% indemnification on every plant it builds?  Because they are safe?  No.  Upon whose account is this liability placed?  We owe it to ourselves!

What could go wrong?  Nothing.  Because by the time something does go wrong, all the players are retired.  Mistakes were made, let's move forward.  As with all ex nihilo credit projects funded, the profits are privatized, the losses are socialized. Political agenda advanced.  And it gets better: with no government backing, Toshiba has come up with a free market micro-nuclear power plant that meets the needs of small communities.  Its safety and affordabilty has caused quite a stir, but, given regulatory capture, the regulators make sure we won't see safe nuclear power soon.

And since ex nihilo credit is a provision of the Hegemon, it is lent within bounds set by the Hegemon.  It is not price signals and the market deciding what assets are allocated to what needs, it is an auction by the Hegemon to rent-seekers who have what projects they will pursue at what interest rates. The winners are those whose projects at that price intrigue or delight the Hegemon.   Hmmmm...  a billion to advance frankenfoods?  Sold!  War?  You bet.  Bailout the banks? Existential imperative.  Domed stadium?  Of course!

Banking has become a completely distorted program of granular work in this regard.  We no longer have banking in USA. The lowest, closest form of banking to the market, the credit union, is no longer a credit union.  It's just small.

Now, should any of these not pay off, well, the bank does not want "nothing" (that which it put at risk, nothing), nor does it want your house.  What it gets is for as long as it takes, backed by law,  is a repayment out of your income stream what it anticipated in giving you a loan of nothing for something for which you come to learn you cannot pay.  Now you are trapped, enslaved if you took the student loan bait.  And it cost the Hegemon absolutely nothing, because we owe it to ourselves.

See the difference?  Usually, if a loan goes bad,  the lender loses something.  With capitalism, if a loan goes bad, the lender loses absolutely nothing.  You lose the house, but you are obliged to still pay for it, or go bankrupt.  if you go bankrupt, it doesn't cost the bank anything.  they already have a reserve for bad debt built into their system, and the write off of your debt simply restores the bank's ability to  lend again, given the reserve requirements of fractional reserve banking. Student loans are special cases, those who seek education become slaves if they cannot pay back the loan.

Now, if you understand this, can you see it is not the money lent they want back, since no money was lent anyway, nor does getting paid back nothing for nothing mean anything.  Nor do the banks want the house.  What they want is your income stream, a percentage thereof, for nothing.  And that is precisely what they get as long as you are solvent.  And if you become insolvent, they don't care.

So can you see yet how it is interest, and not merely the FED, or lending nothing for something that is the problem.  It is interest paid, usury, defined as any amount for any time at any rate, that is the problem.

As Galbraith said, the point is to disguise.  And with the vast majority of economic activity based on ex nihilo credit, the vast ocean of commentary is oriented to the extant regime. But this evil regime is no secret, it was easy enough for me to figure out.  For most of history people pointed out this baleful tendency. That Bank of England explanation above is quite honest, but it is rendered impotent by calling ex nihilo credit "money."And once you know, you can estimate with probity what will work or not work, to your benefit.

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Your Bank Balance Fee IS Negative Interest

OK... so a tiny German bank has started charging a negative interest rate, you pay to store what becomes their asset in their bank...

When the European Central Bank introduced a negative interest rate on lenders’ deposits two years ago, few thought things would ever go this far.
This week, a German cooperative savings bank in the Bavarian village of Gmund am Tegernsee -- population 5,767 -- said it’ll start charging retail customers to hold their cash. From September, for savings in excess of 100,000 euros ($111,710), the community’s Raiffeisen bank will take back 0.4 percent. That’s a direct pass through of the current level of the ECB’s negative deposit rate.

If you charge a premium on interest paid depositors in the past, do you do the reverse?  So if this bank charges depositors 4% (I know, just for instance), do they pay people who borrow 2%?

If the point of charging savers is to get savers to spend, or get borrowers to spend, then do borrowers get 2% for borrowing those excess reserves off the banks books?  It makes perfect sense, given the circumstances, and some Nordic banks do exactly this.  So.  We have instances, will it spread?

Well, it already has.  BofA charges $9/month for a no-service account.  Recall circa 2009 when they first did that and everyone screamed?  They first made it optional.  Now it is not.  You've been paying banks to keep your tally for years.

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Which is Money? Chocolate or Silver?

Here is coin dealer demonstrating few people don't know from money.


I'd give his experiment 3 seconds in Hong Kong.  I wonder how you say "keep your chocolate" in Cantonese?

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What Is A Gold Standard?

If a body politic is ever so foolish as to allow politicians to have any say so over the economy in general, or money in particular, then they in effect elect to have a Hegemon.

A false fail-safe against a hegemon rising is to elect to have a gold standard, and that is to say all currency must be backed by gold, with no fractional reserve.  The struggle comes with all nations, and in USA the players representing the two sides, credit and fractional reserve v gold standard, are Alexander hamilton and Thos. Jefferson respectively.  The fight was intense, and Hamilton was executed in a duel by the sitting Vice President of the USA eventually, and became a martyr to the free $#!+ brigades ever since.  Nonetheless, it is noted USA talks Jeffersonian (free trade) but rules Hamiltonian (NAFTA, TPP)...

A gold standard simply means any currency is backed by gold (or silver).  In a free market this means banks only lend against the hard assets they have in their vaults, gold and silver.  Fractional reserve is illegal because it is fraud and illegal. When a government adopts a gold standard, they are claiming to adhere to this discipline.  As a practical matter, a government can spend only as much as it can afford to pay with the money it has, gold and silver in its vaults.  This putatively is a limit on government, a Jeffersonian ethic.

It does not last long, and USA has a long history of back and forth on this.  Check out this dollar bill of General Patton's, carrying autographs from a famous WWII meeting.  Here is another of Vandenburgs. Note it says "silver certificate."  I carry one in my wallet as an object lesson. Issued by the USTreasury, it represents a claim on silver in Uncle Sams vaults.  That is currency, backed by money.  These were issued by Treasury up until 1963.



USTreasury no longer issues those.  Now you can only get non-asset backed currency issued by the Federal Reserve, not Treasury. Take any note form your wallet.  It says Federal Reserve Note, not silver (or gold) certificate.  It ain't money, far from it.

What a Federal Reserve Note represents is an amount of a credit tally at a bank, not money.  Exchanging notes is simply to change the tallies of each actors account.

The fight between the two went on with the Jeffersonians inexorably losing.  Of course the bankers were always there, trying to create a hegemon (themselves) by lending credit instead of money, and then there would be no rational limit to what might be funded.  War! Enslaving welfare! Railroads to no where. Counterproductive public works.  Changes in law and custom.  One huge turning point was in 1895.

The Federal Treasury was nearly out of gold in 1895, at the depths of the Panic of 1893. Morgan had put forward a plan for the federal government to buy gold from his and European banks but it was declined in favor of a plan to sell bonds directly to the general public to overcome the crisis. Morgan, sure there was not enough time to implement such a plan, demanded and eventually obtained a meeting with Grover Cleveland where he pointed out the government could default that day if they didn't do something. Morgan came up with a plan to use an old civil warstatute that allowed Morgan and the Rothschilds to sell gold directly to the U.S. Treasury, 3.5 million ounces,^[13] to restore the treasury surplus, in exchange for a 30-year bond issue.^[14] The episode saved the Treasury but hurt Cleveland's standing with the agrarian wing of the Democratic Party, and became an issue in the election of 1896when banks came under a withering attack from William Jennings Bryan. Morgan and Wall Street bankers donated heavily to Republican William McKinley, who was elected in 1896 and re-elected in 1900.^[15]

There it is, Uncle Sam was constrained by a gold standard, and the bankers persuaded Uncle Sam to accept more debt than he could afford.  The people, especially American farmers, had this debt laid on them, against their will.  At this point we switched from gold standard to gold standard lite.

As an aside, "bankers" is very often code for "the Jews." Anyone who thinks the Jews had anything to do with USA's banking-based problems is ignorant of USA history, and for that matter Jews.  The indisputable rulers of finance in USA at that time were the Morgans and the Drexels pure blood WASP Episcopalians.  To this day there may be Jews participating in banking in USA, but only to the degree it suits the hegemon controlled by rock-solid USA Christians.

There is another use for Jews in banking. Until Nixon went off the gold standard lite in 1971,  every Chairman of the Fed was Christian.  Going off the gold standard lite meant uncharted territory, and it could blow up on the Hegemon.  So starting in 1971, every chairman of the Fed has been a Jew, with the only exception of a Jimmy Carter appointee, who only lasted a few months.  Carter fought the game, and lost.  We are in a financial crisis, and the focus is on the Chairman of the Fed, and most aggrieved folks blame the Jew(s).  Never mind it's the Episcopalians in charge, blame the Jews.  Blaming Jews is about as perspicacious regarding USA problems as it was for Weimar Germany.

it ain't the Jews, it is the rules.  Deregulate banking, de-legitimize asset-less currency and fractional reserve, and the Hegemon dies.  In a free market, banking will be gold standard based, and whatever credit is needed will be generated among independent actors, necessary and sufficient to a given economy. No need to pointlessly attack the Jews, especially when the Hegemon is counting on it.

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Reviving Hawaladars?

Islam features an ancient money-transfer system called the hawala, and those who engage in this work are called hawaladars.  No doubt the practice predates Islam, but it is alive and well today.  It moves money far less costly than banks or Western Union.

There were hawaladars operating in the USA, but since they were not regulated, and they were largely Islamic, they were raided in USA after 9-11.  They are few and far between in USA.

Now comes a pair who plan to start-up a money transfer business based on the hawaladar:

While chatting one day, the two discovered that they were each about to send equivalent amounts in opposite directions. It occurred to them that, rather than make two international transfers and lose all that money on bad rates and fees, Käärmann should simply move pounds from his British bank account to Hinrikus’s British bank account, while Hinrikus moved euros from his Estonian bank to Käärmann’s. “Local transfers are free and fast, and we saved a bunch of money on the exchange rate,” Hinrikus says. “It was cool.” Soon, the two started “the money chat,” a Skype forum for other London-based Estonians, where members could arrange similar matching transactions.

OK, so essentially a hawaladar.  "Giving people access to a better deal" than banks or Western Union was once available from any hawaladar, and this start-up relies on banks, whereas a hawaladar never involved banks.

I am always bemused when i meet some do-gooder who is "digging wells" to help out destitute people in some far off land.  how long have they been without wells.  What did their people do the last 5000 years for water?  O, you mean 20 years ago USA made war on their country, destabilized it, and now water is scarce?  So you get a halo for digging a well?  How about we stop making war everywhere?  You want a halo?  Stop the wars.

Instead of making doubtful start-ups with a bad imitation of a hawaladar, how about stop destroying hawaladars?

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Islamacist London Mayor; Gold Set to Soar?

Gold bugs thrill at any talk of Islam reviving a gold standard.  Western observers have seized on a recent article, but wait, this is in the article:

So far, Islamic investors have been reluctant to invest in gold because to do so, they would need the metal in physical form as an underlying asset, which is rarely the case in conventional gold trade. Because of that, broadly traded gold futures do not qualify as a Shariah-compliant investment. Other conventional gold-based financial offerings in the form of derivatives are also widely viewed as unacceptable for Islamic scholars. On the other hand, investment that involves a forward purchase agreement at an agreed price against future delivery (the principle of salam) would, but there is still physical gold in the play.

Well, that says a whole lot.  (The article takes a minute to load).  First, the western observer anticipates a gold price spike due to heretofore unexercised event of speculation in gold, not trade in gold.  The same article says trade in real gold is happening, but insignificant.  So the spike in price will come due to, as the article explains, an initiative based in London and being supported by Malaysian Islamic authorities.

Could it be Islamic traders simply understand gold's proper place, and therefor have not gotten in trouble speculating in gold futures?

Anyway, there is a geography of Islamic finance, with some countries more strict that others.  Of course  London would love to lure Islamic finance under its capitalist wings, and now the City of London, home of the Anglo financial world, now has an Islamic mayor.

Then this:

London-headquartered World Gold Council (WGC), together with Kuala Lumpur-based Amanie Advisors, an independent advisory firm on Shariah investments and the Accounting and Auditing Organisation for Islamic Financial Institutions in Bahrain, now have been developing a “Shariah Standard on Gold” which aims at “providing guidance from the Shariah perspective on the usage of gold in financial and investment transactions for Islamic financial institutions and participants,” as WGC head Natalie Dempster puts it. The standard also aims to increase transparency and harmonisation of the use of gold investments and reduce unclear specifications on what’s haram and what’s halal in trading the metal.

Thanks, Natalie Dempster, for this insight into Islamic finance.

Guess which Islamic countries are the most liberal about Sharia finance, and at the same time experience the harshest market vagaries?  Why, Malaysia, Bahrain and London.

There already is a gold standard.  It is 100% private.  Those on it are safe from the vagaries of malcredit false economy.  Many on the gold standard ALSO engage in the malcredit false economy, since it is tradable,  and you can within it enjoy things you have not earned.  Someone downstream, as yet unborn, will curse your memory as they are forced to pay then for your excesses today, but hey, let them wail.

And of course, there are countless in the false economy not on the gold standard.

Finally, you can be on the gold standard with no gold, since it is possible to engage is benecredit true economy not actually owning any gold, but operating within the bounds of a gold standard.

A gold standard's main value is as a price signal to the entire market, while being a medium of exchange and store of value to individuals who engage in one-off liquidation transactions.

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Credit Cash Money - Fallback Positions

People fear the future, change is afoot.  Rome took 300 years to fall, and even though our world is likely faster-paced, nothing will happen overnight.  And that is the problem, the hegemon cooks the frog slowly.

A good part of life is commercial, and that is where the hegemon directs traffic if allowed to do so.  He is not only allowed, he is adored and glorified by the masses.  We are told if we toss in all of our gold, a golden calf will walk out of the fire!  Then we can party naked!  With scarce assets to support USA's extravagances, we are indeed partying naked.

The Romans got to the point of writing a fugitive landowner act, in which escaping farm owners were returned to their farms to work.  Why did the farmers flee?  Because they were taxed to poverty.  They tried to escape to anarchy.

You cannot escape the hegemon if you do not understand the differences between credit (mal and bene), cash and money.  Most people have been socially conditioned by the hegemon to use all terms interchangeably, although internally the hegemon and its minions maintain strict definitions.

Money is gold and silver.  Done.

Bank credit is malCredit.  Asset-less credit lent at interest, created when the victim (borrower) is confident against all reason and experience malCredit will be a personal benefit.  Think auto loans today. "But but but, auto loans are secured by the auto against which the loan is made."  Sheer nonsense, sheer delusion.  The banks don't want another stinking Cadillac Escalade profoundly overpriced by a capitalist system.  They want yet another human tied down.  If an when the loan goes bad, they bank could care less what happens, they lent air so if all they got was the down payment, that's ok,  They are ahead.  A bank loses nothing on a bad loan because they never had anything at risk, only digits on a tally.

Cash is the most liquid form of medium of exchange in an economy.  AKA currency, it represents either money or malcredit or benecredit, depending on the regime in power. It is the quickest to convert given an day's events, so it is far more valuable in a jam than malCredit than bank credit, what you access with a debit or credit card.  The way to keep currency honest is to let it be produced by competitors in a free market, as it was for much of USA history.

People used to know this...    I was listening to a radio drama from the 1950s in which a crooked banker was trying to bribe someone:  "I'll pay you $25,000... cash!  Not credit!"  Million of common people listening back then knew the significance.  Today social conditioning has dumbed us down.

Enough people do know, so they store cash.  When the Harriet Tubman $20 is ready about 2018, you can bet Uncle Sam will outlaw the old ones, and to legally convert to the new ones, you'll have to explain to the IRS how come you have $10,000, $100,000 a million in cash.  Talk about irony.  A USA escaped slave will be the image of Americans being enslaved.

Mony malCredit Cash.  So what else is there.  The one everyone overlooks: benecredit.  Private credit extended voluntarily based on assets at no interest between two parties engaged in commerce.  A short definition is simply vendor-financing, although that can be dicey since now vendors tend to charge interest too on the time extended (but knowing full well borrowers in these instances tend not to pay the interest.)

A loan is always a charitable event, ethically.  Vendor financing is always a commercial event.  What is lent is goods and services, not money. So benecredit is never charity, always commerce.

And it is always fruit too high and far apart for the hegemon to pursue, as long as your work is your lifestyle.

The alternative is paycheck, property and pension... the low hanging fruit the hegemon must pick first.

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Housing Prices and Usury

Mish Shedlock Gets This Exactly Right:

Dual Mandate Equals Mission Impossible

Here's the deal.
1. The Fed can control money supply but it will have no control over interest rates (or anything else).
2. The Fed can control short-term interest rates, but then it would have no control over money supply (or anything else).
That is the full and complete extent of the Fed's "control". Note that neither price stability nor unemployment is in either equation. The reason is the Fed controls neither.
That is a mathematical certainty, yet people have preposterous beliefs that the somehow the Fed can not only control inflation but also unemployment.
If the Fed, the Bank of Japan, the Reserve Bank of Australia, the ECB, or the Bank of England, or the central bank of China could control the unemployment rate, rest assured they would have done so long ago.
The economic illiterates will point out the unique nature of the Fed's dual mandate, but I will counter with the mathematical stupidity of such an idea.
At best, the Fed can control (using the word loosely) a maximum of one thing at at time, and employment is not one of those things.

He does a very good job defending deflation (properly understood). Then he flubs this a bit...

Lower Prices Spur Sales 
People hold on to things when replacement costs are high. Lower prices, not higher ones, spur sales. Sales spur employment!
Think about cars. If prices dropped 20% would that spur cars sales? I think so. If you could replace your aging car 20% cheaper and it had more features, would you do so?
What if they rose 20%? My guess is that, all thing being equal, car sales would plunge.

Well, I watched auto prices rise 20% ...  and houses 50% over a short several year period, and sales of both jumped up.  So is he wrong?  Well, no because he added "all things being equal.."
What also changed was usury, "cheap interest rates" distorted a market already distorted by usury itself, in which one who could afford the payment on a $200,000 at 9% could afford the payment on a $300,000 house at 6%.   What happened (new market entrants, over time) is such people merely paid $300,000 for a $200,000 home.

And it gets worse, that local property tax jumped up 50% to with the nominal increase in the value of the house.  An increase of taxes without a vote!  No wonder government loves Wall Street.

Once the camel's nose, in the form of usury, is in the tent, the loan sharks then can do what they want, there are no rational limits.

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Money, Currency and Credit

No sane people ever let government get involved with money, currency or credit.  There must always be a strict separation of monetary affairs and state.

If definitions are kept straight, one can understand how the media of exchange operates in an economy (and at the same time understand the confusion introduced by the bad guys, leading mega-economist Galbraith to comment ‘The study of money, above all other fields in economics, is the one in which complexity is used to disguise truth or to evade truth, not to reveal it.’

First money, normally gold and silver in history, can be reviewed here.

Money is used to extinguish a debt, where no further business is anticipated between parties.  Think caravan trade.

Of course, perspicacious business can lead to accumulation, and some people find they have more money than they need immediately, and will store it in a bank.  But usually excess gold and silver would be converted into plate, decoration and jewelry, the more precious metal accumulated, the more luxury.  If "money" became scarce, then the plate, decoration and jewelry would be melted down, to match demand.

Now backed by the money in a bank, people once issued warehouse receipts, titles to the gold and silver, so they would not have to actually carry the gold and silver around.  This is good for ongoing relationships, and tends to finance in a pinch.  Or expansion.  The amount of these notes in circulation was pitch perfect to the commerce associated with the warehouse receipts, of course.

As an aside, warehouse receipts for fungible items such a olive oil, wheat, or say beeswax would also emerge as currency, again pitch perfect to the commerce between the parties involved.

Next there is vendor financing, as when a baker delivers 3 dozen loaves of bread to a grocer, and leaves a bill to be paid at the end of the month. The baker was also extended credit, by the miller, who received credit from the granary, which received credit from the farmer, who received credit from farm labor.  Again, this is all asset backed credit, matched perfectly to the demands of commerce, no more no less.

Only in utterly corrupt regimes such as ours does the question "what is the right amount of money" occur.  (Although the question is inherently obtuse: neither warehouse receipts nor credit is money.) In a free market, the perfect amount of money, currency and credit is always available.

Since capitalism is now in the vortex of its death spiral, people who have some claims warranted by portfolio statements, deeds of trust, pension promises etc are wondering how to escape the denouement.   The smart guys are advocating holding gold.  the same smart guys, though, will tell you as the price of everything drops, so will gold.  but gold will still buy what it did before, and maybe more... just as two silver dimes, 20 cents in 1962, would get you a gallon of gas in 1962, can be sold for silver for a couple of bucks and get you a gallon of gas in 2016.  Money holds its value, currency does not (hence the "right now" root of the word.)

Property, pensions and paychecks are forfeit in the coming fights over who gets what from what is left of the USA productive capital base.  (Stock portfolio and gold holdings are property too.)

Why hold gold if it will be taken?  On the other hand, the means of production, a bakery or bicycle repair shop is too small and to diffuse to confiscate.  A small mill grinding heirloom (non-gmo) corn is of not value to the powers that be, too small to steal.  At the same time such companies are your escape as well as a partial solution to the problem.

Get your own business going, and understand the difference between money, currency and credit (and benecredit v malcredit).

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Money V Credit: I am not Alone!

Here is another blogger who has noticed there is a difference between credit and money.   Just so!

As with our inability to change the nature of the apple to an orange by simply calling it an orange, calling credit 'money' does not change the true nature of credit to money.  And I think this is the key to understanding Mish's response, and in the push to ban cash.  People have gotten so used to referring to credit as if it were money, they actually believe that credit and money are the same thing, especially so if that credit populates their deposit accounts or comes in the form of loans or even, from the Federal Reserve.  That is simply not the case because unlike money, all credit is someone else's debt, it cannot exist otherwise.  For example, the credit that populates your deposit account, is the bank's debt.

and this explanation!

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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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