“The truth is out: money is just an IOU, and the banks are rolling in it”
“Back in the 1930s, Henry Ford is supposed to have remarked that it was a good thing that most Americans didn’t know how banking really works, because if they did, there’d be a revolution before tomorrow morning.”
Last week, something remarkable happened. The Bank of England let the cat out of the bag. In a paper called “Money Creation in the Modern Economy,” co-authored by three economists from the Bank’s Monetary Analysis Directorate, they stated outright that most common assumptions of how banking works are simply wrong, and that the kind of populist, heterodox positions more ordinarily associated with groups such as Occupy Wall Street are correct. In doing so, they have effectively thrown the entire theoretical basis for austerity out of the window.
The above quote is from The Guardian’s recent article regarding a statement paper from the Bank of England. The BOE simply stated the obvious and actually told the truth…sort of. The world’s various currencies are in fact not money, they are IOU’s. While I applaud the BOE for being forthright, I must ask “how in the world did this happen?” Are they crazy? Who is going to get fired for this one? I’m not sure exactly the reasoning behind the “publicity,” the Guardian believes that the BOE is simply stating the obvious about money creation. I’m not so sure, it may be “obvious” to some of us, maybe 5% or even less, but the other 95% either doesn’t understand or don’t have a clue. As I’ve mentioned before in other writings, the “elite” feel that it is “bad form” to destroy someone without “prior warning”…this may just be their way of “warning the peasants” and fulfilling their own “good manners?”
As the article states, this is a very dangerous path for the BOE to go down because “the people” might just find out that they’ve “been had” (my words). If the average person figured out that what he has borrowed is not in fact someone else’s hard earned savings but instead something that their bank created with no sweat or effort…merely the push of a couple of keystrokes, there will be torture to pay. The thought process of “hey, why do I have to manually work for ‘pounds’ while you bankers can just freely create them?” could manifest quickly if the masses truly understood.
Within the Bank of England “statement,” the following link is to a very short video that is worth watching. What struck me was how the “bloke” from the BOE said, “During normal times” which also occurs in the written statement itself. Why are these not “normal times?” Also, why in the world did they do this interview standing in a vault surrounded by “gold” (tungsten?)? Is this some sort of subliminal message? Does being surrounded by gold (real money) add a sense of “importance” or truth to his words? Or maybe it’s “look, see, we still have some?” Why do they feel the need to “explain what money is?” Everyone knows what money is right? Money is the stuff you have in your bank account; it is the stuff you hand over to the waitress for coffee and doughnuts each morning. …It is the stuff that you pay your mortgage and taxes with. It is the stuff your employer pays you at the end of the week for your labors. But but, now they want to tell us that we don’t understand money?
They explain that money is “finite” and that the central banks are set up so that governments cannot create money in unlimited amounts (and out of thin air)…because governments can’t be trusted but central banks can. They say that central banks do not “directly fund” governments (really?)…and that they carefully regulate the amounts of money created (again, really?)…”during normal times.” They say that “QE” (because these are not normal times) came about to put “more money on the streets.” And since interest rates are so low, people will seek higher yields and place their “bets” in lower quality (read higher risk) investments that will flow through to marginal businesses and aid in the entire economy levitating…in “normal times.”
Well, these are not normal times by any stretch of the imagination. In fact, these are the “end times.” These are the end times of the current monetary experiment because we have reached “debt saturation.” Individuals and businesses can (will) only borrow so much before they either cannot or decide they will not borrow more (this was 2006-07). The only remedy for this situation is for governments themselves to step up and “borrow” (create more money) which is what happened from 2008 on. This is why back in 2012 and ’13 we heard of governments themselves getting into trouble financially. This is why the world collectively has borrowed far more than GDP… which is why when debt cannot be repaid we arrive at the reality “when that supports the currency’s value is worthless…so is the currency.”
So what’s the problem? Central banks can create as much money as they’d like right? Yes they can…but, they need someone, somewhere to borrow it…and that is where we are today. There are not enough borrowers left to borrow in the amounts necessary to hold “asset values” up. We are already seeing this in China with their very first defaults. Less than $10 billion has defaulted so far in 3 separate tranches yet their “wealthy” are already out selling luxury properties all over the world…to raise cash. This is because their shadow banking system went from creating $160 billion in new loans in January to a big fat ZERO in February! The credit spigot has simply been shut off. Why? For two simple reasons, lack of collateral to lend or borrow against and that phrase I keep repeating “debt saturation.”
As to “why” the BOE decided that “now” is the time to ‘fess up and explain what money is …during normal times…”and these aren’t them” (I know the Brits would gasp at my grammar), I can only guess that they “know.” They know that the jig is up. They know that the Chinese are “running their bank” and withdrawing too much money (gold). They know that they will be forced to close their doors but “you were warned” so if you didn’t “get it?” …Well then, it’s your own fault!
This idea of coming a bit clean before the SHTF fits with other recent unprecedented events like the gold fix manipulation investigation and MSM slowly coming onboard with physical shortages and gold/silver manipulation in general. On the point about these being end times, it makes good sense to me. It must really be bad for the fed to taper QE into weakness in the economy knowing that QE is the only thing keeping the markets elevated. What could be so bad that it justifies risking major collapses in the stock, bond and housing markets except desperately trying to avoid an imminent currency crisis?
maybe our “creditors” told us to cut back on QE and stop undermining the payment (value) of dollars to them? Who knows?
Bill, I am wondering how you feel about the stock market. Jim Sinclair stated I believe at the meeting you went to, that stocks had seen their lows. Many many people on King World News have been claiming a stock market collapse for a long time. I know and believe gold is great for insurance, but am now believing that gold only has caused immense problems for many people for the following reasons 1) our losses for the past 2 years stand in stark contrast to the stock market gains 2) it has caused people for good reason to look down at us especially if we recommended gold and gold shares only (in fact gold shares are just downright embarrassing).
Now I do know in the long run (who really knows how long) gold will play out but stocks were a great wealth generator the past few years that many of us just gave up on, however I am having a hard time forgiving myself for not keeping some skin in the game with general stocks so that I could rebalance into more gold. I am sure many people have the same thoughts and just wondered how you feel.
stocks “should” crash as they are quite overvalued…but, if they do not it will be because of the “hyperinflation” effect where ANYTHING is better than the currency. As for stocks and gold, which one has performed better so far this century? You are cherry picking 2 years and 2 years only. What you should be looking at is “THE VERY END”. The “very end” of the current monetary experiment is due ahead of us…stocks will not protect you, “money” will.
Bill, Thank you for your reply. I really do enjoy having this interface where you can respond. I really do believe how you responded, in fact I use the same past 14 years when talking to family and friends. I guess I should have said how diabolical it has been the past 2 years to throw people off of the true picture. Anyways I am using my question and your response to “share” with people who I care about.
10-4
You stated: “The credit spigot has simply been shut off.” There is a third reason for PBOC’s action, and that is the most of these non-regulated private trusts are illegal “Ponzi” scams that made their founders many billionaires. The so-called Chinese “Ghost Cities” were totally funded by these Trusts. Even the illegal manipulation of the iron-ore and copper markets was conducted by these trusts. Just because these trusts made investments in many areas does not classify them as “banks”. I believe that the classification as “Shadow Banks” was introduced in America as method of degrading the regulated Chinese banking industry.
Many of the founders of these Trusts have already moved to Canada and US to escape prosecution. Unfortunately for them, their “ghost cities” are still in China, and I am sure these properties will be confiscated by the Provincial governments, and become low-cost rental property.
All Federal subsidized low-cost housing projects are funded by loans from the major Chinese banks. The PBOC’s Treasury only pays the banks for results and not the administration of their subsidies. If the bank makes a bad loan, the bank pays. This procedure is disadvantageous to the small entrepreneur because the bank’s risk is greater than the bank’s rewards. Therefore, the small entrepreneurs went to these “loan-shark” trusts for their funding needs.
Just last week, the Chinese government has started a new regulated banking test program. They have newly established 5 small banks that are specifically charged with assisting the funding needs of the small Chinese entrepreneurs. The Chinese federal government typically use test programs before expanding country-wide.
thanks, interesting Victor.
Hey Bill you wrote ” As I’ve mentioned before in other writings, the “elite” feel that it is “bad form” to destroy someone without “prior warning”…this may just be their way of “warning the peasants” and fulfilling their own “good manners?”
These people believe they are gods. They try to do things like the creator does but with pure evil intent behind it. Remember the enemy said to the woman “you will become as gods”(he did not say god singular), ignorance caused her to desire the fruit which was commanded not to eat,she also gave to her husband, and the rest is history. What I get from this is their desire for greed will lead the entire species to demise and destruction, just like disobedience of mankind in the garden did. The con in all this is when people finally realize what is going on here, they are already deceived into accepting the other con. E.g accept this card because it is backed by gold. Knowing full well there is no gold behind it, just them shiny tungsten bars behind those men in the video.
Our Creator always warns us about judgement or war that will come upon us through his Prophets. These people(because they believe themselves to be gods), do the same thing and also through their False Prophet called the MSM.
The Chinese civilization is at least 5,000 years old. During that time, they have realized the true monetary value gold. The most basic observation is that for at least 5,000 years, the purchasing power of gold has been constant. The constant purchasing power is required for any commodity that is required for its monetary value.
When China fixes the price of its hoard of gold, in terms of Yuan per gram of gold, that price will be maintained for the next 100 years or more, because its purchasing power must remain constant. Even when the US claimed that its dollar was gold based, the price of its gold per ounce was raised many times. When Nixon closed the gold window in 1971, the market value of gold was many times larger than the fixed price. That was a perfect illustration that the purchasing power of the dollar was much less than the constant purchasing power of gold. Therefore, the market price is a very good indicator of the purchasing power of any countries’ currency. A true gold based currency must truly emulate gold, which has a constant purchasing power.
The Chinese are also concerned about the shiny tungsten bars. They require that all gold that they purchase must be again refined from British standard of gold bullion from 0.9995 to 0.9999 purity, and from ounce bullion to kilogram bullion. This procedure removes all impurities and tungsten. China has a large consumer demand for gold jewelry, which desires 0.9999 purity.
Hi Victor, normally I agree with your posts, this one not so much. China has been more of a “silver civilization” than gold in the past. Also, they have blown up numerous paper currencies over the years, what will stop them from doing the same thing the U.S. did with the “good as gold” dollar? Gold’s purchasing power though “constant” over a very long time frame has been anything but constant for the last 43 years and spent much of the time grossly undervalued. And yes, the Chinese should surely be concerned with an abundance of tungsten turning up. Humans are humans which is why no central bank can be trusted to limit the supply of their currency.
I have to agree with you that China used silver for its currency, as well as bronze and steel, because they were more available to its citizens than the more expensive gold. China also learned that is it is very easy to debase paper.
Most of the early Chinese dynasties hoarded gold and used silver. Those early dynasties owned gold mines, and the current gold extracted from those mines are added to the past dynasty gold hoards. I am not sure of the current status of gold that is extracted from new gold mines.
When you refer to the current gold’s value, you state that it is currently undervalued. That its value is based on the estimated market value, which we know is misrepresentative.
Fra Luca Pacioli stated in the early 1490s that the value of any monetary transaction is the price paid for that specific transaction. Therefore, the value of gold is dependent upon the price that an owner of a large hoard of gold is will to sell their gold, at a fixed price for a very long time.
I believe that the Chinese has the required discipline to not debase their Yuan. The Chinese also know that their current gold hoard is just large tonnage of shiny artifacts until they fix a price on their gold. Then their gold hoard can be used a collateral for printing and backing their current and future Yuan. The fixing of the price of the Chinese gold is currently in process, and hopefully will be announced soon.
The Peoples Bank of China (PBOC), the Chinese central bank, does not charge interest to the Chinese Treasury. Therefore, there is no incentive for the PBOC to debase the Yuan. In China both the PBOC and the Chinese Treasury is governed by the same Governor. Also, in China if he misbehaves, he will go to jail or executed.