I got to thinking, why do we use banks anyway? I know why there are or should I say “were” banks in the past but why do we use them now? Banks were originally set up as a place to store savings in a “safe place.” They also were used to lend some of the excess savings back out into the community to build it out. Banks were where borrowers could get capital to build houses, manufacturing facilities and equipment. This was good for the community as a whole because savers “savings” could be kept safe while also being used to benefit the community. This at least was the original concept of having a banking system.
In the old days, money itself was also different. Money was either silver or gold and from there, “notes” were issued. These notes were normally “payable” or redeemable in the silver or gold that the bank held in their vault. If too many notes were issued against the metal held, people would figure it out and then panic, this was the original “run on the bank.” If the public for any reason believed that either the gold and silver wasn’t there or there were too many “claims” on the metal, word would spread and people would begin to gather at the banks front door asking for their “deposit” back.
These notes that were issued in the early days were from individual banks. Some notes were “stronger” than others based on the perception of the banks financial position. “Risk” was based on the quality of loans, the amount of loans and whether the community was “saving” and bringing more, new metal in to deposit. This is the way it once was. Then we got our very own central bank that tied the banking system together and issued a national currency, individual banks no longer issued their own regional “money.” Of course banks also act as a “clearing system” for transactions but this task could be performed by an exchange or exchanges without the use of banks.
So why the little history lesson? Because it occurred to me that we don’t really need banks anymore. The government over the years has stepped into this sector and made home loans, business loans, saved companies, entire sectors and even saved the banks themselves. But what has the banking sector morphed into? What are we as “savers” really doing? We put money into a bank and are “guaranteed” to earn less interest than what the inflation rate is. Our deposits are also supposedly “guaranteed” by the FDIC but we have seen legislation (Dodd Frank) where balances can be “used” to save the bank itself. FDIC is as you know hopelessly underfunded to protect even one money center bank were it to go down.
Here is what I’m getting at, what once was your money that the bank was safeguarding is now a “loan” to the bank which is THEIR money that may or may not get paid back to you. You are also lending the bank your money at a rate where you know that the currency will decline in purchasing power far faster than any interest that you might receive. Oh, and you also get to pay taxes on this “lesser than the amount of inflation” interest. Is this a good deal? Also, when (if?) you do get your money back, what will it buy? We know for a fact that it will buy “less,” the only question is how much less.
We all grew up and were taught (still even today) that we should “save” for our future. We were also at the same time taught that we could get stuff today by borrowing today and paying in the future with “cheaper money.” All I’m trying to do here is get you to think about what you are doing from a different angle. This is “their” game, it was not set up to benefit you…it was set up to benefit the banks. If you look at the game from a distance, “saving” is a good thing but you want to save in something that will hold its value. Do you like old cars? Do you like works of art? Or how about old guns? These have proven to hold their values over time. Recently, ammunition has proven to be a far better “store of value” than anything else thanks to the government buying up the supply and creating a shortage. They have also done something else that will support ammo prices, the EPA has effectively shut down the last lead smelter in the U.S. due to environmental reasons (or so they say). We will now either need to import lead to make ammo or we will have to import ammo…which will of course restrict supply even further.
I added the above in as to “why do we use banks anyway” because I wanted to point out that there are other ways to “save” along with of course using gold and silver as your medium. The danger in using banks is not solely due to the fact that they can fail, the dollar itself is what you are using as your store of value. I wrote several weeks back that Russia could refuse to trade and stop trading with dollars as a response to any sanctions, this is now happening. Russia has announced that they will trade and settle in rubles, not dollars. This is very important news; this will surely strengthen the ruble and initially to a lesser extent weaken the dollar because the trade volumes in Russia will no longer “bid” for dollars to settle.
This also does something else, something far bigger and far more important than lessen Russian demand for dollars. By setting up a clearing system that excludes the use of dollars, Russia is setting a precedent or “blueprint” if you will. China could do (they already are on a deal by deal basis) the same if they wished as could others with less fear of retribution because the precedent is now set. Please understand that Mr. Hussein of Iraq, Qaddafi of Libya and in my opinion Hugo Chavez of Venezuela were ALL “taken out” because they threatened to sell oil for something other than dollars. They each threatened to sell their oil for euros and “presto,” they were quickly invaded and met their maker.
The thought process of “why do we use (American) banks” surely crossed Mr. Putin’s mind and he has apparently now acted. Now we must wonder when the next shoe will drop…when we hear something out of Saudi Arabia. Were they to announce any departure from their 40+ year deal of “oil for dollars” I think it will be a given that the dollar will devalue drastically and at a minimum test the low 70’s versus other currencies. I also believe that you could see the entire fiat complex devalue versus gold and silver and bring the old highs into reach in a very very short time frame.
Russia is being forced into a corner is truly huge news; if you have not given thought to this question of “why do we use banks anyway,” please do so NOW. If you are sitting on large balances, do you feel “safe and secure?” Should you? I ask this because it looks like the rest of the world is starting to ask the same question!
“Please understand that Mr. Hussein of Iraq, Qaddafi of Libya and in my opinion Hugo Chavez of Venezuela were ALL ‘taken out’ because they threatened to sell oil for something other than dollars.”
Absolutely. You and Andy Hoffman are my two favorite writers because you both know that everything Washington and the mainstream media says is a lie.
we try.
You observed banks historically were to store gold and silver. But ask the next question, what do they store now? My answer is electronic bits in computers that are associated to accounts that in turn have identifiers associated to people or organizations.
Now ask: why do I need a bank to store electronic bits for me? I have several computers that can and do store electronic bits. I have been asking this question for about a decade now.
With this additional consideration, Why do we need banks?
Note I am not involved nor advocating digital currencies (best known being BitCoin), but they are a potential path that could store money on my computer that others would be willing to accept.
yes Mike, probably exactly where we are headed.
I use banks because people with whom I want to trade, like Miles-Franklin, won’t trade with me unless I do. I don’t want to use banks. And when Miles-Franklin accommodates me by allowing a means of payment outside the banking system then I will be able to use banks less.
I was being rhetorical
I was being serious.
Well, if you want a mortgage or a loan to start a business (and do not plan on crowd funding) you had better have a banking relationship. That said, considering that they lend your money out at a rate 100 times what they are paying in savings, it might be a useful strategy to speak with the bank manager and inform him you were pulling as much cash out as possible, purely as protection against “bailins” (but you might be persuaded to let them hold it for the 3-5% per annum that was the standard the past 200 years.)
OK, Why do we need banks? We don’t but…
Those who run the show have morphed what a bank is from a place where you stored your money into a place they use to harvest the fruits of your labor.
It use to be that the money people barrowed was the saving of other people, and, for this privilege you paid interest on the loan. Some of that interest went to the saver, some went to the bank (which acted as a sort of middle man in the lending process). But, once we went off the gold standard the game changed radically. Now the bank could lend money created out of thin air, and thus they no longer really needed the saving of real people. This further allowed them to decrease the interest they paid to savers, and, at the same time the Political Class (who make the rules) said the banks could charge what use to be considered usury interest rates. Check it out. Your state has an interest rate maximum, what the legal rate is varies from state to state, but as I recall it averages out at something like 8% maximum. So, according to a given state’s law let’s say it is 8%. OK, so why can the bank charge you 22% (for example) on credit card debt? Because Federal Law trumps state laws when it comes to Federal Banks.
So I ask you this: Why is it that OUR representatives in Washington vote to allow Federal Banks to charge usury interest rates? Might it be because those who own these banks finance their election campaigns and thus, once they are elected, own their votes? Or perhaps it’s because they give them stocks and thus they have a vested interest in the banks making money… I have heard that on average members of Congress have more bank stocks than any other investment…
Whatever – what should be abundantly clear is the bankers and your “representatives” in Washington are in bed together – and they have rigged the game to screw you out of your hard earned dollars. They tax you to death, they allow you to be charged usury interest rates, and the value of what’s left is inflated away over time.
When our forefathers put money in the bank [saved it] it held its value and grew over time as they were paid interest on their savings. Now only a fool would save money in a bank. The rate of inflation is less than the interest they pay you. The desire of the banks is not that you save, but that you spend and borrow (go into debt) so they can charge you their legal usury interest rates. It has changed the entire thinking of our Nation. In a single generation we have gone from a people of saves to a people (individually and Nationally) that live off the savings of others, it goes by the name: NATIONAL DEBT.
Wake up America! You are being screwed by the very people you’re electing to represent you in this Republican form of Government.
By now you’ve likely all been exposed to this quote.
‘I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.’ ~ Thomas Jefferson 1802
Understand this about The Founding Fathers were not a bunch of antique thinkers, they were extremely well read men. They did not sit around watching the Kardasians, they set by the fire and studied history. When the National Library was burned down in the war of 1812 Thomas Jefferson donated his personal library to replenish it; it is said that the library was then more comprehensive than the one that was destroyed by the British
Here’s another choice statement on the subject from a document titled The Defining Characteristic of Fascism
“Corporate Power is Protected – The industrial and business aristocracy of a fascist nation often are the ones who put the government leaders into power, creating a mutually beneficial business/government relationship and power elite.”
~ Dr Lawrence Britt
yes
Bill,
Your article today is a home run! You are correct and we don’t need banks, but the sheeple have not figured this out yet and most of the sheeple are going to lose their wealth by not having physical silver and gold.
I stopped using banks about 3 years ago. I use money orders for what few bills I need to pay each money. At first it seemed like a hassel, but now I like it and would NEVER go back to a checking and/or savibg account.
I trust the banks about like I trust the unemployment figures and the so called low inflation !!! I am the grocery buyer in our family and I know that inflation is WAY HIGHER than the government bullshit numbers !!!
thanks Farrell
Hey Bill, just a somewhat off-topic question. I used to think the miners would be a good way to invest some IRA funds. Now I am coming to the conclusion that my logic is faulty. With the metals capping since last June, I don’t think tptb will stop capping until the whole system blows up, then the IRA funds will be confiscated. Even if the funds go up in dollars, do I really want them if no metal is offered? I know Andy Hoffman dumped miners, but do you think they have a real future? I think my best move is to take the 10 percent hit and buy physical while I can, vs a larger hit on confiscation and nothing available to buy. Thanks Jeff
I will answer your question with a question. What will the miners be worth if gold is confiscated and becomes illegal for individuals to own? This happened in the ’30’s and Homestake was THE best investment on the planet. I would not abandon the miners completely and believe that Andy’s “all in” strategy is wrong.
Thank you, Bill. In reading the news every day, it is easy to assume the worst. Usually things aren’t black and white, and this may be a shade of gray, so to speak. Perhaps my quality silver miners will be the place to be, especially if they pay large dividends. Jeff
we do not have crystal balls which is why we try to cover all the bases and scenarios.
I tried to follow the GOTS approach….well, notwithstanding that my mortgage keeps me trapped in it unless I sell, but two major stumbling blocks occured.
1) My mortgage must be drawn on a bank account.
2) My payroll must be deposited to a bank account.
Kind of annoying, but I actually keep very little cash inside a bank account now. Some on the side just in case, but almost nothing in my bank account.
I make good money, but I would say that 90+% of the time, I have less than $1,000 inside financial institutions.
good job Mat, keep only what is necessary inside the system.
Very nice Blog, Thanks ! from France. Stephane Cardarelli.
thank you Stephane.