Author: MacLeod, Alesder, financial analyst and commentator. FinanceAndEconomics.org. The collapse of the global banking system - is only a matter of time. Those of us who are planning a life after this, it's time to think about what might replace the system of fractional reserve and fiat money, which are their "working" capital, but first we must understand why the modern banking system collapses. The origins lie in the failure of banks fractional reserve system, whereby the volume of bank loans to many times their capital. The problem with this system is that if some investors decide to withdraw their money at the same time, the bank will be able to meet this demand only partially. In this state, modern banks stay permanently. We know this, but believe that raids on the bank will not. In the current financial situation, such a relaxed confidence is dangerous. 5-10% of the capital stock of the major international banks heavily discounted, and this damage is masked by accounting standards, devised to conceal the real situation, rather than to inform the creditors. We all know that. However, more and more clear that when will high inflation and interest rates inevitably rise, there is a global downturn. As a result, the growth rates of banks would face an increase in delinquencies that would destroy most, if not all of the remaining capital. Unfortunately, the ability of governments to rescue banks is currently very limited due to the unprecedented deterioration of public finances since the beginning of the first banking crisis. The global structure of a modern banking subjects, even relatively healthy banks to risks associated with the proliferation of bad debts, if not directly, then through the interbank relationships that once seemed stable. The collapse of the Irish, Portuguese or Spanish bank is able to destroy and British, French or German banks and, thus, their other partners. There are many such chains of risk, having no boundaries. While many operations can be performed without the knowledge of the population, governments will be very difficult to impose on the electorate the second rescue of the banks, because they are unwise to convince everyone that banks and bankers - is evil, and they do not deserve public support. For this reason, the only thing that remains the heads of central banks - continue to pour into the financial system with new money to offset the deflationary impact of the worsening bank loan. These new money, as it seems the leaders of the Central Bank can be sent to support the weakest members of the banking system, and, according to Keynesianism, thus providing the necessary economic stimulus. But as successive tranches of new money does not have the desired effect, the need for money is only growing. That is why central banks can not stop printing money, because the termination or restriction of this flow will be deadly for commercial banks. For this reason, central banks have no other choice but to deny the growing problem of inflation, otherwise they will have to stop printing money and increasing the refinancing rate. So, simply put, in the future we are facing a flood of the entire banking system, as well as lower purchasing power of paper money. We have lived too long with fractional reserve banking, so we have to decide what will replace him, not having a general idea of ??any alternative. And in doing so we also should think about what we want from the bank's future. Initially, the function of the bank was in the safe storage of deposits and provision of customer payments. If the bank lent money to the borrower, it was done at the expense of the bank's own money, not taken from customer deposits, sent there for safekeeping. In Roman law clearly states that to take money from the deposit and use them for their own purposes - it's stealing, it's true for all of us today, if you do not have a banking license. However, a loan the bank itself - it is something else entirely, because there is that the relationship between the parties clearly established. Like any company, a bank may use this credit for their own purposes, and in case of bankruptcy of the borrower's credit institution - it's just the lender. A fractional reserve system brings these two basic relations, investor and lender, in one unit. History knows many examples when the government freed the banks from the Roman claims to deposits, usually because it allows governments to borrow at even greater amount. Today, it is equally important to us as it is for ancient Greece and Rome, to the Florentine and Catalan banks in the fourteenth century, the Medici bank in the fifteenth, the banks of Salamanca in the eighteenth and, finally, for a system of fractional reserve, which since 1844 saw the banking law year, supervise and ensure the central banks. These are just some examples of banking systems, which began with the safe storage of deposits, and then dispose of them as they wanted. The fact that all this happened before, with predictable consequences, can not believe the lie that this time things are different, or that we are now much more sophisticated in financial matters. Mixing of deposits, loans and bank capital is almost always ends in bankruptcy of the bank, which is confirmed as a precedent for today's banks. Balance sheets of our banks are overloaded borrowed funds in times of uncertainty: as it is these conditions and lead to the incursion of depositors, as well as the global financial system is already under great financial stress, it is unclear how they will manage to avoid a mass bankruptcy of the predicted history of human behavior. The collapse of the banking system does not deny the usefulness of the organization, whose function is to store customer deposits, but the business model should be quite different. Since in the future, these contributions will not be issued in the form of loans, they do not bring income from interest, so that the paper currency, which lose their purchasing power, are not suitable as a means of preserving value. The only really reliable operating system of bank deposits should be based on gold and silver. Such a depository service already exists in the operations of trade and storage of physical metal, for example, this model is followed in GoldMoney, which is located in Jersey City. Client metal is in safe storage without the participation of the bank. In addition, clients offer additional storage options in the various jurisdictions. With minor or no changes to the business, companies providing sales and storage of metal, can serve both the general public, providing clients with access to deposits and fees without recourse to the bank with a fractional reserve. For example, suppose you hire a local dealer. To pay him, you gave him an account in your store, and there transferring gold or silver equivalent of the amount that you need it. His bill is paid without the participation of the banking system, and it will have an incentive to pay their bills the same way. One can also envisage a system of repositories, providing payments between each other contributors. The network could grow quite quickly, in about the same as distributed payment system. Among the advantages of such a system is self-regulation, because stores do not need a license for the assignment of client deposits. And in case of bankruptcy of the bank's clients such repositories will be in a better position, because eventually they will be the only people who can make payments without having to resort to bartering, physical metals or cash, as in Weimar. It seems funny that the greatest danger that, in addition to inflation, threatens personal well-being comes from reputable and regulated banks. With their collapse and the end of fractional reserve banking regulation need to be gone for good. Since the regulation of banking activities is one of the two major functions of central banks after the collapse of paper currencies need for these institutions will disappear. While advocates of sound money would welcome an end to the central banks, however, important to protect yourself from problems. The most logical way out seems to deposit the capital in precious metals, which are stored independently of the banking system. Source: goldenfront.ru
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