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A World Without Fractional Reserve Banks And Central Planning

Submitted by John Rubino via The Dollar Collapse blog,

Excerpted From The Money Bubble: What To Do Before It Pops by James Turk and John Rubino:

In a very real sense, it is fractional reserve banking and not money itself that is the root of so many of today’s evils. Whenever fractional reserves are permitted, the banking system – including the one that exists today throughout the world – comes to resemble a classic Ponzi scheme which can only function as long as most people don’t try to get at their money.

A Better System
Now, is this critique of the current monetary system just impotent ideological whining over something that, like the weather, can’t be changed? Or could fractional reserve banking and the resulting need for economic central planning actually be replaced by something better? Specifically, how could a banking system without fractional reserve lending accommodate depositors’ demand that their money be there when they want it and borrowers’ desire for 30-year mortgages which would tie up those deposits for decades? And could this market operate without the need for government oversight and management?

The answer to that last question is yes. A better financial system is possible, and here’s how it would work:

First, today’s commercial banks would split into two types. “Banks of commerce” would take deposits and keep them safe for a fee, like the goldsmiths of old. “Banks of credit” would pay interest on deposits and lend out depositor money, but would have to match the duration of deposits with the duration of loans. Deposits that can be withdrawn anytime (a checking account for instance) could only be used to fund a loan which the bank can “call” on demand, while longer-term deposits (say a 5-year CD) would be matched to longer-term loans like a business term loan or 5-year mortgage. Really long-term loans like 30-year mortgages would be funded with deposits for which the bank would have to pay up in order to convince a depositor to part with his or her money for such a long time.

The resulting mortgage would carry a high enough rate to provide the bank with a small profit, which would make 30-year mortgages both expensive and hard to get. But the case can be made that they should be hard to get. Buying a house – or anything else that requires capital for extremely long periods – should require a hefty down payment, other liquid assets as collateral and a solid income stream. This coverage would give the bank the ability to foreclose and realize more than the value of the loan, which would protect its ability to repay its depositors, thus making depositors more willing to tie up their money for long periods.

Such a society would be a lot less prone to excessive debt accumulation and inflation, bank runs would be far less frequent and government deposit insurance would be much less necessary. It would, in short, be a saner world in which individuals managed their own finances, saved with confidence and borrowed only for highly-productive uses, while two sharply-differentiated types of banks facilitated wealth protection and real wealth creation rather than paper trading.

Today’s investment banks and hedge funds, meanwhile, would be set free to speculate with their investors’ money to their hearts’ content, making fortunes when they succeed and collapsing when they fail, with no public stake in either outcome. They would be seen as high risk/high reward propositions and their customers and investors would participate with eyes wide open. No entity would be “too big to fail” because the banking system would be insulated from the vicissitudes of more volatile investment markets.

Central banks in such a 100-percent reserve world would either be completely unnecessary or serve a sharply-defined, very limited function of issuing paper currency 100-percent backed by gold/silver reserves and standing ready to exchange one for the other upon request. No need to be a lender of last resort because the banking system is sound and stable. No need to intervene in currency markets to fool citizens into treating valueless paper as a savings vehicle because paper, as a warehouse receipt for real assets, will have intrinsic value. Booms and busts would be fewer and less devastating, reducing the need for government programs in response. Debt levels would be miniscule by today’s standards, and therefore easily serviced from profitable activities. This hypothetical world, in short, is more modest and far more sustainable. All in all, it’s an attractive, completely feasible vision.




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Obama’s National Security Council Meeting Has Concluded: Here Are The People Bringing You ISIS “Strategy”

Shortly after Obama admitted to the world he has no strategy how to deal with ISIS, about two weeks after the “humanitarian” bombing of Iraq started, he rushed into a meeting of his National Security Council. Two and a half hours later, the meeting has finished and we hope the president finally does have a strategy, one that isn’t determined solely by Qatari natural gas pipeline interests.

Here, courtesy of Mark Knoller, is who was present at the NSC meeting (and how):

WH posts list of participants in Pres Obama’s National Security Council meeting this afternoon/evening on Iraq, ISIL and Syria. Ran about 2½ hours.

  • The Vice President (via secure video)
  • Secretary of State John Kerry (via secure video)
  • Secretary of Defense Chuck Hagel (via secure video)
  • Attorney General Eric Holder
  • Secretary of Homeland Security Jeh Johnson (via secure video)
  • White House Chief of Staff Denis McDonough
  • National Security Advisor Susan Rice
  • U.S. Permanent Representative to the United Nations Samantha Power (via secure video)
  • White House Counsel Neil Eggleston
  • Director of National Intelligence James Clapper
  • Director of the Central Intelligence Agency John Brennan
  • Chairman of the Joint Chiefs of Staff Martin Dempsey (via secure video)
  • Vice Chairman of the Joint Chiefs of Staff James Winnefeld
  • Director of the National Counterterrorism Center Matthew Olsen
  • U.S. Central Command Commander Lloyd Austin (via secure video)
  • Director of the Office of Management and Budget Shaun Donovan
  • Deputy National Security Advisor Antony Blinken
  • Assistant to the President for Homeland Security and Counterterrorism Lisa Monaco
  • Deputy National Security Advisor for International Economics Caroline Atkinson
  • Deputy Secretary of State William Burns
  • White House Coordinator for the Middle East, North Africa, and Gulf Region Philip Gordon
  • Assistant to the President and Director of the Office of Legislative Affairs Katie Fallon
  • Deputy Assistant Secretary of State for Iraq and Iran Brett McGurk
  • U.S. Ambassador to Iraq Robert Stephen Beecroft (via secure video)
  • Suzanne George, Executive Secretary and Chief of Staff of the National Security Council

Meanwhile, we must admit that we doubt Obama was honest when he said there is no strategy. Alas, the White House has a very clear strategy of what to do in Iraq. Here it is:

 




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What Obama Meant To Wear…

Aside from his “we don’t have a strategy” comment, the loudest statement President Obama made this afternoon appeared to be his choice of a “taupe” jacket. However, with everyone discussing Obama’s “tan pan”, we wonder isn’t the President’s ‘green’ fixation a more relevant topic?

Forget Orange, Green in the new Black…

Green Jackets and Health Care and a $15 Minimum Wage (oh and a Maserati) for all…

 

h/t @convert_trader




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A day in the life of a gym junkie’s shoes… this is just what’s accumulated by my door in the past couple of days; you should see my closet.

@hooper_fit

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Abegeddon: Household Spending Re-Collapses As Japanese Unemployment Jumps To 9-Month High

Just when you thought it couldn't get any worse… In a veritable deluge of data from Japan tonight, there is – simply put – no silver lining. First, Japan's jobless rate unexpectedly jumped to 3.8% – its highest since Nov 2013 (despite the highest job-to-applicant ratio in 22 years). Then, household spending re-collapsed 5.9% for the 4th month in a row (showingh no sign of post-tax-hike-recovery). Industrial Production was up next and dramatically missed expectations with a mere 0.2% rebound after last month's plunge (-0.9% YoY – worst in 13 months), quickly followed by a 0.5% drop in Japanes retail trade MoM (missing hope for a 0.3% gain). That's good news, right? Means moar QQE, right? Wrong! Japanese CPI came hot at 3.4% YoY with energy costs and electronic goods 'hyperinflating' at 8.8% and 9.1% respectively. As Goldman's chief Japan economist warns, "the BOJ doesn’t have another bazooka," adding that "The window for reform may already have been half closed." We're gonna need another arrow, Abe!

 

Japanese unemployment jumps to highest since Nov 2013…

 

But the job-to-applicant ratio is at its highest since 1992 (no incentive to work?)

 

Blowing the idea that "slack" is creating deflation out of the water.

Household spending then collapsed 5.9% YoY… 4th month in a row…

As Bloomberg notes, Inflation-adjusted household income fell 6.2% in July y/y, extending its slide to a 10th month in a row, according to data released today by Japan’s statistics bureau.  That is the longest period of declines since at least 2004

Retail Sales dropped and missed again…

 

  • Credit creation slowed as Loans rose only 1.95% YoY – slowest since March

But don't expect Moar QQE… as inflation is on fire…

  • MNI: JAPAN JULY CPI ELECTRONICS GOODS +9.1% Y/Y VS JUNE +8.0%
  • MNI: JAPAN JULY CPI ENERGY COSTS +8.8% Y/Y VS JUNE +9.6%
  • MNI: JAPAN JULY CPI TVS +11.8% Y/Y VS JUNE +8.0%
  • MNI: JAPAN JULY CPI FOOD EX-PERISHABLES +4.3% Y/Y; JUNE +4.1%

But apart from that… what a total disaster… only – we are sure – to be met with some glib comment from the Japanese politicians that the recovery is on track and there are signs of recovery…

*  *  *

Wondering how this ends… here's Bloomberg Briefs Tom Orlik ( @TomOrlik ) discussing the future for Japan with Goldman Sachs' chief Japan economist Naohiko Baba

Why Japan May Catapult From Deflation to Stagflation
ONE ON ONE TOM ORLIK, BLOOMBERG ECONOMIST

A heroic attempt to lift Japan’s economy out of deflation may succeed only in pushing it into stagflation. Goldman Sachs’ chief Japan economist Naohiko Baba tells Bloomberg Economist Tom Orlik why he thinks reviving growth will be tough.

Q: What’s your assessment of Abenomics’ progress so far?

A: Monetary and fiscal stimulus has provided a boost to the markets but the real economic impact is short lived. Structural reform is most important and progress has been limited. Discussion of the Trans-Pacific Partnership has been delayed. There’s been very little progress on labor market reform. We’re seeing higher labor force participation, but that reflects a recovery trend in place from before the start of Abenomics. The impact of reforms has been very limited.

Q: Do you think the Bank of Japan can hit its 2 percent inflation target?

A: I am skeptical. The CPI has already declined from its April peak. The BOJ says it will come down to around 1 percent over the summer then rise again from the second half of the fiscal year. They expect higher wages to make the difference. My view is the CPI will fall to around 0.8 percent to 1 percent and then stay there. I don’t expect the wage channel to work. If you look at the spring wage negotiations this year, despite a big government push, the results were disappointing. In 2015, weaker profits will mean reduced funds for firms to pay higher wages. My guess is that July 2014 wage growth could be the peak.

Q: If inflation goes off track, what will the BOJ do?

A: They will keep their program in place through 2016, make it open ended. They might adjust the composition of purchases, buy more ETFs. It’s difficult for them to increase the size of their JGB purchases. Banks have already sold a large part of their government bond portfolio. Liquidity in the market is low. If they can’t increase the size of their program significantly, the BOJ doesn’t have another bazooka.

Q: How do you assess the impact from April’s tax increase?

A: There was front-loading of purchases ahead of the tax increase and then payback afterward. That’s a temporary impact. The bigger worry is the fall in real income from the tax increase and higher inflation. That’s a longer-lasting impact. Second quarter GDP growth was very weak. If you take out the positive contribution from inventory buildup, real growth was minus 11 percent on a quarter-on-quarter annualized basis. That’s much worse than after the 1997 tax increase.

Q: It seems like Abenomics so far has not been good for households.

A: Real wages are falling 3 percent a year. Real disposable income was down minus 8 percent year on year in the June household survey. It is as if Japan’s economy is heading into stagflation. That’s good for managing debt, bad for quality of life. As households see quality of life fall, it may negatively affect the approval rating f r the Cabinet. That will make it harder to push painful structural reforms. The window for reform may already have been half closed.

 

Charts: Bloomberg




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Federal Appeals Court Endorses a Heckler’s Veto of Provocative Preaching

Two years ago, Ruben Chavez, Arthur
Fisher, and Joshua DeLosSantos, members of a Christian evangelical
group known as Bible Believers, attracted a hostile crowd while
preaching hellfire and damnation at the Arab International Festival
in Dearborn, Michigan. The crowd, which consisted mostly of
children, pelted the three evangelists with water bottles and other
trash. Police responded by threatening to arrest Chavez and his
friends for disorderly conduct unless they left the festival.
According to the U.S. Court of Appeals for the 6th Circuit,
banishing the provocative preachers from the public festival was
perfectly appropriate and did not violate their First Amendment
rights.

In a ruling
issued yesterday, the appeals court says video of the incident
“demonstrates that [the Bible Believers’] speech and
conduct intended to incite the crowd to turn
violent.” How so? “Within minutes after their
arrival,” Judge Bernice Donald writes in an opinion joined by
Judge Samuel Mays, Chavez and his associates
“began espousing extremely aggressive and
offensive messages—e.g., that the bystanders would ‘burn in hell’
or ‘in a lake of fire’ because they were ‘wicked, filthy, and
sick’—and accused the crowd of fixating on ‘murder, violence, and
hate’ because that was ‘all [they] ha[d] in [their] hearts.’ These
words induced a violent reaction in short order; the crowd soon
began to throw bottles, garbage, and eventually rocks and chunks of
concrete. Moreover, members of the crowd can be heard to shout ‘get
them’ and ‘beat the s*** out of them’; one Bible Believer was
pushed to the ground. Chavez’s face was cut open and bleeding from
where he had been struck by debris.”

Because bystanders reacted violently, in other words, that must
have been the reaction Chavez and his friends aimed to elicit. The
implication is that they were deliberately inciting a riot, meaning
their speech was not protected by the First Amendment. But the
majority opinion is ambiguous on this point. It also suggests that
the the Bible Believers’ preaching was constitutionally
protected but that making them do it elsewhere amounted to a
reasonable “time, place, and manner” restriction in light of the
crowd’s hostility. “The threat of violence had grown too great to
permit them to continue proselytizing,” Donald writes. She explains
that Dennis Richardson, deputy chief of the Wayne County Sheriff’s
Office, “had a reasonable good faith belief that the threat of
violence was too high because the Bible Believers had already been
subjected to actual violence.” 

In a powerful dissent, Judge Eric Clay rebukes his colleagues
for endorsing a “heckler’s veto,” as reflected in Richardson’s
words to Chavez: “What you are saying to them and they are saying
back to you is creating danger.” Richardson and the other
defendants conceded that the Bible Believers’ speech was
constitutionally protected, Clay notes, and for good reason: It did
not qualify as incitement, which requires an intent to provoke
“imminent lawless action,” or as “fighting words,” i.e., “those
personally abusive epithets which, when addressed to the ordinary
citizen, are, as a matter of common knowledge, inherently likely to
provoke violent reaction.” Clay observes that “fighting words are
defined solely by their impact on the ‘average person,'” not the
“average Muslim child.” The fact that the vast majority of people
at the festival did not respond violently to the
evangelists shows that their preaching, however obnoxious, did not
qualify for this (dubious) exception to the First Amendment.

Confronted by citizens lawfully exercising their First Amendment
rights and bystanders lawlessly punishing them for it, the police
sided with the violent hecklers. Clay argues that they should
instead have tried a little harder to calm the crowd (which, again,
consisted mostly of rowdy children), because their first duty in
this situation was to protect the peaceful party:

In my view, the video tape shows that Defendants did just about
nothing to control the crowd as it grew and became agitated.
Defendants only stepped in to inform Plaintiffs that the police
were powerless and that Plaintiffs needed to leave under threat of
arrest. This is not good faith—it is manufacturing a crisis as an
excuse to crack down on those exercising their First Amendment
rights.

By validating such police work, Clay warns, the court is
inviting more violence and more censorship: 

Law enforcement is principally required to protect lawful
speakers over and above law-breakers. If a different rule
prevailed, this would simply allow for a heckler’s veto under more
extreme conditions. Indeed, hecklers would be incentivized to get
really rowdy, because at that point the target of their ire could
be silenced. More perniciously, a contrary rule would allow police
to manufacture a situation to chill speech. Police officers could
simply sit by as a crowd formed and became agitated. Once the
crowd’s agitation became extreme, the police could swoop in and
silence the speaker. The First Amendment does not contain this
large a loophole.

Cathy Young discussed an earlier case involving evangelists at
the Arab International Festival in her 2011 essay “Fear
of a Muslim America.”

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German Finance Minister Tells EU Leaders: Free Money Party’s Over

Has Germany had enough? Hot on the heels of Mario Draghi’s ‘demands’ that EU leaders undertake “structural reforms” to boost competitiveness and overcome the legacy of Europe’s debt crisis, German Finance Minister Wolfgang Schaeuble unleashed perhaps the most worrisome statement tonight for all the free-money-party-goers – the music is about to stop. In an interview with Bloomberg TV, Schaeuble blasted “Europe needs to find ways to foster growth,” adding that “the ECB has reached the limit in helping the Euro Area.” In a clear shot across the bow of his ‘core’ cohort, Schaeuble said he “understood” Hollande’s demands but shot back that “monetary policy can only buy time.”

As WSJ notes, the French are seeking aid…

Growth in France had already ground to a halt in the first quarter, and Paris now says the persistent weakness means it won’t be able to meet its deficit reduction target this year.

 

“We can’t deny that certain geopolitical risks are playing a very important role at the moment. There are indicators of an economic slowdown,” Mr. Schaeuble said in a joint press conference with Mr. Sapin.

 

…

 

French President Francois Hollande has proposed holding a euro-zone summit to discuss using the flexibility of EU treaties to slow the pace of deficit reduction. Mr. Schaeuble avoided saying whether Germany would approve a more flexible approach for any country in particular.

 

“Nobody has a lesson to give to anyone else because everyone knows the rules,” Mr. Schaeuble said.

 

Germany has been reluctant to give up on fiscal discipline without seeing results from French promises to make structural changes to the economy in areas like labor law and welfare benefits. Europe last year already granted France a two-year delay to 2015 to bring its deficit within the EU rule of 3% of economic output–a target France is now likely to miss.

 

Mr. Sapin said the French president’s request for a euro-zone meeting is to discuss the currency bloc’s problems as a whole, not France’s specifically.

 

“It’s in no way a demand for an extension–that I can tell you straight away,” Mr. Sapin said.

Which means only one thing – it is a demand for an extension… which perhaps explains Schaeuble’s extreme tone this evening (bia Bloomberg):

  • *SCHAEUBLE SAYS  HE ‘UNDERSTANDS’ HOLLANDE’S EU ECONOMIC PLAN
  • *SCHAEUBLE SAYS EUROPE NEEDS TO FIND WAYS TO FOSTER GROWTH
  • *SCHAEUBLE SAYS ECB HAS REACHED LIMIT IN HELPING EURO AREA
  • *SCHAEUBLE SAYS MONETARY POLICY CAN ONLY BUY TIME

As he explains:

 

“Monetary policy can only buy time,’’ Schaeuble said in the interview yesterday.

 

“Liquidity in markets is not too low, it’s even too high. Therefore I think monetary policy has come to the end of its instruments and therefore what we urgently need is investments, regaining confidence by investors, by markets, by consumers.”

“I don’t think ECB monetary policy has the instruments to fight deflation, to be quite frank,” Schaeuble said.

Schaeuble said he’s confident that “my French colleagues will do what’s needed in line with the rules that have been agreed again and again.”

“It’s very important that we all know in Europe — every member state — that we have to stick to structural reforms and enhance competitiveness, even in Germany.”

Yet another nail in the coffin of any large scale sovereign asset purchase scheme…

*  *  *

With pressure from the French on Draghi to do “whatever it takes” again (for real this time) it appears this is as clear a message from Zee Germans that they won’t stand for anymore.




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Why Americans Are So Sensitive To Even The Smallest Increase In Prices

In the last year, even the 'smartest men in the room' PhDs with advanced degrees have seen their wages shrink, according to a new study by the Economic Policy Institute. As The WSJ notes, inflation has been low by most measures in recent years, but wage growth for the majority of workers has been even lower.

That means even small amounts of inflation have been painful for vast swaths of the workforce.

In recent years, one thing is clear: Neither monetary policy nor labor market policies nor fiscal policies have been able to boost earnings for most Americans. Only workers in the 80th percentile and up have seen their wage gains outpace inflation, though not by much.

 

Even the PhDs are losing money this year…

 

But since 2007, only the 80th percentile of wage-earners and above have seen any gains…

As EPI notes,

“The poor performance of American workers’ wages in recent decades – particularly their failure to grow at anywhere near the pace of overall productivity, is the country’s central economic challenge,”

*  *  *

In recent years, one thing is clear: Neither monetary policy nor labor market policies nor fiscal policies have been able to boost earnings for most Americans.

Source: WSJ and EPI




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More Than Twice as Many Americans “Strongly Disapprove” of Obama as “Strongly Approve”

Polls have previously shown:

  • Congress is less popular than zombies, witches, dog poop, potholes, toenail fungus, hemorrhoids, cockroaches, lice, root canals, colonoscopies, traffic jams, used car salesmen, Genghis Khan, Communism, North Korea, BP during the Gulf Oil Spill, or Nixon during Watergate

A new Gallup poll shows that more than twice as many Americans “strongly disapprove” as “strongly approve” of Obama:

President Barack Obama's Approval Ratings, by Intensity

The poll also shows that almost twice as many Americans strongly approved of Obama in July 2009 as do today … his "strongly approve" rate plummeted from 32% to 17%.

Why is Obama so unpopular?

Because – as horrible as Bush was – Obama is worse than Bush in favoring the super-elite, bailing out the big banks, protecting financial criminals, targeting whistleblowers, keeping government secrets, trampling our liberties and starting military conflicts in new countries.

Obama is even worse than Bush in redistributing wealth from the American people to a handful of fatcats and spying on Americans.

Obama is also worse than Bush in appointing cronies to powerful government positions.

Americans now realize that Obama is not following the will of the people.

Moreover, having a sell-out president Obama after a sell-out president Bush has shown the people that neither mainstream parties represents them.

Indeed, both the mainstream Republican and Democratic parties are virtually identical regarding core issues including:

Any apparent difference is just a scripted show.

Under both Republican and Democratic politicians, both the rule of law and free market capitalism have been trashed.

In reality, we no longer have free market capitalism. Instead, we have socialism for the rich and sink-or-swim capitalism for everyone else.   Conservatives see the socialism half of this equation, and liberals see the laissez faire free market half. Both liberals and conservatives hate crony capitalism. Look here, here, here.

People have lost faith in the 2 party system.




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