fractional-reserve banking

System Liquidity Risk – Cash Is Preferred & Appreciated

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SYSTEM LIQUIDITY IS THE BIGGER RISK – “CASH IS PREFERRED AND APPRECIATED”

There is quite a bit of debate right now about whether inflation’s effects will worsen again soon; or, whether the inflation threat has been minimized and “disinflation” will prevail. Don’t look now, but the specter of a liquidity crisis is looming in the background.

The situation is such that a liquidity crisis of epic proportion might overtake all of us in our arguments about the quantity and extent of inflation’s effects. My concern was heightened this past weekend when I drove to a small, local restaurant to pick up a take-out order.

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A Visit To Jekyll Island – The Fed Is A Banker’s Bank

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A VISIT TO JEKYLL ISLAND

Earlier this year, I had the opportunity to visit Jekyll Island and see some of the landmark buildings where secret meetings took place which led to the origin of the Federal Reserve  in 1913…

With all the attention that the Federal Reserve gets today, it might be a good idea to learn a bit more about that origin which is steeped in controversy regarding claims of conspiracy.

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The Fed Always Does Its Job

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The Fed always does its job. So, just what is their job? And, how well do they perform?

For the answer to the first question, one statement will suffice: The Fed’s job is to create money; at all times and in all seasons. 

The Federal Reserve Bank creates money for the US government to spend and for banks to loan. It is a partnership that dates back more than one hundred years.

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Fractional-Reserve Banking Is The Elephant In The Room

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(Note: This article is an updated version of an original article published in 2017.  On March 15, 2020, the Federal Reserve Board reduced reserve requirement ratios to zero percent effective March 26, 2020.  The action eliminated reserve requirements for all depository institutions.)

FRACTIONAL-RESERVE BANKING

The expression “elephant in the room“…

“…an important or enormous topic, question, or controversial issue that is obvious or that everyone knows about but no one mentions or wants to discuss because it makes at least some of them uncomfortable or is personally, socially, or politically embarrassing, controversial, inflammatory, or dangerous. (source) 

A wordy definition, yes; but it is applicable to our topic of Fractional-Reserve Banking. After reading the rest of this article, you should be able to see just how important and enormous  Fractional-Reserve Banking is; as well as how dangerous.

Lets’s start with some history.

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Fed-Watching Is Overhyped And Overdone

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FED-WATCHING IS OVERHYPED

If you are one of those who is looking for clues from the Federal Reserve as to the direction of the markets, forget it. You are too late.

Too many people think that the latest Fed minutes will give them some indication of what to expect from the markets. Those same people think that the Fed actually has a strategy and that they are “managing the economy” with the intention of pursuing what is best financially and economically for the country.

Wake up! The Federal Reserve does not exist and operate with the intention of acting in our best interests financially, economically, or in any other way.

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Need A Second Opinion?

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DO YOU NEED A SECOND OPINION?

Let’s face it. No one plans financially for disaster. We assume that if we are conscientious, persistent, and long-term oriented, that our plans –  generally speaking – will find fruition.

We carry insurance to protect ourselves against financial loss from events such as death,  major illness, disability, property damage, long-term care, etc.

But what about systemic risk?

How will you survive a complete credit collapse and loss of 50-90 percent of the value of all assets denominated in U.S. dollars? What about a full-scale depression?

When most advisors talk about investing in such a way as to minimize risk and avoid market blowouts, there is an implicit assumption that whatever the situation, it will be temporary; that the financial markets will continue to function.

Maybe that isn’t the case. Wide-scale bankruptcies, bank failures, and interruptions in communication channels could effectively stop markets from functioning at all.

Suppose you have an investment that generates huge profits for you during a stock market collapse; say a short position on some individual stocks or an ETF with a similar strategy.

Because of the leverage involved, if a market decline is steep enough and swift enough, there may not be any traders or other investors with money to whom you can sell your profitable ETFs or from whom you can buy back your existing short positions.

What if the U.S. dollar renews its long-term decline in accelerated fashion? Is runaway inflation a possibility and how would you be affected?

Do you understand the concept of fractional-reserve banking and the danger it presents?

Maybe you don’t own stocks. You might own bonds which provide you with interest income. Or real estate; or gold. Extreme negative market conditions will affect all of these things in ways you probably cannot imagine.

If you are worried or concerned about any of  these things, or just feel the need to be better informed, you could benefit from a personal consultation.

Or, perhaps you are a corporate officer who has employees that would gain from a better understanding of these issues.

Whatever your particular situation, take action today. Send me an email with your concerns and questions. I will get back to you quickly.

Let’s talk…  kwilliams@kelseywilliamsgold.com

Bio: KelseyWilliams

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

 

Gold Price – US$700 Or US$7000?

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Does either of the above preclude the other?  In other words, if we expect gold to reach $7000.00 per ounce, and we are correct, does that mean that we can’t reasonably expect gold to go as low as $700.00 per ounce? Conversely, if we are predicting or expecting gold to decline from its current level and even breach $1000.00 per ounce on the downside, can $7000.00 per ounce, or anything even remotely close to that number, be a reasonable possibility? 

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Arguing About Fed Policy Is A Waste of Time

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When government (or a President) claims that Federal Reserve policy is hurting the economy, they are either grandstanding, or are ignorant about the function and purpose of the Federal Reserve.

No one wants to see the economy suffer, anymore than they want to see a plague, or infectious disease, affect millions of people. And no President wants to be in office to preside over a recession or depression. But neither can they exercise any power or influence regarding the implementation of Fed policy; particularly when it comes to interest rates.

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The Federal Reserve And Long-Term Debt – Warning!

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FEDERAL RESERVE AND LONG-TERM DEBT

Won’t somebody please say something different about the Federal Reserve? Or nothing at all?

It seems amazing to me that we are so studiously focused on comments, statements, or actions emanating from the Fed. It is as if we expect to find a morsel of truth that will give us special insight or a clue as to their next move.

I suppose that is reasonable to a certain extent – especially today. We are social-app (il)literate and very impatient. Seems to be a sort of day-trader mentality.  Problem is that every morning we see the same headlines. All week long we hear about the most recent Fed meeting, or the release of minutes from the last meeting, or what to expect at the next meeting, etc., etc. And the cycle repeats itself every month. (I’m not Bill Murray and this is not Ground Hog Day.) 

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Inflation – What It Is, What It Isn’t, And Who’s Responsible For It

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INFLATION – WHAT IT IS, WHAT IT ISN’T

Inflation is an insidious threat to our financial and economic security. It has been foisted upon us to the point that we are in danger of losing much more than the value of our money. The capital markets are facing risks of immensely greater proportion than those of 2007-08. Economic activity is primarily financed by credit and we are hooked on the drug of money and higher prices – for everything. We are told often that inflation is spontaneous and that we must learn to mange its effects. That is not true.

Inflation is intentional and practiced by governments and central banks the world over. And its effects are unpredictable and destructive. In addition, the effects of inflation are cumulative; hence, they tend to be more volatile, ongoing. And buried underneath all of the surface weaknesses is the specter of fractional-reserve banking. It is the legalized version of Ponzi scheme. A special section on the topic is included.