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Author Topic: Unrestricted Banking and Problem Banking  (Read 9640 times)
minor-transgression
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March 06, 2016, 08:04:22 PM
 #41

Some ideas can be expressed simply in mathematics, but are challenging
to present via the written word. When talking about "stability" in
economics, banking, and in finance, words take on meanings more suited
to the world of Alice in Wonderland. Here is some scene setting before I
link to an article on the economics of Wilhelm Ropke that seems to have
been swept aside by the headlong rush to inflate. 

My starting point is one of financial equilibrium. A condition which,
if undisturbed, could continue indefinitely. The goods produced equals
the goods consumed, savings equal investment, and the money supply is
constant.

For this condition to be stable, the rate of interest paid must equal
the rate of capital destruction. When, for example, a fleet of ships
is insured at effectively, interest, the cost of insurance must, in
the long run, equal the cost of ships and cargo lost at sea. If that
balance is lost, the way is open to unrestricted and exponential
growth in money, or more precisely, debt.

When there is a fixed supply of money, eg gold or bitcoin, the system
has a built-in feedback mechanism that over the long run tends to
bring the system back into equilibrium. In the short run, political
and financial imbalances tend to favor particular nodes within the
network. While the creation of money by adding entries to the assets
and to the liabilities columns of a ledger, should theoretically
affect everyone equally, in practice those closest to the change gain
most.

With the abandonment of metallic restrictions on the money supply, and
the suggested abandonment of some paper fiat currencies, it is timely
to ask Why? and to revisit some earlier thoughts on these things:

http://www.epictimes.com/richardebeling/2016/02/wilhelm-ropke-the-economist-who-stood-up-to-hitler/

"But Röpke had no sympathy for Keynes’s belief that the market was inherently unstable and permanently in need of government management of "aggregate demand." In Röpke’s view the Great Depression represented a "rare occurrence" of an "exceptional combination of circumstances" that required "a deliberate policy of additional 'effective demand` into the economic system." But, Röpke continued, Keynes’s construction of a "general theory of employment" based on the exceptional circumstances of the early 1930s was a "counsel of despair" and an extremely dangerous one, because it created a rationale for continuous government tinkering and a strong inflationary bias harmful to the stability of the market economy in the long run. Indeed, Röpke became a leading critic of Keynesian economics after World War II."

Insanity - doing the same thing repeatedly, and expecting a different result ...
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March 13, 2016, 07:57:22 PM
 #42

Thinking about these statements form the Bank of England, I can't help but wonder
whether they are _that_ stupid. If, as seems likely, this is some sort of diversionary
tactic, there must be desperation bordering on panic to publish this. To be clear, the
three points in question are :

* Bitcoin provides trustless secure transactions. It's entire purpose is to eliminate
the need for trusted third parties in the exchange of goods, services, and money.

* Bitcoin exists because the people who use it trust neither governments nor Central Banks.

* Bitcoin will neither support nor suppress the Business Cycle. To try to use a centralised
cryptocurrency for such a purpose invites disaster.

Read the full article here :
http://www.bankofengland.co.uk/publications/Pages/speeches/2016/886.aspx
"So rather than try and give a lecture on monetary theory, or pre-empt the results of ongoing
thinking on this issue, I'll seek to make only a few very broad, conceptual points, touching on
the following questions:
what is the key innovation in private-sector digital currencies such as bitcoin?
what is a "central bank digital currency"? and
what might be the economic implications of introducing one?
"Acting as a trusted third party is precisely what a central bank does."

As a bonus, some views, mostly on the US economy, on where the world is gone in 2-3 years
http://fass.kingston.ac.uk/downloads/PERG-KFBM-Macroeconomic-Outlook-Issue-1-Feb-2016.pd

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March 20, 2016, 08:44:53 PM
 #43

When Germany surrendered in 1918, France among others, demanded reparations.
The resulting arrangement could be said to have created the Weimar hyperinflation
and following that, the rise of the Third Reich.
You may have heard that Keynes advised that the Treaty would fail. Now may be a
good time to revisit his reasoning.
Germany had to pay France, and others, in gold. Logic dictates that in order to
make the payments Germany had to export goods and services - to run an export
surplus, and to do that Germany needed a weak currency. Leaving aside the
magnitude of the needed surplus for the moment, France, in particular,
would not permit that because politicians would not survive the massive transfer
of jobs from France to Germany that would result from the imbalance in trade.
I will not attempt to provide any justification for that shortsighted political
failure, except to note that the recent history of the Greek economy suggests
that not much has changed. In both cases they were told it would not work.

Which brings us to today, the migrants, and excessive unemployment among young
unskilled and semi-skilled european men in particular. This time around, though,
it is Germany that imposes conditions, and to date Germany has benefited from
an undervalued currency, and a frugal population. At the moment German, and the
EU still have some options. The most sensible of these is for Germany to stimulate
its domestic consumption - in other words to start spending like a sailor on
shore leave, thus destroying the German export surplus. That's probably not allowed
within the EU, but nevermind.

It's more likely that Germany et al, will continue down the route of competitive
devaluation - weakening the currency with, for example, negative interest rates.
Strangely, there does seem to be some foresight here, or maybe they think frugal
savers are masochists, and otherwise good value for being ripped off. Anyway,
if interest rates become negative enough, the average saver will buy bitcoin,
or gold, or stuff 500 Euro notes into their mattress. Whichever alternative
savers choose, the bankers are likely to lose control, and that would never do.

So, now that cryptocurrencies are no longer the sole perserve of criminality,
large denomination banknotes seem to be the favoured scapegoat for crime and
terror. Ah, if only money could be locked down so that we mortals needed the
permission of a Central Banker like the FED to move it ... dream on Bangladesh ...
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March 27, 2016, 08:25:53 PM
 #44

The term "fractional reserve banking" seems to be creeping back into useage
on the pages of this forum. I've given some thought as to why this mistaken
identity persists even among those who should know better. Let me be clear
about this. The term "fractional reserve banking" requires a gold standard or
its equivalent. Fractional reserve banking ceased to exist for all practical
purposes in 1971 when Nixon ended the covertibility of the US dollar into gold.

Now, I have the difficulty of explaining the present system, but I'll not attempt that
because it is best you work it out for yourselves. I'll simply say that you need
to see the wold differently.

One possible reason for the above error in perception may be bitcoin itself.
Bitcoin owners are well aware of the limited ability of the cryptocurrency to
expand, and may confuse the insubstantial but constricted nature of bitcoin for
the various ponzi schemes masquerading as fiat currency. The breaking of the
link between gold and the dollar should give a clue to what is really happening.

It's time to think differently about banking - fractional reserve or otherwise.
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April 09, 2016, 09:04:39 PM
 #45

A week ago, I posted this in another thread. Apart from one comment
to the effect that "this can't be so" things carried on with the usual
"Capitalist Pigs" and "Socialist Scum" way of thinking. I'm posting
here just for the record:

Y'all make yourselves comfortable, this one will take a little time.

I'll begin with the thought that to really mess up an economy, some
form of centralised decision making is needed. That's very different
from Adam Smith's invisible hand and its implied equal distribution of
power and insight that enable each individual to perfectly understand
the future and to have the fortitude to maximise his or her personal
outcomes irrespective of short term gains. Indeed, that perfection
presupposes that each individual is born into the world with perfect
knowledge. The real world is somewhat different.

In a way reminiscent of the Big Bang theory, microscopic advantages can
play out over long periods of time to create Empires and Catastrophes.
The key to this amplification is referred to in monetary terms as
compound interest. Compound interest sets in motion the idea that
something can grow exponentially forever. In a finite world, and given
differences that are far from microscopic, despite best efforts at
competition, one entity can eventually buy everything. This is the
perfect capitalist monopoly, something the game called "Monopoly" was
intended to demonstrate.

This illusion depends on the assent of a vast majority of the
population. The very idea of money is the outcome of a belief that debt
will be paid, and this in turn depends on social norms collectively
agreed. To the extent that monopoly and competitive capitalism
exists, it owes its existence to these conventions. There is thus
a paradox in the concept of Perfect Communism : The State owns
everything including the individual, but then requires the consent of
everyone for its existence. The Perfect Capitalist has a similar
paradox: his dependence on the legitimate monopoly of violence of the
State for his or her existence, but owning everything not owned by the
State.

Some may find difficulty in understanding that  Perfect Communism and
Perfect Capitalism should coalesce to the same solution, but from the
point of view of an owned individual, these differences are at best,
academic. Individuals find economies of scale in mutual cooperation,
and such conflicts that do arise are settled in a market of buyers
and sellers. The mutual satisfaction of these deals is unavailable in
the winner-takes-all world of grand strategies, that usually forces
war onto one or more of the players.

For the State and the Capitalist, War is a convenience for demanding
complete subservience and loyalty in their populations, while at the
same time diverting attention from the conflicts of interest writ large.
Chief among these are the paradox referred to earlier: the moment that
Perfect Control is manifest, it becomes the moment that collapse begins.

Left to itself, the system would endlessly cycle through the rise of the
Individual, the rise of the State, the rise of the Capitalist, and into
Collapse. As a consequence, political and monetary systems have grown to
mitigate these long wave cycles, seeking to move to a quasi-stable
equilibrium that maximises the wellbeing of elite sectors within
populations. Despite protestations, it is clearly not in the best
interests of any elite that resources, information and power structures
should be diffused through the population because that would strengthen
the invisible hand of the majority to produce an outcome that may more
effectively promotes the interests of society as a whole.

Consider Durkheim's New Religion of the West: The cult of the Individual,
finding expression in the Enlightenment, in the French Revolution, and
more recently in the youth movements of 1960's, and 1970's. Did
prosperity bring individual freedom, or did individual freedom bring
prosperity? Can proof by contradiction provide an answer?   

Consider, for example, the waging of war. As explained above, war is
almost never in the interests of the mass of individuals but most often
an unintended outcome of the narrow concentration of wealth and power.
Those waging war are certainly conscious of the enormous costs, but
calculate that the burden of these costs is either worth paying or
will be paid by others. Rarely are the costs paid for in advance, but
almost always by increases in public debt. Indeed, in today's world,
public debt, that burden upon the taxpayer, is the only available
recourse. Were the elite forced to pay for that war themselves it would
entirely negate the reason for their existence. 

Thus the Elite faces a choice: War, and poverty for the masses, or share
as an individual and invite prosperity. Thus, individual freedom comes
first and prosperity for all follows.

Well, that's the theory. How does this work out in practice?
In the long run, you get a steady drift toward totalitarianism and the
pretence of economic "stability" followed by catastrophic collapse and
war. Keep an eye on economic inequality as this tracks the progress of
power moving into the hands of the PriviLeged.

In the near term? That depends on where you live. Nothing says
instability like the gulf between the actions of the ECB in propping
up the EuroZone's financial structure, and action in real life to
forestall a wave of migrants seeking a home in Europe. There are less
obvious contradictions in Asia, and in North America, but Europe is
the game in play at the moment. To state the obvious, Germany could
have transferred work to Greece, but preferred to keep the work
within its borders and to invite migrants from outside the EU to
grow its GDP. Weren't the Spaniards, Irish, Poles, Ukrainian workers
good enough, or desperate enough?

I'll give the EuroZone another two years, a little less if the UK votes
to exit this year, could be longer if they get lucky. All of the
leaders that could potentially hold the thing together are now damaged
goods, and well past their sell-by date. But to try to keep things under
control, there will be more pressure to reduce individual freedoms.
"We are all in this together" - well Mr Cameron, some are more "in it"
than others, and as Mr Hollande (18% popularity) found out, Edicts do not
always pass. 

And what do the migrants, perhaps 80% young unskilled men do once
they set foot on a southern Mediterranean shore where the unemployment
rate among young unskilled nationals approaches 50%? Make matters
much worse, and they will keep coming until the balance of economics
compels them to stay in their home country, or migrate elsewhere.
That is almost as absurd as paying people to dig holes and others to
fill them in again thus boosting GDP and giving a fake impression of
growth. Or, in a more technically advanced setting, bomb a country's
infrastructure back to the stone age and them provide billions in aid
to rebuild it in exchange for resources.

Ah, yes, resources. Scarce resources. When resources become scarce,
they either get rationed or monopolised, and my bets are for more
rationing, which means more controls, more government, less freedom.
And that in turn means less growth, specifically, lower global
productivity, and down that road lies collapse via hyperinflation
and depression. Everywhere.

Hang onto your bitcoin, and neither a debtor nor a lender be. 
 
PS: And the latest? There seems to be competition to see who can cause
the biggest unnecessary crisis in Greece (see IMF). Do they actually
think they are in control of this? 

It's likely that "neither a debtor nor a lender be" needs some further
explanation, though I should point out that money was not the intended
focus of my earlier post.

If you are in business, borrowing and lending (extending credit) is
unavoidable. It goes with the territory. The advice really makes the
point that you should avoid placing your future in someone else's hands,
and most certainly to avoid borrowing in order to extend a loan
because that is the business of banks. 

Today, much of the stigma is gone from being in debt, and the linkage
between debt and prison is gone. While forms of slavery still exist
in the world today, to most of humanity, the idea of owning another
person is repugnant. That enlightenment is recent, perhaps less than
200 years, and is perhaps the result of machines costing less than
people. It perhaps the benign face of Capitalism.

Regarding the question of why money must increase, the time preference
of consumers and others is the answer. See here :
http://www.zerohedge.com/news/2016-04-01/path-final-crisis
"Market interest rates consist of the natural interest rate plus two
additional components: a price (or inflation) premium that reflects the
expected decline in money's purchasing power, and a risk premium or
entrepreneurial profit premium that reflects the perceptions of lenders
of a borrower's creditworthiness and generates an entrepreneurial profit
for those engaged in lending."

Maybe later I'll write something on the return of privilege (separate
legal status) for the Elite in Europe and elsewhere.
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April 09, 2016, 09:05:43 PM
 #46

Recent news on tax havens got me thinking about bitcoin - but see this:

http://amlcft.com/fincen-and-nar-jointly-release-voluntary-aml-guidelines-for-real-estate-professionals/
"The National Association of Realtors (NAR) has just published a paper entitled: Anti-Money Laundering Guidelines for Real Estate Professionals. The fact sheet and suggested voluntary guidelines were developed over the past several months in collaboration with the U.S. Department of the Treasury. In February of this year, Treasury issued regulations for non-bank financial institutions requiring certain plans and documentation for anti-money laundering actions. At that time Treasury exempted the real estate industry from the regulations because most cash involved in real estate transactions is regulated through other entities."

So, Real Esatate purchases in, for example, New York, or London get a
pass from the legislators but bitcoin gets hit with AML and KYC, both barrels?
Clearly bitcoin exchanges are not making the right "noises" in the halls of
power, or maybe terrorists, criminals and paedofiles just do not buy property?

There may be a simpler explanation for this and it has to do with PriviLege
and taxation. You may, or may not, be surprised to hear that those working for
the European Commission, the IMF, the UN, and some other bodies are, for all
practical purposes, above the laws of their host country. Mostly, there are
sensible reasons for this - raping your maid is not one of them BTW. Unfortunately,
this does, of necessity, create a "Them" and "Us" and those of "Us" with
sociopatic or psychopathic tendencies by their very nature will want to transit
to "Them" status to carry on their activities with fewer restrictions, such as
having to pay taxes, or explaining how the money got into their bank account.
Hence in a world where the Central Bankers are busy doing asset price inflation,
the PriviLeged would like to have as few questions asked about their property
purchases, and their legislators seem happy to oblige - and I chose that word
carefully.

I put this up front because it is too easy to become focussed on the mechanics
of money laundering and of tax evasion when it is the people involved who matter.

So, 2.6TB, 11+ million records worked on by 400 journalists . . .
http://www.irishtimes.com/business/financial-services/who-are-mossack-fonseca-1.2593760
"Today, Mossack Fonseca is considered one of the world's five biggest wholesalers of offshore secrecy. It has more than more than 500 employees and collaborators in more than 40 offices around the world, including three in Switzerland and eight in China."
And no outcry in the main stream media about hacking, or national security, or
copyright or trade secrets, the sort of things that bitcoin gets pilloried for
when the MSM is having a quiet day. Could it be because the legislators want
this sunk quickly and quietly? Obama and Cameron and others have loudly proclaimed
that something will be done to get everyone to pay their taxes, but nothing gets
done. I seem to recall that certain resources got cut just as they appeared to be
getting somewhere. And see this:
http://www.zerohedge.com/news/2016-04-06/panama-tax-haven-leak-bigger-picture
"The consequence of its operations is that money laundering is now at such levels and so widespread that the authorities have recently admitted defeat in its battle of attrition by stating openly it has been completely overwhelmed and lost control. Keith Bristow Director-General of the UK’s National Crime Agency said just six months ago that the sheer scale of crime and its subsequent money laundering operations was "a strategic threat" to the country's economy and reputation and that "high-end money laundering is a major risk"."
To judge from the comment "one of the world's five biggest" it's possible to say
that millions of high net worth individuals are hiding their ownership of property.

I'm fond of privacy myself, and that's one of the reasons I own bitcoin, but I've
paid my taxes. It goes with the territory, so to speak - in ancient Rome for example
"Every five years a citizen had to register himself there. He had to declare the
name of his wife, the number of his children, his property, his possessions, from
his slaves to his ready cash to his wife's jewels and clothes. The State had a right
to know everything, for the Romans believed that even "personal tastes and appetites
should be subject to surveillance and review."[1]" Hence, to maintain a balance
between power and responsibility, those with the most should be the most open -
however, surveillance as a method of control and of oppression is an entirely different
matter.

Let me suggest that the world is moving from a time of plenty to a time of famine.
The incoming changes are too complex to deal with here, but clearly, benefits
promised will be unable to be delivered. Worse still, the privacy and PriviLege
outlined above will make grave situations worse. "They" will evade taxation while what
little we have will be taken from us by the State. This system needs to be changed
and change will come neither quickly nor easily to the Leona Hemsleys of the world
who ensure "only the little people pay taxes".

Oh, and BTW, "much of the leaked information will remain private"
You didn't think they would let us know their secrets did you? You'll hear just
enough to divert attention from what's really going on.

[1] Plutarch, Cato the Elder, 16.
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April 10, 2016, 09:18:09 AM
 #47

Our bitcoin technology can be described as a unrestricted bank, as there is not much restrictions as well flaws. Problem bank were very minimal as most banks of the country has improved their services.

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April 11, 2016, 07:04:05 AM
 #48

Just for the humor

http://www.zerohedge.com/news/2016-04-10/italy-seeks-last-resort-bailout-fund-ringfence-troubled-banks-meeting-monday
"Italian bank shares have lost almost half their value so far this year amid investor worries over a E360bn pile of non-performing loans - equivalent to about a fifth of GDP. Lenders' profitability has been hit by a crippling three-year recession."
Comments :
"SumTing Wong : Why am I seeing Monty Python's bit about "bring out your dead" in my mind?"
"CarpetShag : How about a "cordon sanitaire""
"gatorengineer : Kinda like the cartoon monster swallowing the dynamite."
"Yen Cross : You can't make this shit up... Ohh wait... " Yes you can"."

Does Kuroda still believe in PeterPan? Who knows?
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April 13, 2016, 09:03:40 PM
 #49

A Modest Proposal : Double Liability and the Re-Capitalisation of Banks.

First, some history. Prior to the Wall Street Crash of 1929, there were
some interesting conditions attached to the ownership of US Banks.
Cognisant of the dangers of unfettered banking, and incentives before
the owners of the Banks, i.e. the Shareholders, the State placed an
additional burden on Equity.  

If the bank went into bankruptcy, not only did the Shareholders lose
their investment, they also had to make good the losses of the creditors
up to the original value of the Equity. Put simply, if a bank went
bankrupt, the investor lost twice his investment.

After the Wall Street Crash happened, "[t]he regime of bank double liability
was rejected and and abandoned on three grounds: (1) that it failed to protect
bank creditors; (2) that is did not maintain public confidence in the banking
system; and (3) that deposit insurance was a far preferable means for
accomplishing the regulatory objectives." [1]
"History shows that the Nation took a wrong turn when it abandoned double
liability for a system of governmentally administered deposit insurance."

The prosperous times of the 1920's encouraged widespread shareholding among
the US general public, and those with family or employment connections to a
bank purchased shares without insider knowledge or insight of their potential
liability in the event of bank failure. The result as noted in 1936 was that
"many innocent stockholders who have taken no part in the management or control
of the bank" became bankrupt. The legislation was progressively repealed
starting in 1933.  

Today's taxpayer is the one who makes good not only the Creditors but
also the Equity holders of these banks via the process of quantitative easing.
More recent news suggests that eight years on from the last crisis, the
necessary remedies are not yet in place.

https://www.fdic.gov/news/news/press/2016/pr16031.html
"The agencies have jointly determined that each of the 2015 resolution plans of Bank of America, Bank of New York Mellon, JP Morgan Chase, State Street, and Wells Fargo was not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code, the statutory standard established in the Dodd-Frank Wall Street Reform and Consumer Protection Act. The agencies have issued joint notices of deficiencies to these five firms detailing the deficiencies in their plans and the actions the firms must take to address them. Each firm must remediate its deficiencies by October 1, 2016. If a firm has not done so, it may be subject to more stringent prudential requirements."

Put simply, under double liability, the bank's management is incentivised to
behave responsibly and to take the bank into voluntary insolvency before
depositors and creditors funds are put at risk. Further, those funding
margin lending and related activities are incentivised to monitor the
activities of their clients and to manage their lending appropriately.
It is too easy for a bank to lend funds to investors for the purchase of equity
in the bank.

[1]http://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=2677&context=fss_papers
http://www.jstor.org/stable/2673878
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April 21, 2016, 08:12:39 PM
 #50

Do you like Science Fiction? Can you imagine yourself standing on the
shore of some strange planet in a parallel universe, watching a wave
wash up at your feet, knowing that the wave comes from an asteroid that
has not yet hit the planet?

Welcome to the world called Finance :-)

Maybe it helps to know that you got here via a singularity called NIRP,
and that in this world, money is a liability. The more money you have,
the more interest you pay. In that world do you still want to be rich?

Whether banks can survive there is an interesting question, closely
followed by how to regulate them? Some interesting research is ongoing
here at the moment - see "Complexity Theory and financial regulation"
"In addition to data, understanding the effects of interconnections also relies on integrative quantitative metrics and concepts that reveal important network aspects, such as systemic repercussions of the failure of individual nodes. For example, DebtRank, which measures the systemic importance of individual institutions in a financial network (Cool, shows that the issue of too-central-to-fail may be even more important than too-big-to-fail."
http://science.sciencemag.org/content/351/6275/818.full

Such methods may work on some distant planet, but in this real world,
that's not how these things work. Bluntly - in a world where GDP
growth is negative, banks - all banks - become insolvent[1]. In case you
haven't noticed, it's been "all hands to the pumps" since 2008, all
busy pumping the interest that savings should have received into the
banks balance sheets to keep them afloat. That's on the premise that
"escape velocity" will be achieved and growth - aka inflation - will
resume.

An intravenous drip of monetary viagra and MSM opiates has merely
concealed the progress of systemic gangrene while keeping the
patient on the operating table.[2] As for growth - that's looking
quite limp[3]:
https://www.frbatlanta.org/-/media/Documents/cqer/researchcq/gdpnow/RealGDPTrackingSlides.pdf
 
When growth fails, there is a delay while TPTB move to higher ground,
trying to get there before the crisis floodgates open. Then when savings
and pensions and deposits are under threat, it's "do as we say or
"tanks in the street"." That means some banks get saved as the outcome of
a political process and not through the oversight of a privately owned
regulator via an objective risk assessment seeking the greater good of
the you or I.

So, what's in this for you? What's the trade? Should you buy or should
you sell?

Before considering that, a simple question : Have you sold everything
you own and given the money to the poor? [4]

Now, that's a whole different planet, isn't it?

[1] In Theory the regulators sould seize the banks before they become
insolvent. In practice that rarely happens. Banking depends on lending
long and borrowing short, and that tends to mean liabilities (eg bonds)
are fixed while assets (eg equity) vary with the fortunes of the economy.
Typically, an "adverse scenario" will model zero GDP growth over the
period with the intention of identifying individual bank weaknesses,
but this does not address the possibility of contagion and systemic failure.     

[2] search for  "The Risks From Further ECB and BOJ Easing" - Deutsche Bank.

[3] Unfortunately, once the true horror of the picture emerges, well,
Mr Nicholson put it thus: "You can't handle the truth". Which will be
interesting because the Atalanta FED already published how their
GDP forecasting model works.

[4] see Matthew 19:21

Some useful bank and complexity links:
 
"DebtRank: Too Central to Fail? Financial Networks, the FED and Systemic Risk"
http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3412322/

https://financialresearch.gov/gsib-scores-chart/

https://financialresearch.gov/working-papers/files/OFRwp-2016-01_Stressed-to-the-Core.pdf

https://financialresearch.gov/from-the-management-team/2016/03/08/ofr-working-paper-shows-impact-of-credit-default-swap-stress-across-the-banking-system/

http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq415.pdf

http://www.zerohedge.com/news/2016-04-15/fed-sends-frightening-letter-jpmorgan-corporate-media-yawns
"How could one bank, even one as big and global as JPMorgan Chase, bring down the whole financial stability of the United States? Because, as the U.S. Treasury's Office of Financial Research (OFR) has explained in detail and plotted in pictures (see below), five big banks in the U.S. have high contagion risk to each other. Which bank poses the highest contagion risk? JPMorgan Chase."

For a primer on bank contagion see my post :
https://bitcointalk.org/index.php?topic=355212.msg12253705#msg12253705

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May 07, 2016, 08:58:24 PM
 #51

On QE and Money

Professor Steve Keen explains why QE doesn't cause inflation:
https://www.youtube.com/watch?v=d1Mug1EPaAo


There is a surprising lack of understanding of fiat money by bitcoiners eg
"Of course the current QE doesnt inject money, they just inject loans not money."

The difference between debt and money is that the liabilities go on the
left column in double entry book-keeping. Got it?

What we think of as money is a note that says something like
"I promise to pay the bearer on demand the sum of one pound"

The first thing to realise is that the government has no means of paying,
except via their monopoly of violence. So to deliver your pound, the
government simply points a tax (or gun) at somebody and demands a pound.
Or a dollar, since the US government is the gunslinger du jour,

And somewhere a pound gets deleted from the liabilities and from the
assets sides of a balance sheet. Got that? Good.

Maybe it's time to move on from ideas such as "Little girls are made
of sugar and spice and all things nice - little boys are made of snips
and snails and puppy dogs tails" and away from the politics of
Capitalism and Socialism and this artificial divide promoted by the MSM.

Money, essentially debit and credit, is both good and bad. To keep things
simple, think of the Roman Denarius in the early Roman Empire. This
provided a secure anonymous method of payment to the value of produce
anywhere in the empire. The cost of wheat in Rome and in Egypt could
be easily and accurately compared and investment decisions made.

The downside is that collapse is a feature of all monetary systems,
and is independent of whether it is labelled as Socialist, or Capitalist.
I'd guess this is something of a paradox to Martin Armstrong since
he understands the cyclic nature of our world, but is opposed to
"Socialism".   

Now, I'm going to move onto something I don't understand. I've found
that when something looks wrong, there's usually a good explanation.
This time, it's bank debt, specifically, inter-bank lending.

I've earlier referenced the interconnectedness of banks. On balance,
this seems to make the financial systems less stable. So what are the
incentives to become more connected?

I'm hoping that someone with direct knowledge can explain all the
factors. My guess is that bankers are incentivised to lend money.
Thus if bankerA in bankA lends $100 to bankerB at bankB, he gets a
bonus. If bankerB then lends $100 to bankerA at bankA, bankerB
also gets a bonus. Both bankerA and bankerB are happy, but bankA
is now connected to bankB, the leverage of both banks has increased,
and similarly so has GDP.

While the lending described above probably doesn't happen in real life,
what about lending via more than one intermediary? BankA to bankB to
bankC to bankD to bankA? Why not simply offset inter-bank loans
already on the books? Would cancelling these also destroy bonuses?
 
The result seems to be a network that self adjusts to cause the
maximum systemic damage when it fails. To quote Mr Bernanke,
"tanks in the street" but other Central Bankers offer much the same
sentiments.

This seems absurd. The financial sector is uninvolved in the
physical world. Theoretically, if every bank magically vanished
overnight, there is no reason why everyone else should not go to
work as normal the next day. So why do we allow this absurdity to
continue?

There has to be a better way. Bitcoin is a good start, but more
is needed for a workable system.
Pab
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May 07, 2016, 10:33:45 PM
 #52

Just for the humor

http://www.zerohedge.com/news/2016-04-10/italy-seeks-last-resort-bailout-fund-ringfence-troubled-banks-meeting-monday
"Italian bank shares have lost almost half their value so far this year amid investor worries over a E360bn pile of non-performing loans - equivalent to about a fifth of GDP. Lenders' profitability has been hit by a crippling three-year recession."
Comments :
"SumTing Wong : Why am I seeing Monty Python's bit about "bring out your dead" in my mind?"
"CarpetShag : How about a "cordon sanitaire""
"gatorengineer : Kinda like the cartoon monster swallowing the dynamite."
"Yen Cross : You can't make this shit up... Ohh wait... " Yes you can"."

Does Kuroda still believe in PeterPan? Who knows?


Does Kuroda still believe in PeterPan? Who knows? No no more,nvestors already has lost his trust in Central Banks,markets ae stying flat in fact,but what will FED do now whan USA is entering in recession
Print more to make makets even more happy,that economy is already living with zero value
no problems we gonna make less than zero a new value,new fnancial era
possible or economy will be frozen,below zero is ice,and finally death

 
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May 14, 2016, 09:30:18 PM
 #53

Not strictly about economics, banking or bitcoin, but
we'll see how this goes. The incoming vote within the
UK to decide to either remain in the European Union or
to exit, is not far off. I'll set out a few thoughts on
that but first "What has the EU ever done for us?"

The EU has improved the environment. The UK's standards of
cleanliness and control are often the subject of censure
and financial penalties by the EU, forcing Westminster
and local governments to clean up their acts.

The EU has championed privacy and free speech. Both the
Conservative and the Labour political establishments have
progressively suppressed dissenting voices to the point
of embarrassment. The EU has set the standards, pushing back
against worldwide surveillance and control.

The EU has acted as a restraint against unjust wars, while
the UK has almost without exception supported costly
and ineffective aggression, including the extra-judicial
killing of its own citizens.

With that background why leave the EU?

It may be a straight choice of identity : European or British.
Make no mistake here, the European Project is all about
subsuming national identities into a common view of the world.
That view gives every European the right and expectation to
be your neighbour, and to be welcomed as such.

European legislation is designed for Europe. Already some 60%+
of UK legislation is driven by decisions made by Brussels, and
if the UK decides to remain, that percentage will increase.
There are circumstances peculiar to the UK that are not shared
by the majority of the EU: the UK is an island nation; with a
maritime climate; English is an international language; and
the UK still has significant reserves of oil, gas and coal. 
 
Voting yes to remaining will make it difficult to resist further
integration within the EU both fiscal and political. Which
would you prefer for your monetary system: Greece or Iceland?

One of the arguments for Remain, is that the UK would be better
able to influence EU decisions and international matters as part
of a greater Europe. One need only look at the secret and
secretive processes surrounding the negotiations for the TTIP,
for every member of the European Union to realise the absurdity
of that argument. And the European Commission has done itself
no favours by it's recent decisions and standards such as
"When things get serious you have to lie".

More to the point, what would Brexit mean for Bitcoin?

A vote to stay in the EU, with its implicit decision toward
further integration, would suggest a diminishing role for
the pound sterling. Further, offshore UK supports Bitcoin,
and that would likely spread to the UK mainland with
increasing use of the Euro. With Brexit, not much would
change.

These are the rational arguments. For the irrational argument
see the scene from "Downfall" and a review of EC responses to
the migrants. Hitler addresses the Generals "What are you now
proposing we do?" A General "We plan to give every migrant
an IOU for Euro75,000.00 - that will solve the problems of
falling GDP growth, of deflation, and provide for the migrants
while they are within the EU until they find employment".
Hitler "Everyone not in the European Commission or the ECB
leave the room now"   
"What f****g use is an IOU? What difference is there between
that and a bundle of the Euro500 notes that you want to ban
because they can only used for criminal activities? The
banknotes would be better. If we just gave them the money
they might just **** off back where they came from".
And Scene

Note: Economists argue that economic migration is always good
for an economy. That argument ignores the fact that throughout
history migration (excluding invasion) was always subject
to controls. When it was not beneficial, immigration was stopped.
When it is uncontrolled it is called "invasion".
Just sayin'.
 
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May 21, 2016, 07:40:45 PM
 #54

This post resulted from a comment to the effect that global corporations
seemed to be beyond the ability of governments to control them. I was
struck by some similarities (and some differences) between today's trade
deficits, global industry and the story of the East India Company.
Some background history.
Following the defeat of the Spanish Armada, within months, merchants in
the City of London set up and received Royal Assent for an exclusive trade
agreement to the East Indies. This led to the setting up of the Crown
Corporation, and later the East India Company.
Some fifty years after the Royal Assent, The King, King Charles, decided
to solve his national debt problem by seizing (as a loan) gold stored
at the Royal Mint.
Nine years later King Charles was executed. Later, the Monarchy ceded
control of the City of London, and of the Crown Corporation to the Merchants.
The East India Company continued to expand, rivalling smaller nations in
its scope and power, until, in the mid 19th Century, it controlled half the
world's trade. Unsurprisingly, limits began to appear.
The East India Company was buying tea and silks in China, shipping these
to India, and from there shipping spices and finished goods to England and
Europe. 
For a while, the trade deficit could be filled by shipping precious metals,
mostly silver, to China. That couldn't last, and China was uninterested
in helping solve the problem by either importing goods of inferior quality
or by importing Western services. What to do?
It seems likely that any similarity between today's problems and those of
the mid nineteenth century ends at that point, but here's what happened. 
The East India Company began shipping opium in ever increasing quantities
to China. When the Emperor objected, British gunboats destroyed China's
Navy, and British and Indian troops seized China's cities.
Despite the military success, financial problems continued to plague the
East India Company, and over the next decades its resources and powers
were transferred to the Crown Corporation. In 1874 the East India
Company was dissolved.
An early form of Bail-In, and arguably an example of the parasite
destroying the host. 
Today, many global corporations do not seem fit for purpose, and bankruptcies
are on the rise.  The lesson to take away from all this is that when these
Corporations (and banks) fail, they cause a great deal of collateral damage
to those least able to bear it. This time the play may be different, but
it's difficult to see how the outcome can be changed. 
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May 21, 2016, 08:57:23 PM
Last edit: May 21, 2016, 09:33:40 PM by deisik
 #55

Okay, let's start with money

Quote
Money: An agreed method and system of payment exclusive of third-party risks. Gold, Silver, and Bitcoin are Money. Everything else is either credit or a liability

Explain in a few words how gold and silver are free from third-party risks, and what exactly do you understand by these risks. Gold as well as silver can be counterfeited, does it pass as a third-party risk?

Please, be concise, specific, and avoid vague terms that lost their meaning long ago

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May 22, 2016, 07:07:50 PM
 #56

Interesting questions - I might have asked these some years ago.

Regarding third party risks: Silver and gold are in the same asset class,
so (unless there is something I haven't thought out,) the answers for gold
will apply to silver.

Obviously, gold is gold, and tungsten is tungsten. A sufficiently good
attempt to deceive may succeed in passing on a quantity of tungsten
where gold was purchased or was stored. The end effect is much the same
as that achieved by the use of force: an illegal transfer of ownership
of the gold.

Herein lies the difference: third party risks generally do not give
rise to criminal charges. Such risks are broadly defined as arising
from a contract between parties where one (or more) party breaks the
contract. Hence, nobody goes to jail, and the Justice System has no
mandate to pursue the matter via the criminal courts.

Thus, though the effect on a bank balance may be equivalent, passing
off a toxic MBS as good collateral has less risk when compared to
selling tungsten disguised as gold. To the extent that these acts
seem to be the same reflects the confusion in most people's minds
regarding credit and money. This "confusion" was perhaps the basis
for the film "The Big Short".
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May 22, 2016, 07:17:56 PM
Last edit: May 22, 2016, 07:28:00 PM by deisik
 #57

Thereby, I conclude that you should exclude gold (and silver, for that matter) from consideration as true money since they are liable to counterfeiting, i.e. to third party risks. On the other hand, digital fiat, like Bitcoin, can't be counterfeited, so it does meet the requirements of what you consider as money. Otherwise, you should clarify what you actually mean by a third party risk, and how it is related to your concept of money...

I simply can't fathom how violation of a contract by a party to the contract can be deemed as a third party risk (emphasis added)


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May 22, 2016, 08:11:30 PM
 #58

"Such risks are broadly defined as arising from a contract between parties where one (or more) party breaks the
contract."

Suppose I agree to pay you one pound of silver around 1850AD, and I give you a "Pound Note" payable
in 2016 by the British Government. Your "Third Party" is the British Government. Good luck suing them.

Ok, maybe I'm missing something, how do you counterfeit gold? Pass off 0.998 purity instead of 0.999?
I think you mean something else, and theft is theft whether by force or by fraud. I think once you try to
be specific, you will fail.

And you think that Bitcoin cannot be stolen by force or fraud, I think the risks are higher there.
 
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May 22, 2016, 08:20:56 PM
 #59

"Such risks are broadly defined as arising from a contract between parties where one (or more) party breaks the
contract."

How can such a risk be a third party risk when a party to the contract breaks the contract (what follows from your definition)? This is not a third party risk by any means, it is a direct risk of the other party not fulfilling its contract obligations

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May 22, 2016, 08:28:46 PM
 #60

Suppose I agree to pay you one pound of silver around 1850AD, and I give you a "Pound Note" payable
in 2016 by the British Government. Your "Third Party" is the British Government. Good luck suing them

Okay, you pay me in gold for something circa 1345. In a few years the Black Death kills half of the European population. There is a devastating famine all over the continent soon thereafter, and gold loses 90% of its value. Now with your gold I can only buy 1/10th of what I could have bought just a few years ago...

Does this constitute a third party risk?

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