Preparations Being Made To Move Fort Knox Gold Into Your Bank Account
by Bill Sardi
Recently by Bill Sardi: Implausible Denial: Don’t Tell Me Nobody Knew the Housing Bubble WasUnderway
You hear the call to "End The Fed," but just exactly what would be substituted in its place?
Imagine if I told you that all the gold in Ft. Knox, which was confiscated from Americans early in the 20th century, is about to be transferred to your bank account in an apportionment equal to the amount of banked money in your checking, savings or deferred-tax 401k accounts. Imagine this — you would own real gold. Depositors would receive paper IOUs stating their money on account is now fully backed by gold coins held in the vault of your bank.
How does this sound to you?
Furthermore, the bank that houses your money would no longer be reliant upon a central bank (The Federal Reserve) for its supply of money, an agency that has taken a profit off the top of every money transaction since its inception in 1913, nor would your bank offer you phony deposit insurance that simply leaves the public (you) on the hook to pick up the tab for irresponsible bankers.
Would you place your money in a bank like this?
When it became apparent to me that US banks have no future, that they cannot generate sufficient profits to stay in business, what with the collapse of the real estate market and the tightening of credit card limits and credit/debit cards fees, which represent over 80% of the traditional sources of bank revenues, I began to ask, if the banks collapse, and the public’s money be vanquished, just exactly what would serve as a replacement in the wake of such a disaster? (Examine the FDIC charts below to ascertain the dire state of American banking.)
How many American banks are making less than 1% profit?
A new type of bank
Murray N. Rothbard, in his book The Mystery of Banking, described a new type of bank that would be chartered to bring accountability and stability back to banking, in place of the current boom and bust business cycles which business schools preach are inevitable (that is because they know of nothing else).
In this new Rothbard Bank, which is what we will call it, your gold-backed bank account would no longer be subject to erosion of its purchasing power (inflation), which has been the legacy of the Federal Reserve central bank. A US dollar in 2010 has the purchasing power of 3 cents compared to a 1913 dollar. Check it out here.
Financial implosion and default on promises
The current taxation, currency, banking and lending system in the US has taken Americans to the point where the money withdrawn throughout their lifetime for Medicare and Social Security has vanished in a Ponzi scheme where only the first recipients receive benefits and the rest are shortchanged. Furthermore, in what is known as fiat money (print as much as you want), the central bank has continued to print more and more money, diluting the value of your banked money to its 3-cent value today.
Ben Bernanke, chief of the Federal Reserve, just issued a landmark message saying there must be major cutbacks in government entitlement programs as well welfare and military spending. In essence, America has defaulted on its contract with its citizens. Do we need any more impetus than this to reform American banking?
There goes your banked money, down the toilet
What if you were told that America’s 8,012 FDIC insured banks, which hold about $7.697 trillion in deposits and $13 trillion in assets (like residential and commercial real estate), which includes ~70 million residential real estate mortgages, are about to fold. Your banked money could completely vanish, any day now. That is the current status of US banks today.
That’s because, like Jimmy Stewart said, who played the role of banker George Bailey in the movie It’s A Wonderful Life — "the money is not here." More than 90% of it has been lent out to borrowers and 10% is theoretically held in reserve should you need to withdraw some of your banked money.
But the 10% reserves are only imaginary. Few banks have maintained 10% reserves, and most, due to recent losses in the residential real estate market, only have federal bailout money as reserves. Essentially, your money has vanished and because of loan losses, it will never return to the bank. Your banked money, which serves as a reserve for the banks, has now been replaced with newly created money that further dilutes its purchasing power.
Cooking the books no more
If the evaporation of bank profit centers isn’t enough to tug them into insolvency, newly mandated accounting practices will certainly drag them down further.
Yes, banks hold real estate assets as collateral, but the principal on these loans is being marked down by 30% in an effort to practice "true value" or "mark to market" accounting. It is also estimated that banks are holding 80% of their foreclosed real estate loans off their books. This lack of transparency is soon to be halted.
Cooking the banks’ books is no longer going to be tolerated.
The battle to force bankers to properly appraise the true value of their assets, and to list all the bank’s assets on its accounting books, has been underway, if you can believe, since 1988.
All bank regulatory agencies, from the Securities & Exchange Commission, to the Federal Reserve, the US Treasury Department, the Federal Deposit Insurance Corporation, the American Banking Association (ABA), as well as the Bank of International Settlements (the central bankers bank which mandates the Basel agreements), have not been able to get bankers to comply with what is called "mark to market" or "fair-value" accounting, that is, till now.
ABA officials claim, while the wrangling over fair-value accounting has gone on for years, "the battle will take place this year." ABA officials state this battle is "coming to Waterloo." But they don’t specifically say whose Waterloo, the public’s or the banks’.
Accounting standards boards are also pushing for banks to set aside reserves for the entire life of a loan rather than reserves for incurred losses.
The Financial Accounting Standards Board and the International Accounting Standards Board agreed to merge accounting standards in 2002. Bankers have obviously drug their feet to comply with these accounting rules. An American Banking Association executive says these new accounting standards, even with malingering by the banks, should be in practice by 2012.
When fair-value accounting does begin, and bank asset values plunge, this suggests a banking Armageddon.
The banks will eventually have to sell off billions of dollars of under-water loans (more is owed than the property is worth), probably to hedge funds at a marked down price. Bank of America just announced a pending contract with ReMAX, the real estate network, to handle short-sales (sales of marked-down properties), in a desperate attempt to hang onto real estate revenues.
Banks: non-interest income
With no profits from real estate loans foreseen within the next few years, and profits from credit card services shrinking as Americans pay down their debts, this prompted American banks to invest their depositors’ money, and the federal government’s bailout money, in more risky plays on the stock market or with hedge funds. This is what is called "non-interest income" in your bank’s quarterly financial report.
You bank is playing fast and loose with your money, again, and this time it is not even passing profits along to you as a mutual fund or stock fund would be obligated to do. To put it bluntly, you are getting totally ripped off, taking all the risk and getting little if any return.
Now, should the stock market tumble to any significant degree, all 8,012 FDIC insured banks would be sure to collapse with it.
Market manipulation keeps the banks afloat
To ensure this won’t happen, the stock market today is completely manipulated, what with high-frequency trading, domination of the market by large traders, and most of the trades in government-backed, bailed-out companies like AIG, GMAC, etc. The gold and silver markets are also manipulated. If gold and silver become a more attractive investment than stocks and bonds, investors will move towards precious metals en masse and the stock market folds, and with it all those pension funds and mutual funds, and, your banked money.
Monday, February 22, 2010
Stock Market Manipulation Continues: No Volume = Higher Prices
Because banks lend out your money so other Americans can buy homes and automobiles and start new business ventures, banks solely exist on the thin thread of public confidence their money will return to the bank. If a significant percentage of the public loses confidence and wants to withdraw its money from their bank all at one time, banks would be forced to close their doors, at least temporarily. Banks know trouble is brewing so they have begun to announce limits on withdrawals.
Depositors need to know their money has been lent out to lendees who have ability to repay. Of course, this wasn’t done. A major run on the banks (depositors demanding their funds in paper money) would demolish any individual bank or banking system. Confidence in American banks is low — around 20%, says a Gallup poll. The stage is set for the mother of all bank runs. Be sure there will be troops in the streets and a banking holiday declared if Americans want to withdraw their money from the bank. But should this occur, then what?
We should only hope by then the Rothbard Bank has been established.
In the 2nd edition of his book The Mystery of Banking, Rothbard asked this question: "Given this dismal monetary and banking situation, given a 39:1 pyramiding of checkable deposits and currency on top of gold; given a Fed unchecked and out of control; given a world of fiat moneys; how can we possibly return to a sound non-inflationary market money?"
Rothbard’s prescription for a return to sane and responsible banking and currency was simple:
- Back currency with gold, whose supply cannot be influenced by government. Abolish the central bank (The Federal Reserve) and return to a free and competitive banking system. When Rothbard drafted his outline for bank reform, he defined the value of a US dollar as 1/1696 gold ounce.
- Separate government from money, so the public is not on the hook as the "lender of last resort," to bail out crooks.
- Create a system where "any bank, at the slightest hint of nonpayment of its demand liabilities, is forced quickly into bankruptcy and liquidation."
- The dollar must be redeemable, not only in gold bars (bullion), but also in gold coins. No emergency suspensions of redeemability can be issued, which would reveal the advertised gold standard to be fake.
- The FDIC is to be abolished, so that no government guarantee would stand behind bank inflation. Irresponsible bankers would not have their sins washed away by deposit insurance, and healthy bank runs would still be in place to ensure the honest stay honest.
- The U.S. Mint would also be abolished, and the job of minting or melting down gold coins would be turned over to private competitive firms.
Imagine that a US President made an announcement that a new form of banking was to be instituted. In the unlikely event any US President should get this idea and successfully sell it to the Congress, I have already taken the liberty to write the President’s speech. (Wouldn’t it be nice to have Ron Paul read these words?) You can read the short speech below.
As President of the United States, working in concert with the United States Congress, and within the intent of the writers of the Constitution, I hereby declare the dissolution of the central Federal Reserve Bank and replace it with free enterprise banking, subject to exercising responsibilities and creating public trust, apart from any linkage or appeals for bailouts from government, just as any other business enterprise in America.
The US dollar will, henceforth, be completely backed by gold, as originally outlined in the Constitution, and I have ordered all the gold in Ft. Knox and other depositories to serve as reserves for paper money. Every dime of banked and invested money in the United States will now be backed with gold coins and depositors and investors will receive paper gold IOUs, which must, by audit, be backed by physical gold held in vaults of the various banks.
Gone will be the days of economic booms and busts. Gone are the days where paper money is created on a whim, which has diluted the value of paper money to less than 3-cents compared to its 1913 purchasing power.
Other reforms, such as the abolition of the US Mint (this task will be privatized) and the abolition of the Federal Deposit Insurance Corporation (which has only left the public on the hook for bankers’ irresponsible actions, and left the door open for bankers to take risky maneuvers with their depositors’ money), will be implemented as soon as possible.
America must end its self-induced boom and bust business cycle, created decades ago with the advent of a banking and currency system that has repeatedly failed.
There are those who would say that with these dramatic reforms, America has just handcuffed itself while foreign bankers will continue to employ fiat money and fractional banking to race ahead of America’s banks in the world marketplace.
To this I say, with the re-establishment of a gold standard, the US dollar will become the single most valued currency in the world. Trade with America will be valued above that of any other country that does not follow in America’s footsteps.
Additionally, because the deceptions of fiat money and fractional banking have been hidden from the populace for so long, I hereby suggest the inclusion of a sound money curriculum into all of America’s education system.
The world financial system must be based upon sound money. There must be stability in currency. If the sacrifice is to slow economic growth in favor of financial stability, then I would re-word this to say the intent of this gold-backed banking system would be to replace economic fabrication and chaos with sanity, trust and accountability. We cannot continue with a banking and currency system where we take two steps forward followed by fifty steps back. To these ends, we march today, to create a new America, and a new world marketplace.
In 2004 George Hanc, Former Associate Director, Division of Insurance and Research, Federal Deposit Insurance Corporation, wrote a paper entitled The Future of Banking in America. To synopsize, Hanc said:
The environment for banking in the next five to ten years is likely to remain favorable… The emergence of megabanks has raised the possibility, however remote, that failures could deplete the deposit insurance funds, require large premium increases that place a heavy burden on the remaining banks, disrupt financial markets, and undermine public confidence… The economic environment appears conducive to good banking industry performance, assuming that recessions are mild and that we avoid the speculative bubbles similar to those that contributed to widespread failures during the 1980s.
Banking is not an industry that can rely upon assumptions. It must have foresight and resolve, neither which are current traits of this industry.
There have been calls for greater oversight, but there are already enough agencies that failed to detect or penalize fraud perpetrated upon the American people by American bankers, who have accomplished more destruction than any foreign-based terrorist.
It was the father of quality control, W. Edward Deming, who said the idea is to create a system where inspectors are not required, where reliability is engineered into the process.
To rely upon policing agencies is to leave room for whatever can be gotten away with. Beyond a periodic audit to ensure the gold is in the vaults, banks can focus on robbers at the front door rather than the back door.
The banking industry doesn’t need prognosticators, it already knows its future, of repeated booms and busts. As an industry it just fails, every time, to alter the fundamental defects, such as fiat money and fractional banking, which spawn repeated insolvency. It strikes as a pattern of fleecing the public of its wealth every so many years.
Because of its alliance with government, the banking industry has been able to transfer the penalty for its deceptions onto the public. The link between government and banking must be severed.
Until the American banking system makes substantive changes like those outlined by Murray N. Rothbard, it would be wise to keep your wealth out of banks, at least for now, and maybe forever.
