December 19, 2013 at 1:13 pm #9915Raúl Ilargi MeijerKeymaster
Marjory Collins The Iceman Cometh January 1943 Ice man near St. Patrick’s, Mulberry Street, Little Italy, NY Often when I want to write some simple co
[See the full post at: Debt Rattle Dec 19 2013 – E/U in 2014?]December 19, 2013 at 4:30 pm #9920steve from virginiaParticipant
“And that’s not even half the story. The banks that buy the sovereign bonds with ECB money/credit turn right around and offer those same bonds, which are listed as “safe”, or “cash good collateral”, to the ECB the next day as collateral in exchange for more loans. With which they proceed to buy more sovereign bonds, which provides wiggle room to their governments etc. It carries the strong odor of a scam, if not a Ponzi scheme. “
When a central bank makes unsecured loans it is instantly and permanently insolvent for the same reason as its clients … too much leverage.
What matters at that point is who notices whether the central bank is lending in this way?
One insolvent bank cannot bail out another insolvent bank => there is no effective lender of last resort => incentive for Southern Europeans to open accounts in Germany => bank runs, run in euros toward a near-certain deutschmark. The central bank making unsecured loans is fatal as no central bank hold more than the tiniest amount of capital.
If the central bank is insolvent its reserves are worthless, that is reserves created upon the ledger of the central bank. The ‘collateral’ for these are securities of the state in this case the entirety of the European Union. Because there is no coherent state what is ‘real’ collateral is the implied guarantee of Germany (and its ability to borrow).
However, Germany is unwilling to borrow …
It is common sense that reserves are inadequate to make whole the entirety of claims that can be lodged against them by depositors. In a panic, the depositors will not accept bank money nor will they have any repository for it, they will want cash-currency and it will not be had.
Instead of stability, the act of unsecured lending is incentive for depositors to be ‘the first out the door’.
In a world where automobile rules over all and is supreme in all things, money is priced @ gas pumps everywhere including Europe. Priced in crude, the euro has great worth: the central bank is irrelevant, it cannot fix anything even as its desperate hunt for legitimacy drives it to act in destructive ways … it can only make things much worse.December 20, 2013 at 3:26 am #9925jalParticipant
“ … and they are the most highly leveraged bank in Europe (at 60:1 in the last tests – not a misprint), …”
Wellll! Let see what that means.
Let’s look at some numbers.
$100,000 deposit means that they are lending 60 times that number.
This means that they have $6,000,000 in loans.
At 5% interest, that means that they are generating, ( if all the loans are performing), $300,000 income per year. They could pay off their $100,000 deposit 3 times. Another way to look at it means that if 2/3 of their loans were non performing they would still be able to avoid a bank run and pay off the depositor.
Isn’t great to be able to print money. They would go to the central bank to be able to cover their operating expenses.
Trying to keep things in prospective.
There many areas around the world that are functioning without the bankers. If the world that need the bankers were to disappear, many areas would still continue to function.
I wonder how the Spanish people, with their high unemployment, are managing to survive without the bankers? Maybe they found a way to get food into all the needy mouths.December 20, 2013 at 9:41 pm #9933ProfessorlocknloadParticipant
Relax, none of these problems involve money. They are all denominated in bank “notes.” ie; Credit.
And Credit is worth whatever the producers of it decide. Solvency and insolvency are moot.
Kinda like, we are all working for the company and must shop at the company store, using company credit…only on a grand scale.
Things will remain this way as long as State command and control remains the order of the day.December 21, 2013 at 3:20 am #9936snuffyParticipant
This is the clown with spinning plates on a stick.How long do they spin?,you ask,”No one knows” says the man…taking bets on how long,and how many… Hes the one to watch,as he will give a signal…and it all comes crashing down…
Keep you funds in “The bank of the green sock”.You will sleep better.
snuffyDecember 21, 2013 at 2:42 pm #9938rhebaParticipant
@jal “I wonder how the Spanish people, with their high unemployment, are managing to survive without the bankers? Maybe they found a way to get food into all the needy mouths.”
All of the needy mouths? Doubtful long term. However, something that Michael Hudson said does stick in my mind (my paraphrase of what I think he said “the financial system has become a parasite. It makes you think that you will die without it.”)
If our only problem were the parasitic financial system we could talk about solutions with a straight face. But, as we know, resource scarcity is for real. And, as SFV says, currencies are priced with respect to crude oil. The parasite is being allowed to kill the host and it is probably too late. Until the world wakes up to its real problem there are all sorts of work-arounds for feeding a lot of the people. Afterwords we shall have to see what can be done.
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