If you have money in a bank read this!


galtgulch

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Surely you are aware that the money you deposit in a bank for safe keeping can be used by the bank if it is facing bankruptcy to "bail-in".

http://ellenbrown.com/2014/12/01/new-rules-cyprus-style-bail-ins-to-hit-deposits-and-pensions/

I think that banks who hold derivatives might find themselves in trouble once the interest rates go up a little bit. But don't worry the banks can access your assets to restore their solvency. Your savings may take a hit but you shall have done your patriotic duty by rescuing your bank

gg

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It is scary to see what politicians will do to fix future problems to rectify past problems that they themselves created.

On the other hand, Tyler Durden of Zero Hedge is massively disingenuous when he compares amounts of bank deposits to notional amounts of derivatives. The notional amount of a derivative is not a liability. Suppose I owe interest for 3 months under an interest rate swap, for which the notional amount is $10,000, based on an annual interest rate of 3%. Then my obligation is 0.03*0.25*$10,000 = $75. $75 versus $10,000? Duh! :angry:

A swap party, especially a bank, can also have offsets. See the second graphic here. In it the bank is a market-maker between A and B and simply collects the 0.30% spread, assuming A and B perform.

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I think I get your point although I am not familiar with this stuff.

I am reminded of what happened a few years ago when banks in Cyprus being used by retired former Soviet KGB officials became insolvent and a law was passed enabling those banks to help themselves to the depositor's accounts. I don't really know what caused the insolvency in the first place. I do hear about the ominous size of derivatives being a sword over all our heads to the tune of 1.4 quadrillion dollars worth of such derivatives. I don't know just what makes them so vulnerable or how high interest rates would have to go if indeed that is the likely cause of a collapse.

Given that every country in the world with a central bank and a printing press is in high gear in order to facilitate their exports such a collapse is supposed to be world wide and coming to your neighborhood soon. The fact that no one seems to be worrying about such things is similar to the way people living in the shadow of an inactive volcano ignore it too until it becomes suddenly active again.

I wonder if facts involving the Founder's vision of limited government, free markets, no intangling alliances, sound money backed by constitutional gold and silver coins, nullification by the states of unconstitutional federal laws, etc are part of the core curriculum we hear so little about?

The sun is shining so I will make believe all is well and go shopping for food as long as the shelves are not yet empty.

gg

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Financial derivatives include forwards, futures, options, swaps, and some minor ones I won't name. The banks that do a lot of them, e.g. JP Morgan, operate globally, with interest rate swaps and foreign exchange (currency) derivatives being the largest sectors.

"OTC [over-the-counter] derivatives markets contracted slightly in the first half of 2014. The notional amount of outstanding contracts totalled $691 trillion at end-June 2014, down by 3% from $711 trillion at end-2013 and back to a level similar to that reported at end-June 2013.

The gross market values of outstanding OTC derivatives continued to trend downwards in the first half of 2014. Gross market values stood at $17 trillion at end-June 2014, down by 7% from $19 trillion at end-2013 and 14% from $20 trillion at end-June 2013. Whereas in 2013 the decline had been concentrated in interest rate derivatives, in the first half of 2014 the gross market value of foreign exchange derivatives also fell significantly."

Bank for International Settlements

Note that the market value of $17 trillion is a small fraction (2.46%) of the $691 trillion notional amount. The $17 trillion is a more reasonable comparison to bank deposits. Also, these are global numbers and the Ellen Brown page you linked was USA only. Of course, the USA is a big part of the total.

Elsewhere on the BIS website I found that interest rate swaps are about 81% of all derivatives (notional amount). Currency derivatives are are about 11%.

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I wonder if it is true that the recent trillion dollar funding law includes the enabling legislation so that a bank facing bankruptcy may help itself to the assets of its "creditors" meaning its depositors savings in order to bail itself out or is it "bail-in?"

I assume, if that is the case, that the rationale is that that would spare the Federal taxpayer from coming to the rescue to keep the banks solvent thus helping to reduce the growth of the national debt.

I gather that there is some consideration to pass a law mandating that a certain percentage of ones bank account savings must henceforth be held in the form of U.S. Treasury Bonds, Bills or Notes. It is not yet clear how small one must keep one's account to avoid such confiscation as Treasury Bonds are becoming worthless and less.

There are some people who contend that the fearsome economics collapse is decades away in the distant future while others who have some credentials purport that it is upon us sooner than we think, as in within the next year. I gather that such disasters happen fast, unexpectedly and are so sudden that they take most people by surprise.

I am thinking about the Weimar Republic's hyperinflation. Workers were demanding that they be paid twice a day so they could run out lunchtime to buy goods before the prices went up by dinnertime. Lifetime savings became worthless overnight. You could hear the printing presses running around the clock. It is hard to imagine supermarket shelves being empty. Will the blame fall on those truly responsible meaning Federal Reserve Chairmen and the Congressmen who passed the Federal Reserve Act in 1913 and those who subsequently voted not to Audit The Fed ever since?

I just came across the fact that JFK had issued an Executive Order number 11110 which created a silver backed currency which were printed up but upon his assassination were never circulated and were destroyed. The Act was never eliminated and still stands! I found the reference which shows a five dollar Federal Reserve Note and the JFK silver backed alternative which never saw the light of day.

Here is a link to many articles regarding the Federal Reserve which are critical of it:

http://www.silverbearcafe.com/private/fed.html

I couldn't find the one which shows the JFK paper but silver backed dollar.

gg

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I wonder if it is true that the recent trillion dollar funding law includes the enabling legislation so that a bank facing bankruptcy may help itself to the assets of its "creditors" meaning its depositors savings in order to bail itself out or is it "bail-in?"

I assume, if that is the case, that the rationale is that that would spare the Federal taxpayer from coming to the rescue to keep the banks solvent thus helping to reduce the growth of the national debt.

I am thinking about the Weimar Republic's hyperinflation. Workers were demanding that they be paid twice a day so they could run out lunchtime to buy goods before the prices went up by dinnertime. Lifetime savings became worthless overnight. You could hear the printing presses running around the clock. It is hard to imagine supermarket shelves being empty. Will the blame fall on those truly responsible meaning Federal Reserve Chairmen and the Congressmen who passed the Federal Reserve Act in 1913 and those who subsequently voted not to Audit The Fed ever since?

The rule Ellen Brown wrote about is one made by the G20, which is an international forum of governments and central banks. So it does not have the force of law in the United States like a law passed by the U.S. Congress and signed by the POTUS.

This was the first I'd heard of Ellen Brown. I'm wary already. She blew it using a graphic comparing derivative notional amounts to bank deposits. She wrote a book titled The Public Bank Solution: From Austerity to Prosperity which includes a chapter "The Secret of China's Robust Economy: The Government Owns the Banks Rather than the Reverse."

About hyperinflation, you might like this video. I commented on it. In part the Weimar Republic's hyperinflation was due to other countries trying to extract war reparations after World War I. Expanding on my comment on the video a little, the $US is "world money", the most common currency and most common unit for international trade. It became so with the Bretton Woods system. The British pound sterling was "world money" before then. The Bretton Woods conference featured a big battle between the U.S. and Britain reps for what would be "world money", which was as much about hegemony as it was about money. Gold was the "world money" before the British pound sterling. Predictably, the U.S. Federal Reserve would be deeply concerned about a level of inflation that would endanger the $US's status as "world money."

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Federal Treasuries--the long dated ones--have become worth more and more to this day from the time Paul Volcker ran up interest rates over thirty years ago to break the back of inflation. It's possible these interest rates will continue down for a few more years. This does not mean these are good investments, only that they were looking backwards. The overall trend is still up, however. (As interest rates go down the value of a bond goes up and vice versa, all else being equal.)

--Brant

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As I understand it, the purchasing power of the US dollar has diminished over 98% since the creation of the Federal Reserve in 1913 as that institution has slowly at first but surely increased the money supply. The politicians are all too willing to have more money to spend than they take in in taxation. The Fed is under control of chairmen who subscribe to an ideology, perhaps Keynesianism, which justifies creation of fiat paper currency which it loans to the US Treasury in return for Treasury Bonds. In the process the dollar loses value so that the recipients of Social Security retirement benefits or disability benefits receive checks which keep losing purchasing power over the months and years as prices keep going up as well.

Other countries have a better understanding than our leaders and realize that buying our debt (Treasury Bonds) is foolish because they will lose as the money they receive when they cash in the Bonds will not have the value of the dollars they used to buy the Bonds in the first place. The dollar is at risk to lose its world reserve currency status as a consequence, not years from now but sooner than you may think.

Did you know that other countries must covert their own currency into US dollars in order to buy oil from Saudi Arabia? This creates an enormous demand for the dollar but if and when the world reserve currency status of the US dollar is lost, the demand for the dollar will decline and with that the standard of living we take for granted here in America.

gg

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With oil going for 40% less these last few months then this purported demand for the dollar has already been slashed 40%.

I would not worry about the world currency status of the dollar. The world is awash in dollar debt and I'm not talking about US Treasury debt which can be paid off at will by manufacturing dollars but dollar debt that cannot be inflated away and will be paid off in dollars acquired in trade. Eventually what goes around comes around but in the meantime it's a buffer for the US.

--Brant

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  • 2 weeks later...

Brant,

You said: " I'm not talking about US Treasury debt which can be paid off at will by manufacturing dollars but dollar debt that cannot be inflated away and will be paid off in dollars acquired in trade."

I do not know the total worldwide amount of US Treasury bonds held by other governments as well as by retirement plans or individuals. But you suggest that US Treasury debt can be paid off by mfg dollars.

A percentage of this debt is held by the Federal Reserve itself. The Federal Reserve lent money to the US Treasury by buying US Treasury Bonds with "dollars" the Fed simply created by making an entry on its balance sheet, took possession of the Bonds printed up by the Treasury which then was able to do the printing itself.

So I wouldn't mind if our govt defaulted on those bonds held by the private banking cartel known as the Federal Reserve Banking System. But all the other USTreasury bonds held ought to be honored since they were purchased with dollars earned in production or trade.

Evidently the powers that be have in mind a method of confiscation of assets you hold in traditional retirement accounts. Here is the link:

http://kingworldnews.com/exposed-dangerous-2015-ahead-global-governments-plan-steal-money/

gg

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  • 2 weeks later...

This was the first I'd heard of Ellen Brown. I'm wary already. She blew it using a graphic comparing derivative notional amounts to bank deposits. She wrote a book titled The Public Bank Solution: From Austerity to Prosperity which includes a chapter "The Secret of China's Robust Economy: The Government Owns the Banks Rather than the Reverse."

Out of curiosity I borrowed her book from the library.

On page 9 she shows the graphic, which I referred to above, comparing deposits at U.S. commercial banks of $9,283 billion to U.S. financial derivatives exposure of $297,514 billion, which is the notional amount. That's like comparing apples and snakes. A deposit is a bank liability; the notional amount of a derivative is not. Indeed, the data source (FRB: H.8) shows at the same date derivatives with a positive fair value of $258.4 billion (asset) and derivatives with a negative fair value of $226.2 (liability). Netting these gives a net asset value of $32.2 billion!

On page 26 she says by 2008 the notional amount of derivatives globally was 10 times world GDP. She asks how that was possible and answers "gamblers can bet as much as they want." Comparing notional amounts to GDP is also like comparing apples and snakes. More than half the notional amounts are interest rate swaps, and a Wikipedia graphic shows how a bank can intermediate between two counterparties with interest rate swaps, capturing a spread of 0.30%. That is hardly gambling. The book doesn't even mention non-banks using derivatives, nor hedging. Using derivatives to hedge, which reduces risk, is the opposite of gambling. She either misunderstands or knowingly misrepresents the situation.
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