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The pictures above are from bank runs in 1907 and
2007. A bank run results when depositors want all their deposits at the same
time. Often fear causes the bank run as the last one to the bank doesn’t
get their purchasing power.
The ratio between reserves and deposits is the
reserve ratio. For example, the average European bank has a reserve ratio of
18% so for every $100 of deposits the banks have $18 of reserves. Banks are
required to keep reserves according to a specified ratio.
The Federal Reserve published on Jan. 17, 2008 the
bi-weekly report Aggregate Reserves of Depository Institutions and the
Monetary Base. I encourage you to review this report to see the
actual numbers and trends.
A bank’s reserves is equal to the sum of
borrowed and non-borrowed reserves. Because the Federal Reserve acts as
the lender of last resort the Federal Reserve system acts as one bank.
So, where are the required reserves coming
from? The Federal Reserve is using its own US Treasuries or printing
the money out of thin air as shows up in ‘Term auction credit’.
This combined increase in one month of 81,613
compared to the monetary base of 820,331 is about 9.9%, or 119% annually, of
the total money supply. This is very serious inflation. However,
the contraction of credit at the higher levels of the Exeter pyramid is
extremely deflationary. It appears we have entered a global Kondratieff Winter.
The Bottom Line
The current US banking system is so capital impaired
that they owe $18.29 to the Federal Reserve to meet the extremely low minimum
required reserve ratio of ~4% of deposits. To continue meeting their
required reserve
ratio the banks are borrowing about $12.5B per week
that the Federal Reserve prints out of thin air increasing the money supply
by 10% per month. Is
your cash safe? You may want to consider GoldMoney as they maintain
100% reserves and do not engage in fractional reserve banking.
As the current system continues its implosion
alternatives will become more attractive. Watch this video for an Introduction to GoldMoney.
Note:
After deeper
research this is the first time ever in the history of the
Federal Reserve that the non-borrowed reserves number has ever gone negative.
The Fed has always been in control over the individual banks and held moral suasion over
them which prevented them from borrowing to meet their required reserve
ratio.
Bernake has said the ‘loans’ will go on
as long as necessary
and he has been increasing the size of them.
What makes you think the banks would ever want to
repay these loans? They are a
cheaper source of capital than anywhere else. The banks have now shifted the
cost of their reserves onto the Fed who is then printing the reserves out of
thin air. Because the Federal
Reserve system functions like one big bank (whose required
reserve ratio is now being printed out of thin air every week to prevent a
bank run) and because the Fed has lost all control, they no longer have any moral suasion
power, therefore hyperinflation
is the only option to a bank run.
We’ve now officially entered the Weimar Germany
phase.
Trace Mayer
RuntoGold.com
Trace Mayer, J.D., holds a degree in Accounting from Brigham Young
University, a law degree from California Western School of Law and studies
the Austrian school of economics. He works as an entrepreneur, investor,
journalist and monetary scientist. He is a strong advocate of the freedom of
speech, a member of the Society of Professional Journalists and the San Diego
County Bar Association. He has appeared on ABC, NBC, BNN, many radio shows
and presented at many investment conferences throughout the world.
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