60 Trillion dollar ripoff from lack of REGULATION

Which they were hoping would be their personal savings account as long as Republicans controlled government.

 

I'm sure you're aware that most people can't fathom this was all done on PURPOSE.

 

Most money is created by commercial banks, not by governments/central banks/reserve banks. Look up Fractional-Reserve Banking.

If you look further, you discover that the US and UK do not practice fractional-reserve any more. Instead they run to the Basel II accords, which simply say that the bank must have enough capital to cover the expected daily risk. Banks were using a measure called Value At Risk, which has been criticised for only covering good market conditions (like we had up to 2005 or so). (The US requires 10% reserve for no-notice deposits, but no reserve for time deposits.)

I looked at the Bank of England's figures, which show £2,500bn in loans by commercial banks, but only £51bn in circulating notes and coin. That's less than 2% of the money in circulation. I'm not even including wider measures of money such as money market funds.

The market bubbles can largely be explained by the excess creation of easy credit. This caused a ton of inflation, but inflation not seen by the traditional inflation measures, as it was in stock markets, commodities and housing, none of which are measured by CPI (Consumer Price Inflation), the measure by which central banks were setting interest rates. Central banks kept rates low which fuelled the excess credit further.

The problem for banks is gearing. Let's say you put 10% down on an investment - let's say you put down $10k and borrow $90k for $100k total. If your investment goes up 10%, to a new value of $110k. You pay back $90k and have $20k, so your return is 100%.

However, if it falls 10%, it's now worth $90k. You pay back your $90k, you have $0 left - you have destroyed all your value.

Banks have to mark loans on their balance sheet at their market value, which is basically the market value of the asset they're secured on. When the market falls, they make a paper loss, which wipes out some of their reserves. Suddenly they have to raise funds to cover their losses. They can't loan out any more money, because that would increase their risk, needing to be covered with greater reserves. You saw what happened.

The loss of confidence causes continued market falls, which wipes out more value of loans, banks mark down their books further, restrict lending further, and the spiral down continues, causing real-terms deflation. What the governments/central banks have been doing is borrowing money from the banks, to give back to the banks. How does that work? The bank judges that the government is a good risk, so it doesn't dramatically increase the daily risk. The investment is in share capital, which a corporation doesn't have to pay back. Instead we've asked for high-value dividends, higher than the rate we borrowed money at, so if the bank profits, the money is returned to the government's coffers. We also hope that we can sell off the shares at a later date to recoup some of the investment.

The problem right now is we have 10 years of very bad trades to unwind.

 

Too complicated for my simple non-financial oriented mind - but, somehow, the US government has to come up with the trillion or so that was spend for the wars as well as the billions for the bail-out plan. If not from the US mint then where are these funds coming from?.

..and what about those countries that sold their oil for dollars but now the sell it for euro or pounds etc. Doesn't this further weaken the dollar?

In my simple though process I'm trying to qualify the following:

All of the working people have some form of education; Whether they are doctors, lawyers, engineers, accountants, technicians, all have gone through some training by their piers, then examined and licensed by their piers. On the other hand economists & business administrators are being educated by people that theorize about work and economy (since the majority of the, so called professors, have never operated even a push cart in their life) and then they are asked to deal with real life problems. Where are the real business people of yesteryears that run their business with brains, guts, integrity and a couple of brass ones.

 

We borrow it from people and other countries. Very little of the "money" in circulation is actually paper money. Most of it exists only in computer accounts. Think of it as a giant IOU system. If I write you an IOU for a $1000, we have effectively increased the amount of money in circulation by $1000. My IOU is essentially private money. The government didn't print it or authorize it, but there it is in circulation. You, in turn, could give it to someone else as payment and the cycle continues. This goes on all of the time, but with much bigger numbers.

Tom

 

They were considered "obsolete" and sent out to pasture. They were replaced by a bunch of sinister, greedy bastards who have nothing but contempt for us, laughing at our misery

But you knew that. Right?

 

Like any bubble, it works only as long as it can keep expanding. Everybody is making "money" off margins and thinking life is pretty darn good, to be able to make 20% off doing nothing

Once the bubble pops, welcome to reality

There really isn't anything to keep our economy from following what has happened to other countries, particularly in South America. No reason why our economy can't implode, wipe out savings and investments, and generally cause a miserable time

Consider what has happened to Iceland, which hardly even makes the news now. A year or two ago, you couldn't say anything bad about them, they were soaring high. Too bad they invested everything in what turned out to be remarkably risky and bad investments

Now their stock market is down 90%, currency has collapsed, banks have failed, government has collapsed, and there are riots. The news is sketchy, I'm wondering how the people there can even eat, if their currency has collapsed how can they import food?

Yes, Iceland can very easily happen to us

Interesting blurb in the local papers, apparently the largest Icelandic settlement in the world - outside of Iceland of course - is Gimli, Manitoba. The government is setting up some sort of emergency relief to bring Icelandic families here

Winnipeg Free Press

Winnipeg Free Press

Though once desparate times start here, we'll all be on our own

 

Now my question is, how to prepare for the total meltdown?
I was thinking about stacking my basement with fresh water and canned foods to have at least 6 month of necessary goods. But I have mortgage on my house, what if I loose the house?

I have bicycles, for each family member at least one and three for myself. Yeah, I like cycling and you can never have enough two wheels Also I have a trailer where I can load some stuff onto it and go off with my family into the wilderness.
I've lived outdoors and did some self sustaining camping trips in my younger years, but is it really going to come down to this that I need to find my own food and water while cycling around since there won't be any gasoline for sale?

I believe in the ingenuity of people and ways to manage with a crisis, but then I also believe in the worst that the mob is going to start terrorizing the streets.

So what in your opinion can someone do to prepare for anarchy?

 

In my opinion, you have to have remote property - free and clear - that does not require grid support to operate. You must know how to forage for food: planting crops, hunting animals, etc. You must be willing to defend your family from roving gangs.

Not a very nice picture, is it? We can only hope nothing of the sort happens

 

In essence then we are "printing" money that have no corresponding "substance" behind them and because there is no substantial (if any) regulation we (any country that sanctions this process) manage to de-value the currency.

 

Interesting difference in philosophy:

Worthwhile Canadian Initiative | Print Article | Newsweek.com.

Fareed Zakaria
NEWSWEEK
From the magazine issue dated Feb 16, 2009
The legendary editor of The New Republic, Michael Kinsley, once held a "Boring Headline Contest" and decided that the winner was "Worthwhile Canadian Initiative." Twenty-two years later, the magazine was rescued from its economic troubles by a Canadian media company, which should have taught us Americans to be a bit more humble. Now there is even more striking evidence of Canada's virtues. Guess which country, alone in the industrialized world, has not faced a single bank failure, calls for bailouts or government intervention in the financial or mortgage sectors. Yup, it's Canada. In 2008, the World Economic Forum ranked Canada's banking system the healthiest in the world. America's ranked 40th, Britain's 44th.

Canada has done more than survive this financial crisis. The country is positively thriving in it. Canadian banks are well capitalized and poised to take advantage of opportunities that American and European banks cannot seize. The Toronto Dominion Bank, for example, was the 15th-largest bank in North America one year ago. Now it is the fifth-largest. It hasn't grown in size; the others have all shrunk.

So what accounts for the genius of the Canadians? Common sense. Over the past 15 years, as the United States and Europe loosened regulations on their financial industries, the Canadians refused to follow suit, seeing the old rules as useful shock absorbers. Canadian banks are typically leveraged at 18 to 1—compared with U.S. banks at 26 to 1 and European banks at a frightening 61 to 1. Partly this reflects Canada's more risk-averse business culture, but it is also a product of old-fashioned rules on banking.

Canada has also been shielded from the worst aspects of this crisis because its housing prices have not fluctuated as wildly as those in the United States. Home prices are down 25 percent in the United States, but only half as much in Canada. Why? Well, the Canadian tax code does not provide the massive incentive for overconsumption that the U.S. code does: interest on your mortgage isn't deductible up north. In addition, home loans in the United States are "non-recourse," which basically means that if you go belly up on a bad mortgage, it's mostly the bank's problem. In Canada, it's yours. Ah, but you've heard American politicians wax eloquent on the need for these expensive programs—interest deductibility alone costs the federal government $100 billion a year—because they allow the average Joe to fulfill the American Dream of owning a home. Sixty-eight percent of Americans own their own homes. And the rate of Canadian homeownership? It's 68.4 percent.

Canada has been remarkably responsible over the past decade or so. It has had 12 years of budget surpluses, and can now spend money to fuel a recovery from a strong position. The government has restructured the national pension system, placing it on a firm fiscal footing, unlike our own insolvent Social Security. Its health-care system is cheaper than America's by far (accounting for 9.7 percent of GDP, versus 15.2 percent here), and yet does better on all major indexes. Life expectancy in Canada is 81 years, versus 78 in the United States; "healthy life expectancy" is 72 years, versus 69. American car companies have moved so many jobs to Canada to take advantage of lower health-care costs that since 2004, Ontario and not Michigan has been North America's largest car-producing region.

 

Common sense became extinct in the US (and EU dare say) when economists and business admin. types took over.

 

ya well sort of... there is plenty of gold "here" to cover the money "printed". there was a show on NBC nightly news last night that depicted a "recession-proof" town in the mountains of Nevada surrounded by gold mines.

there miners make $65,000+ getting the gold and business there is BOOMING....now, discount the fact that a decent restaurant is "only" 70 miles away and it would probably be a nice place to live.

so every day, that "worthless" paper money becomes more and more valuable

 

First, you've risked bringing Berman and Amped in here.

Second, watch 'Frontline' tonight. It's a real look at the meltdown, no attempts to blame ACORN for the crash of the world banking system.

 

We are seeing a meltdown in the tar patch and oil patch communities in Alberta. Overall, we are seeing a dramatic slowdown in the automotive sector in Ontario, as the Cdn dollar trades a lot higher than it used to.

When the Cdn dollar reached parity, it really killed export business to the US. Now with the Cdn dollar in the low 80's, it's bad enough

I'm not sure how the proposed spending package of the Liberal government - I mean Minority Conservative Government Propped Up By The Michael Ignatief Liberals - will rescue anything.

BTW there IS a bank bailout here in Canada, part of the CHMC effort

Canada's 75 Billion Dollar Bank Bailout

So things may not be quite as bad in Canada as the US or especially EU, at the same time they're not roses either

 

Barely litereate hillbillies making big money, with nothing to do - a VERY bad combination. Just like Ft Mac, Alberta, you end up with gangs, drugs, and rough crime including kidnappings and homicide. No thanks, I'll pass