The Only Thing That Will Save Us is Collapse
The global economy is buckling, and desperate intervention is only delaying the inevitable
The House always wins.
The worst game is one you have to play, but are almost guaranteed to lose — especially over time. Just ask the… oh wait — where did the middle class go? Since we’re forced to play but likely to lose, let’s figure out the rules we don’t currently understand. Perhaps we can at least hold our ground with a little luck.
The Central Bank-managed US Economy is a terrible Socialist program — because it helps very few, and causes harm to many. We aren’t supposed to have a “centrally-planned economy” but ultimately, we do. The big commercial banks’ addiction is the worst it’s ever been — and they’re gambling with the very money you and I entrust to them for ‘safekeeping’. They’re even gambling with the money of the government, yet somehow they’ve negotiated a literal blank check from the Federal Reserve. Open-ended Quantitative Easing (QE). Guess who foots the bill for that?
How the Sausage is Made
Most people don’t realize (or simply don’t want to believe) these facts about how our banks and monetary system actually work:
First, your bank doesn’t “hold” your money for you. Your deposit is the act of giving your money to the bank to do as they wish, in a very real, legal, title ownership sense. You simply become a creditor (and an ‘unsecured creditor’ at that), with an IOU from them. You always get your money back though, right? It’s insured anyway. Well, sort of.
Next, the FDIC (Federal Deposit Insurance Corp) is paid via teeny-tiny premiums from your bank. On paper, you’re safe up to $250K. But in the ‘insurance biz’, there’s a term called ‘catastrophic loss’ which is an event too large to pay out fully. In reality, those teeny-tiny premiums add up to about one-third of one percent of all the deposit money actually insured. Fun fact: Prior to the FDIC, there was the FSLIC — otherwise known as the Federal Savings & Loan Insurance Corp, which has a crisis named after it.
Third, banks don’t lend your money out as loans. When a bank grants credit to a person or business, the money for that loan is all digital, and is merely typed into existence, ‘crediting’ the account of whomever they’re lending it to. As long as that bank has enough “reserves” at the US Federal Reserve covering a small percent of the amount (3–10%), the money suddenly exists. The loan is then paid back to the bank by you using very real, worked-for dollars, plus interest.
Fourth, as I mentioned, you, the depositor, becomes an “unsecured creditor”. You may be familiar with how bankruptcies work: the assets of the party filing for bankruptcy are added up, opposite a potentially long list of creditors and the amounts of money they are each due. An order is followed during such liquidation, as they determine “who gets what”. Those owed the most, or those with special priority, get the most money. The creditors at the end of the list (i.e., you, the unsecured creditor), are lucky if they get anything. So for you, the depositor, it means you are at the very bottom of the list. The highest priority creditor to pay is the government, followed by hedge funds, investment firms, and all manner of other financial institutions and shadow banking institutions. (Yes, shadow banks are a real, widely-recognized thing.)
You’re at the bottom of the list. As Willy Wonka said, “YOU GET NOTHING!” That is an unsecured creditor.
Last, banks are allowed to keep your money, plain and simple. You gave it to them, remember? This is called a ‘bail-in’. You may remember what happened with the Island of Cyprus back in 2013. The failing banks ended up confiscating 47.5% of all depositors’ savings over €100,000 (Euros). Banks in the US can do this now as well, courtesy of the Dodd-Frank legislation.
The ability of banks to simply keep depositors’ money was put in place in the US to avoid future bail-outs with taxpayers money, but really what this accomplishes is the bank ends up keeping your savings instead of those losses being spread out to the rest of the taxpaying population. Of course, if the amount of confiscated savings doesn’t cover the debts owed, it would certainly still spill over into the public domain anyway. I guess it sounded good at the time.
In reality, current leverage is so extensive, deposits would be kept by the bank(s) and it still wouldn’t be enough. No meaningful regulation was put in place either by Dodd-Frank, or the CHOICE Act which came after it.
Not only are Mortgage-Backed Securities still a thing — but these dicey financial instruments (called ‘Asset-Backed Securities’, or ABS’s) have proliferated into the realms of Student-Loan debt, Credit-Card debt, Auto loans, and more. This truly is the “Everything Bubble”.
This is why in the wake of this current clusterf*ck, the Fed recently announced it would ‘expand’ the types of collateral it would accept from the banks. They are now accepting everything under the sun to clear off the banks’ balance sheets. They really had no choice.
Aside from letting them fail, of course.
Your friend, the bank
If you lend your friend a hundred bucks, the worst case scenario is that you end up losing your money and possibly losing your friend. But THIS — this is like lending someone a hundred bucks, maybe getting $75 back, but also losing your job, your house, and your future stability — and not even getting an apology!
That’s not a friend. Then banks have the nerve to ask you, the taxpayer, for money again — only this time, it’s your children’s future tax money, all the way to your yet unborn great-great-great grandchildren’s taxes. I think that’s a solid “NO.”
Too bad we don’t actually get to vote on it.
Too Big to Bail
I believe — and I’m certainly not alone — the only way to stop this underlying debt bubble from ultimately destroying the current monetary system — and this is anathema to speak — heretical even — is to let it pop. Yes, some banks would fail — but typically their customers move to whichever bank buys them up and takes over. Shareholders would experience losses more than depositors. It would stand to reason that although legal, banks would be remiss to actually use a bail-in right now — people would revolt. ‘Too big to fail’ is a campaign of fear, trying to make us believe that we’re too stupid to understand this uber-complicated financial system — but ‘trust us — real bad things will happen!’ if we don’t help the banks.
Perhaps ‘Too big to bail’ is how we should think about this from now on.
Ever since Central banks like the Fed began attempting to control the wild horse that is the Free Market, the crises we’ve all experienced have been nothing more than slamming on the breaks to avoid the collision ahead. Whiplash is all monetary interventionist policy has actually caused — we haven’t even seen the real crash yet.
It’s gonna be rough, better put on your seatbelts.
Rinse and Repeat?
Letting this giant debt bubble pop would of course be painful. But I’d bet that if you were going to have to endure what is currently happening with the economy anyway, but at least you knew that it could be the last time, you could exhale a sigh of relief if nothing else. But to go through it, and know that yet ahead still most assuredly lies an exponentially bigger problem — Groundhog Day again — I think you’d choose the former and just take the medicine, right?
If it’s allowed to pop, at the very least we’d know it would likely be many years before the greedy could amass such an enormous amount of leveraged wealth for them — and debt for us — again.
I believe the only true way to stop this in it’s tracks from becoming worse this time, and possibly eliminate what will come back stronger in the future, would be for the banks to suck it up and FORGIVE DEBTS.
Another time bomb
I’ll remind you here that Deutsche Bank, the largest bank in Europe, currently has derivatives exposure of over $47 Trillion — over twice the size of the US Economy — and is still very much connected. Scarier yet, a lot of this is risky debt. Even though Deutsche claims that much of this debt is tied up in “interest rates” and “currencies”, LIBOR (the previous basis for European interest rates) is now gone, and some experts believe that their now hard-to-value exposure could be as much as $253 Trillion. That, and of course, with the current Pandemic shitshow, everyone and their mother is fleeing to the US Dollar as the hopeful safe haven. This strengthens the Dollar (outside the US anyway), and decimates other currencies, including the Euro. So much for their debt being safe.
It is possible that Deutsche Bank’s actual exposure could be in the Quadrillions — between off-the-book amounts and uncertainty, we simply don’t know. Deutsche got stuck with a lot of the bad debt from not only Europe’s 2012 recession, but ours from 2008 as well. As Deutsche Bank even now sits on the precipice of what would be a full global crash of it’s own, I think it’s worth pondering why the banks don’t just let it go, instead of demanding debt repayment at all costs.
You know who has quadrillions of actual dollars to cover that mess? No one — even if all of the money of the entire planet were piled together. It was a trick question, silly.
Global economy be damned, they want their money.
Monetary Systems and Policies
Throughout the history of the United States, there have been a dizzying array of changes in monetary policy via Executive Orders, Acts and the like. One moment the US Dollar is fully backed by gold, then partially backed, then next thing you know it’s illegal to own gold (FDR, 1943), then legal again, but you can’t cash it in. Finally, no more gold standard since 1971 under Nixon.
The point is that these systems and policies change at the will of the government and bankers, depending on the financial state of the country. These systems are sometimes created and modified in cigar smoke-filled rooms in places like Bretton Woods NH, Jekyll Island off the coast of GA, and Jackson Hole, WY by bankers, and often some clueless government officials. These systems are not set in stone.
It’s very important to point out that the monetary policy we have in place today is less than 50 years old — overdue for a change, actually — and with the happenings in the world right now, there is an increasing chance of change ahead. All floating currencies continue to lose purchasing power against gold.
The Digital Dollar?
I can tell you that in fact, a new system is being devised as I write this, but the same people that caused this current mess are the ones writing the rules. We must not allow this to happen; we must be exceedingly cautious in understanding and adopting the coming all-digital money system in which you will have no protection, privacy, or recourse.
You can’t grab emergency cash from an ATM in a crisis if there’s no actual, physical cash to grab. Let that sink in.
I plan to write much more on nation-level digital currencies soon, but I will say multiple central banks are researching digital currency right now, and some central banks such as the Bahamas have even implemented one. I’m not against digital currency per se — I’m against having it tied to our identity and our lives — and I hope you will consider the potential problems with such a system as well.
We must involve ourselves with writing the rules — because the digital monetary system being planned is FUNDAMENTALLY THE SAME, only you can be sure that it will further solidify the rigged system we have that exacerbates inequality, and ultimately expedites the means by which your money flows to the top.
If the Middle Class is going down, we should be damn sure we pull the elites down with us. If we push for protections similar to that of cash, or avoid an all-digital currency altogether, perhaps we can make it out of this intact. For now, the only way out is through — either by continually propping up this shell game we call the economy, or by allowing some banks to fail. Either way, without serious consideration of debt forgiveness — a practice used in much of history — we only stand to lose.
Stay tuned, and stay safe.
If you enjoyed this writing, please give some claps and sign up to be notified of new writings: