Interesting phrase isn’t it. If we could just teach kids why that phrase is so bad for them we’d be a lot better off

Without reserve requirements, can one even talk about fractional reserve banking? It’s more like no-reserve banking.

It really is. Many countries have already gone to that. FR banking is just a pretense now. Since the CBs of the world will replace by printing all deposits up to X amount(and now most recently the full amount) depending on the country, they don’t even need to bother with reserves any more. They can lend to their heart’s content making winners and losers by jacking the interest rate this way or that. Only a borrowers revolt can end it now

50% reserves would mean that on average every dollar could be lent out about once. Nowadays every dollar is lent out way more than ten times.

It is quite sobering that earlier this year, bank reserves were actually quite a lot less than those $249,000,000,000 mentioned in the exchange. And those were 1950’s dollars…

Without reserve requirements, can one even talk about fractional reserve banking? It’s more like no-reserve banking. And without binding reserve requirements, the Fed is indeed pushing on a string.

Never underestimate the power of shrinking rates. Since 1982, companies have been able to file under Bankruptcy portection and recapitalize. And someone could always buy them up with lower rates.

With today’s credit spreads, I’m willing to bet that we are going to witness in the coming quarters a load of outright liquidations, something we have not witnessed in many decades. Unless of course, government starts controlling credit spreads in every industry!

Everybody thinks that they can borrow and not add to the problem because they have the power to pay back the loan. The problem is that it drives up the cost for everything and the pool of money it creates helps the banks to hire the smartest sales and money men in the room who turn around and loan money to the less smart and those who need their money managed just to keep up. At some point(like about 35 years ago) you can no longer own a major asset like a business or a house(or a …..chuckle, chuckle…..car or a……..*cough*……cell phone….*wheeze*….pair of underpants….*CHOKE*…..AIR!) without taking on the banker as your partner and it leads the whole economy into debt bondage. At that point the bankers then decide how that economy is shaped. They decide who wins and who loses. How it grows, when it grows and when it contracts. Eventually the banking system owns and controls the very government itself when it is supposed to be the other way around. By the time these smart borrower’s(that is an oxymoron) kids and grandkids enter the stage they are bondslaves who work for companies that can only afford to pay them poverty wages

……and that my friends is why you call people like Greenspan and Bernanke the Emperor and not George Bush

I’m dead

So basically, the central bank’s initial role was to replace these IOUs (by increasing money supply according to business growth) and to create a currency that everyone would recognize and trust. These functions obviously don’t command very big margins! Since they are sleeping with the governement, any foresight could have easily told us that they would do everything in their power to increase these margins.

So we went from an industry that greases the wheels of the economy to being the wheel itself.

But they don’t produce anything, they just find new ways of repackaging debt and take a huge cut from the population’s labor. And if people truly had to work hard for their money, they wouldn’t have let this happen.

Fractional reserve banking:

Q: What did you do with my ‘liability’

A: We lent the money out

Q: Where did the money go?

A: The bank wrote a check for the value of a loan so that the borrower can pay the seller

Q: What happened to the check

A: It was given to the borrower who gave it to the seller of the good who then deposited it back into our bank. It then became our liability from which we can make more loans

Q: WHAT! Are you saying that my money liability was deposited into your bank by a seller that got paid from someone you loaned my money to….and that is now another liability on your books?

A: Yes….of course.

Q: WHAT!! What if both I and the other person demand our deposits of the same liability?

A: That is the Treasury’s problem not ours. They are required to print dollars to cover all the legal checks(and we assure you, the central bank considers that deposited check legal) we make in loaning money into existence and that are thus deposited into our accounts. They are not the same liability, they are now two liabilities. Loaning the money created a new liability for the banking system on which the borrower now has to pay interest and the treasury has to print dollars for if the deposit is demanded

At this point(usually): BRAIN FRY

With that in mind, contemplate the number of companies that manage to last more than a few human lifetimes.

Promoting or hiring those who are not worthy into senior management positions is the kiss of death.

Will $15B be enough to move the market higher next week? It may be a bit of a disappointment.

I hope there is follow through buying Monday morning. If there is, I don’t think I am going to be able to resist reloading at least some “shorts”. SRS, SKF, TWM, EEV, and SCC are looking very succulent again.