Looking at the world it is easy to get depressed. Everything is tinged with corruption. Food, money, bodies, minds, news, and the whole population are all over-processed.
Look at the Cyprus bank crisis: money is over-processed. Look in the mirror: are you over-processed? Are you watching the Kardashians? Benny Hinn? Fox News? Is your mind over-processed?
The system, The Man, "the powers that be," or Babylon as the Bible calls it, thinks itself immortal and immune. Revelation 18:7 tells us what she thinks:
In her heart she boasts,
‘I sit enthroned as queen.
I am not a widow;
I will never mourn.’
But we as Christians know the ultimate outcome as the next verse in Revelation tells us:
8 Therefore in one day her plagues will overtake her:
death, mourning and famine.
She will be consumed by fire,
for mighty is the Lord God who judges her.
If we are in Babylon we will suffer along with it. Verse 4 tells us:
“‘Come out of her, my people,’
so that you will not share in her sins,
so that you will not receive any of her plagues;
5 for her sins are piled up to heaven,
and God has remembered her crimes.
My main purpose of this blog is to understand that we cannot avoid being in Babylon, but we can avoid being of Babylon. Babylon is extremely intrusive. To paraphrase the radio cartoon character Chickenman "It's everywhere. It's everywhere." One of my proudest blogging moments was a comment by fellow blogger Eric Anderson at Universe of Lies. Commenting on a post about the Agricultural Industrial Complex he said, "Only Dennis would see Babylon in a chicken sandwich—and he is right."
Yes, even food is over-processed, and it is depressing that there is not a whole lot that can be done about it. Yes, there are a few things you can do. Cook your own food. Know your food. Grow your food. Eat with thinking. It is depressing because most people will not bother. I have lost over 30 pounds mostly by just writing down what I eat in an e-journal called MyFitnessPal and thinking about my food choices. Do the best you can.
Do you think I am exaggerating the problem? If so watch this documentary, Food Inc. If anything, I have not talked about it enough. But be warned, unless you are doing a lot more about the food you eat than most Americans, you will be depressed too.
Get out your aluminum foil hat. At least that is what I thought about the possibility of Fort Knox being empty before one presentation at the Cambridge House seminars. I had only heard the goofy version of this, that Fort Knox and the gold at the Federal Reserve in New York was missing.
No, the gold is there all right, but the real question is "How much of it is pledged or lent to banks?" This is how it works. The Fed leases gold to a "gold bank" for a modest fee. The gold bank issues certificates can be redeemed for gold. The gold bank then buys bonds, often government bonds in the country that lent the gold to the bank in the first place. This has a great effect from the government perspective. They receive a fee and get to sell their bonds. From the bank's perspective they get a great spread on the difference between what they pay the central bank and the interest they receive from the bonds they buy—a win/win for both parties. Since most money center banks, the big ones, are bankrupt if they marked their assets to the price the market would give them for these assets, this allows them to replenish their capital on the sly. In fact a lot of the various oddness in the financial markets is explained by the banks’ desperate need for capital.
Are the banks doing this? Yes, the Austrian central bank released that they had lent a considerable amount of their gold out. How many other central banks did this? We do not know.
So is everything fine? Sure, as long as the paper gold is not ever returned to the central bank or the Federal Reserve. But if gold goes higher, and the banks are forced to return the gold and draw out the paper gold from circulation, these banks will go bust. In that case what will happen to the paper gold, the ETF? It will be worthless. If you buy gold, do not buy ETF's.
Can we be certain that this is a big a problem as I think it is? No. But there was one new interesting data point that became common knowledge. Germany has its gold stored mostly at the Bank of England, France, and the Federal Reserve. This is a legacy of the Cold War where it was feared that the Soviet Union might steal it in war. There was considerable buzz about German gold in Germany. So it was announced that all the gold would be returned—over 7 years.
Why not 7 months? I have no idea what is going on, but something is wrong. The probability that the gold is being double counted to drive down the price just went up—by a lot.
Here is a presentation similar to the one I saw at the Cambridge House seminars. I have my doubts about the extent of the problem, and we do risk being stuck in tinfoil hat territory, but there is no doubt that this gold lending is happening.
I do not think that most people really understand how banks work. That includes me.
Oh sure, we understand that when we make a deposit our money is now in the bank. But what we do not understand, I mean really understand, is that it is no longer our money. We have exchanged the money for electronic promises to pay. If things go badly for the bank, we as depositors are creditors of the bank. We stand in line with all the other creditors. In fact we stand behind most of the creditors.
We feel safe because the FDIC, the Federal Depository Insurance Corporation, promises that if things get dicey at our bank the reserves of the FDIC will bail the depositor out up to $250,000. But the reserves of the FDIC are 1.35% of the insured amount. In normal times this is adequate. Not every bank will go broke at once. I am sure that whatever money that is needed to insure the deposits will be provided, even if this means printing it.
At least I used to think that.
The crisis in Cyprus did not work out that way. The government of Cyprus does not have the money to guarantee €100,000 per account. Thus the country’s banks must be bailed out by an outside force, but there are strings. Each depositor will lose about 6% of "their" money, any money over €100,000 at the bank will lose 10%. (My guess is that these numbers might change.) There is a technical name for this. It is called a whoopsie.
Although all sorts of hyperbolic analogies are being drawn to the US, this really does apply. The US will print whatever money it needs to insure the banks do not fold. I used to be 100% sure of this, now I am only 97% sure.
No, the Cyprus situation is not the dead canary in the mine I talked about in a previous blog post—unless you are a depositor in a Cypriot bank. But I do picture Tweety Bird saying, "I've been sick."
The risk to the banking system is why on a recent post on pre-investments I suggested that one put some money in the bank, and have some at home. While there could be a riot from a bank closure that also burned down your home, this is not likely—you can't hedge everything.
Remember that once the money is in the bank, it is now the bank's money. I doubt that things will get bad enough that this money would ever be lost, but it might be delayed in returning to you in a crisis. If things get that bad, the money won't buy anything anyway—you can't hedge everything.
Do not be surprised like this one depositor at a Cypriot Bank was.
Do we really understand how banking works? In our head we do. But in our hearts we do not. Reviewing how Fractional Reserve Banking works might be a helpful reminder.
I liked this mini-drama a lot. As is typical in such productions, the writing and acting are first-rate. I almost included the tag humor as it is a good example of typical wry British humor.