CHART of banking system collapse, Fed says "Nothing to see here, folks. Move along."

[dsentell]

Gold, buy on the dips.

They need to crash this system so the sheep will accept the new amero currency.

Bingo!

That is exactly what I have been expecting for quite some time . . .

 

[ihsv]

I withdrew my money from the bank today. If the banks are insolvent I wonder when it will become so obvious that the public will be able to see it.

I would do the same, if I had any money There's something to be said about being poor like me. If you don't have anything, you can't lose it

 

[Join The Paul Side]

Gold, buy on the dips.

They need to crash this system so the sheep will accept the new amero currency.

How long before we see them put the NAU in our face? Five years? Ten Years? Or sooner?

I'll guess five years. What do you all guess?

 

[Ara825]

How long before we see them put the NAU in our face? Five years? Ten Years? Or sooner?

I'll guess five years. What do you all guess?

I think it will be soon after the next President takes office. I have nothing to base this on other than intuition.

 

[shane2]

Grub, Guns, Gold & God...

You need to always first acquire basic preps to sustain
your family and survive months of turmoil on your own;
food, water, shelter, energy, medical, security, etc.

You'll be glad you did for a number of reasons; buying
in bulk now saves $ from inflationary higher prices later,
you'll have a food pantry and supplies buffer then for
any coming natural disasters and man-made disasters,
or even just a temporary loss of job or much worse, etc.

If preps are all gotten, and any paper wealth is left;
(dollars, mutual funds, bonds, stocks, annuities, etc)
then it's prudent to next diversify some significant %
of that remaining paper into physically held gold/silver.

If you can look at gold/silver more as simply another
alternative method to store and preserve some of your
wealth buying power, rather than as an investment you
are watching swing up & down daily, you'll sleep better
at night, though they've done well over the last 6-7 years...

The more prepared you are, physically with preps and
financially with gold/silver, then the less apt you are to
be panicked, stampeded, and herded into TPTB next
planned Draconian solutions for their created mess,
like the NAU and Amero and martial law or whatever.

Premier web site discussing all of the above, that's also
overwhelming pro Ron Paul, can be seen here...
www.timebomb2000.com

Panic Early, Beat the Rush!

- Shane

 

[nbhadja]

Gold, buy on the dips.

They need to crash this system so the sheep will accept the new amero currency.

"The government is good at one thing. It knows how to break your legs, and then hand you a crutch and say, "See if it weren't for the government, you wouldn't be able to walk."
Harry Browne

 

[lastnymleft]

Panic Early, Beat the Rush!

+1

There are things coming for which panic will certainly be the prevalent mood. There is certainly something to be said for getting all your panicking, and preparations, out of the way early. When it comes, we need to be beyond the panicking stage, and remain level-headed when those around us are losing theirs.

In chaos, there is opportunity, and we should expect that opportunity to be exploited by those that are proposing what will turn out to be Very Bad Things. They may not pitch them as such, but we need to be able to recognize them, expose them, and be ready to propose our alternatives.

 

[Benaiah]

//

 

[AceNZ]

Please explain the original post in laymans terms.... I don't understand what all this means.

Banks are required to hold assets that are equal to around 10% of their demand deposits. Those assets are called "reserves", and they can be in the form of either a deposit with the Fed, or as vault cash.

When a borrower defaults on a loan, the bank takes a corresponding loss. The effect of such a loss is to reduce the bank's reserves.

Banks have been suffering a lot of losses due to the subprime mortgage fiasco, so their reserves have been declining accordingly.

When reserves run low, banks can normally borrow more reserves either from other banks which have excess reserves ("Fed Funds") or from the Fed, through their Discount Window. With the current climate, other banks have been relatively unwilling to lend their excess reserves, since they're concerned about maintaining their own reserves. Normally, when borrowing from the Discount Window, banks are required to present high-quality (AAA-rated) assets that mature in the near future as collateral. Banks currently don't have enough of those types of assets to meet their needs, and so have also been unable to borrow enough from the Discount Window....

So, to ward off a flood of bank failures, the Fed created the Term Auction Facility (TAF), which basically allows banks to use lower-quality, longer-maturity assets as collateral to borrow needed reserves.

So, what the numbers in the H.3 report show is that non-borrowed reserves have gone negative -- in other words, instead of using customer deposits for reserves, banks have had to borrow a significant portion of their reserves from the Fed (about half of all reserves have been borrowed as of the Feb 14 report).

So this is not some kind of bank run as some have suggested. It's a symptom of the fact that banks are losing money (and reserves) due to loan defaults, and the Fed has stepped in to avoid massive bank failures.

Does anyone have a goldmoney.com account? How safe is this? I mean, how can we be sure that our gold is in the vault and that we can get it whenever we want?

I don't care for GoldMoney myself. I'm concerned that because they allow you to use gold as money, that they have put themselves in a position to be a target for various governments -- along the same lines as e-gold, which was raided and had their gold seized.

I prefer BullionVault for offshore vaulted storage. The gold in their vaults is audited by an independent auditor every day, and the results are published publicly on their website.

Banks today are insured by the taxpayers. How can we be sure that buying gold through these companies is safer?

BullionVault and GoldMoney both provide gold only in allocated form. In other words, the gold is held in your name, not in theirs. That way, if something happened and the company went bankrupt, their creditors would not be legally able to touch your gold. Most companies offering similar services, like Kitco, do not offer allocated gold, and so do not have that level of security.

 

[efiniti]

So this is not some kind of bank run as some have suggested. It's a symptom of the fact that banks are losing money (and reserves) due to loan defaults, and the Fed has stepped in to avoid massive bank failures.

So do you think we're out of the hole so to speak? Is this a sign of more market failures occuring in the future or perhaps major inflation?

Oh and thanks for the link to bullionvault. Cool stuff.

edit:

Looks like BullionVault charges a minimum $4 per month on top of commission charges. I think I'll just stick with a DGC like pecunix which only charges when you transfer money to another pecunix member. I think they have allocated storage too.

 

[propanes]

I heard a good explanation of this on the Financial Sense Newshour.

In the 3rd hour, part 1 of the February 16 show there's a caller question and answer at the 1:20 mark.

http://www.financialsense.com/fsn/main.html

 

[kyleAF]

there is a little known Federal Reserve law that allows banks to operate at 0% reserves if its needed to save the system.

We are headed for hyperinflation in my opinion

Where's that? The lowest requirement I've been able to find is 3% reserves---which is still RIDONCULOUSLY low, and a direct contributor to this whole credit bubble fiasco that we've encountered.

 

[AceNZ]

So do you think we're out of the hole so to speak? Is this a sign of more market failures occuring in the future or perhaps major inflation?

I don't think we're anywhere near out of the hole yet. We are still in the early stages.

Oh and thanks for the link to bullionvault. Cool stuff.

edit:

Looks like BullionVault charges a minimum $4 per month on top of commission charges. I think I'll just stick with a DGC like pecunix which only charges when you transfer money to another pecunix member. I think they have allocated storage too.

Yes, BV charges for storage. Since they are basically holding gold that belongs to you, they pass on the charges for the related costs of vaulting, insurance, auditing, etc.

I had a look at Pecunix, and as far as I can tell, their gold is held for them in allocated storage, but the gold they hold for you is not. BV takes physical delivery of their bars and manages their own vault.

GoldMoney, a DGC that does offer allocated storage, also charges storage fees (higher than BV). If DGCs don't worry you like they worry me, then you might want to check them out too.

 

[Original_Intent]

OK my sister works in banking and we talked and as best we can figure this is what is going on.

Banks can get money from the TAF, sometimes for as little as 1%. This beats the discount window. In the past, banks kept their own reserves as much as possible, because they could pay less interest on CDs and savings accounts than the fed discount rate.

However, witht he TAF and banks able to borrow money at 1% or 1.5%, they don't have much incentive to offer decent rates on CDs (why would they pay consumers even 2%, when they can get it for less thru the TAF?)

So this explains the huge pile-on to get the cheap borrowed reserves.

It seems to me like this is going to feed another cycle of easy credit - why not take high risk loans and charge 10% on money they borrowed at 1% - even if a good number default, they will still make out like bandits.

Also, this seems to be leading to a lot more inflation (in the monetary sense) because the reserve requirements are so low that a LOT more loans can be made and this will mean a big increase in money in circulation.

Is this pretty much what you guys see? if I am drawing wrong conclusions, please speak up.

 

[AceNZ]

Banks can get money from the TAF, sometimes for as little as 1%. This beats the discount window. In the past, banks kept their own reserves as much as possible, because they could pay less interest on CDs and savings accounts than the fed discount rate.

However, with the TAF and banks able to borrow money at 1% or 1.5%, they don't have much incentive to offer decent rates on CDs (why would they pay consumers even 2%, when they can get it for less thru the TAF?)

So this explains the huge pile-on to get the cheap borrowed reserves.

Banks don't borrow directly from the TAF. They have to put up existing assets, just like they do at the Discount Window. The difference is that they can put up assets of much lower quality and with maturity dates much further in the future.

It seems to me like this is going to feed another cycle of easy credit - why not take high risk loans and charge 10% on money they borrowed at 1% - even if a good number default, they will still make out like bandits.

Profit margins are much higher than that for banks. Let's say a bank pays 5%/yr interest on its reserves. It can then create the money for up to nine times the amount of their reserves in new loans. Let's say the bank makes loans at 6%/yr. But that's on nine times the number of dollars. So for every $100 in reserves, the bank pays $5 in interest/yr and is able to create $900 in new loans, on which they charge 6%/yr, or $54. So $100 in reserves can generate $49/yr in earnings.

However, setting the earnings issue aside, what seems to be happening with the TAF is that banks are using it to avoid going under. According to the Fed's stats, there hasn't been a big boom in borrowing. Actually, to the contrary, banks are actually getting more conservative, because they've realized that their existing loan portfolios have a lot more risk in them than previously suspected.

Also, this seems to be leading to a lot more inflation (in the monetary sense) because the reserve requirements are so low that a LOT more loans can be made and this will mean a big increase in money in circulation.

Loan defaults are deflationary, since reserves are destroyed -- that, in turn, has a cascading effect, since the amount of money banks can create through new loans is limited by the amount of their reserves.

Reserve requirements haven't changed. So while TAF loans are by themselves inflationary (new money), that impact should be offset by the bank's losses, which are deflationary.

The more interesting question to me is how are the banks going to dig themselves out of this hole? As far as I can tell, the TAF is a stop-gap fix at best. The collateral will eventually mature, and more losses will materialize, resulting in an even greater need to borrow reserves.

My best guess is that the government will set up some kind of bailout, disguised in the form of "insurance" -- along the lines of the FDIC or the Resolution Trust that was used for the savings and loan bailout.

 

[Original_Intent]

Thanks ACE! I did already understand fractional reserve banking, but the rest of your info was news to me - much appreciated.

 

[scooter]

Banks don't borrow directly from the TAF. They have to put up existing assets, just like they do at the Discount Window. The difference is that they can put up assets of much lower quality and with maturity dates much further in the future.

Another key reason why the banks like the TAF is that they can hide behind it. The discount window opens you up to a bit more scrutiny.

Profit margins are much higher than that for banks. Let's say a bank pays 5%/yr interest on its reserves. It can then create the money for up to nine times the amount of their reserves in new loans. Let's say the bank makes loans at 6%/yr. But that's on nine times the number of dollars. So for every $100 in reserves, the bank pays $5 in interest/yr and is able to create $900 in new loans, on which they charge 6%/yr, or $54. So $100 in reserves can generate $49/yr in earnings.

This is the kind of misinformation that hurts this site. The fractional reserve system is 1/9, not 9x. For $100 in reserves, the bank can create $90 in loans, not $900.

Now, that $90 does go to another bank, who can create another $81 in loans if it chooses, but that's a whole new bet.

 

[QWE]

So I understand that this has basically the same requirements as the discount window, but does this mean that $50 billion or whatever is new borrowing on top of the usual borrowing, or is it the same borrowing just done through the TAF instead of the discount window? Does the TAF foster more borrowing, less, or the same?
I always though the borrowing through the discount windows would be factored into the "non-borrowed reserves", but apparently the FED is claiming that's not true of a shift to TAF would cause such a big "technicality".

 

[jonahtrainer]

So I understand that this has basically the same requirements as the discount window, but does this mean that $50 billion or whatever is new borrowing on top of the usual borrowing, or is it the same borrowing just done through the TAF instead of the discount window? Does the TAF foster more borrowing, less, or the same?
I always though the borrowing through the discount windows would be factored into the "non-borrowed reserves", but apparently the FED is claiming that's not true of a shift to TAF would cause such a big "technicality".

The TAF is ultimately a way to privatize profits and socialize losses.

Keep in mind that the Fed intentionally engages in lack of transparency, disinformation and outright deception. Why believe anything they say?

For example, why are the names of the banks drawing down on the TAF not disclosed? Why the intentional creation of the TAF to hide the identity of the banks? Why the intentional lack of transparency and outright deception of the true financial condition of the banks borrowing from the TAF?

It appears the Fed is Crossing the Rubicon by monetizing bad debts. At the same time demand for the dollar by other central banks is decreasing. This is the same path that led to Weimar Germany. At the same time a Kondratieff Winter is upon us and capital is burrowing down the pyramid. Massive inflation and deflation at the same time! How interesting!

 

[maeqFREEDOMfree]

Gold, buy on the dips.

They need to crash this system so the sheep will accept the new amero currency.

they probably will