Why Banks Are Not Lending (Republicae)
Let’s take a look at what is happening in this “demand for Treasuries” along with the reasons the banks are not easing up on lending as Congress would like. So the FED and Congress want banks to lend and with that lending they are hoping that consumers will begin to borrow and businesses will begin to do business. It doesn’t look like the FED however, is doing much to push the banks into a lending mode…wonder why? There must be a reason right? Usually, there is a reason and it would probably not be what we expect.
It seems, just from what is happening, that the banks are rushing to upgrade their reserves while making a load of money with “taxpayer” dollars. So, all these Billions of Dollars injected into the banks under TARP have been deposited back in the FED, where all those “taxpayer” funds are reaping 1.5%. Hell, who wouldn’t want to use other people’s money, especially when that money is “taxpayer” bailout money with little risk and few strings attached. So, these banks to whom our Congress agreed to bailout and Hank Paulsen eagerly pushed that bailout money on is making a killing on those funds. The excess bank reserves have increased by $550 Billion in less than 3 Months.
Have you figured out why the banks refuse to lend yet? Why risk money on the credit market when you can make a bundle quickly with the FED?
Now, what about those Treasuries? The FED is certainly taking some very interesting steps in the bond markets, that is certain. It appears that the FED wants people to avoid the bond markets and is doing some pretty amazing things to stress that fact. Just look at the yield. Now, look at how they are pressuring bond yields and you will begin to see that the overall plan of the FED is to depreciate the value of the Dollar. The “huge demand for Treasuries” is an interesting contradiction because the FED is pushing down the yield while investors are scrambling into Treasuries for safety.
Let’s face it, U.S. Treasuries are really no safer than cash, no better than cash and now promise just as much as the U.S. Dollar….pretty close to nothing. So, what happens when people or investors begin to figure this fact out? They will begin to dump their Treasuries just as fast as they dump cash because suddenly they realize that there is absolutely no reason to continue holding something that has such little value.
At this moment there is an illusionary psychological factor involved with Treasuries, they “feel” safe, but that “feeling” could easily dissipate. At the moment, capital is running for what people think is safe cover. Now, it will not take much for those funds to rapidly flee Treasuries, since, for the most part, they are operating like cash the mere hint or slightest fear of inflation could cause a stampede away from the now bloated pressure cooker Bond market.
Watch for it and move accordingly.
"Most people can't think, most of the remainder won't think, the small fraction who do think mostly can't do it very well. The extremely tiny fraction who think regularly, accurately, creatively, and without self-delusion- in the long run these are the only people who count..."
Lazarus Long in Time Enough for Love-Heinlein
"Rarest of all is the man who can and does reason at all times, quickly, accurately, inclusively, despite hope or fear or bodily distress, without egocentric bias or thalmic disturbance, with correct memory, with clear distinction between fact, assumption, and non-fact.-Heinlein
When push comes to shove ...
They will become cannibals ...
Self preservation will be the name of the game ...
A decoupling will occur ...
A default on foreign debt will occur ...
NG will be the fuel of choice, because we will not be able to get oil...
Believe it or not ...
We are in the best position to come out as winners again...
Don't get me wrong ...
There will be pain ....
A lot of it ...
But the U.S. will come out on top ...
Also ...
There will be a push to end the FED and introduce competing currencies ...
Seredipity does exist...
One additional bonus to this outcome ...
We will be a much greener world in addition to a much freer world ...
A more peaceful world may result as well, but not for some time.
WAHOR!!
http://www.dailypaul.com/node/48994
WAHOR!!
http://www.dailypaul.com/node/48994
Good Analysis.
We have the same basic story in Britain. The Bank of England has
"re-capitalised" private banks and now the government is lambasting those banks for their refusal to "resume normal lending".
It is worth noting that the banks over here ARE lending money to ordinary people on sensible terms.
You can still get a mortgage - provided you have saved up a 20% deposit FIRST.
Imagine that! Banks asking people to SAVE money ;-)
You can still get an unsecured loan - if you are willing to pay a high interest rate, can prove you have a regular income and have "good credit" (a history of paying back loans).
However, the years of batshit crazy lending (or "normal lending" as the government likes to call it) are definitely over.
The British government is now so angry with the Banks that it is threatening to start "Direct Lending" to re-inflate. Sounds ominous.
http://www.mises.org/Books/mysteryofbanking.pdf
http://www.ratical.org/ratville/CAH/warisaracket.pdf
Those Following These Topics…
… and how events are unfolding, may find information in these links worth consideration:
http://www.dailypaul.com/node/74899#comment-816276
http://www.gold-eagle.com/editorials_08/greene111908.html
http://www.moneyandmarkets.com/citigroup-collapses-banking-s...
( I offer these articles for the substance they report which provides context. Of course, draw your own conclusions. )
Just because the situation is contrived does not mean that it will not get out of control.
Serious Contraction
Our level of debt is skyrocketing while our GDP is shrinking - the credit squeeze will get far worse and the banks know this all too well.
Karl Denninger (The Market Ticker) reports:
http://market-ticker.denninger.net/archives/684-Den-Of-Liars...
If this is true, it will get more and more difficult to sustain existing debt yet alone handle the expansion. Buckle-up, the ride is going to get a lot more bumpy.
END the FED before it ENDS US
I see some wrong info down
I see some wrong info down the thread. The truth is for every $1 a bank gets, they can loan out 9$.
How? Well, I can buy a house with only 10% down. That's the same darn thing. That's how it works.
Where are you getting this?
hi Duff, please direct me to an authoritative source for the following statement you made. I quote from you: "The truth is for every $1 a bank gets, they can loan out 9$". At one time I believed this to be true myself, but after being involved in the banking business for some years, I find the statement to be a misnomer. The truth is this: For every $1 a bank gets (on deposit), they can loan out $1. There is no hocus pocus or magic as many seem to think.
The house example is misleading. Yes you can purchase a house for 10% down, but the bank does not create the other 90% out of thin air. The bank must have the other 90% in deposits to make you the loan so the seller gets paid the full 100%.
I hope this is clear to everyone. It is quite simple.
Steven Orrange
Didn't the bailout change that?
I thought it has hidden (like most things are) in the bailout that they lowered the reserve ratio to ZERO?
http://news.goldseek.com/GoldSeek/1222966190.php
Which, surely no one could argue, is the death of the currency. First it doesn't have to be backed by real money (gold/silver), then it doesn't even have to be backed by a percentage of fake money?
Yes, the bailout changed that
the fractional reserve limit is now 0%. Thats right, the banks no longer need money in the vault (the Fed) in order to loan you money...
Credit card just increased their interest rates...blamed economy
Funny how we must obey every rule they have, but they can make changes any time they want.
I know I'm not supposed to mention Z_e_i_t_g_e_i_s_t, but you have to give Z props for pointing out the credit/interest portion of the overall economic slave system.
If you haven't seen the two Z movies, you absolutely must see them.
BTW: I disagree with the Z movies premise that we must disband religions. Once we create a money-free, abundant environment, religions will either be harmless or dry out. I believe religions ring true to many people because they were built off of great spiritual wisdom (symboitic oneness). Without money, religions will likely scale back to their spiritually wise roots.
If you ever get the chance to read The Yoga of Jesus, you can see that the teachings of Jesus were this oneness...there was no messiah stuff at all.
Good post
Gary North has the same analysis on why banks aren't lending.
ps. those are some great quotes by Heinlein. I should check out his work sometime...
Speaking of Heinlein..
Yes, he was an awesome writer.
"The Moon is a Harsh Mistress" is a great Sci-Fi novel about a revolution by moon colonists against the Earth's future global government.
A great story with a lot of great pearls about freedom; how to get it and keep it.
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Money As Debt
http://www.youtube.com/watch?v=vVkFb26u9g8
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"Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive."
Do you have a link to Gary
Do you have a link to Gary North's article?
http://www.1776solution.blogspot.com
"So long as the people do not care to exercise their freedom, those who wish to tyrannize will do so; for tyrants are active and ardent...to put shackles upon sleeping men.
— Voltairine de Cleyre (1886-1912)
http://militantjeffersonian.com
"Men do not willingly read unpalatable truths of themselves. The People like those best who fool them most, by pandering to their vices and flattering their foibles" Raphael Semmes
I could look for the link...
but the thing is that you have to be paying subscriber to his site to be able to actually login and read it.
Ah...well thanks anyway...I
Ah...well thanks anyway...I will do a bit of searching myself.
http://www.1776solution.blogspot.com
"So long as the people do not care to exercise their freedom, those who wish to tyrannize will do so; for tyrants are active and ardent...to put shackles upon sleeping men.
— Voltairine de Cleyre (1886-1912)
http://militantjeffersonian.com
"Men do not willingly read unpalatable truths of themselves. The People like those best who fool them most, by pandering to their vices and flattering their foibles" Raphael Semmes
Buy and Hold is DEAD! Anyone
Buy and Hold is DEAD! Anyone who doesn't believe it has their head in the sand. For the next 20 years, buy and hold is hold is dead.
RIP
Why do you put your name in the title?
Are you and rhino,brothers? or maybe the same people?
or do you both just think your information is desired more than anyone elses?
http://www.ronpaulbrochure.com/
http://www.dailypaul.com/donate
Because I have been
Because I have been requested to by several people to do so that they will know that it is my posting.
http://www.1776solution.blogspot.com
"So long as the people do not care to exercise their freedom, those who wish to tyrannize will do so; for tyrants are active and ardent...to put shackles upon sleeping men.
— Voltairine de Cleyre (1886-1912)
http://militantjeffersonian.com
"Men do not willingly read unpalatable truths of themselves. The People like those best who fool them most, by pandering to their vices and flattering their foibles" Raphael Semmes
I, for one, appreciated the heads up in the title
I might have passed on it, thinking it may have been posted by one of the self-proclaimed experts here at DP. Republicae and rhino, birds of a feather...NOT!
Hi Gil! "When governments
Hi Gil!
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
“A prudent man foreseeth the evil, and hideth himself: but the simple pass on, and are punished.” (Prov. 22:3; 27:12 KJV)
Hey McCain-----┌П┐(◣_◢)┌П┐
Thanks
Thanks Gil.....
http://www.1776solution.blogspot.com
"So long as the people do not care to exercise their freedom, those who wish to tyrannize will do so; for tyrants are active and ardent...to put shackles upon sleeping men.
— Voltairine de Cleyre (1886-1912)
http://militantjeffersonian.com
"Men do not willingly read unpalatable truths of themselves. The People like those best who fool them most, by pandering to their vices and flattering their foibles" Raphael Semmes
I appreciate it
as well. rino, not so much.
Republicae! Did you know about this?
This is huge news!!
http://www.dailypaul.com/node/75759
http://www.southernnationalcongress.org/
great article on monetary system here:
http://www.southernnationalcongress.org/moneysubstanceorsymb...
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"Thomas Jefferson is rolling in his grave fast enough to be a new source of energy independence."~ samthurston
http://www.campaignforliberty.com/
"I think we are living in a world of lies: lies that don't even know they are lies, because they are the children and grandchildren of lies." ~ Chris Floyd
Yes indeed, I am been aware
Yes indeed, I am been aware of the Southern National Congress for some time now, and I'm a member of Sons of Confederate Veterans, League of the South.
I had started another blog, but haven't had time to work on it much. You can find it at:
http://sovereignsouth.blogspot.com/2008/09/war-for-southern-...
http://www.1776solution.blogspot.com
"So long as the people do not care to exercise their freedom, those who wish to tyrannize will do so; for tyrants are active and ardent...to put shackles upon sleeping men.
— Voltairine de Cleyre (1886-1912)
http://militantjeffersonian.com
"Men do not willingly read unpalatable truths of themselves. The People like those best who fool them most, by pandering to their vices and flattering their foibles" Raphael Semmes
Of Course
I thought I recognized a kindred spirit. The flame of liberty still burns brightly in the south and west.
"..shall not be infringed."
"..shall not be infringed."
Thanks SunSue....I hear
Thanks SunSue....I hear ya!
http://www.1776solution.blogspot.com
"So long as the people do not care to exercise their freedom, those who wish to tyrannize will do so; for tyrants are active and ardent...to put shackles upon sleeping men.
— Voltairine de Cleyre (1886-1912)
http://militantjeffersonian.com
"Men do not willingly read unpalatable truths of themselves. The People like those best who fool them most, by pandering to their vices and flattering their foibles" Raphael Semmes
I own shares of a private bank. Here is what I can tell you.
None of us agree with any government bailouts, however, it is important that we adjust the best we can to the changing financial environment. The TARP money has been made available to highly rated #1 and #2 (i.e. responsible) banks. Our private bank is allowing the FED to purchase preferred shares of approx $4 million worth, and we promise them a 5% return on their preferred shares. So they are actually making a good deal for themselves under this scenario. For a smart bank this is also a great deal as this influx of $4M allows us to accept $40M in deposits which can be used to make more loans. At the same time our equity is not diluted. Our private bank continues to loan money, however we do not loan money to losers. We will not give joe 6-pack a $250k loan unless he has 20 to 30% equity and a job. There are still many regulations a private banks must endure, however they are not able to FORCE us to make high risk loans with our depositors hard earned money as they were able to do with Freddie, Fannie,Countrywide etc. Our board president has been in the banking business for many many decades and he has never witnessed the likes of our current crises . I showed him a $50 Gold Eagle coin at lunch the other day. He hopes our bank stock will deliver a better return over the next two years than my gold purchases, but he did not want to make a wager.
As a side note, many on the DP do not really understand what is meant fractional banking. Simply stated, this is how banking works. Stockholders invest start up money i.e. $10million dollars. This amount becomes the bank reserves. It is the equity value of the bank so to speak. Based on this seed money, the bank is now allowed to ACCEPT 10x that amount in deposits, or $100Million. The depositors are paid a certain return on their money....1%, 2%, 3% etc..it does not matter to the bank. The bank can now use this $100Million to make loans. The bank will loan this money out at 3 to 4% over what they pay their depositors. This is how the bank makes a profit. The $10Million reserves is stored in CDs and scattered about in 'safe' places where it can make a return too. in a way it is like Margin on a futures account. If loans go bad, there may be a requirement from the regulators to increase this 10% reserve to 12% or higher. It is based on the soundness of the institution. So I hope this helps you understand that ALL banks are not evil. They are capitalist institutions. Banks would exist whether we have a federal reserve or not. A good bank allows you to finance a growing business, or own a home if you are QUALIFIED.
Steven Orrange
Steve - I have a Question?
We have debated this before on the DP and I think I know the answer but I would like for you to confirm.
Using your $10Million to $100Million ratio, which has been the 1 to 10 ratio used by the fractional reserve system for years - For every $1 dollar the bank lends, it makes $9 in principle plus the interest, (gross top line). True or False?
FALSE - banks do NOT make 10 to 1 profit
No this is NOT correct. The Initial $10 Million is the equity value of the bank.
It is the amount of money investors raise to start the bank and now it becomes the bank's stock. It represents the bank's cash reserves. it is LIQUID. COLD CASH, CDS, MONEY MARKETS, ETC. This $10 Million must be kept in extra safe investments.
Now the bank can begin to accept up to $100 Million in DEPOSITS from customers. (10x its equity position). This is not profit. This is like a store having inventory. There are costs to the inventory. The bank actually pays interest to its depositors for this 100Million. If the bank does not quickly begin to lend this $100 Million, it will soon go out of business because it is losing money everyday it is NOT loaning the $100Million. What truly happens is the bank begins to accepts deposits and IMMEDIATELY begins to loan this money out at an interest rate. The interest rate does not really matter to the bank. If they pay depositors 3%, they will loan out at 6%. They will try to make 3 to 4% profit. So the bank pays $3 Million in interest to depositors, while charging $6 Million in interest on the loans it makes. Therefore the bank makes a GROSS PROFIT of
$3 Million. Hope that is clear. The 10x fractional system is NOT what people seem to think.
Steven Orrange
However
it is true that the bank winds up in a crunch if the lender pulls the money that's been deposited AND the borrower defaults. then where does the money come from?
The fractional deposit system does inflate the currency supply. This is not necessarily bad. If it's managed correctly (i.e. not by the government, and where the depositors accept the risk of deposit default as an interest-yielding "investment") then the fractional deposit system itself offers a cushion against overheating economy. At the same time, the inflation is temporary, (because the above-mentioned default crisis doesn't net increase the real money supply) and attuned to the state of the economy. When the budgets are tighter banks will naturally increase the interest rate, and when there's lots of money floating around the interest rate will drop.
Is my analysis correct?
Let me see if I have the right.
The bank's deposits that it can accept, is limited to 10 times its initial seed money? (And then they have to stop accepting deposits or put up more seed money).
I thought for every $1 it had on deposit it could lend out $9.