Monday, September 6, 2010

Is There A Bank Run In Our Future?

Bank Run 2011?
Thursday, September 02, 2010 –
Readers of my articles will recall that I have warned as far back as December 2006, that the global banks will collapse when the Financial Tsunami hits the global economy in 2007. And as they say, the rest is history. Quantitative Easing (QE I) spearheaded by the Chairman of Federal Reserve, Ben Bernanke (left) delayed the inevitable demise of the fiat shadow money banking system slightly over 18 months. That is why in November of 2009, I was so confident to warn my readers that by the end of the first quarter of 2010 at the earliest or by the second quarter of 2010 at the latest, the global economy will go into a tailspin. The recent alarm that the US economy has slowed down and in the words of Bernanke "the recent pace of growth is less vigorous than we expected" has all but vindicated my analysis. He warned that the outlook is uncertain and the economy "remains vulnerable to unexpected developments". Obviously, Bernanke's words do not reveal the full extent of the fear that has gripped central bankers and the financial elites that assembled at the annual gathering at Jackson Hole, Wyoming. But, you can take it from me that they are very afraid. -Global Research/Matthias Chang
Dominant Social Theme: Don't look now but things are not yet where they should be. A little prayer is all that's needed.
Free-Market Analysis: Here at the Daily Bell, we long ago adopted the position that the Great Recession of the late first-decade of the 2000s is nothing like previous economic downturns. Several years ago we came to the conclusion that this crisis marked the unraveling of the current dollar-denominated fiat money system and that honest money would rise in value substantially as the public's confidence eroded.
The only question we had and still have is when the dollar will reach the tipping point in its downward slide and head to the proverbial fiat-money graveyard that inevitably awaits all fiat currencies. Matthias Chang, who tends to see a glass half-empty, believesl that time is imminent and has written an interesting though apocalyptical article explaining his views over at Global Research.
We wouldn't count Global Research as a mainstream publication by any means – nor – but in both cases, the articles we have examined today deal with mainstream trends as we see it. The Rockwell article deals with issues having to do with free-market thinking and this Global Research article describes a scenario that might take hold if the Fed fails to stimulate the American economy long term.
We too believe an unravelling is feasible, as we mentioned above. The long-term view would hold that this unraveling actually began with the creation of the American Federal Reserve in 1913. Alternatively, you could argue that the starting point of the current system began after World War II with Bretton Woods when the dollar was effectively declared the world's reserve currency. You could peg it around the time Richard Nixon refused to honor gold convertibility. Finally, you could argue the current system's unraveling began with the bull market of the early 1980s.
Ultimately, it is immaterial exactly when it began – though the longest view is perhaps that the late 2000s marks the end not just of the dollar's supremacy but of the effectiveness of central banking itself. We pointed out over a year ago that the Federal Reserve was leaking credibility; the bailouts were inconveniently deployed in the Internet era, not reported on just by the Fed-biased mainstream media.
The result was swelling indignation that is depriving the Fed (and other central banks) of moral authority. Those at the Fed and at central banks generally still do not understand what has happened. They believe if they can just restimulate the economy with more fiat money that everybody in the US, and throughout the West will forget about the crisis and it will be back to business as usual.
It won't be though, in our opinion. Just as with the Gutenberg press, the modern era's communication revolution has punctured the power elite's promotional mechanisms. We see this most obviously on the Internet. What the power elite has lost, especially, is the hold it had previously over a portion of the intelligentsia and the young. In the 1930s, Leftism was a necessary position for intellectuals to adopt. Now even those on the Left, we would argue, are nowhere near as radical as they once were. The young too, steeped in free-market thinking based solutions have turned away from socialism (let alone communism) and a growing number in the US especially have embraced the common-sense classical liberalism of Congressman Ron Paul (R-TX).
What may be the proverbial final nail in the coffin – as this article points out – is that the US Fed is not going to be able to bring the economy back. Not only has the Fed lost moral authority, it may soon lose any claim to competence in the public mind. It is the economic downturn, as much as anything else, that has made the criticisms of the hard-money alternative press credible. If the Fed and central banking generally continues to fail, a day of reckoning will draw closer. Here's some more from the article:
Let me be plain and blunt. The "unexpected developments" Bernanke referred to is the collapse of the global banks. This is FED speak and to those in the loop, this is the dire warning. So many renowned economists have misdiagnosed the objective and consequences of quantitative easing. Central bankers' scribes and the global mass media hoodwinked the people by saying that QE will enable the banks to lend monies to cash-starved companies and jump start the economy. The low interest rate regime would encourage all and sundry to borrow, consume and invest. This was the fairy tale. ... The multiplier effect of fractional reserve banking did not take off. Bank lending in fact stalled.
When the ball hits the ceiling fan, sometime early 2011 at the earliest, there will be massive bank runs. I expect that the FED and other central banks will pre-empt such a run and will do the following: 1) Disallow cash withdrawals from banks beyond a certain amount, say US$1,000 per day; 2) Disallow cash transactions up to a certain amount, say US$10,000 for certain transactions; 3) Transactions (investments) for metals (gold and silver) will be restricted; 4) Worst-case scenario – the confiscation of gold AS HAPPENED IN WORLD WAR II. 5) Imposition of capital controls etc.; 6) Legislations that will compel most daily commercial transactions to be conducted through Debit and or Credit Cards; 7) Legislations to make it a criminal offence for any contraventions of the above.
We would tend to agree perhaps there is nothing left that the Fed can do (from their point of view) but continue to stimulate. But being students of dominant social themes, we have our antenna up for other solutions. There is also talk of a return to a quasi gold standard, and supposedly sample "golden" dollar bills are being printed even now. There is more substantial talk of making the IMF's SDR into a full-fledged global currency, presumably by converting it into John Maynard Keynes' one-world bancors. We would tend to believe these solutions are ephemera; we will not endorse a timeline either.
We do agree that the power elite will desperately try to keep the system aloft via laws, regulation and confiscation. But if it really gets to that point, what credibility will the system have left? Where will those responsible for the great deception of monetary fraud hide? What we have tried to emphasize over and over is that the elite needs its memes. They have to be effective for them to remain in control and now, more than ever, the ramifications for those responsible could be much more severe than just simply "losing control." When six billion people cease to believe in something it is OVER.
Conclusion: It is not necessarily true, in our view, that the powers-that-be in an aim to maintain power and avoid negative blowback from an increasingly angered citizenry will be able to impose a fully authoritarian culture on the US and the West – in the event of larger social and economic failures. Just as we do not believe that war will be a panacea at this point. We continue to believe that there is a possibility the system will unravel in such a way as to give rise to some sort of free-market based gold and silver standard. It would emerge spontaneously, at least to a degree and might be adopted serially by countries around the world. This is perhaps an optimistic scenario but it is not one to be ruled out. The worst does not always happen.

1 comment:

Madame Or said...

Operation TWIST Again

The title of this article comes from an operation very similar to Quantitative Easing engineered by the Federal Reserve System in the 60's, called Operation TWIST, which ended in a resounding failure and the panic abandon of the gold standard in 1971.

Operation TWIST: To Boldly Go Where We Have Gone Before: Repeating the Interest Rate Mistakes of the Past by Adam M. Zaretsky of the Federal Reserve Bank of St. Louis.

All the Market Crashes we have witnessed have been the result of the yield curve suddenly returning from undervalued to normal. That was true for the "sub prime crisis" as it was for any other crash in history : it is the only way to account for a discontinuity in stock market value If for other crash the easy cure was to lower short term rate, this time it will be, of course, impossible.