Anyone able to answer this one?

[Ullan]

Greetings all,

After reading a blog post by Jose V about the bailout, it occurred to me that the Trouble Asset Relief Program is seemingly being run by the Federal Reserve bank. This makes no sense, as the Federal Reserve is not a central bank, but a 'banker's bank' for the intent purpose of creating fiat currency based on debt. If they themselves start taking on debt, the intrinsic value attributed to the federal reserve notes becomes zero.

So here is my question, and I would like an answer by those who are knowledgeable in these things:

Is it possible for an individual to approach the Federal Reserve bank and request that his fiat notes be exchanged for gold standard notes?

If it is possible, then all that is necessary for this old economic system to collapse is to spread that information far and wide, and cause a run on the Federal Reserve bank.

[Juan]

Probably some people have the same question and the logical answer would be yes you should be able to do the exchange. Sadly the real answer is quiet opposite.

Federal Reserve Notes are fiat currency, which means that the government IS NOT obligated to give the holder of a note gold, silver, or any specific tangible commodity in exchange for the note.

Welcome the the illusion of the banking system, not just from USA but from around the world, fiat money from central banks has no gold or tangible commodity in exchange for the paper bill (note). Not even that, now that we have computers and internet, 97 % of the money that exist it´s just electronic money and just 3% paper money. So, if all US citizens would like to withdrawn their monies from banks at the same time, just 3 % of them will get their money and that is IF the banks have the cash available in the branches which at this point it´s very unlikely to say the least.

We are all aware that financial institutions have been hard hit with the stock market crash, but how bad is it?,
Just as an example, 18 months ago the world was force to believe that Citigroup was the strongest financial institution of the world with a capitalization of $270 billions. Last Friday in the free fall stock market if you have $5.6 billions and want to buy Citigroup, congratulations!!! you are the new owner of citigroup which means that Citigroup lost more than 95 % of its capitalization value, once mention to be the world´s largest bank.

So, what do we do now?

Namaste

[Ullan]

What strikes me as absolutely anathema to a long term solution is the way the Federal Reserve is currently being run. Rather than tighten requirements and enforce strict rules about capitalization on the fractal reserve for banks which are obviously unable to properly keep books, the exact opposite is happening.

Banks are being encouraged to lend more and with less restrictions, no longer requiring any capital collateral to be placed in the central banks. This means that a crisis which was brought about by the bursting of the debt bubble (people unable to pay back what they owe) is being tackled by increasing consumer credit (encouraging people to owe more).

I can't be the only one seeing the glaring fatal flaw in this...

[Martin]

This old system is rotten to core this system is collapsing and is orchestrated by the illuminatti its falling slowly but surely!

[Juan]

Ullan, you are not the only one, it's easy to see that the more debt people get the more deep the problem will be.
Banks were lending money without collateral to everybody and now they are in serious problems. However, behind all of this is the Federal Reserve.
Some people have been suggesting for a period of time now that USA should eliminate the Federal Reserve in the hope that it will fix the problem. As you said the way that the FED is been running doesn't do any good to anybody or maybe it's good for a very few organizations behind the power. However, that same organizations maybe are realizing that the problem they created is without control and now the world's economy is in a free fall.

Big financial changes around the globe should be the order of business in all countries. The system is not working, if governments don't take action now, everyday that they wait is another day lost for the people.

Namaste

[Ullan]

Dear Ian,

As usual, your summary is succinct and quite accurate. Indeed, the billions of dollars being 'gifted' to banks are not reaching their intended targets, those being SMB's and private clients. In honesty though, they are not reaching large businesses either, as can be evidenced by the trouble GM is currently in. The 'bail out' money is currently being used to re-balance the books and write off bad debt. However, that is like plugging a leak in a sinking ship while leaving the portholes wide open. It can be argued that banks first need to stabilize before they can again go to work, but at this rate they would require so much help that there would barely be anyone left able to afford their services.

However, I stand by my statement that banks are being encouraged to lend. They do not want to, and this is a different matter. Naturally no bank wants to go back to the 1998-2007 credit spree, but right now the level of mistrust is so high that there is no movement whatsoever. To combat this, the Federal Reserve has all but abolished all restrictions on capitalization, but still the banks are not doing anything.

In short, governments are handing out bonds and securities to banks to encourage them to lend, but they use this to shore up their own accounts. To combat that, the Fed then relaxes restrictions to nudge them into action, but they seem to have battened down the hatches to ride out the storm. The more money being thrown at this, the worse it will get.

It can now be said to be proven that commercial investment banking is fundamentally flawed and the entire banking structure should be reviewed.

[Juan]

So, we all agree that the banking structure and distribution of money supply should be changed in a world wide scale.

How do we do it? where do we start? How can we convinced governments around the world that the system should change?
If you also put in consideration religion, politics, business interests and so on...
How do we "the people" do it?

I firmly believe there is always a way no matter how hard and difficult it may seems....
Namaste

[Ullan]

Dear Juan,

The way to legally bring down the global banking system is not, in fact, as hard as it would at first seem. The entire system buoys on trust, and the explicit understanding that you can have as much money from any bank as you like, as long as you don't actually ask for it.

Let me explain that.

The current fractal reserve system, as governed by the Reserve banks in every nation, works simply by creating money from debt. That which people don't have yet is created at their request on the explicit understanding that that which they do not have will be paid back over a period of time so that it would later exist, retroactively, for them to have. Naturally, they pay it back rather than receive, so basically a mortgage or personal loan is just the agreement that you will pay a certain amount to a bank over a certain period of time, and the bank providing you with the necessary fiat notes to prove that you will and thus in fact have the amount you claim to be paying back later. Confused yet?

Let's simplify it a little.

You don't have the cash to buy a house. You get a mortgage, with the house as collateral. The bank (or Federal Reserve) /creates/ this amount in your account. You agree to pay back that amount, plus a banking fee (=interest) over a period of time, so that later on that amount will exist, and you will have paid it. A bank is allowed to do this, up to a certain limit, which is called the fractal reserve margin. This depends on how much Tier One funding they have secured in a central bank. The fractal reserve margin varies from place to place, but usually lays between 75:1 to 250:1. Yes, a thousand dollars secured by a bank allows it to lend a quarter million. And in about twenty years, they will actually have that, since someone is going to pay them that amount. Now, most banks will not wait twenty years before trading that value they will eventually have, and federal reserve banks allow the increase of the fractal reserve margin based on Tier Two funding, which is the initial lent amount. So yes, a thousand dollars secured, will allow a bank to lend up to 5 million dollars.

And here is the trick:

This works as long as nobody who has actually lent the amount goes to demand the money. Quite simply, the bank does not have it. They are relying entirely on the person who lent it to pay them the amount plus fee. The notes that circulate based on that are fiat notes, and stamped 'Federal Reserve bank'. They hold no value. It's a promise by one bank that they have a client trustworthy enough to pay them a certain amount. So if you, as a client of a bank, go to your bank and wish to close your account and take your money home, they are /required by law/ to give you gold backed currency.

Currently, the amount of gold backed currency in the US is about 3 percent of printed currency. This means that if a hundred clients of one bank go to demand the money in their account, only the first three will walk away with the actual cash. Gross oversimplification, but it'll do for our purposes. The other 97 will be told that the bank simply does not have or no longer has the money entrusted to them. Shocked yet?

If you want to bring down the banking system, here's what you do:

Encourage your friends and family to close down their bank accounts and request from their employer to be paid in cash. Inevitably, there will be some banks unable to fill that request. Cause a storm about that, invite the press, and tell them bank x is no longer able to pay out its account holders. Watch the panic spread as more people rush the bank to close their accounts before the money is gone.

This is called a run on the bank, it's a banker's greatest nightmare.

To bring down a system, you need to be intimately familiar with how it works. Once you've done that, it's a simple matter of identifying the weak spots and hitting them. In the case of banks, that weak spot is trust. At the moment, most people are very suspicious of bankers and banks in general. As soon as one story surfaces that banks are no longer able to pay back all their account holders, the house of cards comes tumbling down.

By all means, enjoy :)

[Juan]

Thank you guys.

Now I want to create a bank so I can create money out of thin air :) just kidding

So, let's say that the media got the rumor that Citigroup is going to file for bankruptcy and there is panic among people and they run to get their money from Citibank which of course doesn't have it so general panic spread around US and bring down severely the prices of the stocks of the financial system and therefore panic spread around all US banks account holders and maybe around the world as well.

So, the house of cards comes tumbling down, maybe even the government doesn't allow people from withdrawn money or declares a bank holiday for 2 or 3 days or more, so more panic is created and spread to all the stock market and crash (yeap, even more!).

So, with this scenario, what's the next step?...

Namaste!
PD: I like this thing about possible scenarios...

[Ullan]

Related to this:

Citigroup has announced it made a profit in the last two months. In response, stock market are rallying and trust in financial institutions seems to be restored.

At least, this will last until some clever clog (possibly me) will point out that this is either due to the bailout funds they have just received, or if not then they would not require bailout to begin with, so why did they let their poor balance sheet be made public?

More funds being sluiced back into the banks, just more funds that'll end up disappearing in a few days.

All is as should be.