By MoneyMorning.com.au
Here’s a headline you don’t read every day in the mainstream press:
“Why banking works one big confidence trick”
Today, we’ll explain how to avoid this con-trick of the banks and the best way to set your portfolio to survive the next 10-plus years using investments like gold and silver stocks. But first, back to that headline…
It’s from today’s Financial Times (FT).
Written by Zoltan Pozar, a former New York Federal Reserve Bank economist, he makes the following point:
“Banking is one large, clever, and finely tuned, confidence trick.
“On the one hand are bank notes which are ‘legal tender for all debts, public and private’, trade at par and are referred to as money. They are liabilities of the sovereign. On the other hand are demand deposits – from savings to cheque accounts – which also trade at par and thus function as money. But, unlike bank notes, they are the liabilities of banks.”
In short, banks have the power to create money from thin air. Independent of central banks. The central bank sets the limits for what the banks can do, and the banks do it.
It’s something the banks have done well (by that we mean in the same way a fraudster does something well, we’re not saying we approve of it) for years. Trouble is banks have hit the limit.
The amount of debt issued is so large it has become much harder for banks to refinance old debt while still issuing new debt to keep credit growth – and the economy – growing.
The only option left is for the central banks to increase the money supply without making it obvious what they’re doing. The European Financial Stability Fund (EFSF) is the latest effort to achieve this.
Bottom line: governments and central bankers are doing all they can to avoid shocking the market. So far they’ve done a poor job. We’ve seen more shocks in the past three years than we care to mention.
Despite that, they’ve muddled through… they’ve gotten away with it. The question is:
As an investor that should be your number one question. Because the answer you come up with will determine the shape of your investment portfolio. Here’s why and what you should do about it…
Cheers.
Kris
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From the Archives…
How to Profit from the Inevitable Return to Sound Money
2011-12-02 – Kris Sayce
Two Reasons the Market Should Have Fallen…
2011-12-01 – Shae Smith
Ditch Your Investor Pride to Avoid an Investing Fall
2011-11-30 – Kris Sayce
How to Play a Volatile Market for Profit
2011-11-29 – Kris Sayce
No Thanks to Central Banks
2011-11-28 – Kris Sayce
For editorial enquiries and feedback, email moneymorning@moneymorning.com.au