The following is an insightful article, posted earlier this month by the always excellent, Torgny Presson, the CEO of Bullionstar.com
His article touches on a “touchy” subject that few journalists, of any description, seem prepared to tackle; and one that seems never to be investigated at all, by the controlled mainstream media.
The article “lifts the rock” and exposes the lie that lies behind the myth; the myth that says that banks are … “as safe as a bank”.
In doing so, it shines a light on one of most subtle “sleight of hand” misdirects that the banking industry ever deploys.
The issue is the thorny question of just who owns the money, that is purportedly your bank account.
It is an issue that has already been “field trialled” during the Cyprus Crisis, and is set to dominate banking for the foreseeable future.
That issue, is that of “Bank Bail-ins”.
What has happened in recent years though, is that after a century or so of manipulation, the Federal Reserve Central Bank is beginning to “reap what it has sown” somewhat.
As Sir Josiah Stamp once famously said, when he was serving as Governor of the Bank of England in the 1920s, (he was the second richest man in Britain at the time) …
“Banking was conceived in iniquity, and was born in sin. The Bankers own the Earth.
Take it away from them, but leave them the power to create deposits, and with the flick of a pen, they will create enough deposits to buy it back again.
However, take it away from them, and all the fortunes like mine will disappear; and they ought to disappear, for this world would be a happier and better world to live in.
But, if you wish to remain slaves of the Bankers, and pay for the cost of your own slavery, let them continue to create deposits”
Below, is a tongue in cheek cartoon, which nonetheless fairly accurately depicts the popular misconception, regarding what happens, legally, when a “Bank Bail In” is instigated.
The commonly held mere belief unfortunately, is that Banks simply go in a “steal depositors money”; a notion which many mainstream journalists, who really should know better, have certainly fostered.
The mainstream media has also popularised catchphrases like “haircut” too, which don’t help, giving the wrong impression about who actually owns “bank deposits”.
As we will soon see, the deposits already “belong to the bank”, long before they don’t “steal” them!
Few aspects of life are as misunderstood as the secrets surrounding what Banking is, and the breadth and depth of the misunderstandings are an essential part of what can only be a deliberate deception.
FRB Bail-ins: You don’t own your money
The account balance on your bank account is known as a demand deposit. Under our Fractional Reserve Banking (FRB) system, your deposits are used by the banks to leverage lending. What most people think of as their account balance is actually something very different.
Many people mistakenly believe that their account balance shows how much they own. This is not so. Instead, it shows what the bank owes you. You merely hold a claim on cash. Knowing this will help you understand that bank deposits are actually loans.
Your cash forms the foundation for a banking system that loans out (hypothecates) your account balance with the promise that they will keep some of it on hand and return all of it if you ask for it. This is called fractional reserve lending and this is what all banks do.
The legal precedent, that established the foundation for fractional reserve banking, was determined in a UK Supreme Court, (Foley vs. Hill, 1848) …
Money, when paid into a bank, ceases altogether to be the money of the principal; it is then the money of the banker, who is bound to an equivalent by paying a similar sum to that deposited with him when he is asked for it. …
The money placed in the custody of a banker is, to all intents and purposes, the money of the banker, to do with it as he pleases; he is guilty of no breach of trust in employing it; he is not answerable to the principal if he puts it into jeopardy, if he engages in a hazardous speculation; he is not bound to keep it or deal with it as the property of his principal; but he is, of course, answerable for the amount, because he has contracted, having received that money, to repay to the principal, when demanded, a sum equivalent to that paid into his hands. [Emphasis mine]
In very clear terms, when you deposit funds in a bank account, those funds are no longer yours.
You become an unsecured creditor, or lender, to the bank.
Interest payments are supposed to compensate you for the risk in lending funds to the bank, but today’s interest rates – being close to zero – do not compensate you for that risk.
Bank Runs & Bank Holidays
Fractional reserve banking works as long as people have faith that the bank will give them back ‘their’ money.
When things aren’t going well, and when the bank is perceived as having taken too much risk, people start demanding their balances back in cash, because their trust in the bank’s ability to give them back ‘their’ money starts to diminish.
This is called a ‘bank-run’ and it is what banks fear most.
Assume that all depositors would claim their cash at once. As the reserve ratios are below 10 % for most western banks, less than 10 % of the funds would be available for withdrawals.
Fun fact: A ‘bank holiday’ is when a bank literally closes its doors and blocks account holders from withdrawing their funds.
A bank holiday is often caused by a bank run, and is a last resort measure to prevent the bank from going bankrupt, as a major bank run would rapidly deplete the bank of all its funds when set in motion.
The most recent example is what happened in Cyprus in 2013. When it became clear to the Cypriot bank account holders that the Cypriot banks had liquidity problems, worried account holders started to transfer their funds to other banks and withdraw their cash.
Cypriot bail-in as a precedent
Why did the Cypriot bank account holders wish to withdraw their funds in 2013?
When the liquidity problems of the banks became apparent, and when it furthermore became increasingly clear that no one was going to bail out the Cypriot banks, the account holders acted to try to secure ‘their’ money.
Instead of the banks being bailed out, the banks had to save themselves and recapitalize, by confiscating and freezing part of the bank account holdings.
The banks argued that this was necessary, or the banks would go bankrupt, with the effect that all holdings would be lost.
The Cypriot ATM’s were emptied within hours of the bank holiday announcement. Two weeks later, the banks reopened with strict controls on what remained in the accounts.
Large withdrawals and transfers were strictly controlled.
Up to 85 % of account balances were converted into bank shares, irredeemable for years.
We must understand that funds in a bank account can be easily seized.
The deposit insurance structures that are set up to protect client accounts in some countries, are also on a fractional system. They are thus also susceptible to bank-runs.
In some countries, the government itself provides insurance, which instead would mean that the government has to print money to monetize the debts.
While shocking to some, the bail-in strategy is completely legal.
Client account holders can only profess ignorance, which – when it comes down to it – will not be enough to protect them.
Knowingly, or unknowingly, account holders are investors and not savers.
The event in Cyprus is and will not be, an isolated event. We know this, because the outline for it happening elsewhere, has already been clearly stated and put in writing.
The G20 seems to be preparing for a normalization of bail-ins.
In Canada, a bail-in regime was announced already, in the 2013 budget.
This means that all bank-issued debt instruments can be used to save the banks.
Demand deposits and guaranteed investment certificates are debt instruments, created by the banks which they can do whatever they feel with.
The Cypriot bail-in certainly looks like a test run for a larger global initiative.
“I Owe You Owe Him Owe Her Owe Who”?
The value of today’s money is entirely dependent on the masses of people who assign it value, and who continue to have confidence in the debt based system.
It is a self-fulfilling system, that is so fragile that a small crack in confidence can bring down an entire bank, causing a tragic loss of “wealth” for account holders and deposits.
The only way to truly own your wealth, and to safely store its value, is to transfer your wealth into something durable, that has intrinsic value, and no debt or loan attached – Precious Metals.
Fiat currencies are unsuitable as a store of value, as they do not have any intrinsic value, and have multiple “counter-party claims” – I Owe You Owe Him Owe Her Owe Who?
This is why you must own real, tangible assets, such as precious metals, for “store of value” and to protect your wealth.
So there you have it. Another banking myth exposed.
Slowly over time, many more will be uncovered, as the current banking system implodes under the weight of its own misdirects.
As for precious metals, we couldn’t agree more, and later this month, Q Wealth Report will be releasing the fully updated edition of its Gold Report that will fill in many of the missing pieces of the current Gold Puzzle.
To Your Secure Financial Future
Q Wealth Report Team