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PostTue Sep 21, 2010 2:42 pm » by Fullmoon


Global Collapse of the Fiat Money System
Mathias Chang – Global Research August 31, 2010


Too Big To Fail Global Banks Will Collapse Between Now and First Quarter 2011

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 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.

Why?

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.

Then, there were some economists who were worried that as a result of the FED’s printing press (electronic or otherwise) working overtime, hyper-inflation would set in soon after.

But nothing happened. The multiplier effect of fractional reserve banking did not take off. Bank lending in fact stalled.

Why?

What happened?

Let me explain in simple terms step by step.

1) All the global banks were up to their eye-balls in toxic assets. All the AAA mortgage-backed securities etc. were in fact JUNK. But in the balance sheets of the banks and their special purpose vehicles (SPVs), they were stated to be worth US$ TRILLIONS.

2) The collapse of Lehman Bros and AIG exposed this ugly truth. All the global banks had liabilities in the US$ Trillions. They were all INSOLVENT. The central banks the world over conspired and agreed not to reveal the total liabilities of the global banks as that would cause a run on these banks, as happened in the case of Northern Rock in the U.K.

3) A devious scheme was devised by the FED, led by Bernanke to assist the global banks to unload systematically and in tranches the toxic assets so as to allow the banks to comply with RESERVE REQUIREMENTS under the fractional reserve banking system, and to continue their banking business. This is the essence of the bailout of the global banks by central bankers.

4) This devious scheme was effected by the FED’s quantitative easing (QE) – the purchase of toxic assets from the banks. The FED created “money out of thin air” and used that “money” to buy the toxic assets at face or book value from the banks, notwithstanding they were all junks and at the most, worth maybe ten cents to the dollar. Now, the FED is “loaded” with toxic assets once owned by the global banks. But these banks cannot declare and or admit to this state of affairs. Hence, this financial charade.

5) If we are to follow simple logic, the exercise would result in the global banks flushed with cash to enable them to lend to desperate consumers and cash-starved businesses. But the money did not go out as loans. Where did the money go?

6) It went back to the FED as reserves, and since the FED bought US$ trillions worth of toxic wastes, the “money” (it was merely book entries in the Fed’s books) that these global banks had were treated as “Excess Reserves”. This is a misnomer because it gave the ILLUSION that the banks are cash-rich and under the fractional reserve system would be able to lend out trillions worth of loans. But they did not. Why?

7) Because the global banks still have US$ trillions worth of toxic wastes in their balance sheets. They are still insolvent under the fractional reserve banking laws. The public must not be aware of this as otherwise, it would trigger a massive run on all the global banks!

8) Bernanke, the US Treasury and the global central bankers were all praying and hoping that given time (their estimation was 12 to 18 months) the housing market would recover and asset prices would resume to the levels before the crisis. .

Let me explain: A House was sold for say US$500,000. Borrower has a mortgage of US$450,000 or more. The house is now worth US$200,000 or less. Multiply this by the millions of houses sold between 2000 and 2008 and you will appreciate the extent of the financial black-hole. There is no way that any of the global banks can get out of this gigantic mess. And there is also no way that the FED and the global central bankers through QE can continue to buy such toxic wastes without showing their hands and exposing the lie that these banks are solvent.

It is my estimation that they have to QE up to US$20 trillion at the minimum. The FED and no central banker would dare “create such an amount of money out of thin air” without arousing the suspicions and or panic of sovereign creditors, investors and depositors. It is as good as declaring officially that all the banks are BANKRUPT.

9) But there is no other solution in the short and middle term except another bout of quantitative easing, QE II. Given the above caveat, QE II cannot exceed the amount of the previous QE without opening the proverbial Pandora Box.

10) But it is also a given that the FED will embark on QE II, as under the fractional reserve banking system, if the FED does not purchase additional toxic wastes, the global banks (faced with mounting foreclosures, etc.) will fall short of their reserve requirements.

11) You will also recall that the FED at the height of the crisis announced that interest will be paid on the so-called “excess reserves” of the global banks, thus enabling these banks to “earn” interest. So what we have is a merry-go-round of monies moving from the right pocket to the left pocket at the click of the computer mouse. The FED creates money, uses it to buy toxic assets, and the same money is then returned to the FED by the global banks to earn interest. By this fiction of QE, banks are flushed with cash which enable them to earn interest. Is it any wonder that these banks have declared record profits?

12) The global banks get rid of some of their toxic wastes at full value and at no costs, and get paid for unloading the toxic wastes via interest payments. Additionally, some of the “monies” are used by these banks to purchase US Treasuries (which also pay interests) which in turn allows the US Treasury to continue its deficit spending. THIS IS THE BAILOUT RIP OFF of the century.

Now that you fully understand this SCAM, it is left to be seen how the FED will get away with the next round of quantitative easing – QE II.

Obviously, the FED and the other central banks are hoping that in time, asset prices will recover and resume their previous values before the crisis. This is a fantasy. QE II will fail just as QE I failed to save the banks.

The patient is in intensive care and is for all intent and purposes brain dead, although the heart is still pumping albeit faintly. The Too Big To Fail Banks cannot be rescued and must be allowed to be liquidated. It will be painful, but it is necessary before there is recovery. This is a given.

Warning:

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:

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.

Solution:

Maintain a bank balance sufficient to enable you to comply with the above potential impositions.

Start diversifying your assets away from dollar assets. Have foreign currencies in sufficient quantities in those jurisdictions where the above anticipated impositions are least likely to be implemented.


CONCLUSION

There will be a financial tsunami (round two) the likes of which the world has never seen.

Global banks will collapse!

Be ready.

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PostWed Sep 22, 2010 3:06 pm » by Pateriot


I think that we are far from the end of this current financial crises. However for those who seek safety in gold, they should perhaps think twice. The historical value of gold has been because of its value as jewelry, malleability, and brilliance. Today there are many materials that can be used to mimic these effects. Gold today has very little intrinsic value. Most of its value, like paper money, is in the eyes of the beholder and in their belief that it has value.

Historically diamonds have been extremely valuable. Today diamonds can be replicated in the lab and their value is artificially manipulated by diamond companies. As the manufacturing of lab diamonds becomes even better, the bottom will drop out of the diamond market.

Pearls are a classic example of this. Historically pearls have been valued extremely highly. Then artificial pearls were created, which put pressure on the demand for real pearls. The death song for the pearl however finally came as cultured pearls were developed and became common. Currently you could buy a real pearl that was far more perfect then a naturally occurring one and far more common. Today you can buy a pearl for about 15 minutes worth of pay versus 1 or two weeks worth for the average person... and the quality will be far superior as well.

Because something has had historical value, does not ensure that this will continue in the future.

If you are convinced that collapse of the economy and society is eminent, than invest in something that people will truly have need of. Food, medical supplies, basic clothes and commodities comes to mind... the things that will have value and can be bartered.

If the economy does not totally meltdown the price of gold will drop to levels seen before the crises. If the economy does collapse, it will more likely be rebuilt using a new currency and system (probably all electronic) but otherwise similar to the current one. In this scenario, the price of gold will collapse into the basement, and those who sought a safe haven will have lost their butts in the process.

If you had invested in essential commodities, at least you would still be able to sell or barter them away. Almost certainly these would have increased in relative value because of the disruption to the system and the highly inflated currency exchanges. Gold in today's world is anything but a safe haven. Its true value is for speculation on its near price. This is otherwise known as gambling on wether it will go up or down.

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PostWed Sep 22, 2010 3:19 pm » by Lighthouse


However for those who seek safety in gold, they should perhaps think twice. The historical value of gold has been because of its value as jewelry, malleability, and brilliance.

Sorry to say so, but that is COMPLETELY wrong.

Gold and silver (argent !) have been the basis of every monetary system since the beginning of time.
Gold and Silver ARE money, the rest, and certainly unbacked currencies, are just a lousy substitute
and people are starting to wake up to this reality.
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PostWed Sep 22, 2010 3:31 pm » by Otomon


lighthouse wrote:
However for those who seek safety in gold, they should perhaps think twice. The historical value of gold has been because of its value as jewelry, malleability, and brilliance.

Sorry to say so, but that is COMPLETELY wrong.

Gold and silver (argent !) have been the basis of every monetary system since the beginning of time.
Gold and Silver ARE money, the rest, and certainly unbacked currencies, are just a lousy substitute
and people are starting to wake up to this reality.


I agree,furthermore the fact that there is a major propaganda right now of "We will buy your gold and silver for alot of cash!" further enhances the fact that gold and silver will play a major role in the end game.
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PostWed Sep 22, 2010 3:49 pm » by Lighthouse


otomon wrote:
lighthouse wrote:
However for those who seek safety in gold, they should perhaps think twice. The historical value of gold has been because of its value as jewelry, malleability, and brilliance.

Sorry to say so, but that is COMPLETELY wrong.

Gold and silver (argent !) have been the basis of every monetary system since the beginning of time.
Gold and Silver ARE money, the rest, and certainly unbacked currencies, are just a lousy substitute
and people are starting to wake up to this reality.


I agree,furthermore the fact that there is a major propaganda right now of "We will buy your gold and silver for alot of cash!" further enhances the fact that gold and silver will play a major role in the end game.

:flop: A smart observation Otomon :flop:
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PostWed Sep 22, 2010 4:12 pm » by Phaeton


As important silver and gold are in context of being able to aquire resources when the fiat sham colllapses, one shall also have to be able to keep it.

A logical primary effect of this collapse will be the related (temporary) collapse of the authorities. In short, calling the cops when someone is trying to rob your shit isnt going to result in any kind of help.

> One needs to be able to defend his property.
Arm yourselves.
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PostWed Sep 22, 2010 5:08 pm » by sockpuppet


Gold, just like fiat money, is only worth what we are willing to value. If a universal barter system collapses, gold is just as useless.

On another note, I do think that financially things are going to really hit the fan at the end of this year, simply because the rich will dump a lot of their investments to take advantage of the tax breaks that end on December 31, 2010.
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PostWed Sep 22, 2010 5:16 pm » by Lighthouse


Gold, just like fiat money, is only worth what we are willing to value. If a universal barter system collapses, gold is just as useless.

(your statement doesn't make a lot of sense since there is no universal barter system, so how can it collapse.
Anyway I suppose you mean; if a universal barter system were to exist)

then my reply would be:

If at least you make abstraction of thousands of years of human history,
were barter DID exist, was used extensively, but gold STILL held it's value...

(By the way I don't own gold, only some pieces of silver).
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PostWed Sep 22, 2010 6:27 pm » by Phaeton


gold and silver have been a highly valuable commodity since the dawn of civilization.
Ill take my chances this will not suddenly change. :flop:
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PostWed Sep 22, 2010 10:41 pm » by Flecktarn


metal from the ground
diamonds from the ground
printed paper
we have been conditioned in to its value
whats more rarer than gold diamonds money ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,a thinking human
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