Last Ditch Effort

The Cyprus Banking Crisis has opened the door to the willingness of central banks taking our money out of the our account and effectively putting it in the capital accounts of the banks, a pure confiscation of assets.  Think about it.  Where is your money safe if it isn’t protected in your bank account?

Consider this.  What if you are a chief financial officer (CFO) of a corporation with $1 Billon in the bank?  where do you put it to protect it from confiscation?  Large depositors could lose 30-40% of their cash if they pick the wrong bank to put their working capital in.  The “central planners” know the impact of the threat of confiscation on the CFO’s thinking.  Do you put excess funds in the stock market in blue chip, dividend-earning stocks?  Do you go out and buy some real estate and rely on rent payments to fund ongoing operations?

The big issue is velocity of money- how fast money moves through the economy.  The velocity impacts the gross domestic product (GDP) if it slows down.  People are just not buying anything, they are keeping the money in the bank, sitting on the sidelines.  Yes, the stock market is hitting all time highs but that is due to the Fed goosing the economy, not the natural state of a recovery.  The Fed is getting desperate.  They are taking a huge gamble.

Below is a graph of money velocity.  It is at 50 year lows.  An economic recovery is tough with the velocity at such low levels.  People are concerned.

File:Velocity of MZM Money Stock in the US.png

What if real estate prices go down?  The CFO will lose working capital value.  What if the stock market goes down?  The result is the same.  Where can the CFO put his money until the risks subside?  This is a gamble by central banks of epic proportions.  We may have witnessed the beginning of the end of the current financial system.

We have $10.8 Trillion of deposits in the U.S. and the FDIC has $33 Billion in their fund. It equivalent to insuring $10,800 in risks with 33 bucks. Would you be comfortable with that ratio?  Can you see their dilemma?

Money of some type is currently necessary to facilitate the exchange of goods and services.  The size and complexity of today’s environment requires monetary exchange.  Stability of the money is critical to insure confidence in the system.  Gold and silver have been the stabilizing force for thousands of years.  Each time society has attempted to depart from the stabilizing characteristics of gold and silver, a system without counterparty risks, the attempt has ultimately crashed and burned causing severe pain to the population.  It appears we are on the cusp once again.  Many will be caught unaware at they have blindly followed the current system assuming those in power were somehow smarter than the rest of us.  Instead, deception and illusion played its role in moving us toward death and destruction.  It sounds a lot like the ego, the old man, the flesh, has been ruling the current economic system.  His death must precede the resurrection of the new man and… I suspect a new system.

Comments are closed.