Debt based economies

When I talk about debt based economies, what do I mean? For those that don't know, there are two sides to this failed system of capitalism. Debt based economies require debt to keep the system flowing. Banks are allowed to lend money they DO NOT HAVE in a process known as fractional reserve banking. For example, banks have depositors, yes? When you put money into your bank account, you no long own that money. You become a debt to be paid off as far as the bank is concerned. The bank will then pay you interest based on the amount of money you have deposited and the interest rate at the time. The bank will then invest some or all of your actual cash while the money still remains available in your account. The interest the banks pays on any deposits is a payment for you using the bank to deposit money. Seems fair yes? The point where it becomes unfair is when YOU borrow money from the bank. Take a mortgage for example. Very few banks, even the big banks have the liquid cash to give you to pay for a house. They invest any liquid assets they have in the stock markets for the most part because it is seem as a good RoI(return on investment). Now remember the term fraction reserve banking? In most countries, the banks are allowed to loan out 7 times more than what they have in actual deposits. That's right. 7 times. So if you go to a bank to ask them to borrow money for a house, ie a mortgage, where does the money actually come from? In most countries, it comes from the central bank of that given country. YOUR signature actually releases the liquid cash that the central bank will just print out of thin air, or more specifically, type some digits on a computer and send the money across to the recipient bank. That's right, you actually sign off your own money, but that isn't all. You must pay it back, and with interest.

Now picture this. Say you are like most major economies when they were starting out. There is a central bank and central government. Central banks print money at interest. Say the government went to the central bank on day 1, and said I need $1000 dollars. The central bank prints $1000 and gives it to central government and says, we require that money back, and with some interest please. All the government has is the $1000, which it will most likely spend on the people. The real con however, is where does the money come from to pay for the interest? It doesn't even exist. The only thing the government can do to pay off that debt, is to go back to the central bank and borrow more money, again, at interest. All the debt we are lumbered with right now CANNOT BE PAID OFF. It is a con. The debt is never supposed to be paid off. You are only ever supposed to service the debts interest.

To give everybody an idea of exactly how far the Powers that be will go to save this system, you need look no further than two events. The Sub Prime mortgage disaster in 2007-2008 that nearly caused the entire global economy to go into a full on meltdown when one of the largest banks in the world, the Lehman Brothers bank, ran out of liquidity and had too much bad debt on its books. The second is the Euro zone crisis. I'll break this down as easily as I can. I've used these examples because most people will have at least heard of these two events, even if they don't know much about it.

The Lehman Brothers Fiasco

With this collapse, the Lehman Brothers bank ran out of money and couldn't afford to service its debts. I won't go into the specifics but all you need to know is, the debt based economy scam nearly came to a head the day this bank ran out of liquid money. So what happened? Banks lend to other banks. Lehman Brothers was one of the biggest banks in the world and is very closely connected to the other big banks. If it had no money to service its debts, this would have set off a chain reaction. The bank can't pay bank A, bank B, bank C and so on and so forth. Banks A,B,C,D and so on aren't given the money they were expecting so can't pay some of their debts to other smaller banks. The smaller banks aren't getting the money they were expecting so can't service their debts properly. That is why ONE bank nearly took out the entire global economy by not being able to service its debts. The process is slightly more complex that this, but that chain reaction is essentially what happened. The banks were then given bailouts by the tax payer to recapitalize. Of course the banks are too big to fail. We know this because of the HSBC money laundering event. HSBC were caught money laundering over a number of years for Mexican drug cartels and jihadists. Some of the drug cartels in Mexico were just walking into HSBC Mexico with millions in cash, depositing it and transferring the money to accounts in HSBC America. To quote the NYTimes article on this after they WERE NOT indicted for these crimes: State and federal authorities decided against indicting HSBC in a money-laundering case over concerns that criminal charges could jeopardize one of the world’s largest banks and ultimately destabilize the global financial system. http://dealbook.nytimes.com/2012/12/10/hsbc-said-to-near-1-9-billion-settlement-over-money-laundering/

Instead they were just fined nearly two billion, a tiny portion of the money they laundered. If HSBC were indicted for these crimes, the bank would be forced to close and it would crash the entire global economy. So, easier to just fine them.

EuroZone Crisis

The Eurozone crisis was another debt crisis. Fundamentally you have economies that are completely different in every way shape and form, being locked into the same currency union and not able to adjust interest rates for inflation, as the European Central Bank controls the interest rates for the Euro. The main culprits were Ireland, Greece, Spain, Portugal and Cyprus. They were unable to service their sovereign government debt and all were about to default, so asked the EU Commission(the executive arm of the European Union), the IMF and the European Central Bank for help. Every single country received "help". I use that term loosely and here's why. The aforementioned sovereign member states of the European Union were in serious debt and unable to service that debt, and were about to default. So they go to the European Central Bank and the International Monetary Fund(IMF) for help. They said, no worries, we'll help you sort out your debt problems. We will LOAN you the money you need to help service your debts, but you will have to pay us back, at interest. Essentially, nothing has been solved, and nothing has been learned. The can has just been kicked further down the road. These are stalling tactics. Stalling the inevitable.

One point to note is the case of the Cyprus bailout. When they were bailed out, everybody who had over 100k in euro's in a bank account had 10% of their deposits stolen to help pay for the bailout. That didn't happen in the other cases. I would suggest, this was a small test, to see if they could get away with actually taking money directly for bank depositors. Cyprus is a very small country, I wonder why they didn't try it with Ireland, Spain, Portugal and Greece. Like I said, a test, because there WILL be more bailouts.

Conclusion

What I'm getting at with this blog, is that full global financial collapse is inevitable. The numbers are different depending on where you get them from and who you speak to, but this is key:

If you add up the total amount of debt in the world, not just private debt, but government debt, corporate debt etc. Put that number to one side. Then add up the total amount of liquid cash available in the system. So all the money in every private, personal, government and corporate bank account and ALL the cash in circulation. The total amount of debt, comes to MORE than the total amount of liquid cash available in the system to pay for it. The real con is the debt comes with interest, for which the money to pay it, doesn't even exist.

I can tell you now, the debt can go on forever. The banks will continue to be bailed out and saved. What will really take down this corrupt system, is when the big money leaves the stock markets world wide ie investor sentiment. When even the multi millionaires and billionaires get scared and head for the exits trying to preserve their wealth in other assets. For the short term, they know the banks will continue to be bailed out, so they are unlikely to do this.

This is where crypto currency and block chain tech comes in. If these projects continue to grow, I can see huge change coming. The only problem is the transition. We have had financial collapses before in history, just never with 7 billion people and the systems they rely on being so interconnected. All I can say is, stock up while you still can.