In a world of floating currencies, central banks don’t need gold or other reserves to determine the currency’s value. In that world, central banks neither need gold reserves to give at least some value to “their” currency which is floating on … thin air.

Gold will soon have the same role to fulfil as the Mona Lisa in the Louvre. A wealth reserve in the strong room (the Louvre) of a Monetary Union with a currency, the (East) Asian currency.

Asia will force the floating currency regime to ask the Mona Lisa’s (FreeGold’s) help to survive.  

Russia had plans to sell between 20 and 50 tonnes of its Mona Lisa this year to keep “its” ruble floating on thin air. No way, says Asia! (1)

As former Malaysian prime minister Tun Dr Mahathir Mohamad was quoted on Tuesday in the New Straits Times in an article “Asian Community: It’s time to act on currency plan”: the crisis is due to the US monetary system which is not backed by anything; therefore Japanese new prime minister Yukio Hatoyama’s call for Asia to set up its own currency should be welcomed and the currency should be backed by gold. (2)

See you 09 November 2009, 20 years after the day the Berlin Wall “fell”.

Ivo Cerckel
honestmoney@maktoob.com
http://twitter.com/ivocerckel/

NOTES

(1)
From Times Online October 27, 2009
Leak forces Russia to scrap gold sale
http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article6891819.ece

(2)
ASIAN COMMUNITY: It’s time to act on currency plan
2009/10/27
http://www.nst.com.my/Current_News/NST/articles/20091027085830/Article/index_html

This post tries to assess “the” fundamentals of the credibility of the US dollar in order to determine whether “the” recovery is under way.

This planet’s economy is in crisis since 15 August 1971 when US president Nixon broke the Bretton Woods agreements which linked the US dollar to gold at fixed parity and all of the planet’s other currencies to the dollar. Nixon unilaterally broke the link of the dollar to gold. As long as the planet’s Anglo-Saxon intellectuals refuse to deal with this problem, the crisis will continue.

As Mohamed El-Erian put it yesterday in the Financial Times, after our Masters have done whatever it takes to save irredeemable, at least unbacked, paper money and fractional-reserve banksterism, this is not the end of the story. (1)

As The Times said yesterday, the worst of recession and unemployment is yet to come. (2)

As John Gapper said yesterday on his Financial Times blog, Goldman Sachs should be allowed to fail. (3)

Not so for the Anglo-Saxon intellectuals of the Global Association of Risk Professionals (GARP). They are organising their 6th Annual Asia Pacific Convention on October 29-30, 2009 at the Four Seasons Hotel in Hong Kong.

The title or theme of the Convention is:
“Meeting the Challenges of a Recovering Global Economy”

Yes, the “recovering” global economy, they say.

One of the aims of the Convention is to gain an understanding of what the financial crisis is teaching us about risk management. (4)

Risk management is the identification, assessment, and prioritisation of risks followed by co-ordinated and economical application of resources to minimise, monitor, and control the probability and/or impact of unfortunate events, says Wikipedia. (5)

The “unfortunate” event we are dealing with is the quoted 15 August 1971 event.

But the organisers of the Hong Kong GARP Convention are based in London and the USA, the two pillars of the dollar regime, and are therefore not prepared to address this issue.

There is no way the planet’s economy will recover from the “crisis” as long as this planet’s Anglo-Saxon intellectuals don’t deal with that event.

“Our” debt-driven political economy will never be able to recover.

“Our Anglo-Saxon intellectuals” will never be able to have “our” economy driven, “floated” on floating currencies, I would say, towards the state they want it to be unless they deal with the “unfortunate” 1971 event.

OIL & GOLD

Meanwhile, the oil price is rising and this would endanger the imaginary recovery.

In order to maintain the credibility as world reserve currency of that piece of paper called the US dollar, our Anglo-Saxon Masters are alleging that the dollar is as good as gold (for oil).

The “fundamentals” are being overlooked because the results to which those fundamentals have in the meantime led are disastrous.

Oil and gold are the two elements which are supporting the dollar’s credibility.

“The” fundamentals are that oil is being priced in one of this planet’s currencies. The planet lives in a world of floating currencies. Still, some, like the European Central Bank, have gold reserves. Why does the ECB need these gold reserves if its currency is floating on thin air?

The question is important for those OPEC members who are also members of the Gulf Co-operation Council which is planning its common currency by 01 January 2010, date at which the European Union Lisbon Treaty should enter into force. The Treaty would make the ECB, which up till now had legal personality, a EU institution, thereby destroying whatever independence the ECB had left.

Perhaps, the ECB could start by explaining why it needs gold reserves in a world of floating currencies. How do these gold reserves determine the euro’s value in a world of currencies floating on thin air? But, as I said, the ECB is devoid of independence.

It is important that the GCC understands how its oil reserves can do the same for its single currency. Indeed, as oil is the only commodity that is large enough for gold to hide in, gold is hiding in there. Oil producers do exchange that green paper, called the petrodollar, for the yellow substance. But, again, the ECB is devoid of independence.

Barry Eichengreen, a professor of economics and political science at the University of California at Berkeley, is however saying “The euro and the renminbi will match the dollar as an attractive form of reserves only when they possess equally deep and liquid markets,” (6)

Always the argument of -deep and liquid- markets !?

This is precisely the area where everything is systemically going wrong. A large debt hole is being deepened through the accumulation of a worthless equity mountain.

“Deep” means a debt-deep hole. “Liquid” means an ever-increasing debt float.

Banksters had invented fractional-reserve banksterism long before August 1971.

Since August 1971, Goldman Sachs took on more risk, says John Gapper in his quoted blog post.

Gapper also says that in last year’s crisis, the US government made clear that it stands behind Goldman and other big investment banksters.

The US dollar lacks any credibility. How can proponents of the dollar regime lead us on the way towards recovery?

Ivo Cerckel
honestmoney@maktoob.com
http://twitter.com/ivocerckel/

NOTES

(1)
The two-stage de-risking of banks
By Mohamed El-Erian
Published: October 22 2009 13:39 | Last updated: October 22 2009 13:39
http://www.ft.com/cms/s/0/74eb1a16-bf02-11de-8034-00144feab49a.html

(2)
From Times Online
October 22, 2009
Recession and unemployment: the worst is yet to come
http://business.timesonline.co.uk/tol/business/economics/article6885279.ece

(3)
Goldman should be allowed to fail
by John Gapper
October 22, 2009 12:23pm
http://blogs.ft.com/gapperblog/2009/10/goldman-should-be-allowed-to-fail/

(4)
http://www.garp.com/events/apc2009/

(5)
http://en.wikipedia.org/wiki/Risk_management
referring to
Douglas Hubbard “The FAILURE of Risk Management: Why It’s Broken and How to Fix It” pg. 46, John Wiley & Sons, 2009

(6)
US dollar likely to remain reserve currency-paper
Tue Oct 20, 2009 3:16pm ED
http://www.reuters.com/article/marketsNews/idUSN2043761020091020

In order that the various international organisations can carry out their allotted tasks, it is apparent that they must enjoy some measure of international personality. (1)

The European Central Bank had the advantage of having its statuses enshrined in an international treaty which required the unanimous agreement of all European Union member states to change. (2)

Notwithstanding this advantage, the EU Commissioner of Economic and Monetary Affairs from time to time also participates in the fortnightly meetings of the ECB governing council which sets the general policies for the ECB. (3)

This means no ECB independence vis-à-vis the EU Commission.

That is the present situation without the EU Lisbon treaty yet having entered into force.

Now,
through the Lisbon treaty which should enter into force, Czech president Vaclav Klaus permitting, on 01 January 2010,
the ECB would be recognised as an institution of the EU, joining the Council of the EU, the European Commission and the European Parliament,
even though it has legal personality. (4)

The Lisbon treaty is thus the unanimous agreement of all EU member states to change the status of the ECB.

What’s left of the independence of the  ECB bureaucrats from the other EU bureaucrats?

To repeat, in order that the various international organisations can carry out their allotted tasks, it is apparent that they must enjoy some measure of international personality.

Let me add that in the old days, central banksterism used to be independent.

Let me also add that before the parasites invented central banksterism,
banks used to have the right to issue receipts for the gold they held in reserve in warehouse
and that this right was taken away from them by the institution of central banksters. (5)

Ivo Cerckel
honestmoney@maktoob.com
http://twitter.com/ivocerckel/

NOTES

(1)   
Martin Dixon, “Textbook on International Law”, Mayfield, East Sussex, Blackstone Press Limited, 1993, 2nd ed. section 5.2.3, p. 97

(2)   
Darren Williams and Richard Reid, “A central bank for Europe”, in: Paul Temperton, (ed.), “The euro”, John Wiley and Sons, 1998, 2nd edition, 123, pp. 137-8

(3)
Economic and Monetary Union and the Euro
3. The European Central Bank (ECB)
http://www.eu4journalists.eu/index.php/dossiers/english/C23/23/

(4)
The economic governance of the European Union in the light of the Treaty of Lisbon: harmonisation or competition between countries?
Lorenzo Bini Smaghi, Member of the Executive Board of the ECB
Speech given at the conference on:
The European Central Bank: a new actor on the international scene,
Milan, 24 January 2008
http://www.ecb.int/press/key/date/2008/html/sp080124.en.html

(5)
Roland Leuschel and Claus Vogt, “Das Greenspan Dossier, Wie die US-Notenbank das Weltwährungssystem gefährdet. Oder: Inflation um jeden Preis”, www.finanzbuchverlag.de, 2006, 3rd ed., p. 299

SATURDAY, OCTOBER 17, 2009
Gold is Money
http://fofoa.blogspot.com/2009/10/gold-is-money.html

http://twitter.com/IvoCerckel/status/4966504466
Money is fundamentally about politics. Required moral training arises only if one spent years considering what justice & virtue consist in.

The latter sentence was Socrates’.

From The Times
October 19, 2009
Discovering if we learnt the lessons of Black Monday
Gerard Lyons, chief economist at Standard Chartered, Economic view
http://business.timesonline.co.uk/tol/business/columnists/article6880225.ece

As Sathnam Sanghera puts it today, the fact is there are situations where complaining is pointless and inadvisable. I, Ivo,  was born 1962. As far, as I can remember, that is the 1973 oil crisis, following Nixon breaking Bretton Woods, “we” have always been in crisis. Later I learnt to call this a “-ession”-thing. “Rec-ession”, they said. Let the real, and indeed the Greater, D-thing now come,

From The Times
October 19, 2009
A national need to whinge is cause for complaint for any right-thinking person
Sathnam Sanghera: Business Life
http://business.timesonline.co.uk/tol/business/columnists/article6880002.ece

Men of Athens, I honor and love you; but I shall obey God rather than you, and while I have life and strength I shall never cease from the practice and teaching of philosophy, exhorting anyone whom I meet after my manner, and convincing him, saying: O my friend, why do you who are a citizen of the great and mighty and wise city of Athens, care so much about laying up the greatest amount of MONEY and honor and reputation, and so LITTLE ABOUT WISDOM AND TRUTH AND THE GREATEST IMPROVEMENT OF THE SOUL, which you never regard or heed at all? Are you not ashamed of this?, asked Socrates in Plato’s Apology

The Men of Athens were not interested in what money is. Only in grabbing the paper.

Owning wealth aside from official money units is nothing new. Building up one’s storehouse of a wealth of things is the way societies have advanced their kind from the beginning, says the Gold Trail which explains FreeGold http://www.usagold.com/goldtrail/archives/goldtrailfive.html

The Men of Athens were not interested in owning wealth aside from official money units.

The unexamined life is however not worth living, so concluded Socrates.

The English word “money” dates to c.1290, “coinage, metal currency,” from old French moneie, from Latin monēta “mint, coinage,” from Monēta = “she who warns”, a title of the Roman goddess Juno, as money was coined in or near the Capitoline Temple of Juno in Rome.
http://en.wikipedia.org/wiki/History_of_money#Etymology

Juno Moneta warned of instability.
http://en.wikipedia.org/wiki/Moneta

And she was the guardian not only of money and but also of wealth. http://irelandsown.net/june.html

Sounds familiar for FreeGold advocates?

Ivo Cerckel
honestmoney@maktoob.com
http://twitter.com/ivocerckel/

If Czech president Vaclav Klaus agrees, the Lisbon treaty would enter into force in all 25 member states of the European Union on 01 January 2010. (1)

Apart from centralising the EU and weakening democracy by moving power away from national electorates (2), the treaty would grant the European Central Bank the official status of being an EU institution, says Wikipedia. (3)

The treaty is, Klaus permitting, supposed to enter into force in January 2010.

The Gulf Co-operation Council Monetary Council, a precursor to the GCC Central Bank which, the latter, will issue the GCC single currency, will also be established by the start of next year, the GCC Secretary General Abdul Rahman al-Attiyah confirmed yesterday. (4) (5)

Is the Lisbon treaty the backdoor to bring the euro to those EU countries which refuse to also grant the eurocrats discretionary sovereignty in monetary affairs?

Ivo Cerckel
honestmoney@maktoob.com
http://twitter.com/ivocerckel/

NOTES

(1)
From The Times October 17, 2009
Vaclav Klaus determined to weather the storm over Lisbon treaty veto
Roger Boyes
http://www.timesonline.co.uk/tol/news/world/europe/article6878647.ece
SNIP
Under Article 63 of the constitution, the President has the power to negotiate international treaties. For now, Mr Klaus’s principal objection to the Lisbon treaty, which he alone has yet to ratify, is that it might allow Sudeten Germans expelled from the country after the war to initiate a flood of property demands.
It is very possible that his Prime Minister can reach a deal with the other EU leaders — but what if Mr Klaus then wants something else, or finds more loopholes to string the process out for up to ten months until David Cameron is forced to call his own referendum?

(2)
http://en.wikipedia.org/wiki/Treaty_of_Lisbon
SNIP
Prominent changes include more qualified majority voting in the Council of Ministers, increased involvement of the European Parliament in the legislative process through extended codecision with the Council of Ministers, eliminating the pillar system, preventing the provision in the Treaty of Nice (2001) reducing the number of commissioners, and the creation of a President of the European Council with a term of two and half years and a High Representative for Foreign Affairs to present a united position on EU policies. If ratified, the Treaty of Lisbon would also make the Union’s human rights charter, the Charter of Fundamental Rights, legally binding.
The stated aim of the treaty is “to complete the process started by the Treaty of Amsterdam [1997] and by the Treaty of Nice with a view to enhancing the efficiency and democratic legitimacy of the Union and to improving the coherence of its action.”Opponents of the Treaty of Lisbon, such as the British think-tank Open Europe and former Danish MEP Jens-Peter Bonde, argue that it will centralise the EU, and weaken democracy by moving power away from national electorates

(3)
http://en.wikipedia.org/wiki/Treaty_of_Lisbon#Central_Bank
SNIP
The European Central Bank would gain the official status of being an EU institution.

(4)
Gulf Monetary Council to Be Set Up by January, Attiyah Says
By Camilla Hall and Zainab Fattah
http://www.bloomberg.com/apps/news?pid=20601104&sid=a1qQiIyOnkmQ
SNIP
Oct. 16 (Bloomberg) — The Gulf Arab states’ Monetary Council, a precursor to a joint central bank for four countries planning a single currency, will be established by the start of next year, the Gulf Cooperation Council’s Secretary General Abdul Rahman al-Attiyah said.

(5)
Gulf monetary union on track 
Posted on » Saturday, October 17, 2009
http://www.gulf-daily-news.com/NewsDetails.aspx?storyid=262008
SNIP
MUSCAT: The top GCC official yesterday said he was confident the four Gulf countries would have a monetary council – a step towards a single currency – in place by January.

Jean-Claude Trichet is president of the European Central Bank.

Martin Wolf is associate editor and chief economics commentator at the Financial Times.

Timothy F. Geithner is secretary of the US of A treasury.

Trichet said last week:
As regards your question on the dollar and the euro, I would say that where the FLOATING CURRENCIES, the major floating currencies, are concerned, we, the Governing Council of the ECB, believe that excess volatility and disorderly movements in exchange rates have adverse implications for economic and for financial stability. And, as you know, we are in agreement in this respect on both sides of the Atlantic (1)

Wolf wrote this week that in a FLOATING exchange-rate regime, RESERVE accumulations are UNNECESSARY. (2)

Geithner’s institution this week toughened its language on China in its semi-annual report on exchange rate policies. While acknowledging that Beijing had been important in steadying the global economy, it said recent moves to accumulate more foreign exchange RESERVES “risk unwinding some of the progress made in reducing imbalances”. (3)

It’s up to my dear readers to connect the dots.

Got gold?

Ivo Cerckel
honestmoney@maktoob.com
http://twitter.com/ivocerckel/

NOTES

(1)
Introductory statement with the Q&A
Jean-Claude Trichet, President of the ECB,
Lucas Papademos, Vice President of the ECB,
Mario Draghi, Governor of the Banca D’Italia
Venice, 8 October 2009
http://www.ecb.int/press/pressconf/2009/html/is091008.en.html

(2)
The rumours of the dollar’s death are much exaggerated
By Martin Wolf
Published: October 13 2009 22:17 | Last updated: October 13 2009 22:17
http://www.ft.com/cms/s/0/9165b8b0-b82a-11de-8ca9-00144feab49a.html

(3)
US hardens stance on renminbi rigidity
By Sarah O’Connor in Washington
Published: October 16 2009 01:21 | Last updated: October 16 2009 01:21
http://www.ft.com/cms/s/7b301ff2-b9e4-11de-a747-00144feab49a,s01=1.html

In a floating exchange-rate regime, reserve accumulations are unnecessary, said Martin Wolf this week in the Financial Times. (1)

“A research done by the Dubai International Financial Centre (DIFC) Authority’s Economics unit finds that the present value of the oil and gas reserves of the six countries of the Gulf Co-operation Council (GCC) is estimated at $18.3trn. This amount is larger than the 2008 GDP of the United States,” added Dr Omar Bin Sulaiman, Governor of the DIFC and Vice-Chairman of the United Arab Emirates (UAE) Central Bank. (2)

The GCC Central Bank duties [...] include managing the foreign currency reserves of the unified currency, [...]. (3)

What happens to the gold, oil and gas reserves of the GCC single currency?

In a floating exchange-rate regime, they are unnecessary says Wolf.

The UAE says it will not participate in the early stages of GCC Monetary Union.

Why is then precisely the Vice-Chairman of the UAE Central Bank who’s disclosing the present value of the oil and gas reserves of the SIX, two of whom are still saying they will not participate in GMU, countries of the GCC?

As oil is the only commodity that is large enough for gold to hide in, gold is hiding in there. Oil producers do exchange that worthless green paper, called the petrodollar, for the yellow substance.

One of the meanings of “substance” for Aristotle is “to ti èn einai”, the “what-it-was-to-be-that-thing” of something. (4)

It is as unnatural in Greek as in English to use a phrase in this way in the grammatical case of a noun. The key to the meaning of the expression seems to lie in the puzzling past tense embedded in it. It suggests the idea of what something was all along going to, destined to, become.  (5)

Is oil destined to become a worthless green paper?

Is that also the fate which will be incumbent upon the GCC single currency?

Or does the GCC deserve better?

Does that explain why less than 24 hours after calling for a delay in the launching of the GCC single currency, Kuwait this week restored support for the currency in January 2010? (6) (7)

Ivo Cerckel
honestmoney@maktoob.com
http://twitter.com/ivocerckel/

NOTES

(1)
The rumours of the dollar’s death are much exaggerated
By Martin Wolf
Published: October 13 2009 22:17 | Last updated: October 13 2009 22:17
http://www.ft.com/cms/s/0/9165b8b0-b82a-11de-8ca9-00144feab49a.html

(2)
GCC energy reserves valued at $18.3trn   
By CL Jose on Wednesday, October 14, 2009
http://www.business24-7.ae//Articles/2009/10/Pages/13102009/10142009_fe8ad7cdb6c14895860875681c0f3b48.aspx

(3)
Details of GCC Monetary Union Agreement
13/10/2009
By Salman Dossari
http://aawsat.com/english/news.asp?section=6&id=18455

(4)
Aristotle, “Metaphysics”, Zeta 3 – 6

(5)
Hugh Lawson-Tancred. “Introduction” in: Aristotle, “Metaphysics”, Penguin Books, 1998, updated bibliography 2004, xi, p. Xxx

(6)
Kuwait calls for delay in Gulf currency launch
(AFP) 12 October 2009
http://www.google.com/hostednews/afp/article/ALeqM5i5ds-ZPxetH-7dcO5HErlKaAnZnw
http://www.zawya.com/Story.cfm/sidANA20091011T141127ZGKS93/Kuwait%20Calls%20For%20Delay%20In%20Gulf%20Currency%20Launch
http://business.maktoob.com/20090000382350/Kuwait_calls_for_monetary_union_delay/Article.htm

(7)
Kuwait restores support for Gulf currency in January
(AFP) – 1 day ago13.09.2009
http://www.google.com/hostednews/afp/article/ALeqM5iTDLbuQm_4aPE3XRNxr3R2buVNbA

Fog in Venice
October 8, 2009 11:27am
by Ralph Atkins
http://blogs.ft.com/money-supply/2009/10/08/fog-in-venice/
Thick fog has this morning encircled Venice, where the European Central Bank is holding its interest rate setting meeting. No doubt it will add to the ECB’s feeling of not really knowing what is going on out there in the real economy. My own impression is that Venice is as busy as ever. The gondoliers certainly seem to be doing a good trade, but why are so many people wearing sunglasses? True, inflation pressures are firmly under control: I paid just €2 for a Cappuccino, which appears positively deflationary compared with Frankfurt prices. But heavy rain is threatened for the weekend, so maybe the ECB will have become more worried about excess liquidity… THE END

This blogger replies:

“But heavy rain is threatened for the weekend, so maybe the ECB will have become more worried about excess liquidity…”, says Ralph Atkins.

Indeed, this from the Introductory Statement:
Once the macroeconomic environment improves, the Governing Council will make sure that the measures taken are unwound in a timely fashion and that the liquidity provided is absorbed in order to counter effectively any threat to price stability over the medium to longer term.
http://www.ecb.int/press/pressconf/2009/html/is091008.en.html

Ron Paul’s “End the Fed” campaign is being promoted by the same Financial Times.

New monetary target
By Tom Braithwaite
Published: October 7 2009 20:47 | Last updated: October 7 2009 20:47
http://www.ft.com/cms/s/0/28db4010-b377-11de-ae8d-00144feab49a.html

In the question and answer session, the Governor said that at the G20, everybody was united.

So the ECB is united with the Fed.

We end the Fed.
The Fed is united with the ECB.
THEREFORE
We end the ECB also, quod erat demonstrandum.

Money is too important to be entrusted to bureaucrats.

Repeal legal-tender laws!

Let the market decide, but even the Adam Smith Institute in foggy London town doesn’t agree.
http://www.adamsmith.org/blog/tax-and-economy/the-fsa-and-bank-reserves-200910074238/

Robert Fisk: A financial revolution with profound political implications
Such large financial movements will have major political effects in the Middle East
Wednesday, 7 October 2009
http://www.independent.co.uk/opinion/commentators/fisk/robert-fisk-a-financial-revolution-with-profound-political-implications-1798712.html

Exclusive report by Robert Fisk
The demise of the dollar
In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading
By Robert Fisk Tuesday, 6 October 2009
http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar-1798175.html

At the very end of the question and answer session, the Governor said that since the setting up of the euro, he nor his predecessor have campaigned for the international role of the euro.

Gold will assume that role.

Ivo Cerckel
honestmoney@maktoob.com
http://twitter.com/ivocerckel/

Is Dr Eamonn Butler the director of the Adam Smith Institute or of the Socialist Internationale?

The FSA and bank reserves     
Written by Dr Eamonn Butler     
Wednesday, 07 October 2009 06:04 
http://www.adamsmith.org/blog/tax-and-economy/the-fsa-and-bank-reserves-200910074238/?dsq=19288147#comment-19288147
SNIP
The Financial Service Authority’s new rules on bank reserves is bad news for business and mortgage borrowers
+
Now it says that the banks should keep more cash in their reserves, to make them stronger so they don’t collapse again. What it means, of course, is that they should keep more government bonds in their vaults. Which is nice for the government, who will at least get someone to buy its rubbish IOUs. But it’s bad for the banks, who will have to spend an extra £6bn doing so.
UNSNIP

Ivo replies;

“Now [the FSA] says that the banksters should keep more cash in their reserves, to make them stronger so they don’t collapse again. [...]   But it’s bad for the banksters, who will have to spend an extra £6bn doing so.”

Is this the Adam Smith Institute or the Socialist Internationale?

A bank earns its living by taking money in from depositors, and lending the money to its customers or investing it and the bank’s gross profit is the difference between the interest it earns and the interest it pays, and because a bank generally can earn a greater return on loans than on investment, it will lend out as much of its money as it dares, says Harry Browne.
A bankster fails when it doesn’t have enough cash available to pay the depositors who want to withdraw their money – even if the bankster’s assets are worth enough money to pay everyone eventually.

MATCHING MATURITIES

Matching maturities, LIQUIDITY, the availability of enough cash (or assets that can be converted to cash immediately) to honour all withdrawal requests is the key for a bankster, says Browne. To be liquid, a bankster doesn’t need to have all its money in the vault.
But it does need to arrange its loans and investments to allow for the promises that the bankster has made to its depositors.
The virtue of “matching maturities” – matching one year loans to one year deposits and so on – is a lesson taught in basic college finance classes.
And it is simple common sense. But unfortunately, [...] banksters don’t do business that way. But a bankster with mismatched maturities is however an illiquid bankster.
(Harry Browne, “The Economic Time Bomb”, New York, St Martin’s Press, 1989)

Yes, banksters will have to spend an extra £6bn for conducting business in a somewhat less dishonest way.

Of course, if the money is spent to buy guv’mint paper, it doesn’t make any difference.

Who’s the greatest gangster?

Ivo Cerckel
honestmoney@maktoob.com
http://twitter.com/ivocerckel/