Chicago Gold and Silver Investing Fan Blog

Gold Fractional Reserve Banking

Financial institutions have an insiduous habit of lending out more money than they actually have. For instanace let's say a bank has one million dollars of physical bank deposits. In an effort to make more money off of interest, they decided to loan 10 million dollars. They do this so they can collect interest off of the $10 miliion.

They do the same thing with gold. They have $1miliion in gold, but they lease the gold at an interest rate then take that interest and buy US Treasuries or other investment vehicle so they can make money. Problems arise when the paper they sell gets turned in and someone wants their gold.

Chris Martenson describes this scheme:

 

Smart Money Moving Out Gold

Last week gold had one of the biggest two day drop in modern history. So what is going on?
The media has you trying to believe that people are losing faith in gold want wanting to stay in paper dollars. The gold bugs are saying it is some kind of conspiracy by those who hold the power in order to supress the price of gold.

While I do not believe the media, I am not 100% into the conspiracy theory. I feel that the following video gives a good insight on what is happening:



There is over 100 times more paper gold than there is physical gold. When something is 100 times bigger than something, that will have a greater affect on the price. Paper gold is 100 times bigger than physical gold, so when something happens to the paper gold market it will have a much bigger affect on gold overall than when something happens in the physical gold market.

So what is happening in the paper market. I feel that after Cyprus, some who hold paper gold have realized something dramatic. They have realized that their paper gold may not be as desireable as it once was. Some paper gold holders fear that their paper gold cannot be actually converted to physical gold. So they are dumping some of their paper gold holdings. The thinking is that they do not trust banks anymore to deliver their gold if they asked for it. Cyprus showed the world that banks are not to be trusted.

Related articles

Paper-Gold Holders Flee To Real Metal

Central Bank: 5th plank of Marx's Communist Manifesto

Karl Marx's Communist Manifesto is the doctrine for those seeking a socialist dictatorship.

The United States and much of the rest of the world have a central bank. The the 5th plank of the Communist Manifesto actually calls for the establishment of a central bank.

When we have a central bank as advocated by the Communist Manifesto, how much of the banking system is actually dictated by free market conditions and how much of it is centrally controlled?

So why do socialist like central banks? It is about a control. A central bank controls the moneytary system. So as John Butler says in his article, "Marx and Lenin actually encouraged inflation as a means to confiscate wealth from the capitalists and concentrate it in a central bank owned and run by the state. The establishment of a central bank was plank 5 of Marx’s Communist Manifesto."

The Cyprus Banking Crises in One Picture

Cyprus in One Picture

The Impending Cyprus Bank Run

Cyprus will open their banks tomorrow. I am predicting a run on their banks. Expect to see long lines of people at the bank withdrawing all of their money and hiding it on their own.

This is what happens when you have a tyranical government imposing their will on a populace that is unwilling. The run on banks will be a clear message to their government and to governments world wide that you cannot just go and steal money from it's citizens without their permission.

This bank run will spread to other countries like a contagion. Some will choose to ignore it. The smart ones will get their money out of teh government controlled banks before it is too late.

Davaluation is the Same as Stealing

They are devaluing the dollar and as a result people's savings are being stolen from them more than the 10% taken from Cyprus bank holders.

‘Would I rather have a bank deposit or would I rather have gold in my own possession?’ That is what people in Cyprus are thinking right now. Many new people throughout the rest of the world are now beginning to think the same thing.

Visual Guide to the Federal REserve by WallStats.com

When Deflation Hits, the Fed Will Print Currency

As you can see from the Chart above from Wealth Cycles, deflation (the amount of currency in the market) has hit the United States.

No one is telling you this but the United States is in a period of massive deflation. Due to defaulted loans as one big reasons, the currency supply is contracting. Commercial banks holds a lot of these loans. So as the money supply contracts, as unemployment continues to stay high, commercial banks will see more loan defaults and more of a contraction of ther money supply. This means they are losing wealth. Deflation has been averaging $50 billion a month in the first half of 2012.

To combat this deflation and a further erosion of their wealth, the Fed has launched two more rounds of Quantitative easing the past few months. QE as this is called is simplying more money printing to offset the delfation caused by the poor economy.

The Fed has also implemented its Zero Interest Rate Policy, or ZIRP. The Fed is manipulating interest rates to near zero with the theory that it will encourage more borrowing and make more currency and debt. More debt just increases the supply of currency via fractional reserve banking.  Yes, the Fed wants us to borrow and get in debt more so their banks have more assets.

If you keep printing money at a rate greater than deflation, eventually this will devalue the currency. That means those of us who are paid in this currency and those of us who save in this currency will have their purchasing power reduced. That is the Fed's intenion. To keep making money for themselves by robbing it from you through devaluing your currency.

When will this madness end. There is only two ways for it to end. Either, their currency fial system collapses or the people in charge have to be kicked out and replaced by someone better. As long as the people keeping voting in politicians (mostly Democrats) who support this swindle, the collapse will inevitable come and soon. But, if the people smarted up which did not happen in the last Presidential election, we could see politicians who see this system for what it is, a big swindle, and being dismanteling it one by one.

My feel is that the US economy as a whole and those who don't understand what is happening, will have to go through a lot- and I mean A LOT MORE PAIN - before real meanigful change actually starts to happen.

In the mean time, I hope you remain patient and Sit and Grow Rich. That is, you play it smart and transfer as much as possible out of fiat currency and into real money, gold and silver.

 

GATA

Gold is a barometer of financial health. It is a sign that inflation is rising, that unemployment is rising, that countries are in too much debt, that people are worried, and more fears. That is why governments and central banks want to keep the price of gold under control. They don't want gold to rise too fast. Because if it does it makes them look bad.

There is an organization out there that exposes this manipulation. GATA (the Gold Anti-Trust Action committee) looks at how central banks manipulated gold to keep the price suppressed.

Here is how GATA describes themselves on their own website:

The Gold Anti-Trust Action Committee was organized in the fall of 1998 to expose, oppose, and litigate against collusion to control the price and supply of gold and related financial instruments. The committee arose from essays by Bill Murphy, a financial commentator on the Internet (LeMetropoleCafe.com), and by Chris Powell, a newspaper editor in Connecticut.

GATA is not a fly by night organization. China and Russia has contacted them to get more information from them. They are definitely interested in what GATA has to say.

China knows what is coming and they want some protection. The United States, Fed, Treasury, bullion banks (HSBC, JP Morgan, etc) want to keep gold prices in check.

GATA has labeled the gold manipulators as the Gold Cartels.