Topic: Gold collapsing. Bitcoin UP. - page 1445. (Read 2032272 times)

If by banks you mean large investment banks, sure they might be bankrupt.  If by banks you mean small, community banks that are used by 90% of the rural population, then no.  They will be the winners if this ever unwinds (Edit: and bitcoin of course!).  Few people I know will have much sympathy for the urbanites who live in an imaginary world where food comes from the store and the ultimate goal of life is to have more than your neighbor.

Anyway, this argument seems to boil down to whether you believe that the large investment banks will be allowed to continue screwing us, or will finally be forced into bankruptcy.  Yes, they will eventually inflate their bankruptcy away if they are allowed to hold back the economy for a few more decades.  But, if the American people finally get fed up and force the politicians to solve this, we will see the big investment banks defaulting.  We will have a period of deflation, and the well capitalized community banks who are hording cash that is gaining purchasing power will pick up the slack.  A few of them will expand into the urban markets and become the next vampires, but it will be several decades before people forget the lesson.

Finally, there seems to be some cognitive dissonance in saying that the investment banks are bankrupt, yet they have to be aggressive to compete with other institutions.  The community banks who aren't touching derivatives are doing just fine, thanks.

miscreanity, thank you for writing down this awesome analysis. If someone made a "gems of bitcointalk" compilation, this would have to be included.

Yes, there are glaring similarities; a major difference being that the casino & gambler are one and the same, with the real limiting factor being physical resources - a component beyond direct control of either, yet undesired by both. Another difference is that in the betting system, participation is voluntary, whereas the financial system today forces banks to continue along due to its very structure - they're prisoners of their own creation as much as they are masters of it.

For the largest banks, if they don't keep the game going, they're virtually guaranteed to become corporate fatalities; an individual gambler might lose reputation, pay remunerations, or go to jail, but is unlikely to die.


What do you think the constant state of crisis is all about? Why are there so many interbank & sovereign loan and swap agreements? What are all the emergency funds for? How is it that mark-to-maturity accounting is still legitimate when market values are drastically different? Have you noticed that the rules determining default are constantly being reinterpreted on a regular basis? As molecular pointed out, the banks are already bankrupt. Without ongoing inflows of fresh capital, they would've imploded years ago. The 'crisis' is growing in intensity because the banks are still heavily underfunded compared to their outstanding obligations which are tied up in losing positions.

Banks have been hit repeatedly with the equivalent of margin calls, but the wealth they control is too great in scale and scope, and interwoven with government interests so that they would drag both down if confidence collapses. There is no direct way to obtain smoking-gun proof today that banks are bankrupt, particularly when the rules have been repeatedly changed and access to information denied. However, looking at past situations like Soviet Russia, LTCM, and Lehman, very similar circumstances of insolvency are present.

A reasonable conclusion is that the banks have been technically bankrupt numerous times over the past few years, and the only thing preventing their dissolution has been the extension of unrestricted liquidity. Again as molecular suggested, the martingale solution of increasing the size of the pot decreases the relative size of price swings, making the major moves in many markets much less than they would be otherwise. No other explanation I've seen so far has been able to stand up to scrutiny.

The closest thing to proof may be analyses by Reggie Middleton. He's among the best at collating pertinent data and deriving conclusions without having to dig up direct evidence. Jim Sinclair has highlighted the BIS accounting change which cut the outstanding worldwide derivatives from over $1.4 quadrillion to about $700 trillion. Derivative creation has accelerated since then, so there is probably closer to $2+ quadrillion in derivatives, much of which simply is not required to be included in official publications due to rule changes.

In visual terms:


Inflation during the deflation phases depicted above only slows down; if it were to fully stop, deflation would build uncontrollable momentum and balloon losses, making even more inflation necessary and causing a more harsh shock to the system. Relatively small, or slow shocks are obviously preferable to large, fast ones for perpetuation of confidence. The additional inflation is necessary to provide banks enough maneuvering room to acquire or extricate from their losses. It all happens incrementally; the image is an exaggeration of the process.

Each cycle, major or minor, the bankrupting debt threshold is ratcheted smaller - the losses distributed among asset holders outside of the banks as much as possible before the next cycle. Eventually, the banks will not be able to effectively contain the inflationary momentum and will position themselves to both take advantage of the rise and build a pool to enact braking of the effect. The last time that occurred was when commodities started taking off in 2011, accompanied by futures margin hikes in rapid sequence, and heavy shorting using inflated or freed up funds.

The reason that deflation will eventually win out is because the monetary inflation cannot be unwound, and it must continue in order for financial institutions to remain viable. Withdrawing liquidity from hundreds, if not thousands of participants per contract is a nigh futile endeavor. Combined with that, competition between comparably powerful banks means that whichever one doesn't pursue aggressive methods will fail and be consumed by others.

The reason that inflation will continue to stave off deflation for a while yet is because confidence has not yet broken. Foreign confidence is at a breaking point in regard to the USD, but domestic views remain unperturbed. When it does collapse in full, with both domestic and foreign interests completely abandoning the USD (and potentially government fiat in general), there will still remain a period of transition where alternatives will be sought. By denying availability of alternatives, fiat will have to be used by entrapped citizens, although they'll attempt to make use of it as little as possible.

Only when it is hard to find businesses and individuals who accept dollars will inflation lose out to deflation.

http://topdocumentaryfilms.com/power-principle/

I've seen so many documentaries like this, the facts contained within are cliche, yet it is good to study what power is and how the world turns. Taken in context it could be argued that "Too big to fail" is not just in terms of banking, but in terms of the post world war II order built over the last fifty years.

I'm not one for pessimistic and paranoid thoughts, but it's hard not to feel we are at an inflection point in history or at the least approaching one, and that usually means a lot of pain for a lot of people.

I believe (suspect, rather) a lot of banks (also big and 'reputable' ones) are in fact already bankrupt. Their continuing operation is probably a crime, but that doesn't stop them. Unlike in the case of a company or person being bankrupt, they don't directly run into a solvency problem... they seem to still be able to acquire fresh money from sources usually untapable by the common man/company. This is unjust and the people responsible shall live in fear of being struck by lighting while taking a shit.

Show me some evidence of the bold... Every market I've seen has moved at least several percent in the past few months (including the USD).  Who went bankrupt?

It's kinda like the banks (including the feds printing and government support here) are gambling using the martingale betting system. If they lose a bet, they increase the stakes and bet again trying to recoup the losses.

This system works if the gambler has unlimited funds (check) and the casino employs no limits (unsure).

Problem is: the "casino" does indeed employ a limit: too much printing can lead to a loss of trust in the currency being printed.

It seems to me, in the end, the banks (or "old money" or whoever) will own most hard assets (and a boatload of worthless derivative crap that will just be "deleted" at some point). Their heads may get chopped off and the assets taken from them if the population is not reduced and/or controlled and/or dumbed down sufficiently, though.

I know this analysis uses a pretty crappy analogy and the logic used (if at all) is flawed at best.

Is there still some truth to it?

That's the thing - the banks aren't just sitting on the funds they get from central banks. If they could withstand it without being completely wiped out of existence, they might endure deflation, but they are not currently capable of doing so because they're so leveraged that a fraction of a percent decline in their core asset holdings would bankrupt them. What we see in the markets may be deflation, but banks are today's 1st class citizens receiving special favours.

Inflation is being actively pursued right now in an effort to squeeze assets out of existing ownership and into the beneficiaries of inflated funds. It's a leveraged futures market style liquidation at a much greater scale. While nearly everyone is looking for the one giant crisis event that can be pointed to as 'it', the path is being built incrementally with inflation being ratcheted into place - more like beachfront soil erosion than a bomb blast.

Let's say a central bank has 100 currency units. It lends equally to 10 major banks.

CB->100->B1,B2,B3...

Each bank then goes on to fractionally lend among partner institutions which in turn lend out multiple times over, each of them retaining a slice and magnifying the amount in circulation.

B1->10=>P=>B1=>P=>B1=>100

The initial receiving banks then return the allocated funds to the central bank and proclaim their 'loan' paid off, yet the effects of the interbank lending and derivative creation has already created an order of magnitude rise in inflation.

B1->10->CB

Repeat with the other 9 banks, and now the CB has its 100 units, presenting the image of just being there to provide liquidity as needed when in reality it has simply bought time by amplifying the problem - there are now 10,000+ units in existence from the initial 100, and only the banks have access to it. That's why we aren't seeing base money supply skyrocketing. What has to be reported doesn't have to factor in the above, so everything looks fine while it's rotting out from underneath. Every round of loans or swaps from a central bank ratchets the supply up a notch.

If you or I were to do that, it would amount to cashing the same check at multiple banks and it'd be called fraud. There are perks to being in the big boys' club.

This is all occurring during the 'deflationary' phase in an effort to provide banks with ammunition to turn their paper instruments into real assets so they can right their balance sheets. As inflation returns, it becomes a crisis opportunity to dump more funds into the banks in the open instead of through central bank lending schemes. In conjunction, accounting rules have remained so lax that it's possible for banks to keep just about anything they want obscured from balance sheets.

Every time we hear about a bank succumbing to a 'fat finger' or 'rogue trader' which loses billions, it's really fodder to feed the misdirection. In reality, the bank has been provided with sufficient paper to lever up and either acquire legitimate assets or extricate itself from a drowning position; it can then cut the necrotic department loose without collapsing the entire company, or offer a sacrificial straw man to soothe public ire.

Rehypothecation can provide shares to be 'borrowed' for the purpose of shorting, putting additional pressure on entire asset classes. That allows a bank to buy in low and transition from net negative to flat or positive. Whenever these things happen, banks are repositioning themselves for their own benefit at the expense of all others. Deflationary forces are taken advantage of to force liquidation and acquire non-financial assets at lower prices, keeping the inflationary effects of dumping money into the markets less pronounced than they would be if prices were going to the moon.

• Initial panic inflation
• Allow deflation to squeeze prices
• Buy distressed assets at lows to minimize money injection into real economy
• Inflate
• Liquidate at highs to offset negative balance sheet
• Repeat from step 2

This concentration of real wealth is extremely dangerous. It's like draining an aquifier faster than it can yield water - once a threshold is exceeded, everything it supports soon dies. That threshold was entered in 2007.

The banks made themselves inextricable from government, ensuring mutual destruction of both if the banks were allowed to fail. They've been licking their wounds for the past few years and are still weak, but have been able to disseminate enough contradictory information that it's hard to filter out the half-truths. The over-arching theme is 'survival' - but for whom, and at what cost?

tl;dr - inflation is already happening; we just can't see it yet because of games being played with the markets.

@miscreanity
You only offered an alternative to hyperinflation that is arguably as painful.  What is stopping deflation?  If the banks just keep holding the free money and not lending it, there will be deflation no matter how much is printed and the same banks benefit from the rise in purchasing power.  Yes, eventually things will be too cheap to pass up and we will have inflation as they race to lock in their gain.  But IMHO things have a quite a distance to fall before they can be considered cheap.  China is idling production and Americans are learning to do more with less.  It will be a while before we dive headlong back into consumerism.

Capital controls; it can't come home to roost if it's rejected. The downside is that the US loses its global dominance, but domestically there is a possibility that it can sustain itself. It's the transition that will be exceptionally painful, and it would take a very long time to recover any semblance of global repute.

On the other hand, even if the dollar is wiped off the map, gold remains as a universal money. Officially having the largest sovereign holding in the world means that even if another fiat currency rises to dominance, it can still be exchanged for gold. In one sense, the US wins by losing.

The real problem for the US is resources. For continued development, energy and relatively rare mineral resources are necessary in numerous fields, especially advanced technology. Causing animosity worldwide may severely restrict access.

All the gold in the world is not a panacea, since the producer of a desired asset can charge whatever he wishes, knowing that he will get it.


It's much worse than that - massive amounts of new money are being dumped onto certain markets, keeping the perceived prices from rising. That's impossible to maintain indefinitely and creates artificial shortages, so reversion to the mean will be much more violent with these active efforts than it would be if it were as passive as just holding onto capital.

There are at least two primary, opposing currents with every demographic. Boomers are the major wealth demographic in the US, and the main flow will be consumption. The undercurrent is asset liquidation when they become pressured, which leads to a trend toward wealth preservation. That trend begins as a trickle and rises to a torrent. So far it has been fairly minimal, but if any form of nationalisation touches retirement funds, the flow will grow as it searches for less hostile arenas - gold, foreign equities, productive land, etc.

In the outflow direction, any wealth amplifying effect occurs outside of the country and its reach of control. The currency inflow doesn't have much value attached to it, serving merely to add to the stock of existing domestic currency. Capital controls seek to stem the outflow and prevent the inflow. If enough leaks out, the domestic supply is insufficient to keep the debt game going and deflation overwhelms. If too much returns, inflation rages out of control and price stability dies.

What makes that imbalance worse is the loss of dominance as a global currency as offered above. By enforcing global taxation on citizens, the US can maintain a claim on the wealth that has left, while also blockading the returning flow so as to prevent hyperinflation. As outflows increase, the domestic supply has to be inflated, leading to continued outflow. A major problem is that the claims on wealth mean nothing if the resources don't follow; i.e. if dollars are not accepted for payment of finished/refined goods.

It's like a waterbed with a leak that's growing - you have to keep filling it with water at an increasing rate. If you're replacing the entire volume at a short enough interval, the economy is no longer functioning for any purpose other than to move the currency. Insufficient effort is available to farm, build, repair, or do much of anything else. Everyone becomes a gambler just to survive, not noticing that the entire ship is sinking.

During the 1980s, the Reagan administration encouraged foreign investment in the US. The rationale was that global interests building a stake domestically would create 'skin in the game' and dissuade attacks, thereby increasing security relative to other nations like Russia which was much more closed. A very similar situation has been established among various regions around the world, with the US becoming the financial equivalent of the closed Cold War nations; this cannot end well.

you could still, theoretically, give serial numbers to the digital money. I was contemplating that very crazy idea.

As far as I know only 3% of the money supply is physically in circulation. Also, a large majority of money is simply FRB debt created by commercial banks. However it is still central banks that create the base money and decide the interest rates and thus ultimately they have the power.

http://en.wikipedia.org/wiki/Money_supply#European_Union

Actual printed notes and coins are a small fraction of the money supply.

And the counter argument to the above is that the boomers are still consumers, inflation is driven by the supply of money and the consumption of the population.  If consumption remains the same (and all those boomers are actually going to consume more, because they still gotta eat and drive and now they are old and need a ton of health care) and the money supply is increased, inflation will rear its head right quick. 

What is holding inflation in check at the moment is that the banks aren't lending so people are being forced to live within their means and not over consume!!  Go try to get a mortgage with bad or medium credit, roflmao... 

do you really think if the FED makes 100billion they print 100'000'000 tousand-dollar bills put them into a bag and walk to the government or to an another bank and give it to them?

surely not! ist a 2 klick thing: print 100billion *klick*, change for statebond/debt *klick* -> 100billion USD created!
more than 90% of USD are digital

surely not, that would be database hell. On the other hand it might've been a good idea to avoid "misappropriation" of funds or funds simply going missing or popping up due to "accounting mistakes", as has happened multiple times in the past already and will probably happen again in the future.

more than 90% of USD were never printet on paper. they're only a numer on a screen... i think there is no serial number

won't work so easily in practice: how to tell the atm this? also: banks will still accept all bills, so there will be people gladly buying up the "bad bills" from the "purists" should they be offered below face value. => this idea wont work.

lol. there goes fungibility. In germany, there are some people rejecting EUR serial numbers starting with "Y" (greek notes), some even only accept "german Euros".

+1