Revealing the Fraud in Our Bank System

They’re lending out your money… [Morning Reckoning] April 20, 2023 [WEBSITE]( | [UNSUBSCRIBE]( Revealing the Fraud in Our Bank System - When you deposit $100 into your bank account, how much remains in your account? - What happens when you try to remove all your funds immediately? - What happens when everyone tries to remove their funds immediately? [URGENT: Exclusive $10 Offer From Jim Rickards]( [Click here to learn more]( Hi, Jim here. And for the first time ever, I want to give you [all of my best secrets… for under $10!]( This is your chance to get all of my moneymaking insights at one affordable price. [Click here for all of the details on my special $10 offer.]( [LEARN MORE]( Asti, Northern Italy April 20, 2023 [Sean Ring] SEAN RING Good Morning Reader, Greetings from a lovely Northern Italy! First, last week’s piece on financial formulas received fantastic feedback. I’m grateful. I won’t do financial mathematics every week, but the feedback gave me a clue to dial it back a bit. So I’ll try to keep things as simple as possible so you can protect yourselves from what’s eventually coming. Good friend and colleague Doug Hill and I were on the horn the other day. Doug had the great idea to write and speak more about the bane of our financial existence — fractional reserve banking. So this week, I’m tackling that very subject, so you know what kind of fraud our entire system is. Also, it’s almost ten years ago to the day that [Godfrey Bloom made this speech on the floor of the European Parliament](. It was a watershed in terms of political honesty and it’s mostly about fractional reserve banking. (Watch it after you read this; he rants about everything I’ll explain first.) Bloom called out the entire system, from central bankers on down. It was a beautiful thing to behold. In the same spirit, I’m going to go through this system with you. It’ll help you understand how money multiplies, our bankers get rich and bankers get sloppy with deposits. But first, let’s warm up by asking ourselves a simple question… Are Basketball Players Smarter Than Hedge Fund Managers? Just over a year ago, this headline appeared in [The New York Post]( “Bucks star Giannis Antetokounmpo has money in 50 different bank accounts.” “The Greek Freak” deposited $250,000 each into 50 bank accounts. That’s $12,500,000 into 50 different accounts. Why did he do that? Because he smartly knew that every bank account at a different bank in the US is FDIC-insured up to $250,000. Of course, the billionaire hedge fund manager advising Antetokounmpo told him he wasn’t investing correctly. That he should put this money into T-bills and T-bonds. Rubbish! This is a brilliant move. Why? Antetokounmpo is worth at least $200 million. So that $12.5 million in those accounts represents only 6.25% of Antetokounmpo’s wealth. It’s guaranteed safety for the cash portion of his portfolio. The Greek Freak wasn’t concerned with a return on capital. He wanted a return of capital. And last year, T-bills weren’t earning anything anyway. Now, it’s a different story. I asked you that question first because I’m introducing what confidence trickster Edward H. Smith called the “pay-off” or “convincer.” And that is deposit insurance. Once you know how this system works, you’d never stick your cash anywhere near it… unless it was for deposit insurance. Your bank goes under because of its own stupidity? Here’s $250,000. Or in Oprah’s case, here’s $690 million. (I’m still upset about that, by the way!) As the average American has about $500 in his bank account, he never has to worry about his bank going under. The government will give him his $500 immediately, thanks to deposit insurance. But how could the system work any differently? [“The Mainstream Media Is Lying To You!”]( The media would have you believe that the worst of the supply chain issues are over. But the opposite is true… Behind the scenes, things are getting much, much worse. Bob Biesterfeld, CEO of one of the biggest logistics firms in the world, warns “the pressures on global supply chains have not eased, and we don’t expect them to any time soon.” This is going to impact every American’s life in a potentially major way… And I’m urging everyone I can to prepare now. [To see the #1 move to make before this problem gets any worse, click here now.]( [LEARN MORE]( How is Valet Parking Safer Than Banking? Dream with me for a moment. You drive your brand-new Ferrari Roma to a swanky hotel in Miami Beach. You and your date are both dressed to the nines and ready for a great night of dancing and mojitos. When you get to the hotel, a valet parking attendant hastily rushes out to open your door. You hand him the keys to your precious Ferrari. Not for one moment do you think you transferred the car’s ownership to this college kid. And while this college kid weeps with joy at getting to park your car, he doesn’t for a second actually think he owns your car. That’s because your car represents, legally speaking, a bailment. Bailment is a legal relationship in which a person (the bailor) transfers possession of personal property to another person (the bailee) for a specific purpose and period of time, without transferring ownership of the property. The bailee, in this case, the hotel as represented by the valet parking attendant, is responsible for taking care of the property (your Ferrari Roma) and returning it to the bailor (you) in the same condition it was received. Of course, you know all this already. Here’s the question: do you think it works the same way at your bank? In other words, do you think the $100 you just deposited five minutes ago is actually in the bank’s vault or fancy computer system? Fractional Reserve Banking If you didn’t know the answer to that last question before you read this piece, you probably figured out it’s “no.” Here’s what actually happens (if simply): 10% of your $100 deposit will be set aside as reserves as per US reserve requirements rules. Then, the remaining 90% will be loaned out to other parties. Then the $90 that was loaned out by Bank A will return somewhere, say, to Bank B. Bank B will have a $9 reserve requirement and $81 will be loaned out. Then the $81 will find its way to Bank C. Bank C will have $8.10 held in reserve, while they loan out $71.90. And so on. So you have a claim to the $100 you just deposited. But most of your deposit is elsewhere. Why is that? It’s because your $100 deposit isn’t considered a bailment. In Murray Rothbard’s masterpiece, [The Case Against the Fed]( he writes: Unfortunately, since bailment law was undeveloped in the nineteenth century, the bankers' counsel were able to swing the judicial decisions their way. The landmark decisions came in Britain in the first half of the nineteenth century, and these decisions were then taken over by the American courts. In the first important case, Carr v. Carr, in 1811, the British judge, Sir William Grant, ruled that since the money paid into a bank deposit had been paid generally, and not earmarked in a sealed bag (i.e., as a “specific deposit”) that the transaction had become a loan rather than a bailment. Five years later, in the key follow-up case of Devaynes v. Noble, one of the counsel argued correctly that “a banker is rather a bailee of his customer's fund than his debtor, … because the money in … [his] hands is rather a deposit than a debt, and may therefore be instantly demanded and taken up.” But the same Judge Grant again insisted that “money paid into a banker becomes immediately a part of his general assets; and he is merely a debtor for the amount.” In the final culminating case, Foley v. Hill and Others, decided by the House of Lords in 1848, Lord Cottenham, repeating the reasoning of the previous cases, put it lucidly if astonishingly: “The money placed in the custody of a banker is, to all intents and purposes, the money of the banker, to do with as he pleases; he is guilty of no breach of trust in employing it; he is not answerable to the principal if he puts it into jeopardy, if he engages in a hazardous speculation; he is not bound to keep it or deal with it as the property of his principal; but he is, of course, answerable for the amount, because he has contracted.” It makes “English jurisprudence” look like a sad oxymoron. Rothbard went on: The argument of Lord Cottenham and of all other apologists for fractional-reserve banking, that the banker only contracts for the amount of money, but not to keep the money on hand, ignores the fact that if all the depositors knew what was going on and exercised their claims at once, the banker could not possibly honor his commitments. In other words, honoring the contracts, and maintaining the entire system of fractional-reserve banking, requires a structure of smoke-and-mirrors, of duping the depositors into thinking that “their” money is safe, and would be honored should they wish to redeem their claims. The entire system of fractional-reserve banking, therefore, is built on deceit, a deceit connived at by the legal system. Yes. That is 100% true. And that’s why deposit insurance is so important. Knowing all this, imagine if Oprah’s wealth suddenly went poof! She would’ve gone on air and called the whole system out for what it is (though she did not, and still has not, the right to get all $690 million back). Bailments Versus Debits and Credits So let’s recap. If you give the keys to your Ferrari to a college kid at a hotel, the car is still yours. If you give your money to a college-educated adult at a bank, it’s the bank’s money… until you demand it back. That’s why we call checking accounts “demand deposits.” If you put your ATM card into the ATM and ask for, say, $50, of the $100 you deposited, the ATM can’t say, “Sorry, not now. I’ve got a headache.” That machine will spit out $50 straight away (provided it has cash loaded in). But the problems occur between the time you deposit your $100 and when you demand it back. Because that $100 isn’t a bailment. Your $100 will be booked like this: Assets Liabilities $90 Loan $100 Demand Deposit $10 Cash It’s just debits and credits now. Just ask Silly Valley Bank. Or Signature Bank. Or Debit Suisse. Better yet, ask for all your money when you next head to your bank. See what happens. Systemic Instability Let’s revisit the part where we keep 10% in reserve and 90% is loaned out. If you deposited $100, how much could be created theoretically? That’s $100/10% = $1,000. This is what we call the maximum deposit expansion multiplier, or money multiplier, for short. So if you’ve got a reserve requirement of 10%, you create 10x money. If you’ve got a 5% reserve requirement, you create 20x money. If you’ve got a 20% reserve requirement, you create 5x money. Oh, we’re playing with small numbers. What if the Fed printed $8 trillion when the reserve requirement is 10%? Yup, $80 trillion could… could… be created. But would it? No, because of all the leakages and frictions and credit risks in the system. But however much is created, it’s still a whole lot of cash. And that leads to the problems we’re having now. Too much money chasing too few goods. Inflation. Poor bank management. Silly Valley took their customer deposits and bought “risk-free” T-Bonds with them at the top of the market. They didn’t have a risk manager and the person who bought those bonds clearly didn’t understand the difference between default risk-free and price risk-free. And then, there was a bank run. That’s when everyone tries to remove their cash at once. Rothbard was right: it’s not possible under a fractional reserve banking system. This bank mess isn’t over yet. We’re in the eye of the storm now. It just seems calm. Wrap Up Fractional reserve banking… Demand deposits… Deposit insurance. It’s all part of the same racket. Will we ever get back to gold money and 100% reserves? It’s doubtful. But at least you know what’s going on with your bank money. Not many people do. And now you know why Henry Ford said this: “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” Have a great day ahead! If this is the sort of thing you’d like to see more of, please let me know [here](mailto:feedback@dailyreckoning.com). Or if you have any suggestions for future topics, do let me know that as well. All the best, [Sean Ring] Sean Ring Contributing Editor, The Morning Reckoning feedback@dailyreckoning.com [Man Who Predicted Bitcoin Warns: “Don’t Buy Bitcoin!”]( [Click here to learn more]( James Altucher first predicted Bitcoin all the way back in 2013… And ever since, he’s been one of the biggest advocates for it. But now, he’s warning Americans that buying Bitcoin could be a big mistake… [Click here now to see why](. [LEARN MORE]( In Case You Missed It… Will the Government Take Your Gold? Greg Guenthner, Editor [Greg Guenthner] GREG GUENTHNER Good Morning Reader, Writing about gold sometimes lands me in hot water. Readers have sent me more than my fair share of nastygrams over the past decade as gold chopped through a secular bear market. If I marked up a chart that led me to believe the yellow metal was close to another breakdown, my inbox would overflow with letters from angry gold bugs. Most dissenters were cordial enough. But a few would employ, well, let’s just say unique and colorful methods to express their distaste for my market opinions. Those emails always made me smile. It’s nice to know your work is appreciated! But lately, I’ve been receiving way too much praise for my analysis. That’s probably because gold has been breaking out, once again topping $2,000 as it pushes toward all-time highs. And I believe it has a lot more room to run… Long suffering gold investors are understandably excited about gold’s resurgence and the potential for much higher prices in the weeks and months ahead. But I get nervous when everyone begins to agree with my ideas. The contrarian in me starts to wonder – am I walking into a trap? Thankfully, I’m not yet seeing any signs pointing to toppy action in precious metals. The financial media isn’t even buzzing about gold’s most recent march above the mythical $2K level. Instead, we’re watching the move play out without a ton of mainstream buy-in. I’m surprised they’re ignoring precious metals right. But I’m also relieved that gold isn’t gracing the cover of Barron’s this week. We don’t need that type of jinx just as the metal and miners are starting to see some real traction. In an attempt to ward off any evil bear market spirits, I’m going to dig deep into the mailbag today and attempt to answer some of your most pressing gold questions. While I’ve received many nice notes lately, I also have a stack of inquiries to sort through. Instead of printing out every note in full, I’ve grouped together the most-asked questions and will attempt to answer them to the best of my limited ability. I think we’ll all benefit from the discussion. Let’s dive in… [[CHART] Could Inflation Hit 20%+ In 2023?]( [Click here to learn more]( Take a close look at this scary chart pictured here… What you see is the money supply in America… And as you can see, the number of dollars in circulation has exploded in the last few years. In fact, more than 80% of all dollars to ever exist have been printed since just 2020 alone! Which is why some say inflation could soon explode even higher than it is now, to 20% or more. And if you’re at or near retirement age you must take action now to protect yourself… otherwise you risk losing everything. [Simply click here now to see how to survive America’s deadly inflation crisis](. [LEARN MORE]( Do you anticipate that the government will confiscate gold and silver? This question keeps popping up, so I’m going to leave my wheelhouse and try my best to answer it. I’m just a guy who draws lines on charts, but I can tell you I don’t anticipate any organized attempt to confiscate gold or silver in the near future. Does this mean it can’t or won’t happen? Absolutely not. I don’t think it’s farfetched to assume that if the government wants something badly enough, it will attempt to take it by any means necessary. If a serious, prolonged crisis were to emerge, it’s possible that depression-era tactics such as confiscation would bubble up. Fortunately, it’s easy enough to stay under the radar. The Feds are not tracking physical gold purchases of any kind. Unless you’re slinging ridiculous amounts of reportable cash purchases of gold coins or bullion, I don’t think Uncle Sam is paying you any mind at all. Ultimately, I don’t believe buying rare or foreign coins would avoid any doomsday confiscation scenario. In a world of increasing government overreach, it would be foolish to assume any tactic is off the table – especially in a crisis. Perhaps the best move is to stack your gold and stay quiet. Loose lips sink (golden) ships! Should I invest in physical gold or paper gold? Does it matter? Whether we’re talking about gold, tech stocks, or crypto, you should always approach your trades with the same simple question: What’s my goal with this investment? Are you looking to hold for months, years, or decades? Is this a speculative or core portfolio position? What is your stop loss – or the price/event that will trigger a get out or take profits? We can trade shorter-term moves in gold via the futures market, mining stocks, or through gold funds. We could also buy-and-hold gold using various funds such as the popular SPDR Gold Shares (GLD). Of course, these are all ways to gain exposure to gold’s price moves. But gold is a different animal than most equity investments. If you’re looking to hold gold as a form of disaster insurance, you’re probably looking to stash away physical gold. It makes no sense to increase exposure to mining stocks or gold ETFs if your ultimate goal is wealth protection against some sort of doomsday event or unprecedented financial disaster. You don’t have to be “all-in” on one investment or trading goal, either. There’s nothing wrong with a physical gold owner who also trades mining stocks when the timing’s right. Just know what’s what in your portfolio. [Response Requested]( 1/1000th of an ounce of gold available As a Morning Reckoning reader, Jim Rickards is offering you 1/1000th of an ounce of gold when you upgrade your account. It will come in the form of a “Gold Back” - a new type of gold currency that’s starting to spread across America ([click here to view](. If you have not responded to Jim’s offer yet, and want to know how to claim yours… Please click the link below for details. [Click here to learn how to claim your new Gold Back Currency<]( Thanks! Amber Anderson Customer Service [LEARN MORE]( How do I convince my (brother/coworker/crazy ex-girlfriend) to invest in gold? Like many things in life, fights over investments are usually simple misunderstandings between two people with different goals. But when we lay our money down on an idea, the situation becomes personal. How could you not see what I’m seeing? Why are you betting against me? Of course, investing is never actually this black and white. We have our strategies, just as everyone else has theirs. If we like a company or investing theme and want to buy shares for the long haul, we shouldn’t get too upset when a swing trader sells the stock short to make a quick buck. It’s not personal. But no one bothers to ask these questions. Instead, we treat investing like a team sport. You’re either with me – or against me. Gold’s performance following its 2011 flame out has scared many investors away over the past decade-plus. That said, I do think more “mainstream” market watchers will start climbing aboard the gold bandwagon over the next several weeks if the yellow metal can maintain this breakout above $2K. If you’ve had trouble persuading friends or fellow investors that gold is worth a second look, improving market conditions are suddenly making your arguments a lot more convincing. As precious metals continue to break out, even the most skeptical traders will start slinging junior miner stocks with the rest of us… If you have any questions, suggestions or feedback on this topic, please let me know [here](mailto:feedback@dailyreckoning.com). Best, [Greg Guenthner] Greg Guenthner Contributing Editor, Morning Reckoning feedback@dailyreckoning.com Thank you for reading The Morning Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Sean Ring] [Sean Ring, CAIA, FRM and CMT]( is a former banker and financial educator and is the editor of the Rude Awakening. Sean has trained interns and graduates from Goldman Sachs, Morgan Stanley, Citi, Bank of America, Standard Chartered Bank, DBS (Singapore), the Abu Dhabi Investment Authority (ADIA), Bank Indonesia (the central bank), HSBC, Barclays, RBS, and BlackRock. He knows the global economy is being corrupted by forces that most people can't understand and has used his unique and worldly experiences to help people navigate the markets. [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. 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