Just this week, European banks have been told to raise their bank reserves (Read article) from 3% to 4.95%, although they will have several years to get there and the usual get-out clauses. This is their version of equity and includes intangibles like carpet, brand name and expensive fitouts labelled as ‘Assets’ on the balance sheet.
This sounds all very commendable until you look past the smoke and mirrors.
Banks use the Fractional Reserve method to leverage their money – a $100 deposit becomes $1400 worth of loans (Personal loans and credit cards are the preferred medium of cash extraction form your pocket).
Now it gets interesting.
The $1400 loan is sold (securitised) to a pension fund or similar entity, at a discount, for perhaps $1200
The bank now has a $1200 deposit which they can leverage again to create $16,800 worth of loans.
This is then lent to Third World countries at up to 30% interest (Read : John Perkins – Confessions of an Economic Hitman)
Getting VERY profitable by now. This is why banks always post profits these days – the Government will underwrite their losses at the Third World casino as they are too big to fail. Politicians need loans for election campaigns, so they will not bite the hand that feeds them. So please remember – YOU are the ‘ONE’ born every minute to fulfil P.T.Barnums sucker theory.
From New Zealand’s Peter Bromhead:
We’ll mention the delusion of democracy another day.
What about bad debts or loans that go bad you ask? Well, they need some of those each year. Bad loans are inflated with penalties and costs and other nonsenses until the amount is as large as can be created. These over-inflated figures are used as tax write-offs to offset the aforementioned profits. (I have seen then turn a $10k bad loan into $250,000 of losses!! I kid you not. MASSIVE tax benefits for a trivial outlay).
So what does the future hold with these new ‘Bank Reserves’ requirements?
As the global economy is not growing (in real terms), this Government required savings scheme has to come from somewhere. Any guesses yet?
Correct! Mr Barnum.
Ah, but how you ask? “I have reduced my spending, learned how to make austerity clothing and we have learned from the almighty television and paper press how to make 1,000 delightful meatless meals. We have a low inflation economy and we’re winning the war on terror. Makes no sense to me.”
The interest rates WILL rise! your loans and mortgages will increase by 5%+. Could reach 10% EXTRA.
Why? To pay for the increased reserves of ‘idle’ money the bank requires. Their casino outings will continue unabated as you scrimp and save to meet their reserve requirement targets.
This will be justified as “Prudent safeguards against future volatility caused by Islamic terrorist threats” or some such twaddle.
Bank profits will escalate nicely, you will be squeezed until you bleed and the show will go on. You will have the banksters rolling in the aisles. See Max Keiser’s enthusiastic take here.
Polish your buttons and head for the secondary employment market before the rush!