Serpo
3rd April 2014, 01:29 PM
Why Do We Use Banks Anyway? (http://blog.milesfranklin.com/why-do-we-use-banks-anyway) Author : Bill Holter
Published: April 3rd, 2014
I got to thinking, why do we use banks anyway? I know why there are or should I say “were” banks in the past but why do we use them now? Banks were originally set up as a place to store savings in a “safe place.” They also were used to lend some of the excess savings back out into the community to build it out. Banks were where borrowers could get capital to build houses, manufacturing facilities and equipment. This was good for the community as a whole because savers “savings” could be kept safe while also being used to benefit the community. This at least was the original concept of having a banking system.
In the old days, money itself was also different. Money was either silver or gold and from there, “notes” were issued. These notes were normally “payable” or redeemable in the silver or gold that the bank held in their vault. If too many notes were issued against the metal held, people would figure it out and then panic, this was the original “run on the bank.” If the public for any reason believed that either the gold and silver wasn’t there or there were too many “claims” on the metal, word would spread and people would begin to gather at the banks front door asking for their “deposit” back.
These notes that were issued in the early days were from individual banks. Some notes were “stronger” than others based on the perception of the banks financial position. “Risk” was based on the quality of loans, the amount of loans and whether the community was “saving” and bringing more, new metal in to deposit. This is the way it once was. Then we got our very own central bank that tied the banking system together and issued a national currency, individual banks no longer issued their own regional “money.” Of course banks also act as a “clearing system” for transactions but this task could be performed by an exchange or exchanges without the use of banks.
So why the little history lesson? Because it occurred to me that we don’t really need banks anymore. The government over the years has stepped into this sector and made home loans, business loans, saved companies, entire sectors and even saved the banks themselves. But what has the banking sector morphed into? What are we as “savers” really doing? We put money into a bank and are “guaranteed” to earn less interest than what the inflation rate is. Our deposits are also supposedly “guaranteed” by the FDIC but we have seen legislation (Dodd Frank) where balances can be “used” to save the bank itself. FDIC is as you know hopelessly underfunded to protect even one money center bank were it to go down.
Here is what I’m getting at, what once was your money that the bank was safeguarding is now a “loan” to the bank which is THEIR money that may or may not get paid back to you. You are also lending the bank your money at a rate where you know that the currency will decline in purchasing power far faster than any interest that you might receive. Oh, and you also get to pay taxes on this “lesser than the amount of inflation” interest. Is this a good deal? Also, when (if?) you do get your money back, what will it buy? We know for a fact that it will buy “less,” the only question is how much less.
We all grew up and were taught (still even today) that we should “save” for our future. We were also at the same time taught that we could get stuff today by borrowing today and paying in the future with “cheaper money.” All I’m trying to do here is get you to think about what you are doing from a different angle. This is “their” game, it was not set up to benefit you…it was set up to benefit the banks. If you look at the game from a distance, “saving” is a good thing but you want to save in something that will hold its value. Do you like old cars? Do you like works of art? Or how about old guns? These have proven to hold their values over time. Recently, ammunition has proven to be a far better “store of value” than anything else thanks to the government buying up the supply and creating a shortage. They have also done something else that will support ammo prices, the EPA has effectively shut down the last lead smelter in the U.S. due to environmental reasons (or so they say). We will now either need to import lead to make ammo or we will have to import ammo…which will of course restrict supply even further.
I added the above in as to “why do we use banks anyway” because I wanted to point out that there are other ways to “save” along with of course using gold and silver as your medium. The danger in using banks is not solely due to the fact that they can fail, the dollar itself is what you are using as your store of value. I wrote several weeks back that Russia could refuse to trade and stop trading with dollars (http://www.gold-eagle.com/putin-flushes-us-dollar-russia%E2%80%99s-gold-ruble-payments-system-delinked-dollar) as a response to any sanctions, this is now happening. Russia has announced that they will trade and settle in rubles, not dollars. This is very important news; this will surely strengthen the ruble and initially to a lesser extent weaken the dollar because the trade volumes in Russia will no longer “bid” for dollars to settle.
This also does something else, something far bigger and far more important than lessen Russian demand for dollars. By setting up a clearing system that excludes the use of dollars, Russia is setting a precedent or “blueprint” if you will. China could do (they already are on a deal by deal basis) the same if they wished as could others with less fear of retribution because the precedent is now set. Please understand that Mr. Hussein of Iraq, Qaddafi of Libya and in my opinion Hugo Chavez of Venezuela were ALL “taken out” because they threatened to sell oil for something other than dollars. They each threatened to sell their oil for euros and “presto,” they were quickly invaded and met their maker.
The thought process of “why do we use (American) banks” surely crossed Mr. Putin’s mind and he has apparently now acted. Now we must wonder when the next shoe will drop…when we hear something out of Saudi Arabia. Were they to announce any departure from their 40+ year deal of “oil for dollars” I think it will be a given that the dollar will devalue drastically and at a minimum test the low 70′s versus other currencies. I also believe that you could see the entire fiat complex devalue versus gold and silver and bring the old highs into reach in a very very short time frame.
Russia is being forced into a corner is truly huge news; if you have not given thought to this question of “why do we use banks anyway,” please do so NOW. If you are sitting on large balances, do you feel “safe and secure?” Should you? I ask this because it looks like the rest of the world is starting to ask the same question!
http://blog.milesfranklin.com/why-do-we-use-banks-anyway
Published: April 3rd, 2014
I got to thinking, why do we use banks anyway? I know why there are or should I say “were” banks in the past but why do we use them now? Banks were originally set up as a place to store savings in a “safe place.” They also were used to lend some of the excess savings back out into the community to build it out. Banks were where borrowers could get capital to build houses, manufacturing facilities and equipment. This was good for the community as a whole because savers “savings” could be kept safe while also being used to benefit the community. This at least was the original concept of having a banking system.
In the old days, money itself was also different. Money was either silver or gold and from there, “notes” were issued. These notes were normally “payable” or redeemable in the silver or gold that the bank held in their vault. If too many notes were issued against the metal held, people would figure it out and then panic, this was the original “run on the bank.” If the public for any reason believed that either the gold and silver wasn’t there or there were too many “claims” on the metal, word would spread and people would begin to gather at the banks front door asking for their “deposit” back.
These notes that were issued in the early days were from individual banks. Some notes were “stronger” than others based on the perception of the banks financial position. “Risk” was based on the quality of loans, the amount of loans and whether the community was “saving” and bringing more, new metal in to deposit. This is the way it once was. Then we got our very own central bank that tied the banking system together and issued a national currency, individual banks no longer issued their own regional “money.” Of course banks also act as a “clearing system” for transactions but this task could be performed by an exchange or exchanges without the use of banks.
So why the little history lesson? Because it occurred to me that we don’t really need banks anymore. The government over the years has stepped into this sector and made home loans, business loans, saved companies, entire sectors and even saved the banks themselves. But what has the banking sector morphed into? What are we as “savers” really doing? We put money into a bank and are “guaranteed” to earn less interest than what the inflation rate is. Our deposits are also supposedly “guaranteed” by the FDIC but we have seen legislation (Dodd Frank) where balances can be “used” to save the bank itself. FDIC is as you know hopelessly underfunded to protect even one money center bank were it to go down.
Here is what I’m getting at, what once was your money that the bank was safeguarding is now a “loan” to the bank which is THEIR money that may or may not get paid back to you. You are also lending the bank your money at a rate where you know that the currency will decline in purchasing power far faster than any interest that you might receive. Oh, and you also get to pay taxes on this “lesser than the amount of inflation” interest. Is this a good deal? Also, when (if?) you do get your money back, what will it buy? We know for a fact that it will buy “less,” the only question is how much less.
We all grew up and were taught (still even today) that we should “save” for our future. We were also at the same time taught that we could get stuff today by borrowing today and paying in the future with “cheaper money.” All I’m trying to do here is get you to think about what you are doing from a different angle. This is “their” game, it was not set up to benefit you…it was set up to benefit the banks. If you look at the game from a distance, “saving” is a good thing but you want to save in something that will hold its value. Do you like old cars? Do you like works of art? Or how about old guns? These have proven to hold their values over time. Recently, ammunition has proven to be a far better “store of value” than anything else thanks to the government buying up the supply and creating a shortage. They have also done something else that will support ammo prices, the EPA has effectively shut down the last lead smelter in the U.S. due to environmental reasons (or so they say). We will now either need to import lead to make ammo or we will have to import ammo…which will of course restrict supply even further.
I added the above in as to “why do we use banks anyway” because I wanted to point out that there are other ways to “save” along with of course using gold and silver as your medium. The danger in using banks is not solely due to the fact that they can fail, the dollar itself is what you are using as your store of value. I wrote several weeks back that Russia could refuse to trade and stop trading with dollars (http://www.gold-eagle.com/putin-flushes-us-dollar-russia%E2%80%99s-gold-ruble-payments-system-delinked-dollar) as a response to any sanctions, this is now happening. Russia has announced that they will trade and settle in rubles, not dollars. This is very important news; this will surely strengthen the ruble and initially to a lesser extent weaken the dollar because the trade volumes in Russia will no longer “bid” for dollars to settle.
This also does something else, something far bigger and far more important than lessen Russian demand for dollars. By setting up a clearing system that excludes the use of dollars, Russia is setting a precedent or “blueprint” if you will. China could do (they already are on a deal by deal basis) the same if they wished as could others with less fear of retribution because the precedent is now set. Please understand that Mr. Hussein of Iraq, Qaddafi of Libya and in my opinion Hugo Chavez of Venezuela were ALL “taken out” because they threatened to sell oil for something other than dollars. They each threatened to sell their oil for euros and “presto,” they were quickly invaded and met their maker.
The thought process of “why do we use (American) banks” surely crossed Mr. Putin’s mind and he has apparently now acted. Now we must wonder when the next shoe will drop…when we hear something out of Saudi Arabia. Were they to announce any departure from their 40+ year deal of “oil for dollars” I think it will be a given that the dollar will devalue drastically and at a minimum test the low 70′s versus other currencies. I also believe that you could see the entire fiat complex devalue versus gold and silver and bring the old highs into reach in a very very short time frame.
Russia is being forced into a corner is truly huge news; if you have not given thought to this question of “why do we use banks anyway,” please do so NOW. If you are sitting on large balances, do you feel “safe and secure?” Should you? I ask this because it looks like the rest of the world is starting to ask the same question!
http://blog.milesfranklin.com/why-do-we-use-banks-anyway