Virtual Money or Actual Money?

In 2007, events began to unfold that hinted at serious changes taking place in the relationship between financial entities and consumers. But, it would be a while before I put all of the pieces together.

People I knew were being pushed into foreclosure even though they had the ability to cure the defaults; many were manufactured even when there was no default.

But when challenged, the foreclosing entities couldn’t prove that they were the creditor. “Never mind” the system said, “those deadbeats need to be foreclosed on to prevent a moral hazard and this nice bank is here to do just that.”

For thirty years, when there was a rare foreclosure, lenders were eager to work out the issue with the borrower. We do not want to be in the home-owning business they would always tell me. Times had sure changed. But why?

These questions occupied my mind for months as more and more evidence of something funny going on kept coming my way.

In early 2008, I was watching the NFL playoffs and was struck by a 30 second commercial for IBM.

The idea in the commercial suggested a possible explanation for what I was sensing, and it would stay in my mind until two years later when I had learned enough to write “The Avatar Economy” and “The One Thousand Trillion Dollar Question” and dozens of other articles over the last five years.

Here is the IBM commercial.

Virtual money. Funny idea, huh? With that in mind, consider the Eurozone. What you see is the beginning of the end of an economic experiment that has clearly failed.

Yeah, I know, the EU has worked out a new deal to fund money directly to banks. And, no one laughed. I guess they may have been sobered up by the bigger problem—actually coming up with the money.

But, I’m not talking just about the eminent collapse of the Euro.

The entire global monetary system is a massive load of shit with no value and no bank, and no country is too big to fail because the numbers are so far out in fantasy land that no one actually knows how bad things really are, much less what to do about it.

Countries are failing. Counties are failing, cities are failing, and states will fail. So what is it about insolvent banks that are by design over leveraged and undercapitalized that could protect them from failure? A reassuring media.

Here is the kind of drivel coming out of the mouths of bought and paid for media who either cannot operate a calculator or are somehow immune to the consequences.

This is the biggest financial story in history and the reporters come across as delusional.

Fox Business, “Jamie Dimon told lawmakers this week that J.P. Morgan Chase, the largest bank in the entire country, is not too big to fail. He even said it with a straight face.”

Really? Because this is one of the few things Jamie Dimon ever said that wasn’t a big fat lie.

“Despite Dimon’s bold-faced claim, his bank is downright gargantuan, with $71 trillion in notional exposure to derivatives, $2.3 trillion in assets on its balance sheet and $1.1 trillion in deposits in its coffers.

In reality, JPMorgan is the textbook example of a firm that simply couldn’t be allowed to fail.”

Why that is absolute gibberish. Do these writers even understand what they are talking about? That’s all debt; $74 trillion in debt secured by $100 billion in deposits. It’s a farce.

Those $2.3 trillion in assets are Enronesque accounting fiction. Those are the loan pools, residential, commercial, credit card, student loan, auto and equipment loans and leases; half of it made up and the other half worthless.

Remember those so-called toxic assets? Well, that’s them right there. Just sitting there on their books disguised as things of value when everyone knows it’s all worthless.

The $71 trillion isn’t real either because there isn’t anywhere near that amount of money on the entire planet. Note the word exposure. Exposure means your ass is hanging out. I’ve never heard anyone being “exposed” by having actual money.

And, if I was one of their depositors, I would be moving my part of that $1.1 trillion to a credit union or community bank or the mattress before too many people try to take theirs and the truth can no longer be papered over.

Earth to Fox, failure is not an option…it is a mathematical certainty.

Ninety percent of that $1.1 trillion is a naked liability. Through the magic of something called fractional reserve banking, they only have a fraction of the depositors’ $1.1 trillion.

Because, according to the Federal Reserve, there was only $1.1 trillion in US currency in circulation as of June 20, 2012. But, more than half of that is held outside the US.

So, for JPM to cover their depositors, they would have to have all of the US dollars in the world. That is why politicians and bankstas fear a bank run more than anything else because the entire scheme would collapse in hours.

ATMs will only allow limited withdrawals until they run out of money to refill them. No armored car will be bringing any more because there isn’t any actual money, it’s all just virtual money. Banks will be locked down at some point and that will be all she wrote.

No problem, it’s all insured by the FDIC. The insolvent FDIC is part of the insolvent US government, and if they can figure out a place to get all of that money the claims will be handled by the same people who administered FEMA. When you need money right now, yours will be only two or three years away even if they could figure out where to get it from.

So, when you do the math, JP Morgan cannot be saved without the tax payers giving them trillions of dollars. Remember we are already $16 trillion in debt so I don’t know what we would save them with.

No problem, just print more. That isn’t how it works. You have to ask yourself if the US only has about $500 billion actual dollars, how could the country ever possibly get $16 trillion in debt?

That money, that money that banks lost and tax payers repaid, it never existed in the first place. It never got printed. It was just an entry in a journal. And, we are on the hook for it.

If you have never seen the Movie We’re No Angels with Humphrey Bogart, Peter Ustinov, and Aldo Ray as convicts escaped from Devils Island, I highly recommended it.

There is a scene in which Bogart, a convicted forger, is intending to “fix” the books to help an honest but money losing business man.

He says to the man, “In business, as in everything else, there is appearance and there is reality. An entry here, a decimal point there, an erasure or two and you’ll be the most successful businessman on Devils Island”

Speaking of appearance versus reality, let’s talk about derivatives. May I present The World Bank for Settlements, which among other things tracks and reports on derivatives. According to a report released in June of 2012, “The notional amount of outstanding over-the-counter (OTC) derivatives fell by 8%, to $648 trillion, in the second half of 2011.”

Since the value of everything on the planet is estimated to be about $165 trillion, it raises an interesting question: If a derivative is an investment which has no value of its own, and thereby derives its value from some other asset, and the value of all of those other assets is a mere 25% of the total notional value of derivatives, does that mean that everything on the planet is leveraged four to one?

These nonexistent dollars are the profits on which shares are valued and bonuses are based. Are you laughing yet?

How could this happen? Virtual Money.

Prior to profit driven globalization, economies were primarily local and served to provide for basic needs. The farmer grows a crop of carrots and sells it to the general store.

The farmer buys a hoe, some seeds and three yards of gingham. It’s a well-known fact that farmers have daughters. Did you hear the one about…?

The store owner orders more goods, makes a donation to the church, and orders a shot of “Red-eye” at the honky-tonk. But, the store owner can’t just pay in carrots. A common means of exchange is essential to a fully functioning economy and money became the solution.

Obviously, no one (until recently) would accept money if it were not backed by something of value and somehow guaranteed as to its acceptance and redeemability. And, during those periods when the US was on the gold standard, real assets backed up the paper.

Obviously, that limited the amount of currency in circulation which further served to protect the value against inflation.

But, by 1971, US paper money wasn’t backed by anything at all. That is what Fiat money is.

Fiat is a Latin word which roughly translates into “because I say so.”

A dollar is worth a dollar because Uncle Sam says so. That’s it.

Money backed by nothing more than the hollow promise of a bankrupt government. Are you laughing yet?

This is okay as long as everyone plays along with the naked emperor.

But, wouldn’t you just know it; other countries are turning against us and the US dollar.

China is making its move to dethrone the US dollar as the world’s reserve currency and that move is no longer confined to Asia.

At the end of May, China and Japan, China’s largest trading partner, agreed to trade directly in each other’s currencies paving the way for both The Chinese Yuan and the Japanese Yen to rise to the status of World’s reserve currency.

They are building a firewall to shield themselves from the collapse of economies being dragged down by toxic assets.

The value of the dollar is propped up by nothing more than the hope that a lot of unemployed American’s will find jobs, buy things, and pay taxes to whittle down the $16 trillion. Jobs doing what and for whom?

The economy reflects the efficiency of the distribution of goods and services. So, by simply looking around, one can tell how well the economy around them is functioning.

Greece, Ireland, Spain, Italy, Portugal all used to have their own currencies but now that they are part of the Eurozone; they are being made the patsies for the banks’ theft of trillions of dollars that never existed.

The idea for a centralized Europe was a bankstas wet dream. Soon, the only country left standing will be a bloodied and bruised Germany. World War II finally ends…with not a bang, but a whimper.

No wonder people think international financing is complicated. It defies both logic and explanation. Until they finally figure out why they don’t understand it, it’s all made up.

What about your money, is it actual money or virtual money?