On the heels of some turbulent trading in key markets, today a 40-year market veteran sent King World News a powerful piece which exposes a public confession from insiders about what will destroy the world’s financial system. This is an extremely powerful piece from Robert Fitzwilson, founder of The Portola Group. Below is what he had to say in the following piece exclusively for King World News.
In yesterday’s article by Art Cashin, he references another article titled “Money Creation In The Modern Economy” written by employees of the Bank of England. We must admit that, like most economic treatises, it can be quite quite complex, but what was truly astonishing, and we should give credit to the Bank of England for this, was the public confession that money is loaned into creation....
Deposits are created as loans are made. The resulting “money” is referred to as “fountain pen” money meaning that the deposits against which checks are written are merely bookkeeping entries on the books matching the amount lent to the borrower.
They state that the way money is created is different than what is found in the description of “some economics textbooks.” How about different from what 99.9 percent of the normal people outside of the banking system believe when they refer to their account? It is not just a slight misunderstanding but really quite a monstrous fraud that has been perpetrated on savers and wealth holders in general.
Most account holders would also be shocked to know that they are merely unsecured lenders to the bank once an account is opened. The bank has no fiduciary duty as to how customer funds are invested. This has been settled law for almost two centuries. If the bank goes under, uninsured deposits are at risk. In the case of Cyprus even the insured deposits were at least partially forfeited for one bank’s customers. In the case of the other insolvent bank, all deposits were lost despite the insurance.
It also reads like propaganda or at best the work of well-meaning individuals completely insulated from the real world. As Art points out, the Bank of England's commentary says, “Prudential regulation also acts as a constraint on banks' activities in order to maintain the resilience of the financial system.” If that were so, how is it that the world’s banking system suffered cardiac arrest in 2008 from uncontrolled lending and speculation? If prudent regulation were in place, how did we wind up with “sub-prime,” “liar loans,” and the various packages of toxic loans sold to investors? One would think that the names of the loans would alert any prudent legislator or regulator to the great dangers involved.
Effective regulations on derivatives were removed at the end of the 1990s. Fed Chairman Alan Greenspan allowed the banks in the mid-1990s to sidestep the rules on reserves by allowing banks to sweep the funds out of accounts at one minute to midnight. The required reserves would be computed, which not surprisingly came to zero as the balances also showed zero. The funds were then put back into the accounts after the calculations. Some tough regulation!
The Glass-Steagall Act was repealed. Limits on leverage were effectively repealed for Wall Street firms. Most transparency and efforts for regulation were neutralized or removed in not much more than a decade, all of which and more contributed to the global financial meltdown. Regulation was virtually non-existent.
The authors at the Bank of England contend that “quantitative easing” is a monetary tool for injecting money directly into the system. That sounds very professorial, but the truth is that QE is a mandate to maintain low interest rates and to fund out-of-control government deficits. There is no lack of money in the system. The more prudent heads of the Bank of Japan were essentially moved aside by the demands of the politicians. Whether that is true for all central banks or simply well-intentioned but completely misguided policies is impossible to say. But QE in some form is mandatory if the central planners want to avoid a chaotic and devastating meltdown of the global financial system.
The recent announcement about the success of the “stress tests” for the major U.S. financial institutions perfectly highlights the mindset of the central planners versus that of everyone else. While they proudly talk about how the financial system passes the stress tests with flying colors, no thought is given to the stress tests that individuals, families, small businesses, and retirees are undergoing every day. Millions are not succeeding. As we suggested earlier this week, the primary culprit is the de-facto bail-in given to the financial institutions by the confiscation of income through zero-interest-rate policies.
In closing, it is very interesting to us that one of the world’s major financial institutions would codify what others have reported. We now have a “member of the club” confirming what has been considered almost conspiratorial thinking. People should understand the implication of what the authors proudly disclose: Money cannot be trusted. What we all thought about saving money in the system is really just a very tenuous, depleting entry on a bank’s ledger. Holdings of this distorted form of money should be exchanged and maintained in real assets, even if there is no catastrophic event. The critical thing that KWN readers around the world must now understand is that over time money will be destroyed by the inflation inherent in the system. Save yourself, your family, and your life savings from this disastrous wealth destruction by owning hard assets such as gold and silver.