gold chat, page-338

If you give me an ounce of gold I will give you a loaf of bread, does that seem fair to you? I am ok with that, in fact you can have 10 loafs of bread : ) WOW now I am being over generous.

Im not going to debate you about currency and the banks right now, as I have other things to do, but the problem with the financial system i.e. Commercial paper has to be cash backed in a system that operates IAW a countries Banking and Financial Law.

But unfortunately Banks are a Law unto themselves and do create money out of nothing creating loans with little or no cash deposits to back them up. Its called Fractional Reserve Banking.

In order to borrow $100 from your local bank, they only have to have $10 on hand. If they charge you 5% interest, they are making

5% on the first $10 block which they have on hand
5% on the second $10 block - which is imaginary money
5% on the third $10 block - which is imaginary money
5% on the fourth $10 block - which is imaginary money
5% on the fifth $10 block - which is imaginary money
and so on up to the full $100 dollars.

So while it seems they are only making 5%, in reality when you add up all the imaginary blocks, they are making 5% x 10 or 50% on that original $10, plus the $90 in imaginary principle.

And then we have Rehypothecation: The practice by banks and brokers of using, for their own purposes, assets that have been posted as collateral by their clients.

MF Global and Lehman Brothers assets were re-hypothecated many times over like a debt carousel or a debt go round, which lead to the Lehman Brothers and MF Global collapse. Many people and Fund Managers found that their assets had vanished into thin air.

This turning over of collateral means that rehypothecation transactions created enormous amounts of liquidity, much of which has or had no real asset backing.