I thought the banking system was and still is inherently linked to gold although since Nixon the link is obscured. Gold leasing is IMO really important to the banking sector.
Does it not go something like this?
1. Central banks lease their gold reserves to bullion banks at stupidly low rates. Counter trade is secured by rolling gold forward contracts (win win) 2. Bullion banks sell the gold for cash 3. Cash is used as collateral via fractional banking to leverage up - bullion bank/ commercial bank borrows heaps of cash from central bank at low rates 4. Leveraged money is lent to retail market (mortgages etc) at much higher rates - rate differential generates profit.
The way I see it the system is broke without gold. The point is the retail sector doesn't realise it because we are not officially on a gold standard.
Is this why Peter Costello/ Brown sold all that gold?
So no banks do not print from thin air unless it is quantitative easing.
This is why gold goes up when QE is announced. No need to sell leased gold as the cash is coming from thin air.
