Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Hologram Tam & the Great Global Banking Money Supply Swindle

Stock-Markets / Money Supply Oct 05, 2007 - 02:08 PM GMT

By: Adrian_Ash

Stock-Markets

Best Financial Markets Analysis Article"...If forgery were a question of quantity as well as quality, the world's entire private banking system would be queuing up for porridge tomorrow morning..."

THOMAS McANEA was a drunk, an ex-con freed on a technicality, and a failed businessman with barely "two pennies" to rub together, according to the Scottish police.


He was also an expert forger, a specialist in faking holograms for official documents. And in January, 'Hologram Tam' – as his underworld clients knew him – was caught with nearly $1.7 million worth of counterfeit banknotes.

The fake cash had been printed alongside the take-away menus that McAnea made for local Chinese restaurants, the cover he used to look legit. By the time of his arrest, the police estimate, Hologram Tam and his gang had put almost £700,000 of fake banknotes – more than $1.3 million – into Britain's financial system. (They don't know how many Glaswegians are still waiting for a delivery of Chinese food ordered off the fake menus.)

All told, according to the report in The Times , McAnea's printing works had the capacity to produce $4 million worth of counterfeit notes per day, "enough potentially to destabilize the British economy."

But that $4 million per day would have been small beer compared to the money created by the UK 's private banking sector each day. It's been helping to grow the money supply by more than $1 billion – every 24 hours – for the last year and more.

Might this flood of legitimate money "destabilize" the economy? It outweighs Thomas McAnea's threat 250 times over, after all.

And if forgery were a question of quantity as well as quality, the entire banking system might be queuing up to empty its slop bucket tomorrow morning...right alongside Hologram Tam.

"Modern economists have difficulty in deciding whether they should define money as M1, currency plus demand deposits," writes Charles Kindleberger in his classic text, Manias, Panics & Crashes , "or as M2 – equal to M1 plus time deposits – or M3, consisting of M2 plus highly liquid government securities."

Does the way we define money matter? The US Federal Reserve says not. It famously ceased publication of its M3 data in March 2006, claiming that the measure "had not played a role in the monetary policy process for many years."

But lack of use didn't negate M3's value, however. Private economists have since pegged its growth rate above 10% per year. At the end of August this year, M3 growth hit 14% according to analysis by John Williams at ShadowStats.

"At least we should all be able to rest assured that a global deflation [a shrinking money supply] is not in the cards," as Rob Kirby notes for Financial Sense.

But across the Atlantic and here in London , inflation of the money supply remains on view to the public – and M4 remains the key money-supply data. The broadest measure of money supply tracked by any central bank outside Chile (those crazy Latinos go up to M6), it covers all notes and coins in the British economy, plus bank deposits – both time and demand – and Sterling bank bills, as well as all commercial paper, bonds and floating-rate notes issued for five years or less.

In short, M4 measures what a 1959 commission called those "highly liquid assets which are close substitutes for money, as good to hold, and only inferior when the actual moment of payment arrives." And M4 has more than doubled in the last decade. It's risen by 65% since the "Deflation Scare" starting in 2002.

But forget for a moment about the supply of what passes for money – even if it did grow by 13.5% in August from 12 months before.

Gasp instead at the surge in private-sector lending!

After lagging the outstanding total of M4 money throughout the 1960s and '70s, the volume of private-sector debt first ticked higher during Margaret Thatcher's deregulation of the financial services industry in the early '80s.

Then the real jump came, back when the current government took power in May 1997. The UK 's money supply has very nearly tripled since then.

By the end of summer 2007...and just as the global "credit crunch" began to bite after the British economy had enjoyed 15 years of expansion, its longest boom ever in history...total private-sector lending in the United Kingdom outstripped the sum total of broad money by almost half of one year's entire economic output.

Put another way, private households and businesses in Britain now owe the banks 39% more in debt than actually exists in cash, bank savings and near-cash equivalents added together (August data).

Down there with the devil and his number-crunching detail, "most banks have advanced more loans to borrowers than they hold in savers' deposits," as The Telegraph noted recently. Little does the newspaper know, however, that the situation applies right across the entire British economy. But the point is well made regardless.

Halifax Bank of Scotland (HBOS) has lent out £1.74, says The Telegraph , for every £1 it's taken in from its savers. Standard Life Bank has lent £2.40...Northern Rock lent £3.21...and Bristol & West, another aggressive mortgage bank, has turned every £1 kept on deposit into £6.60 of loans!

The scam is simple enough to spot, if not to stop. Lending £6.60 against every £1 on deposit makes for a tidy "arbitrage" between the cost of paying bank savers and the income earned from debtors. And what The Telegraph 's horrified exposé misses, of course, is that – on the banks' balance sheets – creating credit in this fashion looks simply beautiful.

Loans are called "assets", but cash-on-deposit is a "liability". So the more money the banks lend, the greater their assets. The less cash they accept from savers, the smaller their liabilities!

"The very fact of imitation," writes Glyn Davies of the Roman denarius in his magisterial History of Money , "indicated that the demand for money locally exceeded the official supply, a gap which the counterfeiter exploited directly for his own interest."

Fast forward two thousand years, and Hologram Tam was merely improving liquidity for his local economy, too – in this case, the economy of drugs dealers, junkies and pimps in Glasgow .

Britain 's biggest mortgage banks have merely been doing the same, this time helping out would-be home owners with a flood of liquidity. It pushed the average house prices up three-fold in the 10 years to July 2007. The proportion of income going to service and repay the resulting mortgage debt doubled over that period to a record 32% per month.

Might this surge in "seignorage" – the profits earned first by medieval kings for issuing money, and now by the private banks for issuing debt – come to overwhelm the poor serfs plowing the fields and trying to decorate their newly-built starter homes (carpets and curtains included)?

It's not just Britain , of course, where money has been piling up without the bother of taking physical form as notes, coins or even a line in your banking deposit book. Prior to its untimely demise, the Federal Reserve's M3 data showed mark growth compared with the smaller, less inclusive M2 measure.

You'll note the upturn in the gap between M2 and its bigger cousin, the now-dead M3 money supply figure, right at the same time that Britain discovered the joys of private money creation in the mid-to-late '90s.

A global stock-market boom followed, and a housing bubble followed that when the frenzy in equities wore out. But in the Fed's own words, M3 included all of M2, plus large time deposits of $100,000 or more, as well as "term repurchase agreements in amounts of $100,000 or more, certain term Eurodollars, and balances in money market mutual funds restricted to institutional investors."

Put another way, a big chunk of the private banking sector's money is not included in M2. Now why would the Fed not want to track what was happening there?

Watch this space...

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2007

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in