Tomorrow the Swiss will hold a referendum on the subject of “Vollgeld” (nouns are capitalised in German), which, if successful, will end fractional reserve banking in Switzerland. Private banks will no longer be able to create money. I hope they are successful.
You can read about it here:
If you have access to the Financial Times, Martin Wolf also has a piece in favour of it from this week. While I do not agree with him on all things, I do on this, and I salute him for standing up against opposition from the “mainstream” financial, legal, and economic communities.
I was first alerted to the problem of fractional reserved banking during my freshers’ week of university, but did not come back to it until this year when I read part of Dr Jesus Huerta de Soto’s book on the topic. Banking may be broken down into three separate categories (two really being the reverse of each other).
A) Deposit banking
B) Investment banking
C) Loan banking
By (A), I mean that the customer comes to the bank and asks him to store his money for him (and also potentially to use his account to make payments to third parties at the customer’s direction) – no more, no less. By (B), I mean the customer leaves money with the banker to invest for a term. In effect, this is a loan to the bank: the customer understands that he loses access to the money during the term of investment and runs the risk of losing some or all of it. He accepts this on the understanding that, if successful, he will make a profit on this venture. It is essentially a kind of gambling, and the bank is acting as the customer’s agent: a skilled customer with the right connections could cut out the middleman and do this for himself. By (C), I mean the bank gives a loan to the customer, usually secured by a kind of charge (e.g. fixed or floating; a charge by way of legal mortgage over land would be an example of a fixed charge).
Fractional reserve banking occurs when these three separate concepts are mixed. The money deposited under (A) is used for investment purposes for a different customer. Where a deposit contract specifies that this is not to be done, the transgressing banker will be liable for breach of contract, for breach of trust (where a fiduciary relationship exists), and potentially for misrepresentation in contract law and the tort of deceit where the banker never had the intention of obeying the terms of the deposit contract and made a knowing false statement of fact in order to induce the deposit customer to enter the contract. Where criminal laws penalise fraud, the banker could also be liable for criminal sanction in the deceit scenario. There were times when fractional reserve banking was illegal and where such breaches were scandalous. As late as the twentieth century, bankers in Spain were tried for misappropriation of deposit money.
I hope you will consider the gravity of fractional reserve banking and support the Swiss in your thoughts and prayers on the eve and day of the referendum. Earlier polls suggested it would fail, but if it succeeds, it will be a first blow against an aspect of the globalism and financial technocracy that is responsible in part for the economic problems of our era.
All Along the Watchtower 
It is sort of like trying to put a genie back in a bottle I fear. The entire world is practicing voodoo economics to some extent. The less we know about it the more stable it is because it is only viable if the people trust their financial institutions; including, of course, the stock market.
I fear that if every outstanding loan on the planet were called in, the entire system would collapse for their isn’t sufficient goods and land etc. to cover the paper that has been generated. We would soon see that the paper is worth only a fraction of what we have held it up to be by those who manipulate its worth every day. Their hope is that if they remain afloat and if we trust them with our money that they will grow out of this debt (which will be impossible for the debt is too far out of hand).
After the world decided to bail out the institutions and companies they deemed “too big to fail” they restored faith in the institutions to the unwitting but it did nothing to fix the problems . . . in fact, one might say that they have gotten worse.
Be careful what you wish for. I think that your goal is right but the pain will be far more severe if this went global than it would have 20 years ago. Currency manipulation is still the game they are playing. Not sure that Trump can fix what is global and the arena which the U.S. must play in. So even his understanding fo economics won’t normalize banking, currency or stock markets around the world. It is a mess that needs fixing and slowly, we are going to have to cut this ‘too large to fail’ groups away from Govt. subsidies etc. and also stop printing more money than there is production.
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Yes, I quite agree. Real change will be painful, and it is unfair that innocent people will end up paying for it – but I think it is time our societies started making steps along that road: reforming banking, bringing down inflation, shifting responsibility back onto private individuals and groups. I think it is necessary as part of national repentance for a revival / great awakening. The right must admit that of ourselves we can do nothing, and the left must admit that the state is not the messiah. Only God saves. Statism in its worst forms is idolatry, and there is a spiritual element behind it: the sons of God used to rule that nations, and since their dethronement, Islam as a political system is the final attempt to make the nations submit to the government of a lesser spirit. Men should have no king but Yahweh.
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Very true. It is rather satanic that our debt is now extending beyond several generations of individuals who haven’t even been born yet. It is their debt and we are not having a lot of kids who will have to shoulder the debt we are giving them as their inheritance. Talk about giving your son a rock or a scorpion for bread? That’s just about as callous as you can get. Its evil.
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Indeed. Unfortunately, it is very difficult to convince people about some of these underlying principles. I analyse a lot of life in contract terms, which is why I get angry about a lot of things, because I see either a party unilaterally changing terms or acting without another’s consent. This is why I worry about the mushrooming of the concept of rights. Don’t get me wrong, I believe in the concept, but I don’t like seeing it extended to the point where people continuously take without thought for the fact that they are taking from someone else. If time is personal, and time is money, then taking my time without remunerating me for it is theft. Oh well, perhaps I’m just a crank.
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Not at all. But then if you were paid back in paper that was worth a dollar’s worth of work when you earned it, you would have a stack of bills so high you wouldn’t be able to carry it. So they prop up the belief in its worth to keep you happy . . . it looks like you made a bunch of money because they have artificially kept the worth of the money high when it is almost worthless. We are all being screwed royally by the world banks and I’m not sure there is anything we can do about it except start over. Return to the stone age and then reinvent economies. Not a very happy picture or prospect.
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No, not very happy. As we’ve said before, I expect, at least in some corners of the world, so see more centralisation that will underpin the Mark of the Beast system. The sunshine will have to come after the storm.
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Indeed. A storm is coming. We simply do not know when it will occur.
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I’m with Scoop on this one, be careful what you wish for. He’s right, it would crash the system – worldwide. America, the UK, and some of Europe might survive, or might not, few others will, because it will be the end of shipping.
Better to simply end the abuses, derivatives, overselling of paper, and enforcing strictly the fraud laws on everybody. I understand (and share) the urge but there are babies in that bathwater.
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I get what your saying, and obviously malfeasors will have to account for their actions on the Day of Judgment, but it also seems incredibly unjust to “let them get away with it”. It seems like the system should be reset and built up again as an admission of guilt.
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That works, maybe, in our countries. The problem is that the rest of the world will be starving, and clamoring at our gates, how will we keep them out, or will we? I don’t know, and don’t want to find out. We both already have immigration problem, this would, I judge increase them, a hundredfold, if we’re lucky.
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Agreed. It is a great shame. They are in large part, responsible for their own problems though – many of these countries would be great opportunities for investment if they got their corruption under control – nobody wants to put money into a market that they can’t get it out of later. It’s questionable also whether China’s belt and road initiative will really take off.
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I doubt it will, China has few friends, only fellow travellers.
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We will have to pay the piper at some point in the future but the only way I can see doing it will be slowly . . . very slowly. Taking our lumps in small bits and pieces over an extended period of time. Otherwise, it is like NEO said, the world will dissolve into total pandemonium and crisis. Starvation, war, sickness, civil unrest and all imaginable ills could descend upon the world in ways we haven’t even imagined.
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Indeed I just read that there those who are calling for another 1/4 billion people be taken in by Europe to escape the ‘disasters’ of man-made climate change. It seems they want to sink the ship all at once without giving us time to find a life raft.
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And that in a continent that can’t seem to feed itself, and couldn’t when Napoleon ruled France.
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I suppose it will be up to us again to feed the world except will be able to spend $100 for a loaf of bread in order to do it?
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Darned if I know, but if we’re paying $100/loaf, I think they’re likely SOL.
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As far as I’m concerned, I’m with you on that one.
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. . . or they can simply put the money presses into overdrive for a while.
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Vote NO! What makes you think the central bank of Switzerland knows best? I’m from the govt. and am here to help, is not often the truth. Beware!
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UPDATE: The Swiss have voted down this proposal by a wide margin.
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