Today’s topic might be a bit confusing to some, but rest assured if you know, you can make the right decisions with your money. We are all seeing a tightening of money lately due to inflation which is where prices of goods and services go up faster than income does. Inflation is the worst possible economic effect on any society as the people who are affected by inflation have less disposable income left over after they pay for housing, food, gas, and services. In America, there is a significant amount of people that live paycheck to paycheck meaning that they spend every dollar they make on housing, food, fuel, and services every month. When these prices go up and their income does not follow then people have to go to other sources to make those essential payments such as credit cards and this puts the average American in a deficit. Although this is not good for the average American it is also not good for the banking system as the banks rely on the deposits of Americans so they can lend out that money to keep the banks in an income stream.
This brings us to the banking system itself and most see the system as confusing and have no idea how banks actually work. In America and other Western countries, the banking system is what is called a Fractionalized Banking system. That is a big word that means that the banks can lend out most or all of the depositor’s money. For example, if a bank has $100,000 in deposits from 5 customers ($20,000 each) and it pays 3% interest to those customers the bank then can lend out a good portion of that money at higher interest rates. Remember that the banks have to keep cash on hand in case their customers need cash and in the past banks have held back about 10% of that money for cash. The other 90% is lent out at a higher rate than they are paying the customers that have savings in their bank. In our example, there is $100,000 from 5 people paying them a 3% return to keep their money in the bank. The bank can lend out $90,000 and only keep $10,000 for cash reserves and when they lend out the money they collect say 6% on the money they lend out. This process should leave the bank positive in income and has throughout the history of fractionalized banking.
Here is the problem with the system. Banks currently have no reserve requirements meaning that in my example the banks can legally lend out every dollar of your savings. This should not happen, and most banks will not lend out 100% of their customers’ deposits as they want to stay open in case there is a day when there is a heavy amount of withdrawal money. Banks are in charge of regulating themselves based on their lending models and most banks do a good job of regulating this. Here is the biggest problem facing the banking system today and that is inflation. As we talked about earlier when prices go up faster than incomes the bank’s customers are spending more than they make and they do this with credit cards and equity loans. There will come a point where the average American can no longer pay their debt due to inflation. Human nature is to make sure they have food on the table first and foremost. When the consumer can no longer pay their debt, they default. This means that if Americans can’t pay their credit cards they go into default and the bank receives no money. This holds for mortgages as well.
This is where things start to get crazy so hang on. Remember, that Banks will lend out around 90% of depositor’s money and if those loans start to go bad there is only 10% of cash left for banks to operate. So, a bank’s reserves may get eaten up quickly if there is a high default rate. Banks lend out money for Credit Cards, Residential Mortgages, and Commercial Real Estate loans and lend to other banks. When customers start to default on their loans the income stream to the bank is greatly diminished and they still have to pay interest on the deposits they have for their customers. If the bank has not held enough in reserves to account for this then the bank will fail. Or as we saw in 2008 when this started to occur the government stepped in to save the larger banks not through the use of the Federal Deposit Insurance Corporation (FDIC) but actually printing money to put back into the system. The smaller banks were bought up by the bigger banks. In 2008 we had other factors going on to bail out the system as we were not in an inflationary time it was more of a recession meaning the economy was retracting with no inflation. Real Estate values during this time went down the stock market sold back and there was high unemployment due to the recession. Interest rates went down during this recession as there was no real inflation so with lower interest rates those who had the means bought homes and commercial real estate as the cost of money was cheap and this brought the economy back.
Fast forward to 2020 when the COVID crisis hits. This was a forced recession by the government telling people they could not work. We had never seen anything like this in American history and the result was that the Government and the Banking system were faced with something they had never dealt with before. The mistakes that were made have led us to where we are today. The biggest mistake was to shut everything down that was not essential. The next mistake was that the government did not take into consideration where we were in the business cycle with a healthy economy at the time before they shut the economy down. The Government printed and sent out money to every American and it may have helped some in the short run the long run is what we are paying for today. The Government also lowered interest rates to stimulate the economy and it sure did with people buying houses and freeing up equity to buy more stuff. The money was flowing through the economy and people were buying things at a crazy rate until inflation hit people had to slow their buying habits and in addition to that the Federal Reserve saw the inflation and the only tool they had to slow inflation was to raise interest rates and they did.
Today all that stimulus money is gone, however, the government has continued to spend money by sending it overseas and starting foreign wars. I can guess that the reason for the wars is to get the economy moving again as war requires a lot of money to flow. We could go into the problems of this all day long, but this is not the forum for now. The problem is, currently with the high interest rates and high inflation the more the government spends the less the dollar is worth on the world stage. That coupled with the BRICS system that threatens to remove the Petrodollar on the world stage is further devaluing the dollar. The banks are starting to see their default rate climb with inflation and this is diminishing the bank’s liquidity as this continues to happen, we see a tightening of the availability of money. Today March 11, 2024, the Bank Term Funding Program (BTFP) which is a way for banks to secure funding from the Federal Reserve will be ending. This will force the banks to go to the discount window to borrow short-term funds. This will lead to money being tougher to borrow. We are also beginning to see defaults start to rise and that coupled with the already tight money supply for Americans high interest rates and rising inflation it is a wonder why this is being done. Is it being done so deliberately? You can’t help but think there is some master plan to change the monetary system in America or to create a global currency minus Russia China, Brazil, India, South America, and countries in the Middle East (the BRICS nations). But why?
I am beginning to think that all this stuff we have never seen before such as wide-open borders, money being sent to some foreign war nobody seems to want, money given to illegals, civil disruption, and propaganda being spread all over, is all part of a plan to make America weak. The reason is to change the monetary system and move to more globalization that not many Americans want. I see the UN helping in this destruction of America in that they are funding the illegal migration and to make it worse the US is the largest supporter of the UN. I mention this not to scare you but to open your eyes to the great sellout of America and a move to the International Monetary Fund or something else, instead of the Central Banking system we currently use and enjoy independently of the rest of the world. Before this can happen the Banking system in the US must collapse and it appears from someone who has watched and studied this for the last 45 years that this is what is happening. I don’t want to scare people and I might be stating the obvious, but things are changing fast. I am not holding out much hope for the Federal Reserve to lower interest rates any time soon as we still have inflation, and this is known not by the numbers the government feeds us but by simply going to the grocery store and filling up my car. The mortgage business is the slowest I have ever seen, even worse than 2008. This is also true for the Real Estate market and as things get tighter we should start to see more inventory hit the market as people are having a tough time paying their mortgages even if they have a 2 or 3% mortgage. I am also seeing more people defaulting on their mortgages creating a higher foreclosure rate. We as Americans can only do one thing to fix this crisis and that is to vote correctly, although I live in California and the system has been corrupt for decades it’s all we have to save our Constitutional Republic.
The title says it all if you know what you are looking at. A little history first then we will dive into the relationships between BRICS, the Dollar and Interest Rates and it will wake you up if you haven’t been watching the world. BRICS is the formation of a new currency based on precious metals formed to take on the dollar as the world’s new reserve currency, we will get more into that in a minute. The Dollar is our currency in the United States and is the current world reserve currency. Then how do interest rates play into this equation you ask? Interest rates may not react now to both of these currencies now but they will very soon.
BRICS stands for Brazil, Russia, China, and South America, they were the original nations that signed on to use this new currency. Since the formation of BRICS, Several other countries have signed on to use this currency, countries such as Saudi Arabia, Syria, Afghanistan, and several others countries. What this means is that these countries will use the BRICS currency as their reserve currency, not the US Dollar. This has not materialized yet but it is in the works. If this new currency catches on and becomes the world’s reserve currency and not the dollar that could have to reach economic consequences for the Dollar. If you are paying attention to what is happening in Ukraine right now you have to understand that this conflict is not about Ukraine’s sovereignty from Russia it is about money. Money has driven almost all wars in history and this one is no different.
The Dollar has been the world’s reserve currency since World War 2 and before that, it was the Pound Sterling (British Currency). The Dollar was originally backed by Gold and Silver. When the US was limited to gold and silver it could not expand as fast as those that held the gold and silver wanted it to so it moved from a currency that could be backed by precious metals to the Federal Reserve Note we have today. That transition happened in 1971 under President Nixon. The US moved to what some call a “Petrol Dollar” which is a dollar backed by oil. Again, we have seen wars fought over oil now, why? Money. Today’s Dollar is really only backed by debt and that is why the world sees the dollar as a dead currency where the debt has exceeded what a normal mind can grasp. $33 trillion dollars is a number that is not quantifiable to a regular person, numbers like that are for mathematicians. The dollar has been the great magical vehicle for decades with people believing it has actual worth and that belief has allowed the US to become the largest superpower in the world.
Interest Rates, how does it play into the currency game? This one will take a history lesson as well. Interest Rates, by definition, are the cost of money. Interest Rates in the US have been controlled by the Federal Reserve and the Federal Reserve also controls the Money Supply. We can now see the relationship as the Federal Reserve controls both the supply of Dollars and the cost of the Dollar. The Federal Reserve system has been under fire lately with the way they have managed this relationship as we have seen interest rates soar over the last few years. With the dollar as the world’s reserve currency for so long the Federal Reserve Bank has been lucky that countries like China and other countries that hold a large stake in the US debt have not called it due. If the world moves away from the Dollar as a reserve currency you will see the devaluation of the dollar worldwide and those still using the dollar will see it be devalued on the world stage. A devalued dollar will create inflation and the cost of the money will have to go up to offset this. The cost of money is interest rates.
This is just a quick view of those things to come and can also explain what is going on in the world today. If you connect the dots you can see why BRICS has come to fruition. War in today’s world is being fought on the economic front not so much on the battlefield. If the BRICS currency takes over, the dollar will devalue and the cost of things in the US will skyrocket. If we have high inflation we will have high-interest rates. When you look at the conflict in Ukraine understand it is not about Ukraine at all, in fact, if you look at Ukraine you will find that their government has been corrupt for decades. If you research President Zelenskyy you will see he started off in life as a comedian and actor and worked for a TV station prior to being “elected” President of Ukraine in 2019. Zelenskyy’s net worth is estimated to be between $20 and 50 million US dollars, and some estimate it far greater than that. Meanwhile, the US has recently sent Ukraine over $120 Billion in aid. These are facts; you can even google it and see that the search engine has not yet closed the door on this information. It is on top of this administration’s list to keep the dollar as the world reserve currency to keep America the strongest and richest country in the world. When you are watching or listening to the news, however, you find your information, keep money in mind when watching as that is the underlying cause for almost every conflict in the world is money. I tried to keep this to facts that we know, but I think if you peel the onion back a bit more you will see things and understand things that you may not want to have knowledge of. There is a lot more to this that I can’t possibly go into for this short blog post so keep your eyes and mind open.