-- Posted Sunday, 27 October 2013 | | Disqus
By Herman James, Market Sanity
The following video is a bonus feature on the Hidden Secrets of Money episode 4 (public version can be seen at the end of this post). The video can only be watched by subscribing to Hidden Secrets of Money. However, a full transcript of the interview has been written by Market Sanity for your convenience:
Mike Maloney: Is there a better way? You know, the banks have inserted themselves between us and every transaction more and more and more. With credit card transactions for instance, you’ve got an average of probably 2.5% merchant fees. You’ve got some people at 3.5% some people down at 1.5%, but typically, as we go more and more to credit cards, the banks have now gotten their cut of every single transaction that’s going on in our society. And even if you use cash, you’ve still got a checking account, and you pay fees for the checking account. Is there a better way than this?
Jim Rickards: Well I think there is a better way, and you’re right Mike. Central banking is 300 years old and it does go back to the creating of the Bank of England and now it’s a worldwide phenomenon. Ya, bankers have always stood in the middle and taken a little bit out of every transaction, but for most of that time we were on a gold standard. So yes, bankers stood in the middle and they extracted a little profit, but the system as a whole had a governor – which was the gold standard – that came in various forms. Today we have no governor at all. We have the same system, with banks in the middle extracting profits, except there’s absolutely no limitation on the expansion of the balance sheet, the expansion of money, or currency as you call it. The word credit broadly defines. So, it is out of control; it will collapse, it’s just a matter of time. I don’t think there’s any question about that.
As for a better way, sure. You could go back to real money, which in my view is gold. You know, people always say – Warren Buffet criticizes gold – he says it has no yield. Well, it’s not supposed to have a yield, it’s money. Money doesn’t have a yield. You take a dollar bill out of your wallet: it has no yield. To get yield, you have to take risks. You can make a bank deposit. They call that money, but it’s really a credit transaction between you and the bank. You can buy stocks, you can buy bonds, you can do a lot of things. But to get the yield, you’re always taking risk. Money doesn’t have a yield because it doesn’t have risk, and that’s why gold has no yield. It goes up and down in dollars —
MM: You’re right. Money doesn’t have risk, but currency though does now because it isn’t backed by money.
JR: That’s correct. You’re right, but now you’re into the definition what is money, what is currency, etc.? The central banks rely on the difficulty of everyday citizens around the world understanding that to pull of the scam that you described.
So, a better system would be, you know, gold is money. I know it’s a little inconvenient for people to walk around with gold coins. I know people use to do that. There’s nothing wrong with having a paper representation of the gold, but it has to be tantamount to a warehouse receipt. As you described, it has to be something where I can walk into any treasury or any bank or maybe a post office or whatever and get a fixed amount of gold, no questions asked. That’s a real gold standard where the money is backed up by gold.
Now, it doesn’t mean you can’t have credit. We can have a gold standard where the money’s backed by gold, but if I wanted to lend you money, I’d give you money and you’d give me a note. We’ve expanded our balance sheets – that’s a credit transaction – but at least we’re honest about what it is. We’re not pretending it’s money. We’re saying it’s a credit transaction with risk. The problem with today is that most of what is actually credit, the Fed and the banking system and the Treasury are calling money, so they fool people into thinking it’s money when it’s actually credit and debt.
And again, I think your video points that out. So, you can have a sound money system that has credit in it, but at least we’ll be honest about what credit is. That will put a governor on it, then it wouldn’t expand so fast. People would be a little more careful about whom they trust and how they do business.
MM: For anyone that doesn’t understand the function of a governor. I use to have mini-bikes and stuff like that and there was this little device that would limit the RPM. So if you wanted to go faster, you could reach down to the engine and pull the governor and get rid of this blockage and let the RPM go into runaway, which was dangerous. So you’re saying the system now, they can step on the throttle without limit.
JR: That’s right.
Jim Rickards is a counselor, investment banker and risk manager with over thirty years’ experience in capital markets. He is currently Senior Managing Director at Tangent Capital Partners LLC, a merchant bank based in New York City, and is Senior Managing Director for Market Intelligence at Omnis, Inc., a technical, professional and scientific consulting firm located in McLean, VA. He advises the Department of Defense, the U.S. intelligence community, and major hedge funds on global finance, and served as a facilitator of the first ever financial war games conducted by the Pentagon. A frequent guest on financial news programs, Rickards is also the author of Currency Wars: The Making of the Next Global Crisis
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-- Posted Sunday, 27 October 2013 | Digg This Article
| Source: GoldSeek.com
