Subject: FW: Africa is not for sissies
My friends I just came back from my morning swim. In the locker room was a man married to a woman from Nepal. He told us that the death toll in the urban areas has gone above 3,700. They have no idea of how many people have died in the rural areas. Survivors are without clean water and other sanitary things. Outbreaks of diseases like cholera are now possible. This is not good! The only good news was that all members of this man’s family there in Nepal had survived.
An Armenian Tragedy: The Geopolitics of Terminology
The United States is not about to be weighed down by the historical baggage of the Caucasus. To Turkey’s pleasure and Armenia’s regret, U.S. President Barack Obama will not utter the word “genocide” on April 24 when he commemorates the 100th anniversary of a massacre of 1.5 million Armenians at the hands of Ottoman Turks. Obama is not the pope; he is the president of the United States, and the global hegemon appears to be in tune with its geopolitical instinct.
A great deal of diplomatic energy has been exchanged between Washington and the Turkish and Armenian lobbies in recent weeks. Not only have decisions had to be made about what word to use to describe the historical event, but there are also questions about the level of official that should attend the Armenian commemoration versus the Turkish commemoration for the Battle of Gallipoli. Putting aside the diplomatic motions, the choice is quite simple for the United States: Either Washington can throw its support behind a tiny landlocked satellite of Russia with negligible strategic value, or it can use the opportunity to deepen its relationship with a country that has the potential to influence two highly active geopolitical arenas, namely, the Russian periphery and the Middle East.
What is a Geopolitical Diary?George Friedman Explains.
Turkey is already showing signs of wanting to be more active in its region. While Saudi Arabia is trying to band together the Gulf Cooperation Council countries as a military force with a common political purpose — to contain Iran, which is on the way to rehabilitating itself through a deal with the United States — Turkey is naturally feeling the urge to establish its own leadership credentials. Washington will encourage this evolution as it places more responsibility in the hands of local powers to manage problems such as the Islamic State.
Turkey is also looking out toward the Black Sea when it comes to recalibrating its foreign policy. Over the past few months, Turkey has increased its engagement with European countries on the front lines with Russia, including Poland, Lithuania and Romania, the leaders of a U.S.-backed European coalition. On Thursday, in a policy speech to parliament, the Polish foreign minister mentioned Turkey three times in articulating his country’s foreign policy, describing a “duty which involves listening to the voice of history and not turning one’s back on nations — like Turkey, Ukraine, Georgia or Moldova — that are prepared to follow the European development.” Warsaw’s grouping of Turkey with these borderland countries is notable as we track growing efforts by Washington and its European allies to bring Turkey more into the Western fold.
Russian President Vladimir Putin seems to be well aware of the shifting tide in Turkey. After Putin’s spokesman wavered for weeks over whether the Russian president would attend the ceremony in Yerevan, accept Turkey’s invitation to attend the Gallipoli commemoration or avoid the political controversy altogether by staying home, it was recently confirmed that Putin would indeed join George Clooney on the red carpet in Yerevan. Putin still went out of his way to call Turkish President Recep Tayyip Erdogan ahead of his trip to Yerevan to reassure him of the strength of their relationship, but the growing tension between Turkey and Russia will become increasingly difficult for both sides to paper over. Turkish-Russian energy negotiations over natural gas pricing and Russia’s Turkish Stream project are already encountering obstacles. And with Turkey starting to become more active in Russia’s European periphery and the United States strongly nudging Ankara from behind, Moscow should be eyeing Turkey with suspicion.
George Salet Plumbing did an excellent jog of installing our natural gas fireplace.
Under any conditions such an installation is a long and a trying process. The really tough part of the installation came in the afternoon when the heating unit was taken out of the package.Parts had been damaged in shipment. It looked like the whole unit was going to have to be sent back to Amazon.com and the installation delayed a couple of weeks. Alan went to work “thinking outside the box.” He got the system installed and working. He went to do the permit process. He suggested a second chimney inspection to make sure that there were no safety issues. In short, he and Abe did a great job!!!
Today is a big day. The crew from George Salet Plumbing, Inc. comes out to install a natural gas element in our fireplace. No longer will wood be burned. We are doing our small part to make the air cleaner. Surprisingly smoke from fireplaces and other sources is 39% of the air pollution. Cars are only 9% of the air pollution.
Yesterday there was a disturbing report on the CBS Evening News. From the 1970’s to the 1990’s the FBI Forensics Laboratory used a faulty method to identify hair samples. One man was released after service of 28 years for a murder that he did not commit. Thus far six convicts who were executed also had erroneous hair sample identification. More cases will come out. One day we are going to be forced to admit that some innocent people have been executed.
I attended a speech Congress Woman Jackie Speier at the Pacifica/Coastside Democrats meeting. Jackie is always a great speaker. One thing caught my eye and touched my heart. Jackie talked about one constituent who is currently a medical student at UCSF Medical School (Definitely not an easy school to gain admittance to!) She told us that this young man had got his undergraduate degree at San Francisco State University. For three of those 4 years as an under graduate student this student has slept in his car because he did not have the money to even rent a room. Jackie went on to tell us about a conversation she had with a dean at San Francisco State University. This person told her that he drives around the campus late at nights and sees many cars with students sleeping in them. I had to work from eleven at night until seven in the morning 5 days a week to get through Tulane. It was hard but I always had a decent apartment to come home to. It is hard for me to imagine what it is like to live in a car and sleep in it as a homeless person while trying to get a college education.
|Unsound Banking: Why Most of the World’s Banks Are Headed for Collapse|
|by Doug Casey | April 17, 2015|
|You’re likely thinking that a discussion of “sound banking” will be a bit boring. Well, banking should be boring. And we’re sure officials at central banks all over the world today—many of whom have trouble sleeping—wish it were.
This brief article will explain why the world’s banking system is unsound, and what differentiates a sound from an unsound bank. I suspect not one person in 1,000 actually understands the difference. As a result, the world’s economy is now based upon unsound banks dealing in unsound currencies. Both have degenerated considerably from their origins.
Modern banking emerged from the goldsmithing trade of the Middle Ages. Being a goldsmith required a working inventory of precious metal, and managing that inventory profitably required expertise in buying and selling metal and storing it securely. Those capacities segued easily into the business of lending and borrowing gold, which is to say the business of lending and borrowing money.
Most people today are only dimly aware that until the early 1930s, gold coins were used in everyday commerce by the general public. In addition, gold backed most national currencies at a fixed rate of convertibility. Banks were just another business—nothing special. They were distinguished from other enterprises only by the fact they stored, lent, and borrowed gold coins, not as a sideline but as a primary business. Bankers had become goldsmiths without the hammers.
Bank deposits, until quite recently, fell strictly into two classes, depending on the preference of the depositor and the terms offered by banks: time deposits, and demand deposits. Although the distinction between them has been lost in recent years, respecting the difference is a critical element of sound banking practice.
Time Deposits. With a time deposit—a savings account, in essence—a customer contracts to leave his money with the banker for a specified period. In return, he receives a specified fee (interest) for his risk, for his inconvenience, and as consideration for allowing the banker the use of the depositor’s money. The banker, secure in knowing he has a specific amount of gold for a specific amount of time, is able to lend it; he’ll do so at an interest rate high enough to cover expenses (including the interest promised to the depositor), fund a loan-loss reserve, and if all goes according to plan, make a profit.
A time deposit entails a commitment by both parties. The depositor is locked in until the due date. How could a sound banker promise to give a time depositor his money back on demand and without penalty when he’s planning to lend it out?
In the business of accepting time deposits, a banker is a dealer in credit, acting as an intermediary between lenders and borrowers. To avoid loss, bankers customarily preferred to lend on productive assets, whose earnings offered assurance that the borrower could cover the interest as it came due. And they were willing to lend only a fraction of the value of a pledged asset, to ensure a margin of safety for the principal. And only for a limited time—such as against the harvest of a crop or the sale of an inventory. And finally, only to people of known good character—the first line of defense against fraud. Long-term loans were the province of bond syndicators.
That’s time deposits. Demand deposits were a completely different matter.
Demand Deposits. Demand deposits were so called because, unlike time deposits, they were payable to the customer on demand. These are the basis of checking accounts. The banker doesn’t pay interest on the money, because he supposedly never has the use of it; to the contrary, he necessarily charged the depositor a fee for:
An honest banker should no more lend out demand deposit money than Allied Van and Storage should lend out the furniture you’ve paid it to store. The warehouse receipts for gold were called banknotes. When a government issued them, they were calledcurrency. Gold bullion, gold coinage, banknotes, and currency together constituted the society’s supply of transaction media. But its amount was strictly limited by the amount of gold actually available to people.
Sound principles of banking are identical to sound principles of warehousing any kind of merchandise, whether it’s autos, potatoes, or books. Or money. There’s nothing mysterious about sound banking. But banking all over the world has been fundamentally unsound since government-sponsored central banks came to dominate the financial system.
Central banks are a linchpin of today’s world financial system. By purchasing government debt, banks can allow the state—for a while—to finance its activities without taxation. On the surface, this appears to be a “free lunch.” But it’s actually quite pernicious and is the engine of currency debasement.
Central banks may seem like a permanent part of the cosmic landscape, but in fact they are a recent invention. The US Federal Reserve, for instance, didn’t exist before 1913.
Fraud can creep into any business. A banker, seeing other people’s gold sitting idle in his vault, might think, “What is the point of taking gold out of the ground from a mine, only to put it back into the ground in a vault?” People are writing checks against it and using his banknotes. But the gold itself seldom moves. A restless banker might conclude that, even though it might be a fraud on depositors (depending on exactly what the bank has promised them), he could easily create lots more banknotes and lend them out, and keep 100% of the interest for himself.
Left solely to their own devices, some bankers would try that. But most would be careful not to go too far, since the game would end abruptly if any doubt emerged about the bank’s ability to hand over gold on demand. The arrival of central banks eased that fear by introducing a lender of last resort. Because the central bank is always standing by with credit, bankers are free to make promises they know they might not be able to keep on their own.
How Banking Works Today
In the past, when a bank created too much currency out of nothing, people eventually would notice, and a “bank run” would materialize. But when a central bank authorizes all banks to do the same thing, that’s less likely—unless it becomes known that an individual bank has made some really foolish loans.
Central banks were originally justified—especially the creation of the Federal Reserve in the US—as a device for economic stability. The occasional chastisement of imprudent bankers and their foolish customers was an excuse to get government into the banking business. As has happened in so many cases, an occasional and local problem was “solved” by making it systemic and housing it in a national institution. It’s loosely analogous to the way the government handles the problem of forest fires: extinguishing them quickly provides an immediate and visible benefit. But the delayed and forgotten consequence of doing so is that it allows decades of deadwood to accumulate. Now when a fire starts, it can be a once-in-a-century conflagration.
Banking all over the world now operates on a “fractional reserve” system. In our earlier example, our sound banker kept a 100% reserve against demand deposits: he held one ounce of gold in his vault for every one-ounce banknote he issued. And he could only lend the proceeds of time deposits, not demand deposits. A “fractional reserve” system can’t work in a free market; it has to be legislated. And it can’t work where banknotes are redeemable in a commodity, such as gold; the banknotes have to be “legal tender” or strictly paper money that can be created by fiat.
The fractional reserve system is why banking is more profitable than normal businesses. In any industry, rich average returns attract competition, which reduces returns. A banker can lend out a dollar, which a businessman might use to buy a widget. When that seller of the widget re-deposits the dollar, a banker can lend it out at interest again. The good news for the banker is that his earnings are compounded several times over. The bad news is that, because of the pyramided leverage, a default can cascade. In each country, the central bank periodically changes the percentage reserve (theoretically, from 100% down to 0% of deposits) that banks must keep with it, according to how the bureaucrats in charge perceive the state of the economy.
In any event, in the US (and actually most everywhere in the world), protection against runs on banks isn’t provided by sound practices, but by laws. In 1934, to restore confidence in commercial banks, the US government instituted the Federal Deposit Insurance Corporation (FDIC) deposit insurance in the amount of $2,500 per depositor per bank, eventually raising coverage to today’s $250,000. In Europe, €100,000 is the amount guaranteed by the state.
FDIC insurance covers about $9.3 trillion of deposits, but the institution has assets of only $25 billion. That’s less than one cent on the dollar. I’ll be surprised if the FDIC doesn’t go bust and need to be recapitalized by the government. That money—many billions—will likely be created out of thin air by selling Treasury debt to the Fed.
The fractional reserve banking system, with all of its unfortunate attributes, is critical to the world’s financial system as it is currently structured. You can plan your life around the fact the world’s governments and central banks will do everything they can to maintain confidence in the financial system. To do so, they must prevent a deflation at all costs. And to do that, they will continue printing up more dollars, pounds, euros, yen, and what-have-you.
Editor’s Note: While currency crises, bank runs and episodes of economic collapse are devastating to paper assets, they often hand us opportunities to pick up hard assets on the very cheap.
Each month we scour the world looking for the best crisis-born opportunities from fundamentally sound businesses whose stock prices have been hammered down by fear, crisis, and politically caused distortions.
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