When you Deposit Funds in a Bank, it Becomes “Their Money”

Although there has been quite a bit said and written about this recently, I felt it important enough to revisit, as I don’t believe the reality of your status as a bank depositor has been fully understood by many people. I quote:

The world is awash with “promises”. Nearly everything we think of as having “value” is because of a promise behind it. A few examples; your bank accounts, retirement funds, bonds and even the dollar bills in your pocket. Your bank account for example, once you deposit the money it is no longer yours. You can argue this if you wish but we now know this is true for sure after recent “bail in” legislations passed throughout the west. When you deposit funds into a bank, it then becomes “their money” held for you …they “owe” it to you.

Do not take this lightly, lawmakers around the world have made this the new reality. A little known fact, in 1845 Britain passed banking law that made depositors (unsecured creditors), this is still precedent to this day. When you deposit money you “accept a liability” from your bank and are classified as an unsecured creditor. In other words, “get in line with everyone else”!

Same thing with many retirement accounts. Think about Social Security. When you get your annual statement form, it comes with an asterisk. This is to inform you they “might need to reduce benefits”. With any retirement account you are relying on the custodian to make payments to you upon retirement. Think about state and municipal retirement accounts promising the good life, they are nearly ALL underfunded. Meaning there is not enough money in there to make (promised) future payments unless some sort of magically higher returns are realized. These are underfunded by the TRILLIONS of dollars!

Bonds are an obvious asset class where a “promise” is relied on. Dollars on the other hand seem the most misunderstood by the public while being the biggest leap of faith in all asset classes. Dollars rely on the “full faith and credit” of the U.S. government (a bankrupt entity) yet the populace sleeps through the night secure knowing they own dollars. ALL non backed, fiat currencies in the past have failed. The dollar is the widest spread and widely owned fiat the world has ever known, its failure will be spectacular upon arrival!

I wanted to point out the above “promises” as a basis to speak about trust or confidence. The financial world turns on the axis of “trust”. This trust was nearly broken in 2008 and is the reason the Federal Reserve needed to secretly lend $16 trillion all over the world. If the Fed had not come up with these funds, failures would have spread and trust would have been broken amongst the banks/other financial institutions and even between the central banks themselves! The Fed’s largesse worked and trust was maintained.

End of quote.

I commend the rest of the article to you.

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