Since the 1990s, the FED has change accounting rules so even the loose ~10% fractional reserve requirement could be thwarted. We live in an era of paper tickets.

In Part 1, Fractional Reserve Banking in Pictures, we saw how the banking system creates fraudulent money by creating new money on top of old. The reserve requirement limit used in the example, 10%, is the figure usually given, which means that from a $10 deposit the banking system could generate $90 of new money. Also, the FED uses Open Market Operations to create new money by writing a check upon itself.

This article will demonstrate that reserve requirements are effectively not in existence and easily avoided by accounting tricks in the U.S. banking system. In my view, the evidence is unrefutable as the sources are from the FED and documentation from Citigroup. Although I have tried my best to keep the following simple and source my data, please feel free to comment or question and I will do my best to reply.

"Until and unless you discover that money is the root of all good, you ask for your own destruction. When money ceases to be the tool by which men deal with one another, men become the tools of men. Blood, whips, and guns - or gold. Take your choice - there is no other - and your time is running out." - Ayn Rand

Douglas Gnazzo's 2008 book, Honest Money: A History of United States Gold and Silver Currency (.pdf), is an essential add to the reading list of any serious student of monetary systems. Far shorter than the massive tome of Edwin Vieira's hopefully-soon-to-be-reprinted Pieces of Eight at 226 pages, Gnazzo takes the reader on a pleasurable blitzkrieg through our country's rich monetary history, from the founders and the Constitution to modern times. Perhaps the most enthralling section of the book is the closing chapters where Gnazzo gives his thoughts on a future commodity-based currency and, more importantly, how to transition there from where we are now. Like myself, Gnazzo has called for a national debate on the subject before it is too late.

The Pension Benefit Guaranty Corporation bails out Delphi as the Treasury madness slips into gear. Is YOUR pension fund solvent? Just ask the oracle of Delphi.

On Wednesday, the Pension Benefit Guaranty Corporation (or PBGC) announced it will take over payments for 70,000 workers and retirees from the bankrupted Delphi (DPHIQ.PK), the large auto parts maker per the Wall Street Journal. This "mini-bailout" is to the tune of $6.2 billion. (Oracle of Delphi photo courtesy Patar knight license)

"You can't get corporate jets. You can't go take a trip to Las Vegas, or go down to the Super Bowl on the taxpayers' dime." - Barack Obama, February 2009

Apparently Obama's advice does not apply to flying in 700 of the Social Security Administration's 62,000+ employees to a resort in Phoenix, spending $700,000 in taxpayer money in the process as ABC reported here. The SSA claims that due to threats of bodily harm received, the event was necessary in order to reduce stress rather than videoconferencing or a meeting. While I certainly do not condone threats, one might wonder why these threats have been received in the first place.

"Gold is the sovereign of all sovereigns." - Democritus, Greek scientist and philosopher, circa 430 BCE.

July 24, 1998, was an epic day for the global financial system. In "The Money Matrix - Bring Light to Dark Derivatives! (PART 11/15)," we reviewed the consequences of FED Chairman Alan Greenspan's decision to allow negotiation of OTC derivative contracts without the use of an exchange to make transactions transparent and reduce counterparty risk.

Yesterday I was unpacking my books from China, a chore that took a few hours. I came upon a wonderfully illustrated, hardbound edition of Henry Wadsworth Longfellow's "The Wreck of the Hesperus." Unable to resist, I sat down and cracked it open – the copy is about 70 years old. (photo1 photo2)

For a little background, Longfellow was a New Englander who lived seaside for much of his life from 1807-1882. Many of his poems have a rhythmic cadence, and he is also very well known for the poem "Paul Revere's Ride."

As Cap and Trade races through Congress, here is a question: Who will benefit? The environment and us or Government Sachs?

Last week the House voted 219-212 to pass HR 2454, the American Clean Energy and Security Act of 2009, whose intent is to "create clean energy jobs, achieve energy independence, reduce global warming pollution and transition to a clean energy economy." I've only had time to browse the 1,092 page bill and sincerely believe it will not achieve a single one of its purposes.

HR 1207, Ron Paul's Federal Reserve Transparency Act is up to 207 co-sponsors, close to a majority. So... what to do next?

This February, Congressman Ron Paul (R-TX) introduced HR 1207, the Federal Reserve Transparency Act of 2009 to audit the FED. When I first reported on it in March, privately I was quite ecstatic that there were 11 co-sponsors, and three were Democrats. Why?

NEW YORK CITY, FEBRUARY 11, 2009 - Luo Ping, director-general at the China Banking Regulatory Commission, gave what may be a landmark quote in the years to come ahead. Besides chastising the United States for its "laissez-faire capitalism" - at which point I distinctly remember choking on my breakfast of delicious jiaozi (I was in Shanghai eating Chinese dumplings) since Ping obviously understands that corporate cronyism is NOT laissez-faire capitalism as fellow columnist Steven McDuffie recently reminds - in retrospect another part of his speech may prove to be the most prophetic. From Reuters:

Except for US Treasuries, what can you hold? Gold? You don't hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.

July 24, 1998, was an epic day for the global financial system. Federal Reserve Chairman Alan Greenspan stood before Congress's Banking and Financial Services and testified. This article and the next part will focus on these two excerpts from this testimony:

In conclusion, the [Federal Reserve] Board continues to believe that, aside from safety and soundness regulation of derivatives dealers under the banking or securities laws, regulation of derivatives transactions that are privately negotiated by professionals is unnecessary.

Many followers of the Austrian school have made a critical error in forecasting the future. For, although Austrian Monetary X-flation plays a part, Austrian Credetary X-flation must be understood as well.

This article will briefly expand upon the introduction of Austrian monetary inflation and deflation as introduced in Part 2. There we learned the Rothbard definition of modern-day monetary inflation as any increase in the economy’s supply of fiat paper money. This is the current best definition of Austrian monetary inflation in the modern world of floating fiat currencies. Austrian monetary deflation would likewise be the decrease in an economy's supply of money.

Silver finally slips out of backwardation. Any guesses on who the new custodian for SLV is?

This article and charts is an update to an earlier article "18 Days and Counting - Silver Backwardation Persists in the London Market Place". In "Silver and Gold ARE Money", I charged that both silver and gold are money and shared information on the very important concept of gold's "stocks-to-flow" ratio and the size of the LBMA markets for both metals.

Do you know how much gold is exchanged daily in dollars? If not, prepare to be shocked.

While gold trades as a currency (or "medium of exchange") and also is a "store of value," and even a "unit of account" for some, and very little is actually consumed. Economically speaking, gold trades even in the modern world as money. Gold is a luxury good with insignificant industrial usage. Its major market as a luxury good is Indian women's jewelry, but to these women gold is their money or insurance if their mate leaves, dies, or is disabled so the metal is not consumed – it can be easily recovered.

This article is in two parts and I will shortly update my article "The Money Matrix - Who Owns the FED (PART 7/15)". The first part consists of email excerpts with Ms. Debra LaBarbera from the department of Media Relations and Public Affairs for the Federal Reserve Bank of New York, who kindly took the time to reply to my inquiries. As I have noted elsewhere, although I have written very close to a hundred letters (in my view, the majority overly respectful), to my California Congresswoman, I never been deigned worthy of a response, but the Federal Reserve has, I must say, always responded.

The second part consists of some guesswork (which I explain and submit to you for your review and criticism) to estimate the percentage of share ownership of the major banks that own the private stock in the Federal Reserve Bank, the quasi-private banking cartel that runs America's central bank.

As a disclaimer of sorts, I have been based in Shanghai for the past 3 years. I rarely write about China (even though I have quite strong eco-political views) since it does not cross too much into this column's purpose, namely to end the War on Terror and bring about Honest Money. Here are a few of my thoughts as Chinese New Year begins. I hope these contrasts spark a few thoughts for those who do not live here. However, I do not mean to insinuate in any form or fashion that China is "freer" than the United States.

Part 2 will reveal a recent discovery concerning the Federal Reserve's manipulation of FOREX markets from 1961.

[In case you do not yet understand futures markets, "backwardation" means that silver to be delivered today is now being priced higher than metal to be delivered later in the London Bullion Market Association's futures market in London, England. For more details on backwardation, please refer to my five-part December series which starts here "The End for the Dollar and all Fiat Currencies (1/5)". Contango is the opposite of backwardation and exists when futures price is higher than the spot price as I explained for those new to futures terminology here "The Money Matrix - What the Heck Are Derivatives? (PART 10/15)". As you read, please also note that I am NOT a commodities trader, I am just an engineer by trade, so feel free to help me out with my analysis or mistakes. ( Photo) (2)

As we learned in "The Significance of Gold Backwardation Explained (4/5)", backwardation is a sign of a very tight market, and a market that will be tight for sometime into the future either because: 1) current supply is very tight, 2) future supply is projected to be very tight, or 3) there is a severe distrust in counterparties that the short positions can deliver the goods on time per the contract, or vice versa that the long positions will not have the cash.]

(See Part I, The 'Great Slump' of 2008.)

The purpose of the following is to argue that the "gold standard," as understood by most of the public, did not cause or worsen the Great Depression as current Fed Chairman Ben Bernanke has based many of his papers, speeches, and, to a large extent, his entire career on. In our contemporary times, I do believe this blame must be firmly rejected and monetary policy should, at the very least, be debated in a national forum. Indeed many other economists, such as the Friedman family, Anna Schwartz, Alan Greenspan, and Jeffrey "Shock Doctor" Sachs, have all propagated this lie.

The outstanding contemporary relevance of Lord Keynes’ short essay "The Great Slump of 1930" comes from the fact that Keynes faced very similar dire auspices as he grappled with the uncertain future of the 1930 global economic downturn. At the time he wrote the essay, Keynes was trying to explain both the origins of the crisis and its future length and severity.

Needless to say, he missed the boat completely, although like a good medieval soothsayer he did manage to hedge his bet a little. Obviously, the "Great Slump" was not a temporary downturn but instead heralded the Great Depression, which would last until the wartime economy of WWII stimulated industry in the United States while utterly destroying Europe, the epitome example of lost wealth via Henry Hazlitt’s "broken window" illustration. Based on recent Fed maneuvers and Obama's future taxation and government expansion plans, most likely the modern-day Keynesian-Friedmanite command-and-control corporate governments will respond in a similar hapless manner as Keynes’ abject failure almost 80 years ago.

In this article we will take a look at some alternate but constructive views of Fekete's recent articles on gold backwardation, covered in earlier articles in this series. I want to note it appears to be a perfect storm shaping up, although it not yet outside the grasp of short-term government manipulation, especially if there is the hint of a panic, or "gold fever" developing. The price of gold and silver are both up over the past week as both metals are in (temporary for now) backwardation, but the price does not have a high degree of relevance. All eyes are on the gold basis will probably drive the price which you can learn about by reading the below mini-series.

Part I: "The End for the Dollar and all Fiat Currencies (1/5)"Part II: "The Next Bubble to Pop! (2/4)"Part III: "On Gold and Market Manipulation (3/5)"Part IV: "The Significance of Gold Backwardation Explained (4/5)"Supplement to explain futures market basics and backwardation: "The Money Matrix - What the Heck Are Derivatives? (PART 10/15)"