There is a great deal of hoopla surrounding the usual calls for tighter lending rules.   What is not being thoroughly analyzed as to why the banks want Ottawa to define and implement the rules.

All banks operate under the fraudulent fractional reserve lending model, with a central bank acting as a bailout (lender of last resort or donor of the first resort) mechanism should they hyper-extend themselves and unable to honour obligations.

In the context of a debt-based fiat monetary system, all money in circulation is created out of someone else getting a loan.  Be it government created money or bank created credit, the net effect is the same: All interest on old loans must be paid by the principle of new and future loans.  This requires the rate/volume of new loans be greater than the rate/volume of old loans being retired.

It wasn’t always this way.  When free market demand created the need for indirect exchange instead of being forced to barter,  the concept of money advanced from a long line of historical commodities, culminating in precious metals as the most universally desired and accepted forms of money.

How do you regulate banks?

Abolish the lender of last resort or the donor of the first, our central bank – the Bank of Canada.

There are innumerable benefits to this.

1) Removes the lender of last resort or donor of the first (bailout), depending on the level of perceived “crisis” of a member bank. Having a moral hazard like the BoC in the background tilts the banks risk analysis to unilaterally focus on the return side of investements (i.e. mortgages) and neglect risk.

A tightrope walker will be prudent walking over an area with no safety net and more daring when there is one there. The tightrope walker acts accordingly. So will a bank.

2) Do not offer banks implicit/explicit bailouts by lulling depositors into a false sense of security via the deposit insurance program. If banks want to voluntarily setup and administer a deposit insurance facility amongst each other, fine. That way, each bank will be watching each other like a hawk to ensure no bank hyper-extends credit. Banks not a member of this facility are free to set up a competing deposit insurance program. Customers will be wary who is insured by whom and act accordingly.

3) Banks are entirely responsible for their successes and/or failures. If Bank A turns away a good risk, they lose business. If Bank A turn away a bad risk, hooray. If the good risk is picked up by Bank B, hooray; Bank A will have to revisit its criteria. If Bank B picks up a bad risk, they lose and are entirely responsible for their losses and report it to shareholders (via lost dividends), employees (lost jobs), and reduced profit.

4) Remove legal tender laws. Don’t force me via violence to use money that isn’t managed responsibly. Allow citizens to choose and pay their taxes (government initiated theft)  in whatever form of money they wish. People will gravitate to the money that deflates the least or, put another way, has less exposure to the ravages of inflation.

As usual, the entire issue was created by the State.  As usual, via Problem!  Reaction!  Solution!, the true root causes of our fraudulent system backed by the State/Banking syndicate will not be discussed.

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