To Obama: Confidence Levels Critical

[SlowDownFast]

To Obama: Confidence Levels Critical

It appears that the confidence problem with our banking system has officially spread beyond investors and those who watch CNBC to "Joe and Jane":



A lot of money got scared out of the stock market and similar places back in the last half of the year, as you can see. Where was it scared to? Into FDIC-insured bank accounts; a whole lot of money went into banks.

A "Demand Deposit" is a checking account, basically. Its the "I want it now gimme my money" account at your local bank.

But notice what has happened to this series since the New Year - money in demand accounts is, essentially, collapsing, at the same time Bernanke has been shrinking The Fed's balance sheet.

But The Fed has been printing up new reserves, hasn't he? Why yes he has. So what's happening to all those nice dollars that have been deposited in demand accounts?

Where are they going?

Here's one possibility:



There are other possibilities, of course. All this series tells me with certainly is where the money is not. But I can surmise a few things - its not in the stock market, for example, as that amount (about $150 billion) is roughly fifty days worth of volume (from recent days) combined share-trading volume in the Nasdaq, DOW and S&P 500. Its not in commodities, for example. Its not in bonds either, as near as I can tell - they've been selling off pretty good.

Why is this a problem?

Well, mostly because there's several trillion in "deposit-like" accounts, including money markets.

See, all banking systems that rely on fractional reserves (that would be all modern ones) are always technically insolvent. That is, with a typical 10% reserve ratio and 10 depositors of $10,000 each, if they come in and "ask to see their money" one at a time (but don't actually take it with them) the banker can easily fan the 10 grand in their face and they leave satisfied.

But if all of them show up at once and ask to see one hundred thousand dollars (that is, 10 x 10 large) he doesn't have it, the banker needs a new pair of pants and the joint might get sacked.

This isn't a function of only a "broke" system, it is in fact how all banking systems work. The money is never all there because through the magic of fractional reserves it has been loaned out.

So all banking systems rely on confidence that when the depositor goes to the bank and withdraws his money, he will actually get it. If that confidence is ever lost in the system, that is, the "jawbone" that comes out of various officials' mouths is determined to be a bunch of hot air (or worse) then you have an immediate problem.

It appears that a quiet little "movement" may in fact be under way.

lots more:
http://market-ticker.org/archives/770-To-Obama-Confidence-Levels-Critical.html

[marketcrazy1]

1. I love his tickers

this guy has been telling it like it is!!!! go ticker guy!!!

[Grey]

2. Nice to hear straight talk for a change.

Tough and smart. Thanks

[SlowDownFast]

3. Lots more of it (economically speaking) at:

http://www.tickerforum.org/cgi-ticker/akcs-www

New Tickers posted daily at:

http://www.tickerforum.org/cgi-ticker/akcs-www?forum=Ticker

Karl Denninger has been working tirelessly the last few years to bring the truth of this crisis to the forefront.

[Grey]

4. Added to desktop, thanks nt