Monday, May 5, 2014

What Happens If the US Banking System Loses Its Prominence

By Simon Black

You might not realize it, but today is a very important date.

Yes, of course, it's Cinco de Mayo. But possibly more important, it's also the deadline for banks around the world to sign up for information-sharing agreements with the IRS.

Think about it like this: imagine that the King of Saudi Arabia decreed that NO grocery store chain in the United States was allowed to sell pork products to citizens of Saudi Arabia.

Crazy, right? Arrogant? Of course.

But that's essentially what the US government has done.

Passed back in 2010, the Foreign Account Tax Compliance Act (FATCA) makes it mandatory
for banks around the world to share information about their depositors with the US government.

In other words, Congress expects for banks that aren't even in the United States to comply with US laws... even if US laws happen to violate the banks' own local laws!

It's the height of arrogance. And by passing and enforcing such pitiful regulations, the US government is only shooting itself in the foot.

Right now, the US banking system is at the center of the global banking system.

When a wholesaler in Bangladesh sends money to a supplier in Ghana, that money transfers through the United States.

Both the bank in Bangladesh and the bank in Ghana would have an account in New York-- they're called 'nostro' accounts in banking parlance.

Having this common hierarchy makes it easier for banks to transact with each other because they both have a common intermediary. And for now, that common intermediary is the US banking system.

But the US government seems to be going OUT OF ITS WAY to destroy the advantages of this system.

In fact, if you were to advise the US government what to do if they wanted to destroy the banking system, the list would pretty much include everything that they're already doing:

  • Having inadequately capitalized banks
  • Destroying the federal government balance sheet
  • Destroying the central bank balance sheet
  • Using credit rating agencies for political games
  • Bailing out the banks at everyone else's expense
  • Passing absurd regulations and demand compliance through fear and intimidation

Uncle Sam is practically begging the rest of the world to create an alternative banking system that doesn't depend on Wall Street or the US government.

And this alternative system is already forming.

More and more nations are starting to engage in currency swap arrangements, and banks around the world are setting up their own network of interbank accounts.

This is a major issue that is unfolding before our very eyes.

If the US banking system loses its prominence, suddenly the dollar becomes less relevant. As the dollar becomes less relevant, then US Treasuries less relevant.

And if foreigners lose interest in US Treasuries, who will buy that slice of the US government's debt?

Simple. You.

Simon Black is Senior Editor  at Follow Sovereign Man on Facebook, Twitter, Google+


  1. The alternative currency for bypassing the US banking system could be something like bitcoin

  2. JT out of BarrowMay 6, 2014 at 8:00 AM

    What Happens If the US Banking System Loses Its Prominence ?

  3. Add to list of things to do if you want to destroy the US banking system:
    Exclude countries that are major producers of important commodities, I.e. Iran
    This bone-headed move insures that a parallel banking system WILL evolve regardless of the ability of the US bankers to sabotage it with various technologies. The parallel system will just become stronger.

  4. In a round-a-bout sort of way, the foolishness and recklessness of US policy makers may result is some good. By abusing their monetary influence to such an extreme extent, they are unknowingly forcing the rest of the world to eventually put an end to international dollar hegemony.

    The manner in which the bureaucratic mind struggles to understand and deal with the consequences of their own failed policies is an endless source of amusement. Not understanding economics, they become paranoid and imagine that their failure is the result of some malicious force interfering with their brilliant plans. They therefore redouble their efforts and make matters worse, repeating the cycle.

    On an accrued basis, the national debt is something in excess of 70 to 220 trillion dollars. We can't determine the precise magnitude because few even attempt to keep track of it. However, there certainly is not any sort of foreign "tax gap" (one of the reasons used to justify the foolish banking policy discussed by Mr. Black) large enough to cover even a microscopic portion of this debt.

    Contrary to the assertion of government cultists, almost everyone in the US pays far too much in taxes. Additionally, due to the severe penalties incorporated into the tax laws, I fully expect that far-and-away the greater portion of the population, especially those with significant income, do their best to comply with the laws.

  5. Considering the US government's apparent power to force banks within US jurisdiction to freeze the accounts or assets of foreign entities who do not comply with US law (to which the foreign entities should not even be subject in the first place), I would have expected this to be a huge motivation for foreign companies to eliminate their dependence on US-based financial institutions.

    Not only does it amount (in practical terms) to foreign assets being held hostage to US government whims, but I would argue it violates the US constitution's prohibition on the feds impairing the obligation of contracts, (between US banks and foreign customers,) which means the US government is operating outside the bounds of its charter and therefore, in a criminal capacity.

    What asset holder would NOT want to liberate his assets from the grasp and control of a criminal gang as quickly and thoroughly as possible?