Charging depositors interest on deposits!

The Central Banks are looking at charging member banks interest on their deposits.  Additionally, there is a move to eliminate capital requirements on holding sovereign debts as assets (Basel III Accord).  These two moves would provide banks an incentive to go out and buy sovereign debt and fund the continued expansion of the current debt-based debacle.  The Federal Reserve Bank would not have to expand its balance sheet if banks take up the slack.  Unbelievable!

Commercial banks currently have over $1.4 Trillion in the central banks as deposits and currently earn .25% on their money.  If the central banks were to begin charging interest and at the same time eliminate reserve requirements on an alternative investment (sovereign debt) then the commercial banks would convert those deposits on their balance sheets to sovereign debt.  This move could easily flood the global market with up to $15-20 Trillion in money supply based on the fractional banking system.

With private borrowing being contracted, the sovereign market is where all the demand is.  Countries around the world continue to expand their debt levels due to their insatiable desire to expand at all costs.  This move would not serve to expand the private business sector which produces real GNP growth but would instead create a temporary boom in further government spending.  Commodity prices would inflate and the average person would be taxed by these higher prices.

If these two moves occur, we could see the price of gold soar to record highs with other commodities following.  Even considering these moves speaks to the desperation of the current system.  We are watching history in the making.  Unfortunately it is looking mighty ugly.

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