The 5th Empire - Banking

Modern banking is not a balanced system where everyone is treated equally. Big customers get better deals than smaller ones. In times of crisis, big customers get help. Small ones are forced to sell. When times improve, big customers get the opportunity to borrow money before smaller ones. Instability in financial markets end up enriching those already rich and impoverishing the ones less well off.

However, it's not impossible to use the system to our advantage. Once we understand some key aspects of the system, we can arrange things in such a way that credit is granted at times when it is of most value.

One insight we need to keep in mind is that credit is always abundant and cheap right before a crash. This is the trap that bankrupts the middle class who typically go all in at such times. We are tricked into irresponsible risk taking.

Another insight is that credit is denied when we most need it unless we have debt free collateral. However, if we have collateral, we're treated almost as well as the bank's most privileged borrowers.

The trick is therefore to avoid being all in on leveraged investments, and to have ready collateral when it's of most value to us. But how do we do this in a world where currencies always lose purchasing power over time?

Cash is a loss making avenue, and gold doesn't look like an alternative because banks don't accept it as collateral. There's also a big spread on physical gold so much of our gains are lost in transaction costs. We're therefore lured into more risky investments where transaction costs are lower.

However, the fact that banks don't accept gold as collateral doesn't mean that gold isn't a collateral, and this insight is key to escape the iron grip of the system.

My wife owns her apartment debt free. In a pinch, she can borrow money in the bank with her apartment as collateral. She can also guarantee another person's loan with her apartment as collateral, provided that person is in possession of sufficient gold to cover the risk. If he or she is a close relative, my wife might do this with little collateral. If it's an acquaintance, she may want 100% security and a compensation in cash or gold.

My wife and I know other people who also own their apartments debt free, so we have a small network of friends who can assist us, and we can assist them.

This means that none of us need to save much in fiat currencies. We're free of that hurdle. We're also free of the hurdle related to bank credit. There's plenty of collateral in our network, and little debt. Anyone in possession of physical gold can in this manner find collateral for a bank loan, also when bank loans are difficult to get. Any network of debt free individuals in possession of valid bank collateral can use gold among themselves to arrange for cheap bank loans.

Sovereign

By Heritage Auctions for image, Mary Gillick for coin - Newman Numismatic Portal, Public Domain, Link