Reuters reports that the ECB cut the reserve ratio by half in order to free up cash for banks. The old ratio was 2%. The new ratio is 1%. Both should be unacceptable to depositors. This means if you have $1,000 in the bank, they're only required to hold $10 on hand available for withdrawal. It's even worse in the US. In some small banking institutions here, the Fed requires no reserves against deposits. Simply and bluntly, depositors are set up to be screwed.
There are banks in Switzerland and Liechtenstein with 100% reserves and higher. If everyone showed up for their cash, they would be paid. That is a real bank.
Fractional reserve banking is not real banking. It is slight of hand. And it is dangerous to a free society.
Reuters further reports Recovery at risk as Americans raid savings.
More than four years after the United States fell into recession, many Americans have resorted to raiding their savings to get them through the stop-start economic recovery.
There is much more to the article. It is well worth a read, if only to pierce the illusion that everything is just fine.
Everything is not fine, and this latest move by the ECB just shines a brighter spotlight on it. Lowering an already low reserve ratio in order to free up $100 billion signals desperation for the entire Euro Zone banking system. It also signals that the central bank may finally be nearing QE-style money printing in order to literally paper over the problem of too much debt choking the EZ. It won't work. It will wreck havoc.
The only thing that will work is growth, and government bureaucrats are doing absolutely nothing to stimulate it.
If everything isn't fine, can the stock market still go higher? Yes, of course. That is the paradox of the market.
For today, the price level I'm watching is 1287.04. If that area fails, I'll be out of my long positions from yesterday afternoon (posted on Twitter). There is a gap at 1289.09 that may want to be filled, but 87.04 is the hard stop I'm using.
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