Bank Trading Platforms and Money Creation

31 Aug
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Money Creation starts as Debt notes such as Medium Terms Notes (MTN), Bank Guarantees (BG), and Stand-By Letters of Credit (SBLC) are issued at discounted prices by major world banks in the amount of €-billions every day. The history of Private Placement Programs (PPP’s) goes back to as far as the 1930’s where it was developed by the USA and Switzerland.

Money creation is based on a unique money-lending/creation structure then operated in Siam (Vietnam).

Essentially, they ‘create’ such debt notes out of thin air, merely by creating a document. The core problem is that to issue such a debt note is very simple, but the issuer would have problems finding buyers unless those buyers ‘believe’ that the issuer is financially strong enough to honor that debt note upon maturity. Any bank can issue such a debt note, sell it at a discount, and promise to pay back the full face value at the time the debt note matures. But would that issuing bank be able to find any buyer for such a debt note without being financially strong?

If one of the largest banks in Western Europe sold debt notes with a face value of €1 million at a discounted price of €800,000 most individuals would consider purchasing one, given the financial means and opportunity to verify it beforehand.

Conversely, if a stranger approached an individual on the street with an identical bank note, issued by an unknown bank, and offered it for the same sale price; most people would walk away. It is a matter of trust and credibility. This also illustrates why there’s so much fraud and so many bogus instruments (and the joker-brokers and dreamers who promote them) in this market.

Large Debt Instruments Market As a consequence of ‘money creation’ above, there is an enormous daily market of discounted bank instruments (e.g., MTN, BG, SBLC, Bonds etc) involving issuing banks and groups of exit-buyers (pension funds, large financial institutions, etc.) all operating in an exclusive Private Placement arena.

All such activities by the bank are done as ‘Off-Balance Sheet Activities’. As such, the bank benefits in many ways. Off-Balance Sheet Activities are contingent assets and liabilities, where the value depends upon the outcome of which the claim is based, similar to that of an option. Off-Balance Sheet Activities appear on the balance sheet ONLY as memoranda items. When they generate a cash flow they appear as a credit or debit in the balance sheet.

The bank does not have to consider binding capital constraints, as there is no deposit liability.

Minimum deposit the minimum deposit to enter a PPP is usually €100 million, however sometimes clients into programs for €50 million and, if the timing is right €10 million.

Large institutions, funds and foundations sometimes deposit funds in their tens of billions to create money for major projects, particularly in the developing world. The World Bank, IMF and other global monetary authorities do not have any concerns about the inflationary effects of this new money, as it is always absorbed through labor and materials. In these programs, you will enter into a JV with the trade group and have your 50% of profits paid to wherever you instruct them to pay it.

It is possible with some of these programs that you will be able to automatically roll-over your profits – a compound trade. An extraordinarily effective capital enhancement tool. Whereas, many other buy/sell programs required you to withdraw your profits on a regular basis. It all depends on the jurisdiction and other considerations.

Money Creation examples of PPP and Buy/Sell Program performance is shown upon request. PPP Performance (demonstration only): Placement: €100m Monthly Returns: Estimate 100% Frequency: 10 Months/40 Weeks Total Earnings: €1Bn The explanation for how the above yields are delivered across PPP’s are presented in High Yield – How PPP’s Yield Exceptional Profits.

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