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Home[1] | Wire[2] | How Fractional Reserve Lending Makes Money Disappear
According to the popular way of thinking, it is held that banks are responsible for the expansion of lending also known as credit, and given that economic prosperity is associated with an increase in credit, they are seen as crucial to the economic well-being. But are banks the true source of credit?
Real Credit Is Backed by Real Savings
For instance, take farmer Joe, who produced two kilograms of potatoes. He requires one kilogram for his own consumption. The rest he decides to lend for one year to farmer Bob. The unconsumed one kilogram of potatoes that Joe agrees to lend is his real savings.
Remember, real savings are a necessary precondition of lending. Loans must be fully backed by real savings.
By lending one kilogram of potatoes to Bob, Joe agrees to give up ownership of these potatoes for one year. In return, Bob provides Joe with a written promise to repay 1.1 kilograms of potatoes in one year. The additional 0.1 kilograms constitutes interest.
What we have here is an exchange of one kilogram of present potatoes for 1.1 kilograms of potatoes in one year. Both Joe and Bob have entered this transaction voluntarily, because they both have reached the conclusion that it would serve their objectives.
The introduction of money does not alter the essence of what lending is all about. Let’s say that instead of lending his one kilogram of potatoes Joe first exchanges (sells) it for money, let us say for ten dollars.
Joe may now decide to lend his money to another farmer, John, for one year at the going interest rate of 10 percent. John the farmer...
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(IDEX Online) - Lucara reports a higher-than-forecast eight per cent hike in sales, boosted by some big-stone discoveries at its Karowe mine, in Botswana.
Total revenues were $192.5 million (2018: $176.2 million) it said today in its annual results for 2019.
Volume of sales was up 17 per cent to 411,732 carats, more than making up for a seven per cent decline in the average price of $468 per carat. Profits climbed nine per cent to $12.7 million.
It was another strong year for specials (single diamonds over 10.8 carats) from direct milling ore, with 31 in excess of 100 carats, and two over 300 carats, including the historic 1,758ct Sewelô diamond which it sold last month.
Karowe had a record year for production with a total of 9.8 million tonnes mined and 433,060 total carats recovered, including 29,990 carats recovered from previously milled material.
Sales on Clara, Lucara's newly-launched blockchain platform were $8.4 million, mostly sales from the Karowe mine.
Eira Thomas, president and CEO said expansion plans could keep Karowe in production for another 20 years.
"Our strong operating results for 2019 reflect Lucara's continued focus on safe, reliable operations which has delivered increased productivity at lower costs and provides a solid foundation to support our next stage of growth," he said....
"An underground expansion at Karowe which has the potential extend our mine life to 2040, add net cash flow of $1.22 billion and gross revenues of $5.25 billion."- Category: News Archives
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Gold prices now trade at their highest levels in almost seven years, as the economic impact of COVID-19 has raised expectations for stimulus from global central banks, feeding talk of record prices of $2000 an ounce and beyond for the precious metal....
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(IDEX Online) - Chow Tai Fook has reportedly laid off staff at its newly-launched US operation.
Hong Kong's leading jewelry corporation established its North American hub last May, with headquarters in Boston.
Chow Tai Fook North America, which owns the Hearts On Fire and Memoire brands, has reduced head count, according to JCK Online, although a spokesperson declined to give further details.
Parent company Chow Tai Fook Jewellery last week announced it had closed over 40 points of sale in Hong Kong and Macau because of the ongoing threat of the coronavirus.
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(IDEX Online) - Alrosa has unearthed its first colored rough diamond at the huge new Verkhne-Munskoye deposit in Yakutia, Russia.
The bright yellow gem-quality diamond weighs 17.44 carats and was recovered earlier this month from the Zapolyarnaya kimberlite pipe, which started operations at the end of 2018.
The transparent crystal with a habit transitional between octahedron and dodecahedron has dimensions of 18x20x9 mm.
"This is the first rough diamond with bright color found at the Verkhne-Munskoye since it was launched in 2018," said Evgeny Agureev, deputy CEO of Alrosa.
"The United Selling Organization of Alrosa will assess and evaluate this stone in detail. We hope this deposit will give us more large and interesting discoveries in future."
Global resources of colored rough that could be cut and polished into fancy color diamonds are scarce and the GIA says only one in 10,000 diamonds has a fancy color.
Last July the same pipe produced a 63.15 carat diamond....