The Phaserl


Gold Daily and Silver Weekly Charts – Word for the Day: Rehypothecation

from Jesse’s Café Américain:

“The commercial world is very frequently put into confusion by the bankruptcy of merchants that assumed the splendour of wealth, only to obtain the privilege of trading with the stock of other men, and of contracting debts which nothing but lucky casualties could enable them to pay; till after having supported their appearance a while by tumultuary magnificence of boundless traffic, they sink at once, and drag down into poverty those whom their equipages had induced to trust them.”

Samuel Johnson, Rambler #189, January 7, 1752

This is not a technically precise description of rehypothecation, but the terminology has been simplified a bit for the sake of understanding by the lay person.

I thought of this when I read a question that a reader had about how fractional reserve bullion banking works. Like so many other things financial, it can seem almost foolproof on paper. Somewhat like the efficient markets hypothesis, or the trickle down, supply side, recovery boogie woogie.

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