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The Boiling Frog Story January 1, 2009

Posted by mylastresort in random.
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boiling frog

It is said that a frog can be boiled alive if the water is heated in protracted increments. If a frog is placed in boiling water it will quickly jump out but if it is placed in cold water and gradually heated, it will not move rather, it will boil to death. 

The story of boiling frog is often told in a figurative context with the point being that investors should remain vigilant of gradual changes or else suffer a catastrophic loss.

It is common in business to illustrate the idea of the boiling frog to convey that change needs to be gradual to be accepted and as a warning against being “slowly boiled to death” whilst ‘holding’ a position. The story can also be used to demonstrate recent events such as the slow decline in the Kuwait Stock Exchange (beginning in March 2008) or the Subprime mortgage crisis ( beginning in early 1990’s).

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Comments»

1. neoark25 - January 1, 2009

it also refers to corruption that slowly a person get corrupted into a point of no return,nobody born corrupted >.>

Saud - January 2, 2009

Great addition… I bet there is a story behind it

2. Ivo Cerckel - January 2, 2009

Maybe the story behind The Boiling Frog Story is the story of
Yuan and Arab Economic Summit, Kuwait, 19-20 January 2009

Maybe Islamic banking and the Church’s social teaching have some lessons to … teach.

We are living not through a banking crisis, but through a crisis of the banking system.

We still don’t know “what” we don’t know about the banking system.
We still don’t know why banks no longer want to lend money, which they can create out of thin air, to each other. (As will appear later in this article, the creation of money out of thin air is indeed what fractional-reserve banking is about.)
This is fortunate because otherwise the present salami-crash in slices would immediately and abruptly come to a halt and become a real crash into the unknown.

That’s the environment in which China is experimenting with trade settlement in yuan. Maybe the yuan does not have the “what”, maybe the yuan does not have the bad characteristic we don’t know. (1)

As this writer wrote in September 2003:
In Russia, the Middle East and India, there is an increasing aversion against the dollar and is a search for a replacement under way. The present gold fever in China where individuals are since early 2003 again allowed to possess gold implies that in order to be an economic world power by 2012, China could well accede to this world standard, FreeGold. At that moment only physical gold will be traded as the natural vehicle to incorporate one’s wealth, the value of paper gold [contracts embodying wagers concerning the future gold price] will be reduced to nothing, and the value of the euro will increase quarterly upon the marking to market of its gold reserves.
The [European Central Bank] ECB will not define the euro like the old gold standard as a certain quantity of gold, but will use it as a free-trading financial reserve so that each increase in the price of gold will bring about an increase in the value of the euro’s reserves and thus an increase in the value of the euro itself. (2)

That’s also the environment in which the Arab Economic Summit is to be held in Kuwait on 19-20 January 2009.

The Summit’s aim is to find a comprehensive joint Arab vision to face the economic challenges, by accelerating the Arab joint market establishment. (3) It is indeed unacceptable that the Arab world still lacks a clear view and assessment of the current financial crisis which is affecting it in all areas. (4)

In order to obtain a clear view and assessment of the current financial crisis which is affecting the Arab world in all areas, we should start with the assessment that Islamic banking is a system which incorporates adherence to the principle of riba. It is an important Islamic principle that there should be equality of risk. From a banking point of view this means that the risks and rewards should be shared between borrower, bank and depositor. (5)

Banks used to be allowed to deliver receipts for gold deposited with them. This right was taken away from them by the institution of central banks which now have a monopoly for issuing “money”. The central bank is now ONLY the supervisor of the transaction between depositor, bank, and borrower. The central bank does not, cannot possibly, share in the risk.

After that we should remind ourselves that fractional-reserve banking is the banking practice in which banks are required to keep only a fraction of their deposits in reserve with the choice of lending out the remainder while maintaining the obligation to redeem all deposits upon demand. This practice is universal in modern banking. (6)

Some critics of fractional reserve banking and the related monetary system do however refer to it by the political term debt-based monetary system. Critics of fractional reserve usually note that the banking system “creates money out of nothing”. The insight that banks “create money by extending loans” is not new, and the subject is covered in most introductory economics textbooks and many popular reference works. (7)

We are living not through a banking crisis, but through a crisis of the banking system.

We still don’t know “what” we don’t know about the banking system. (Maybe it’s about the sharing of risk. “Everyone should put his hand to the work which falls to his share, at once and immediately”, wrote Pope Leo XIII in 1891, Pope Benedict reminded us this week in the New Year message of His Holiness.(8))

This is fortunate because otherwise the present salami-crash in slices would immediately and abruptly come to a halt and become a real crash into the unknown.

Maybe the yuan does not have the “what”, maybe the yuan does not have the bad characteristic we don’t know.

Maybe Islamic banking and the Church’s social teaching have some lessons to … teach.

Ivo Cerckel
ivocerckel@siquijor.ws
02 January 2009

NOTES

(1)
China to experiment with trade settlement in yuan
http://ph.news.yahoo.com/rtrs/200812…s-21231dd.html
SNIP
BEIJING, Dec 24 – China on Wednesday took a baby step on the road to making the yuan an international currency when it promised to allow its use in trade between a few provinces and neighbouring states.
The State Council, or cabinet, said the yuan could be used for the settlement of trade between the factory-rich Pearl River and Yangtze River Deltas and the Chinese territories of Hong Kong and Macau.
It also said that members of the Association of Southeast Asian Nations would be permitted to use yuan in their trade with China’s southeastern provinces of Guangxi and Yunnan.

(2)
With Chinese Freegold from a reserve currency to a world standard
Tuesday, 2 September 2003
http://www.free-europe.org/english/2…orld-standard/

(3)
Determined to make Kuwait economic summit a success – official …
Dec 21, 2008
http://www.menafn.com/qn_news_story_…yId=1093225534

(4)
Kuwait summit timing critical – Economists
Published Date: January 01, 2009 http://www.kuwaittimes.net/read_news…M3NTE0NjE5Ng==
SNIP
[Board Chairman of the Damascus bourse and Chairman of the Union of Syrian Trade Chambers Ratib Al-Shallah] cautioned that it is unacceptable that the Arab world still lacks a clear view and assessment of the current financial crisis which is affecting it in all areas. The summit should take serious strides in correcting this situation, he remarked.

(5)
Ruqaiyyah Waris Maqsood, “A Basic Dictionary of Islam”, New Delhi, Goodword Books, 1998 (2002 reprint), verbo “Islamic banking”

(6)
Fractional-reserve banking
From Wikipedia, the free encyclopedia
http://en.wikipedia.org/wiki/Fractional-reserve_banking

(7)
Criticism of fractional-reserve banking
From Wikipedia, the free encyclopedia
(Redirected from Debt-based monetary system)
http://en.wikipedia.org/wiki/Debt-based_monetary_system

(8)
Pope Benedict XVI: A message from God: people have a duty to feed the poor, too
Thursday, 1 January 2009
http://www.independent.co.uk/opinion…o-1220001.html

3. Ivo Cerckel - January 2, 2009

OOPS

NOTES

(1)
China to experiment with trade settlement in yuan
http://ph.news.yahoo.com/rtrs/20081224/tbs-china-economy-exports-21231dd.html
SNIP
BEIJING, Dec 24 – China on Wednesday took a baby step on the road to making the yuan an international currency when it promised to allow its use in trade between a few provinces and neighbouring states.
The State Council, or cabinet, said the yuan could be used for the settlement of trade between the factory-rich Pearl River and Yangtze River Deltas and the Chinese territories of Hong Kong and Macau.
It also said that members of the Association of Southeast Asian Nations would be permitted to use yuan in their trade with China’s southeastern provinces of Guangxi and Yunnan.

(2)
With Chinese Freegold from a reserve currency to a world standard
Tuesday, 2 September 2003
http://www.free-europe.org/english/2003/09/with-chinese-freegold-from-a-reserve-currency-to-a-world-standard/

(4)
Determined to make Kuwait economic summit a success – official …
Dec 21, 2008
http://www.menafn.com/qn_news_story_s.asp?StoryId=1093225534

(5)
Kuwait summit timing critical – Economists
Published Date: January 01, 2009 http://www.kuwaittimes.net/read_news.php?newsid=MTM3NTE0NjE5Ng==
SNIP
[Board Chairman of the Damascus bourse and Chairman of the Union of Syrian Trade Chambers Ratib Al-Shallah] cautioned that it is unacceptable that the Arab world still lacks a clear view and assessment of the current financial crisis which is affecting it in all areas. The summit should take serious strides in correcting this situation, he remarked.

(6)
Ruqaiyyah Waris Maqsood, “A Basic Dictionary of Islam”, New Delhi, Goodword Books, 1998 (2002 reprint), verbo “Islamic banking”

(7)
Fractional-reserve banking
From Wikipedia, the free encyclopedia
http://en.wikipedia.org/wiki/Fractional-reserve_banking

(8)
Criticism of fractional-reserve banking
From Wikipedia, the free encyclopedia
(Redirected from Debt-based monetary system)
http://en.wikipedia.org/wiki/Debt-based_monetary_system

(9)
Pope Benedict XVI: A message from God: people have a duty to feed the poor, too
Thursday, 1 January 2009
http://www.independent.co.uk/opinion/commentators/pope-benedict-xvi-a-message-from-god-people-have-a-duty-to-feed-the-poor-too-1220001.html


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