# News & Current Events > Economy & Markets >  "Why Fractional Reserve Banking is More Libertarian than the Gold Standard."

## Bradley in DC

EDIT:  I think this is the link to download the talk:
http://www.fee.org/Audio/YSC/FINAL%2...20Standard.mp3

http://hnn.us/blogs/entries/53096.html

http://econlog.econlib.org/archives/...ral_ban_1.html

http://divisionoflabour.com/archives/004963.php

feed://www.fee.org/podcast/rss.xml

http://econlog.econlib.org/archives/...ral_ban_2.html

http://hnn.us/blogs/comments/53096.html#comment

http://www.econjournalwatch.org/pdf/...anuary2007.pdf

*Liberty & Power: Group Blog

Jeffrey Rogers Hummel
My FEE Lecture on Fractional Reserve Banking*

At another Foundation for Economic Education event in mid-July, the Young Scholars Colloquium, I gave a lecture provocatively entitled "Why Fractional Reserve Banking is More Libertarian than the Gold Standard." Since both Bryan Caplan and Larry White have given it nice plugs on their blogs, I might as well do so myself. You can find it here, along with all the other podcasts from this summer's FEE seminars, including some by Bryan and Larry, and all those from the History and Liberty seminar mentioned in my previous post.

Bryan returned to the subject of my lecture, discussing a question he had posed to me during the seminar's recorded Q & A: "Agree or disagree: In developed countries during the last 10-15 years, central banks have become (close to) the most efficient state enterprises." After some hesitation, I had to reluctantly agree, despite my unequivocal advocacy of the Fed's abolition. But I throw the question open to discussion: what is your candidate for the least inefficient state enterprise?

Bryan of course approves of my answer, which is why he posed the question. But his reasons are somewhat different than mine. He gives two in his post: (1) the public's exaggerated fears of inflation partially offset the time-inconsistency problem that would otherwise cause central banks to generate higher inflation; (2) central bank independence allows them to rely more on economists, who do a better a job than mere mortals.


I have already questioned the claim that the public exaggerates the danger of inflation relative to economists in an ECON JOURNAL WATCH article. Economists only consider inflation's deadweight loss, ignoring inflation's transfer, which bothers the public just as much and just as reasonably as the transfer from the income tax. Does it really make sense to say that the public hates taxes too much because most of the extracted revenue is just a transfer?

Bryan's second reason really combines two points, one with which I agree and one with which I disagree. I do think central bank independence is important but not because it results in employing more economists. The economists I know seem to be just as susceptible to incentives as the general public. They may cast more intelligent votes, where as Bryan argues incentives are weak, but I don't see how it follows that they will make more public-spirited (i.e., welfare enhancing) decisions when faced with the temptations of power. 

Here are my three reasons, given somewhat sporadically in my lecture, for the better performance of central banks in developed countries since the 1980s:

1. Highly developed financial systems with widespread fractional reserve banking have reduced government seigniorage, even at double-digit inflation rates, to a trivial source of revenue. (During the Great Inflation of the 1970s, direct seigniorage never covered more than 2 percent of the U.S. government's outlays.) This greatly diminishes the incentive for central banks to generate high inflation.

2. Globalization and international competition have approximated Hayek's world of competing private banks issuing fiat money. The major difference is that we have competing central banks. Investors can fairly easily move from one currency to another, which means the market immediately prices changes in central bank policy and punishes them when necessary. Central banks are still the major noise traders in the interest-rate and foreign-exchange markets. But whenever a central bank goes up against speculators and tries to seriously misprice its currency, the central bank almost always loses and the speculators almost always win. This tends to discipline central banks.

3. Central banks are freer to respond sensibly to this growing international competition and market discipline because of their political independence.

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## dannno

You do know that fractional reserve banking does not prohibit one from practicing the gold standard, and vice versa, right? It's just a matter of how much reserves of gold the system holds onto.

I guess the argument would be that this puts the creation of money into the hands of private enterprise, and they are most efficient at creating the money in the most advantageous sectors and enterprises. The question is then, is this really necessary?

The constitution says that the government can print money for free. Why pay private bankers to make money when it can be made for free? We are essentially paying them to create money and make the best investments with that money. However, our central banking system is not a free market central banking system. It is a cartel. 

My idea for a monetary system would include free money created by the treasury. This money would be loaned to the states, at very low interest, in order to build infrastructure. This infrastructure would make our country more efficient. Roads, public transportation, etc. all help people and businesses move themselves and products more efficiently with lower costs. This is how money would enter the market. The increase in money supply should be equal to the increase in GDP, as a percentage. 

From there it would be saved and spent by those individuals on goods and services. Accessible savings accounts would have very low interest, perhaps even zero. Therefore, banks would offer term investment products which would require people to put their money away for a set period of time. The bank can then consider this money as capital for the length of the term. This will allow the individual to invest in whatever their bank wants to make loans for (housing, business, etc) and they can earn a return on their savings.


I don't know if this is the best system or not. There are some very interesting alternatives discussed in the film "Money as Debt" which everyone here should checkout some time:


http://video.google.com/videoplay?do...74362583451279

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## strapko

LOL at thread name.

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## Danke

Nice post danno.  We have a central bank monopoly over our medium of exchange.  Get rid of that, and let the market decide.

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## acroso

If regular banks could issue treasury notes not just the Federal Reserve....the Fractional Reserve banking system would collapse anyway.

It can't exist without a monopoly.

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## LibertyEagle

Why did you post this, Bradley?  Surely, you're not advocating central banks and fractional reserve banking?

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## No1ButPaul08

> Why did you post this, Bradley?  Surely, you're not advocating central banks and fractional reserve banking?


I'm not sure if Bradley is completing advocating what Mr. Hummel is saying.  Hummel is not advocating central banks, he is however advocating fractional reserve banking.   What Hummel is saying is that the market will choose fractional reserve banking with a commodity standard, which he believes to be more libertarian than the government forcing a 100% gold standard.  I could be a little off because I haven't listened to the whole lecture, but I believe that is mostly what he is saying.

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## tmosley

Allowing the market to decide seems like a good approach.

Fractional reserve banking still smacks of fraud and theft, though.

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## forsmant

Fraud is not libertarian.

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## scooter

There is nothing wrong with fractional reserve banking.  Get over it.

There is everything wrong with government bailouts of those who aren't smart enough to play the game safely.

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## Fox McCloud

> There is nothing wrong with fractional reserve banking.  Get over it.
> 
> There is everything wrong with government bailouts of those who aren't smart enough to play the game safely.


So, if I'm a farmer, I should be able to lend out crops I don't have, and in collaborations with other farmers, loan out more crops than we actually have in reserve?

I don't think so--money is no different than physical bullion or crops, or medicine, or any other physical commodity; it's fraudulent to loan out more money than there is in existence.

not only that, but you're confiscating other people's wealth in the entire process because you're inflating the money-supply.

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## HenryKnoxFineBooks

> There is nothing wrong with fractional reserve banking.  Get over it.



Is this an argument?

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## Bradley in DC

(LE, I haven't even listened to the lecture yet, I thought it provocative and of interest to our group.  My thoughts on this issue were spelled out at the Mises Institute's Austrian Scholars Conference earlier this year:
http://www.ustream.tv/recorded/AfycB...BtD5.VBYK3cgTY)

Fractional Reserve banking is NOT inherently fraudulent, as G. Edward Griffin explains.

Correct, money is like other commodities.  And, yes, in the real world, in a modern capitalist society, farmers can--and do--sell crops they don't have (yet).  Modern finance has all sorts of contracts with options, futures, etc.  In fact, gold is not immune: many gold producers do the same (some with fatal results, true, such as Ashanti).

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## Truth Warrior

I do not view *fraud* as being particularly libertarian. 

It seems kind of aggressive and statist to me.

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## Acala

> (LE, I haven't even listened to the lecture yet, I thought it provocative and of interest to our group.  My thoughts on this issue were spelled out at the Mises Institute's Austrian Scholars Conference earlier this year:
> http://www.ustream.tv/recorded/AfycB...BtD5.VBYK3cgTY)
> 
> Fractional Reserve banking is NOT inherently fraudulent, as G. Edward Griffin explains.
> 
> Correct, money is like other commodities.  And, yes, in the real world, in a modern capitalist society, farmers can--and do--sell crops they don't have (yet).  Modern finance has all sorts of contracts with options, futures, etc.  In fact, gold is not immune: many gold producers do the same (some with fatal results, true, such as Ashanti).


When a bank takes money into a demand account, representing to the depositor that the funds are available at any time and even presents them with a statement of their "balance", and then turns around and intentionally acts in a way that they KNOW puts them in a position where they cannot possibly perform on the agreements they have made, that is fraud.  If any other business did it, they would be prosecuted.

People like farmers DO sell things they don't have.  But the terms are spelled out in the contracts and everyone knows what they are getting.

It is true that over time, the public would learn from bank failures.  Unfortunately, history shows that they don't learn the right thing.  Instead they learn to depend on government for help and end up where we are today with a massive scam for a money supply.

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## fj45lvr

Just change "legal tender laws"  ......let the people decide what they want to agree to accept for payment between themselves!!!

I'll take gold and silver over paper any day for payment over a long period of time!!!

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## JosephTheLibertarian

What I propose is this: We get rid of the laws against competing currencies. We end the FDIC. We shut down the Federal Reserve. Hmm. Yeah, that's about all I can think of. Good day!

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## Brian4Liberty

> Fraud is not libertarian.


I like it. Short. Sweet. To the point.

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## Isaac Bickerstaff

> There is nothing wrong with fractional reserve banking.  Get over it.
> 
> There is everything wrong with government bailouts of those who aren't smart enough to play the game safely.


The only way to play the game safely is to do business exclusively with businesses or individuals that are not in debt. Can you do this?

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## acroso

The Federal Reserve banned banks from issuing treasury notes. If that was allowed...then the Fractional Reserve banking system would collapse.

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## danberkeley

> Allowing the market to decide seems like a good approach.
> 
> Fractional reserve banking still smacks of fraud and theft, though.


Historically, Fractional Reserve Banking always fails and is sometimes bailout by the host country. The gold standard also implies government intervention. The libertarian answer is "let the free market decide".




> There is nothing wrong with fractional reserve banking.  Get over it.
> 
> There is everything wrong with government bailouts of those who aren't smart enough to play the game safely.


Fractional reserve banking, in the USA's case is forced upon the market by the gov'ment. Fractional reserve banks usually act fraduantly, i.e. secretly inflating the supply of notes/receipts.




> So, if I'm a farmer, I should be able to lend out crops I don't have, and in collaborations with other farmers, loan out more crops than we actually have in reserve?


Yes, as long as you are not using deceit or fraud.

I don't think so--money is no different than physical bullion or crops, or medicine, or any other physical commodity; it's fraudulent to loan out more money than there is in existence.

not only that, but you're confiscating other people's wealth in the entire process because you're inflating the money-supply.[/QUOTE]

Not per se.

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## spudea

In order for fractional reserve banking to work, you have to predict the market. Predicting the market isn't possible, therefore you have to CONTROL the market, thus inviting central banks. When banks control the market, they control the profits, thus they control EVERYTHING!

Conceptually it might be Libertarian BUT actually, it is the root of all that libertarians oppose.

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## rpfan2008

> There is nothing wrong with fractional reserve banking.  Get over it.


Agreed, but only when govt. issues that currency and all profits made are used for benefit of the community and the nation.




> There is everything wrong with government bailouts of those who aren't smart enough to play the game safely.


You need to play your game very smartly to get bailed out by govt. A bailout is like an extra revenue after you have used your money for your 'real' purposes.

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## rockandrollsouls

> Allowing the market to decide seems like a good approach.
> 
> Fractional reserve banking still smacks of fraud and theft, though.


Or you can let the Constitution decide  Now Danberkeley, I wouldn't consider that government intervention. I would say it's more like following the supreme law of the land. However, I will agree that all examples I've seen of fractional reserve banking resulted in failure.

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## Bradley in DC

> What I propose is this: We get rid of the laws against competing currencies. We end the FDIC. We shut down the Federal Reserve. Hmm. Yeah, that's about all I can think of. Good day!


Not so simple: our membership in the IMF under their post-Bretton Woods Articles prohibits our using gold as money, there remains on the books a mid-1800s law taxing (not prohibiting) private currency notes, etc.

EDIT:
http://www.fee.org/Publications/the-...e.asp?aid=2208

Banking Before the Federal Reserve: The U.S. and Canada Compared
By Donald R. Wells

Professor Wells teaches in the Department of Economics at Memphis State University, Memphis. Tennessee. 

The recurring financial panics in the U.S. during the 19th and early 20th centuries led Congress to establish the National Monetary Commission in 1908 to study the problem and recommend a solution. After several years of study and debate, Congress passed the Federal Reserve Act in December 1913. Even though the Federal Reserve did not prevent the Great Depression, and even though it has permitted substantial inflation since World War II, many observers still believe that some Federal control over private banking is needed to prevent the bank suspensions and failures that brought such instability to the economy in the pre-1914 years. 

The purpose of this paper is to show that it was only government interference into banking before 1914 that prevented the U.S. from having a stable monetary system. Restrictions on banknote issuance, severe limits on branching, and *regulations forcing banks to hold useless, idle cash reserves made the American banking system vulnerable to panics* while other nations, such as Canada, avoided these crises. It also will be shown that even though Canadian banks were allowed more freedom of action, the few restraints that did exist led the Canadian government to intervene further into banking to undo the harm that otherwise would not have existed.

...
Secondly, national banks were forced to hold a fixed cash reserve against their deposit liabili ties, even though any reserve that must be held is no reserve at all, since it cannot be used. The law mandated that country banks hold two-fifths of their 15 per cent reserve in vault cash while the rest could be on deposit in a reserve city bank. These reserve city banks were required to hold half of their 25 per cent reserve in vault cash while the other half could be deposited in a central reserve city bank in New York, and after 1887, Chicago or St. Louis. The latter banks were forced to hold all their 25 per cent reserve in vault cash, which meant gold, greenbacks or other treasury currency. Only state-chartered banks could count national banknotes as part of their reserve. 

Since banks could not use these required reserves, they had to carry an excess amount in order to operate; in a crisis, banks often had to suspend cash payments precipitating financial panics. The pyramiding of reserves in a unit bank system aggravated the problem. When faced with an increased demand for cash, each bank had to think of itself first and would pull its deposits from its correspondents. By contrast, each Canadian bank held its own reserve in whatever amount it felt adequate, with the one provision that government-issued Dominion notes had to consist of 40 per cent of whatever cash reserve the bank chose to hold (Breckenridge, p. 242). The pyramiding of reserves in the U.S. made American bank runs contagious; in Canada, a bank failure did not cause the public to distrust other banks.

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## fj45lvr

> Not so simple: our membership in the IMF under their post-Bretton Woods Articles prohibits our using gold as money, there remains on the books a mid-1800s law taxing (not prohibiting) private currency notes, etc.


 
Do you have a link to where this "post-Bretton Woods Articles" prohibits?? I would love to read exactly what it says and find out more about this as I know zero right now.  VERY enlightening.

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## Bradley in DC

Those arguing fractional reserve banking cannot work seem to be ignoring history.  The Scottish free banking era was clearly a success.  Even the US "wildcat" banking era was undermined by government intervention (eg, state-mandated holding of government bonds, etc.).  

Yes, the major observations that none of us (nor the original author) want a central bank is the most important point, and also that one can have commodity-based fractional reserve banking, and yes, let them all compete (my suspicion would be that modern finance has become sophisticated and differentiated enough that there would be a niche for all kinds of things--and that fractional reserve lending would not be inherently inflationary, no, in a competitive environment).

EDIT: ok, I'm not opposed to there being a private central bank such as our earlier colonial Suffolk bank which basically acts as a clearing house of competing currency notes, etc.

The one point of the article no one's touching on: are developed country's central banks the least inefficient state enterprise?

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## Bradley in DC

> Do you have a link to where this "post-Bretton Woods Articles" prohibits?? I would love to read exactly what it says and find out more about this as I know zero right now.  VERY enlightening.


Wow, that was fast.  I was just starting to list things off the top of my head.  I have an unpublished paper on this which I gave at the Mises Institute earlier this year that lays out the basics:
http://www.ustream.tv/recorded/AfycB...BtD5.VBYK3cgTY

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## Bradley in DC

> When a bank takes money into a demand account, representing to the depositor that the funds are available at any time and even presents them with a statement of their "balance", and then turns around and intentionally acts in a way that they KNOW puts them in a position where they cannot possibly perform on the agreements they have made, that is fraud.  If any other business did it, they would be prosecuted.


As I said, fractional reserve banking is not _inherently_ fraudulent.  I'm not arguing for the status quo.  Our financial system is so heavily regulated by the government (opposite of free banking) AND has a central bank, that, yes, we have lots of problems.  The root of those problems is not that we have fractional reserve lending_ per se_.

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## No1ButPaul08

> Those arguing fractional reserve banking cannot work seem to be ignoring history.  The Scottish free banking era was clearly a success.


Bradley, I'm sure you are much more knowledgeable on these matters than myself.  But I would like to point out that Rothbard clearly disagrees with this assessment of Scottish free banking.  I haven't read all of the paper I was just pointing it out for informational purposes.

http://mises.org/journals/rae/pdf/RAE2_1_15.pdf

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## Fox McCloud

> As I said, fractional reserve banking is not _inherently_ fraudulent.


Then what do you put forth against Murray Rothbard's argument that fractional reserve banking, no matter how much or little government intervention there is, IS fraudulent?

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## Bradley in DC

> Bradley, I'm sure you are much more knowledgeable on these matters than myself.  But I would like to point out that Rothbard clearly disagrees with this assessment of Scottish free banking.  I haven't read all of the paper I was just pointing it out for informational purposes.
> 
> http://mises.org/journals/rae/pdf/RAE2_1_15.pdf


I am not Rothbardian, if that weren't clear.  His opinion is, to be charitable, the outlier in that discussion.  With real world historical examples, we're not talking straight theory.  Dr. Paul himself embraced Larry White, et al's view with his currency competition act.  

The more central point would be comparing the Scottish free banking with the contemporary English central banking system:

http://economics.about.com/cs/moffat...ot_banking.htm

Between 1716 and 1845 the country of Scotland experienced a period of banking that was unlike any other ever seen. Banks were virtually unregulated, constrained only by the rule of law at the time. Each bank, and the system as a whole, created solutions to the general banking hazards that we still attempt to resolve through regulation today. Banks also engaged in practices that were complementary with stability and efficiency in the market. Furthermore, banks were profitable, not shown to categorically take on excess risk and loss to the public during failures was greatly minimized.
During its time of free banking Scotland's economy grew much quicker than England's, which had a more regulated and failure-prone system. Even though England was in the midst of its first industrial revolution during this period, Scotland's approximate per capita income went from half of England's in 1750 to being virtually equal to it in 1845. Supported by a banking system marked by innovation, reliability, and stability, Scotland transformed from a poor agricultural and household economy to an advanced industrial economy specializing in iron production, shipbuilding, and engineering. (Cameron, 1967)
Interestingly, Randy Krosner offered this prescription before he joined the Fed:
http://www.worldbank.org/html/dec/Pu...-abstract.html

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## The_Orlonater

...?

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## Bradley in DC

> Then what do you put forth against Murray Rothbard's argument that fractional reserve banking, no matter how much or little government intervention there is, IS fraudulent?


The same as every other right thinking person with any grounding in real world finance.  For a more extreme, simplisitic and silly example, Rothbard argues one could not give up something for a promise of a possible something in the future (and was obviously unaware of lottery tickets).

Rothbard is right in that claiming one thing and practicing another _is_ fraudulent.

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## No1ButPaul08

> Then what do you put forth against Murray Rothbard's argument that fractional reserve banking, no matter how much or little government intervention there is, IS fraudulent?


The argument here i believe is that you enter into a contract with a bank allowing them to do this.  The lecturer makes his point by saying that a customer can just as easily put their money in a safety deposit box for a fee that will always be there.  By agreeing to accept interest and enter into a contract with a bank, you are agreeing to allow the bank to loan out your funds.

Thanks for the clarification on Scottish free banking Bradley

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## Fox McCloud

that's all fine an dandy that it worked, but as pointed out my a number of folks (Ron Paul included) fractional-reserve banking is inherently inflationary...while I admire the Scottish for standing free of regulating their banks, I do not find it admirable at all that they legalized theft in the process...it should not be legal, under any circumstance, to loan out or offer on any market more than you own.

Also, as pointed out many times, the banking system, as a whole will end up creating more money than there is in existence with a fractional-reserve system, which, in turn, causes inflation (though the general populace at large will likely not notice)--this is where the theft comes into play as any level of inflation transfers wealth from the money holder to the initial money spender.

I can see no sound, logical, or moral reason why fractional reserve banking should be allowed, no matter the level of government regulation (or lack there-of).

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## No1ButPaul08

> that's all fine an dandy that it worked, but as pointed out my a number of folks (Ron Paul included) fractional-reserve banking is inherently inflationary...while I admire the Scottish for standing free of regulating their banks, I do not find it admirable at all that they legalized theft in the process...it should not be legal, under any circumstance, to loan out or offer on any market more than you own.
> 
> Also, as pointed out many times, the banking system, as a whole will end up creating more money than there is in existence with a fractional-reserve system, which, in turn, causes inflation (though the general populace at large will likely not notice)--this is where the theft comes into play as any level of inflation transfers wealth from the money holder to the initial money spender.
> 
> I can see no sound, logical, or moral reason why fractional reserve banking should be allowed, no matter the level of government regulation (or lack there-of).


The argument here is that the there will be inflation but it will not be sustained.  Fiat money produces much more inflation than fractional reserve banking

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## The_Orlonater

> The argument here is that the there will be inflation but it will not be sustained.  Fiat money produces much more inflation than fractional reserve banking


True, but fractional Reserve Baking does play a big role.

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## Fox McCloud

> The argument here is that the there will be inflation but it will not be sustained.  Fiat money produces much more inflation than fractional reserve banking


It may not be sustained, but I'd argue that any amount of inflation (save from increasing the gold/silver/platinum supply via a natural process of work) is inherently fraudulent and based upon theft of wealth.

Also, keep in mind that even if the Fed could somehow limit the amount of money it circulated, the banks, with their 10% reserve requirement, could still turn that "X" amount into "9*X".

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## Bradley in DC

> that's all fine an dandy that it worked, but as pointed out my a number of folks (Ron Paul included) fractional-reserve banking is inherently inflationary...while I admire the Scottish for standing free of regulating their banks, I do not find it admirable at all that they legalized theft in the process...it should not be legal, under any circumstance, to loan out or offer on any market more than you own.
> 
> Also, as pointed out many times, the banking system, as a whole will end up creating more money than there is in existence with a fractional-reserve system, which, in turn, causes inflation (though the general populace at large will likely not notice)--this is where the theft comes into play as any level of inflation transfers wealth from the money holder to the initial money spender.
> 
> I can see no sound, logical, or moral reason why fractional reserve banking should be allowed, no matter the level of government regulation (or lack there-of).


Fox, I'm explicitly not saying this applies to you (I don't know you well), but I find it immensely humorous how "anarcho-capitalists" want to outlaw what the market decides.  

Pointing something out many times doesn't make it true.  Keep repeating that to yourself.

If there is competitive note issue, fractional reserve lending is not inherently inflationary (people would switch to another note). Numerous studies have made this point (at least it's not the fractional reserve part that's the biggest problem).  Under our current system (for which I am NOT arguing), yes the government regulations exacerbate the problems.

As I explained at Mises, I have enough respect for the market to let it decide the question.  My suspicion would be that our capitalistic system is diversified enough that we could expect both systems operating simultaneously for different types of products, etc.  If you're right, then the 100% reserve banks would put the others out of business--just like the collateral lending pawn shops have put the banks out of business.

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## Bradley in DC

> Also, keep in mind that even if the Fed could somehow limit the amount of money it circulated, the banks, with their 10% reserve requirement, could still turn that "X" amount into "9*X".


Did you read the OP or listen to the podcast?  

EDIT: I will make an effort to listen to it this week.

Reserve requirements are an anachronism with sweep software.  They are effectively zero--and this is good: one less "tool" for monetary policy by the central bank.  

FYI, Vern McKinley has written scholarly publications on these types of questions:

http://www.centralbanking.co.uk/publ...easurement.pdf

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## rockandrollsouls

> Did you read the OP or listen to the podcast?  
> 
> Reserve requirements are an anachronism with sweep software.  They are effectively zero--and this is good: one less "tool" for monetary policy by the central bank.


I'd like to know if there is any information regarding fraction reserve banking in the era of the founding fathers. We know they had trouble with the continental dollar...perhaps they eluded to a form of fractional reserve banking during this time. 

Fractional reserve banking just isn't logical in my opinion...and it's an open and shut case if you follow austrian economics.

I will be looking for specific historic examples dealing with fractional reserve banking. If anyone beats me to it, please post the examples with links.

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## rockandrollsouls

> The same as every other right thinking person with any grounding in real world finance.  For a more extreme, simplisitic and silly example, Rothbard argues one could not give up something for a promise of a possible something in the future (and was obviously unaware of lottery tickets).
> 
> Rothbard is right in that claiming one thing and practicing another _is_ fraudulent.


I have grounding in real world finance and I can't say I agree with fractional reserve banking. Can you support your claims with some kind of evidence? 

You might want to look up the relation between FRB and the money supply.

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## Bradley in DC

> I have grounding in real world finance and I can't say I agree with fractional reserve banking. Can you support your claims with some kind of evidence? 
> 
> You might want to look up the relation between FRB and the money supply.


You might want to comment on the OP.

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## Bradley in DC

> Fractional reserve banking just isn't logical in my opinion...and it's an open and shut case if you follow austrian economics.


Actually, if one follows Austrian economics, it is the one issue (or the biggest) that is NOT an open and shut case.    Those of us affiliated in some way with the Mises Institute are very divided, and I don't know of any other Austrian holdout where there are any 100% reserve requirement supporters (NYU, GMU, FEE, etc.).

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## Bradley in DC

Since the thread has legs, here is some background on the author:

His home page:
http://www.sjsu.edu/depts/economics/...mel/index.html

The book how I first knew of him:
http://www.friesian.com/civil.htm

Independent Institute:
http://www.independent.org/aboutus/p...ail.asp?id=565

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## rockandrollsouls

> Actually, if one follows Austrian economics, it is the one issue (or the biggest) that is NOT an open and shut case.    Those of us affiliated in some way with the Mises Institute are very divided, and I don't know of any other Austrian holdout where there are any 100% reserve requirement supporters (NYU, GMU, FEE, etc.).


I'm not trying to knock you here, but most of what I've read and studied is basically against any manipulation of the money supply because it's unnatural. Once the money supply is altered it's not difficult to connect it to the business cycle etc etc.

So he has a minor in economics, huh  I'm sure he knows more than the genius that is Murray Rothbard (Columbia University, Bachelor of Arts degree in mathematics (1945), Master of Arts degree (1946), Doctor of Philosophy degree in economics in 1956.) No offense, but it's my opinion fractional reserve banking basically contradicts Austrian Economics to its core. I'd be interested in seeing the arguments supporting it, though.

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## Bradley in DC

> I'm not trying to knock you here, but most of what I've read and studied is basically against any manipulation of the money supply because it's unnatural. Once the money supply is altered it's not difficult to connect it to the business cycle etc etc.


Ah, we may not be so far off then:  "manipulation of the money supply"  interesting.  Would gold mine production be a "manipulation" or how does one count the gold jewelry sales in India, etc.?  Who has the monopoly on the definition of "money"?  Just gold or silver too?  What about colonial tobacco?  (and hosts of other examples in Menger's Principles...)  Yes, we're _all_ against artificial manipulation (by government central banks).  

Try to think of it this way (and none of us are arguing for government central banks):  with fractional reserve banking one has another option for expressing the time preference for money (option clauses, interest rates, etc.).  For this exercise, try _not_ to think of it in the context of central banking.  

There is a lot of literature on this, I'm not going to recreate it here.  On one side you have Rothbard and _some_ Rothbardians (principally Hoppe and Salerno) all affiliated with the Mises Institute (but by no means not all affiliate there, perhaps not even most).  On the other you have Mises, Hayek, Larry White, George Selgin, Kevin Dowd, Steve Hanke, Don Boudreaux, Jerry O'Driscoll, Mario Rizzo, Larry Seacrest, Kurt Shuler, NYU, GMU, FEE, et al. and etc.

Again, references to the actual OP of the thread would be appropriate.

----------


## spudea

> The root of those problems is not that we have fractional reserve lending_ per se_.


it absolutely is the root of the problem.  When a bank lends out 9 dollars it doesn't have, not only do they have to guarantee that the $9 will be paid back, but they have to guarantee that the $1 stays in their bank.

If the $9 can't be paid back, it means the investment went bankrupt. This malinvestment causes irreversable damage to the economy, causes unemployment, causes volatility, and is the cause of the business cycle.

If the $1 leaves the bank, they now have to borrow that dollar from someone else or demand that the $9 be paid back.  They can borrow it from another bank that is part of $9 they don't have.  This creates a pyramid of money that DOESN'T EXIST! And IS the cause of all recessions and depressions.

If you invest in a stock, and the company doesn't perform, YOU lose your money.

If a bank makes a bad loan, they lose nothing.  They can create a pyramid of money, and pass the loses on to the people through inflation.

Fractional reserve banking can operate just fine without a central authority, however, in order to coerce the weak and uneducated, it does a lot better when the government is preaching that everything is fine and we guarantee all your money.

----------


## noxagol

Except, the banks do lend out money they do have. They lend out 90% of what is given to them and keep the other 10% on hand. The rest that you said is true though.

----------


## The_Orlonater

> You do know that fractional reserve banking does not prohibit one from practicing the gold standard, and vice versa, right? It's just a matter of how much reserves of gold the system holds onto.
> 
> I guess the argument would be that this puts the creation of money into the hands of private enterprise, and they are most efficient at creating the money in the most advantageous sectors and enterprises. The question is then, is this really necessary?
> 
> The constitution says that the government can print money for free. Why pay private bankers to make money when it can be made for free? We are essentially paying them to create money and make the best investments with that money. However, our central banking system is not a free market central banking system. It is a cartel. 
> 
> My idea for a monetary system would include free money created by the treasury. This money would be loaned to the states, at very low interest, in order to build infrastructure. This infrastructure would make our country more efficient. Roads, public transportation, etc. all help people and businesses move themselves and products more efficiently with lower costs. This is how money would enter the market. The increase in money supply should be equal to the increase in GDP, as a percentage. 
> 
> From there it would be saved and spent by those individuals on goods and services. Accessible savings accounts would have very low interest, perhaps even zero. Therefore, banks would offer term investment products which would require people to put their money away for a set period of time. The bank can then consider this money as capital for the length of the term. This will allow the individual to invest in whatever their bank wants to make loans for (housing, business, etc) and they can earn a return on their savings.
> ...


I like your way of thinking.

----------


## Bradley in DC

> it absolutely is the root of the problem.  When a bank lends out 9 dollars it doesn't have, not only do they have to guarantee that the $9 will be paid back, but they have to guarantee that the $1 stays in their bank.
> 
> If the $9 can't be paid back, it means the investment went bankrupt. This malinvestment causes irreversable damage to the economy, causes unemployment, causes volatility, and is the cause of the business cycle.
> 
> If the $1 leaves the bank, they now have to borrow that dollar from someone else or demand that the $9 be paid back.  They can borrow it from another bank that is part of $9 they don't have.  This creates a pyramid of money that DOESN'T EXIST! And IS the cause of all recessions and depressions.
> 
> If you invest in a stock, and the company doesn't perform, YOU lose your money.
> 
> If a bank makes a bad loan, they lose nothing.  They can create a pyramid of money, and pass the loses on to the people through inflation.
> ...


Funny, the studies of in the OP and the studies I've cited show the opposite.  If you want to address the topic of the thread--ie, a specific lecture, please do so.

----------


## rockandrollsouls

> Funny, the studies of in the OP and the studies I've cited show the opposite.  If you want to address the topic of the thread--ie, a specific lecture, please do so.


What links did you post, again?

I don't have a problem with a bank issuing shares against its investment assets as long as it does so with full disclosure. I do have a problem when these shares function as money.

Here's an example I'd like you to ponder.

"Assume we have 100,000 troy pounds of gold in the warehouse, with 100,000 in warehouse receipts circulating.  In addition, 50,000 in faux, unbacked receipts are circulating.  If there is a panic and everybody decides to redeem, you are going to have a shortfall of 50,000 at the bank."

Can you explain to me why these unbacked receipts should function as "money?"

Fractional reserve banking works under the current guise because our currency is composed of these "receipts" that aren't backed by anything. They are one in the same. But, again, in the example above, can you explain to me why these unbacked receipts should function as money the same why a backed receipt would?

I know the FRB you are talking about, but it's a far cry from the current FRB system we use. I don't know if I could support the slightly more sane version of FRB just because I think it will be exploited again. Anyway, or the sake of people not educated in the matter you need to distinguish between deposits and currency issuance in FRB. Please distinguish between our current FRB or FRB with full disclosure.

You also might want to look up the "Real Bills Doctrine." Again, there are many different strains and ideas of FRB and similar methods and you need to specify what exactly you are talking about. It has alot to do with contract and property titles to property that doesn't exist. Keep in mind this also ties in with limited liability, a whole other can of worms. So, Brad, pick your poison. What strain or modulation of FRB are you talking about? I'd like to get specific here. Give me an example and tell me under what conditions this would take place (fiat currency, gold standard, private banks, contracts involved, receipts issued etc etc.)

----------


## spudea

> Funny, the studies of in the OP and the studies I've cited show the opposite.  If you want to address the topic of the thread--ie, a specific lecture, please do so.


your studies show the opposite because they assume that everything is guaranteed, every loan is repaid, and noone takes their money out of the bank.

----------


## rockandrollsouls

> your studies show the opposite because they assume that everything is guaranteed, every loan is repaid, and noone takes their money out of the bank.


yes. I'm still waiting for Bradley to tell me under what conditions his example of FRB would be functioning in. There are so many different instances of FRB and often times things that are not FRB are considered to be. When bradley says "frb" that's not enough information for me.

Bradley also claims Mises would support his viewpoint. However, that depends on what type of frb he is referring to and in what conditions. Here are Mises' own words.

"In issuing fiduciary media, by which I mean bank notes without gold backing or current accounts which are not entirely backed by gold reserves, the banks are in a position to expand credit considerably. The creation of these additional fiduciary media permits them to extend credit well beyond the limit set by their own assets and by the funds entrusted to them by their clients. They intervene on the market in this case as "suppliers" of additional credit, created by themselves, and they thus produce a lowering of the rate of interest, which falls below the level at which it would have been without their intervention."

----------


## Bradley in DC

> What links did you post, again?
> 
> I don't have a problem with a bank issuing shares against its investment assets as long as it does so with full disclosure. I do have a problem when these shares function as money.
> 
> Here's an example I'd like you to ponder.


Links are in the OP and my posts (and I've posted other threads on the Real Bills Doctrine ).  

Again, no one here--certainly not I--is arguing for a government central bank.  

I'm familiar with Rothbard's warehouse receipt argument but remain unconvinced.

My understanding of "money" Mengerian.

----------


## Bradley in DC

> yes. I'm still waiting for Bradley to tell me under what conditions his example of FRB would be functioning in. There are so many different instances of FRB and often times things that are not FRB are considered to be. When bradley says "frb" that's not enough information for me.


When did I say "FRB"?  Are we in the same thread?  Where in my Mises presentation on how to get rid of the Fed entirely do you get my conditions it would be functioning in?  Where in my repeated posts saying I don't want any government central bank did you get that?

The thread is on the presentation in the OP.

----------


## rockandrollsouls

> When did I say "FRB"?  Are we in the same thread?  Where in my Mises presentation on how to get rid of the Fed entirely do you get my conditions it would be functioning in?  Where in my repeated posts saying I don't want any government central bank did you get that?
> 
> The thread is on the presentation in the OP.


I'm not playing he said she said, Brad. You are a supporter of fractional reserve banking, yet there are so many different instances of frb that I want to know to what extent you support it. Where in the thread did you present a mises presentation? What are you talking about? I feel like your dodging questions here by saying "go to the original poster." How about we talk about this point blank. Do you support frb with our current currency? Do you support it with a gold exchange standard? What if the bank does not disclose that it intends to use your funds in this manner?

Please, provide some guidance as there are many different questions in regard to frb. Yea, I understand you are saying in the absence of a central bank, but that doesn't tell me enough. 

Give me an example of what you would consider an acceptable scenario of fractional reserve banking.

----------


## Bradley in DC

> I'm not playing he said she said, Brad. You are a supporter of fractional reserve banking, yet there are so many different instances of frb that I want to know to what extent you support it


  Sorry, my bad.   

My apologies.  I've got a lot of things going on right now (Heller gun registration tomorrow and press conference, ballot petitioning, then leaving out of town, housemate is moving out, arranging puppysitting, etc).  I read "FRB" as  "Federal Reserve Bank" (which, in my defense, is the more typical usage in banking conversations).

Please ignore everything I posted that then doesn't make sense.  Again, sorry.  And yes, I got defensive on the (unimaginable) thought that I was defending a government central bank!  

I'll pick up again in a week or so...

----------


## rockandrollsouls

> Sorry, my bad.   
> 
> My apologies.  I've got a lot of things going on right now (Heller gun registration tomorrow and press conference, ballot petitioning, then leaving out of town, housemate is moving out, arranging puppysitting, etc).  I read "FRB" as  "Federal Reserve Bank" (which, in my defense, is the more typical usage in banking conversations).
> 
> Please ignore everything I posted that then doesn't make sense.  Again, sorry.  And yes, I got defensive on the (unimaginable) thought that I was defending a government central bank!  
> 
> I'll pick up again in a week or so...


big misunderstanding 

I know you don't defend a federal reserve bank  It's all good my friend.

Anyway, for those of you here arguing for fractional reserve banking please post an example or scenario in which you support it so we can prove it wrong.

----------


## No1ButPaul08

I was confused too.  I also took frb to be Federal Reserve Bank.  For anyone who hasn't listened to the original lecture, he really does make some good points in favor of fractional reserve banking.  I'm not completely sold, but that's only because I haven't done enough research.

Bradley, would you recommend Sechrest's Free Banking: Theory, History and a Laissez-Faire Model?

----------


## rockandrollsouls

> I was confused too.  I also took frb to be Federal Reserve Bank.  For anyone who hasn't listened to the original lecture, he really does make some good points in favor of fractional reserve banking.  I'm not completely sold, but that's only because I haven't done enough research.
> 
> Bradley, would you recommend Sechrest's Free Banking: Theory, History and a Laissez-Faire Model?


Well, the thread is titled Fractional Reserve Banking =)

I'm going to leave a quote from Rothbard where he also summarizes Mises' view.

"Private banks, it is true, can themselves inflate the money supply
by issuing more claims to standard money (whether gold or
government paper) than they could possibly redeem. A bank
deposit is equivalent to a warehouse receipt for cash, a receipt
which the bank pledges to redeem at any time the customer wishes
to take his money out of the bank’s vaults. The whole system of
“fractional-reserve banking” involves the issuance of receipts
which cannot possibly be redeemed. But Mises has shown that, by
themselves, private banks could not inflate the money supply by a
great deal.22 In the first place, each bank would find its newly

issued uncovered, or “pseudo,” receipts (uncovered by cash) soon
transferred to the clients of other banks, who would call on the
bank for redemption. The narrower the clientele of each bank,
then, the less scope for its issue of pseudo-receipts. All the banks
could join together and agree to expand at the same rate, but such
agreement would be difficult to achieve. Second, the banks would
be limited by the degree to which the public used bank deposits or
notes as against standard cash; and third, they would be limited by
the confidence of the clients in their banks, which could be
wrecked by runs at any time."

"While unregulated private banking would be checked within
narrow limits and would be far less inflationary than Central Bank

manipulation,26 the clearest way of preventing inflation is to outlaw
fractional-reserve banking, and to impose a 100 percent gold
reserve to all notes and deposits. Bank cartels, for example, are not
very likely under unregulated, or “free” banking, but they could
nevertheless occur. Professor Mises, while recognizing the superior
economic merits of 100 percent gold money to free banking,
prefers the latter because 100 percent reserves would concede to
the government control over banking, and government could easily
change these requirements to conform to its inflationist bias.27
But a 100 percent gold reserve requirement would not be just
another administrative control by government; it would be part
and parcel of the general libertarian legal prohibition against
fraud. Everyone except absolute pacifists concedes that violence
against person and property should be outlawed, and that agencies,
operating under this general law, should defend person and property
against attack. Libertarians, advocates of laissez-faire, believe
that “governments” should confine themselves to being defense
agencies only. Fraud is equivalent to theft, for fraud is committed
when one part of an exchange contract is deliberately not fulfilled
after the other’s property has been taken. Banks that issue receipts
to non-existent gold are really committing fraud, because it is then
impossible for all property owners (of claims to gold) to claim their
rightful property. Therefore, prohibition of such practices would
not be an act of government intervention in the free market; it
would be part of the general legal defense of property against attack
which a free market requires.28, 29"

This might make you ponder the idea some more. You might want to research why some would consider it fraud. Also, even though Mises proved private banks could not inflate the money supply by a great deal, is it ethical? Can I give someone access to your deposited money? What if there is a contract? What about bank deposit slips as opposed to creation of currency? The quote poses a ton of questions, ethical and economic.

----------


## scooter

Fractional reserve banking is not manipulation of the money supply.  Manipulation implies something is done on purpose to target a specific supply of money.

The banks only have the temporary ability to inflate the money supply.  As loans are paid, the new money is erased.  Only the Fed (the government) can inflate the money supply permanently.

I have seen some people bring up the comment about what happens when a loan goes bust or doesn't get paid.  Well, these people forget that when a loan is made there is collateral.  If a bank is operating efficiently, they will have enough collateral to return all of the dollars they loaned out or maybe more.  If banks make too many mistakes and lose too much of their depositors' money, it will first hit their profits and could eventually lead to them going out of business.  Only when the federal government comes in to bail out bad financial institutions does the credit money become permanent.

Fractional reserve banking, as dictated by the free markets, is not inflationary in the long term.

A lot of people think that I'm just a supporter of the status quo on this site.  But in reality, I'm just pointing my argument in what I believe is the proper direction.  I think that fractional reserves can work with minimal government involvement and I even think that the modern paper money would work great without government intervention in the interest rate markets.

----------


## Fox McCloud

> Fractional reserve banking, as dictated by the free markets, is not inflationary in the long term.


it does, however, create inflation in the short-term, and that is what a number of us here are arguing against, as that short-term inflation still transfers wealth from those who have saved (or hold any amount of currency) to those who are taking out the loan.

It's an indirect theft of wealth, in my honest opinion, and that is why I am against it.

I'm also perplexed, as a Ron Paul supporter, by your adherence to paper money...as 6000 years of human-history have shown, money _always_ as Voltaire said, "seeks its intrinsic value; zero".

----------


## scooter

> it does, however, create inflation in the short-term, and that is what a number of us here are arguing against, as that short-term inflation still transfers wealth from those who have saved (or hold any amount of currency) to those who are taking out the loan.
> 
> It's an indirect theft of wealth, in my honest opinion, and that is why I am against it.
> 
> I'm also perplexed, as a Ron Paul supporter, by your adherence to paper money...as 6000 years of human-history have shown, money _always_ as Voltaire said, "seeks its intrinsic value; zero".


Actually, you are wrong.  There is no transfer of wealth.  It is just spenders borrowing from the savers to buy something now that they will pay for later.  If the savers aren't stupid, they are easily able to put their money into areas that will outpace inflation.

Later in life if they have savings, those spenders will become the savers with a pool of money that gets borrowed from.  Again, there is no transfer of wealth or inflation involved in fractional reserve banking until the government gets involved.

Also, any arguments against paper money from history have no validity in discussion of today's paper money, which is actually a system of artificial commodities that are traded and balanced against each other.  I actually think today's paper money is the most liquid and free market in the world.  If a country destroys its currency with poor internal policies, the world markets will force it to pay for those mistakes (what is happening to the US now).  If a country's balance of payments gets out of whack, then their currency will depreciate until it is no longer cheap to outsource overseas (what is happening to the US now).

I'll save my argument about paper money because this thread is just working on fractional reserves.

As for support of Ron Paul, I just like the guy's desire for a responsible government that doesn't destroy the currency, doesn't fight useless wars, and doesn't invade my privacy.  I only differ in that I don't have any attachment whatsoever to useless gold.

----------


## ThePieSwindler

> Also, any arguments against paper money from history have no validity in discussion of today's paper money, which is actually a system of artificial commodities that are traded and balanced against each other.  I actually think today's paper money is the most liquid and free market in the world.  If a country destroys its currency with poor internal policies, the world markets will force it to pay for those mistakes (what is happening to the US now).  If a country's balance of payments gets out of whack, then their currency will depreciate until it is no longer cheap to outsource overseas (what is happening to the US now).
> 
> I'll save my argument about paper money because this thread is just working on fractional reserves.
> 
> As for support of Ron Paul, I just like the guy's desire for a responsible government that doesn't destroy the currency, doesn't fight useless wars, and doesn't invade my privacy.  I only differ in that I don't have any attachment whatsoever to useless gold.


I think you are spot on here. I've always thought it somewhat of a paradox that many who otherwise love free markets and liberty are then in favor of hard, fixed, controlled standards of money, rather than a much more market-oriented globalization of currency via floating currency. As i have argued many times before on RPF, the problem with the fed is one of scope of power and of moral hazard, not one of fiat money and evil conspiracy. I do think, however, that arguing free banking vs central banking is the 'proper' libertarian debate.

----------


## sratiug

> Actually, you are wrong.  There is no transfer of wealth.  It is just spenders borrowing from the savers to buy something now that they will pay for later.  If the savers aren't stupid, they are easily able to put their money into areas that will outpace inflation.
> 
> Later in life if they have savings, those spenders will become the savers with a pool of money that gets borrowed from.  Again, there is no transfer of wealth or inflation involved in fractional reserve banking until the government gets involved.
> 
> Also, any arguments against paper money from history have no validity in discussion of today's paper money, which is actually a system of artificial commodities that are traded and balanced against each other.  I actually think today's paper money is the most liquid and free market in the world.  If a country destroys its currency with poor internal policies, the world markets will force it to pay for those mistakes (what is happening to the US now).  If a country's balance of payments gets out of whack, then their currency will depreciate until it is no longer cheap to outsource overseas (what is happening to the US now).
> 
> I'll save my argument about paper money because this thread is just working on fractional reserves.
> 
> As for support of Ron Paul, I just like the guy's desire for a responsible government that doesn't destroy the currency, doesn't fight useless wars, and doesn't invade my privacy.  I only differ in that I don't have any attachment whatsoever to useless gold.


Bull$#@!.  Fractional reserve banking is a fraud.  It is inflation.  It is theft from everyone holding dollars.  No corporation should have power that individuals don't have.  If I print money from nothing it is counterfeiting.  When the bank does it it is counterfeiting.  Unless you are suggesting that all people be allowed to PRINT fresh new money to loan themselves or others then it is your argument that is stupid, not the people that can't invest their money at a rate to beat inflation.

----------


## sratiug

> I think you are spot on here. I've always thought it somewhat of a paradox that many who otherwise love free markets and liberty are then in favor of hard, fixed, controlled standards of money, rather than a much more market-oriented globalization of currency via floating currency. As i have argued many times before on RPF, the problem with the fed is one of scope of power and of moral hazard, not one of fiat money and evil conspiracy. I do think, however, that arguing free banking vs central banking is the 'proper' libertarian debate.


Free markets have nothing to do with magic.  Fractional reserve banking and fiat money are magic acts enslaving our world to debt.

----------


## ThePieSwindler

> Free markets have nothing to do with magic.  Fractional reserve banking and fiat money are magic acts enslaving our world to debt.


Um, what? There's no magic in either. Funny thing is, in a free market, banks would naturally be fractional reserve anyway, because it is the primary way that your typical commercial bank generates revenue. What would be the point of a full reserve bank, if they had nothing to loan out? You'd have to pay the bank much higher service charges to hold money there, because they'd have no other way of making money. You'd then be better off just stuffing it under your mattress, since it would cost money to hold it in the bank. What i find 'magical' is the facination with gold as somehow having a sort of intrinsic worth. I'd love the government to have direct control over the fixation of currency and value of the dollar via a standard - I definately trust congress with that - a VERY free-market oriented approach  The even funnier thing is that, the Federal Reserve is actually the regulator of fractional reserve banking - they FORCE reserves to be at a certain level, to keep the practice from running out of control. But of course, somehow the Fed i also very, very evil!

And one is only enslaved to debt if one does not know how to properly use it. But that is more a lack of financial education in our time than anything else. Debt is actually a huge boon to the modern world. Fact is, without debt, most businesses today would not exist, and most wealth would probably still be in that hands of those who already have it. Debt allows one to essentially "purchase" the capital to use NOW, in hopes to get a rate of return higher than the interest rate on the loan. Time really IS money in this case -without debt, the cost of capital accumulation can be a LOT of time.

----------


## Bradley in DC

> Well, the thread is titled Fractional Reserve Banking =)


Yes, yes it is.  But seriously, "FRB" is a common usage in banking conversations ...

----------


## JosephTheLibertarian

> Not so simple: our membership in the IMF under their post-Bretton Woods Articles prohibits our using gold as money, there remains on the books a mid-1800s law taxing (not prohibiting) private currency notes, etc.
> 
> EDIT:
> http://www.fee.org/Publications/the-...e.asp?aid=2208
> 
> Banking Before the Federal Reserve: The U.S. and Canada Compared
> By Donald R. Wells
> 
> Professor Wells teaches in the Department of Economics at Memphis State University, Memphis. Tennessee. 
> ...


What does all of this have to do with my proposition? I don't give a hoot about that agreement. We say "tough" to the IMF. We don't really need a national currency.

----------


## Bradley in DC

> What does all of this have to do with my proposition? I don't give a hoot about that agreement. We say "tough" to the IMF. We don't really need a national currency.


Just pointing out you left out the "saying 'tough' to the IMF" part.

----------


## JosephTheLibertarian

> Just pointing out you left out the "saying 'tough' to the IMF" part.


lol. uhh. What can the IMF do about it? Keynesian bastards!

----------


## Truth Warrior

Isn't fractional reserve banking what Griffin calls the *Mandrake Mechanism*?

----------


## noxagol

> Isn't fractional reserve banking what Griffin calls the *Mandrake Mechanism*?


No, that is the actual creation of the money by the central bank. 

Fractional reserve as it stands now is OK and DOES NOT create any new money, least that I can figure. The way it works right now is a bank gets x amount of money in deposits or loans from other banks, and they lend out y% of x and keep (100-y%)*x on hand to give out as withdrawals. They are unable to create any new money and they pay people for the use of their money.

Fractional reserve as it was born was vile, evil, theft, and DID create money. This form of fractional reserve is when the bank has x amount of gold/silver/whatever on hand, but prints more receipts than they have commodity to back those receipts with banking on the hope that people rarely come to claim the commodity.

----------


## Bradley in DC

> lol. uhh. What can the IMF do about it? Keynesian bastards!


And there's the tax part, and other details...

----------


## Truth Warrior

> No, that is the actual creation of the money by the central bank. 
> 
> Fractional reserve as it stands now is OK and DOES NOT create any new money, least that I can figure. The way it works right now is a bank gets x amount of money in deposits or loans from other banks, and they lend out y% of x and keep (100-y%)*x on hand to give out as withdrawals. They are unable to create any new money and they pay people for the use of their money.
> 
> Fractional reserve as it was born was vile, evil, theft, and DID create money. This form of fractional reserve is when the bank has x amount of gold/silver/whatever on hand, but prints more receipts than they have commodity to back those receipts with banking on the hope that people rarely come to claim the commodity.


  Thanks! More money to loan than reserves held, is what I call inflation and fraud.   Kinda like bouncing a check on a overdrawn account.

----------


## JosephTheLibertarian

> And there's the tax part, and other details...


There would be no taxes.

----------


## Bradley in DC

> There would be no taxes.


Again, not arguing, just pointing out you left out some of the fine print.

----------


## noxagol

> Thanks! More money to loan than reserves held, is what I call inflation and fraud.   Kinda like bouncing a check on a overdrawn account.


No, they get a 100 dollars and loan out 90 of it. The depositors are agreeing to this since they put their money in that bank. I fail to see the problem.

----------


## Fox McCloud

> No, they get a 100 dollars and loan out 90 of it. The depositors are agreeing to this since they put their money in that bank. I fail to see the problem.


the thing is, as G. Edward Griffin (even wikipedia) explains, the overall effect of banking system, as it currently stands, is that with the 10% reserve, more money is loaned out than is actually in existence...something known as the "money multiplier".

Of course, if loans are payed off early, these eventually disappear--that said, I always contend that any unnatural inflation of the money supply should be fraudulent in nature (increasing the money supply, say, if it were gold/silver via mining would be legitimate as physical action, work, and capital are required to do so).

the thing is though, the Fed has reported that bank reserves have gone negative which means they're loaning out more money than they actually have on had (I think)....that said, this is a recent development and hasn't been going on for very long.

----------


## noxagol

I fail to see how loaning out 90% of deposits creates more money than is there. Do explain.

----------


## JosephTheLibertarian

> Again, not arguing, just pointing out you left out some of the fine print.


heh. ok. I prefer voluntary contributions over any form of taxation. http://video.google.com/videoplay?do...74362583451279

Money As Debt

Good film, we should, at the very least, nationalize the currency system. This takes the corporations out of the equation. From there, we should begin to legalize competing currencies, and perhaps, end the USD. Just put an end to it. Why do we run on debt? Well, I know why, but it's retarded, and I think any special right to anything PRIVATE is *WORSE* than nationalization. Because with special rights comes favoritism, corruption, and gross lack of accountability. The objective that I seek is the total elimination of government issued fiat currency. That should be what we work towards, allow individuals to come up with their own mediums of exchange. What's so wrong about that? Will we sit around and ponder, "oh how can we trade without USD?" I don't think so. Then we should allow PRIVATE currencies to flourish, and then we'll see some true prosperity, but we can't now, the government is in the way, giving the bank corporations power to oppress the world. It's very disheartening.

Isn't this the definition of fascism? hm

----------


## rockandrollsouls

> No, that is the actual creation of the money by the central bank. 
> 
> Fractional reserve as it stands now is OK and DOES NOT create any new money, least that I can figure. The way it works right now is a bank gets x amount of money in deposits or loans from other banks, and they lend out y% of x and keep (100-y%)*x on hand to give out as withdrawals. They are unable to create any new money and they pay people for the use of their money.
> 
> Fractional reserve as it was born was vile, evil, theft, and DID create money. This form of fractional reserve is when the bank has x amount of gold/silver/whatever on hand, but prints more receipts than they have commodity to back those receipts with banking on the hope that people rarely come to claim the commodity.


Fractional reserve banking is, by definition, issuing unbacked bank notes.

When you use frb with an unbacked currency like ours, you ARE creating money.

----------


## rockandrollsouls

> I fail to see how loaning out 90% of deposits creates more money than is there. Do explain.


Assume we have 100,000 troy pounds of gold in the warehouse, with 100,000 in warehouse receipts circulating.  In addition, 50,000 in faux unbacked receipts are circulating.  If there is a panic and everybody decides to redeem, you are going to have a shortfall of 50,000.

More bank notes than actual goods and services, if you didn't want to do the math. The bank creates titles to property that isn't there.

Now, when you don't have anything to redeem, you have fractional reserve banking in our country. Nothing but unbacked notes that cannot be redeemed.

Do I have a problem with a bank doing this with full disclosure, contract with the consumer, and a backed currency? No. I have a problem when they do it with a fiat currency and without the consumers permission and without full disclosure.

----------


## Dr.3D

> Assume we have 100,000 troy pounds of gold in the warehouse, with 100,000 in warehouse receipts circulating.  In addition, 50,000 in faux unbacked receipts are circulating.  If there is a panic and everybody decides to redeem, you are going to have a shortfall of 50,000.
> 
> More bank notes than actual goods and services, if you didn't want to do the math. The bank creates titles to property that isn't there.
> 
> Now, when you don't have anything to redeem, you have fractional reserve banking in our country. Nothing but unbacked notes that cannot be redeemed.
> 
> Do I have a problem with a bank doing this with full disclosure, contract with the consumer, and a backed currency? No. I have a problem when they do it with a fiat currency and without the consumers permission and without full disclosure.


Well, actually, they don't have any gold backing the currency.

----------


## Fox McCloud

> I fail to see how loaning out 90% of deposits creates more money than is there. Do explain.


let's say there's $100 in Bank A...some guy takes out a loan for $90, which is the maximum the bank would allow with a 10% reserve requirement.

This guy buys something, and in turn the $90 get deposited in Bank B, there, someone takes out a loan of $81....and on and on the process goes.

eventually the banking system (not just 1 bank) has created $900 out of this $100 loan. 

here's a chart on wikipedia: 

keep in mind that if loans are repaid it actually decreases the money supply and reverses this trend (it cannot reverse it below the original $100 though).

ultimately though, because of the way the Fed operates, all money in our economy is debt based, and if every single loan (public and private) were to be repaid, there would literally be 0 money in circulation (Mr. Griffin further explains this in his book).

----------


## rockandrollsouls

> Well, actually, they don't have any gold backing the currency.


What are you talking about? First and foremost with a backed currency I don't exactly support frb, but an unbacked currency is even worse because those "bank deposit slips" or "notes" or "title" for that thing that's supposed to be "redeemable" in fractional reserve banking is the same as our money. I'm sure i don't have to tell you this, but the money you carry are bank notes that cannot be redeemed. when you create more of them via frb you have another problem.

I really don't get where you were trying to go with your comment. Either your drunk or didn't fully comprehend my posts.

----------


## Truth Warrior

> No, they get a 100 dollars and loan out 90 of it. The depositors are agreeing to this since they put their money in that bank. I fail to see the problem.


  No, they get 100 dollars and loan out 900.  The 100 hundred is the fractional reserve.  Maybe this will explain it better.

http://www.geocities.com/rebornempow...e/mandrake.htm

----------


## Truth Warrior

*WHAT IS THE MANDRAKE MECHANISM?*

**
_ITS THE MOST IMPORTANT FINANCIAL LESSON OF YOUR LIFE!_
http://home.earthlink.net/~morganwp/...0mechanism.htm

*"The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks." -- Lord Acton*

----------


## scooter

> No, they get 100 dollars and loan out 900.


I hate when people say this terrible misinformation.  A bank CAN NOT loan 900 from 100 in deposits.

Fox is correct, 900 dollars could get created from 100 dollars in deposits IF it went through several banks loaning it out again and again right at the 10% reserve limit.  This is not very practical in a real-world situation, but at least it is a more accurate statement than leading people to believe that a single bank can just magically 9x their deposits.

Everyone who complains about this system completely forgets that at every stage of the way a bank takes on some collateral for those loans.  They loan out their depositors money, but they have a house or a car or some asset that backs the loans so if the borrower can't pay they will be able to get their depositors money back.

If a bank run were to occur, banks are able to get temporary liquidity from the Fed to give their depositors their money until they are able to redeem the value for their collateral against bad loans.

At no step of the way do depositors lose their money, and at no step of the way is "new money" created that isn't backed by a loan, which in turn is typically backed by a solid asset.  In fact, one reason why the dollar is hurting so bad right now is because for the past decade or so it has mostly been backed by houses, which got severely inflated in value.

Stop worrying so much about fractional reserves.  There are tons of places to complain about our wasteful government and I think this one is a major distraction from the real culprits.  It is a free market system that allows credit to expand and contract on the fly.  If loan demand goes down, the credit money supply goes down.

New money--of the permanent and damaging variety--is ONLY created by the federal government.

----------


## Truth Warrior

> I hate when people say this terrible misinformation. A bank CAN NOT loan 900 from 100 in deposits.
> 
> Fox is correct, 900 dollars could get created from 100 dollars in deposits IF it went through several banks loaning it out again and again right at the 10% reserve limit. This is not very practical in a real-world situation, but at least it is a more accurate statement than leading people to believe that a single bank can just magically 9x their deposits.
> 
> Everyone who complains about this system completely forgets that at every stage of the way a bank takes on some collateral for those loans. They loan out their depositors money, but they have a house or a car or some asset that backs the loans so if the borrower can't pay they will be able to get their depositors money back.
> 
> If a bank run were to occur, banks are able to get temporary liquidity from the Fed to give their depositors their money until they are able to redeem the value for their collateral against bad loans.
> 
> At no step of the way do depositors lose their money, and at no step of the way is "new money" created that isn't backed by a loan, which in turn is typically backed by a solid asset. In fact, one reason why the dollar is hurting so bad right now is because for the past decade or so it has mostly been backed by houses, which got severely inflated in value.
> ...


Well as long as you are in a hating mood, hate this.

http://www.geocities.com/rebornempow...e/mandrake.htm



*"The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks." -- Lord Acton*

----------


## user

I'm happy to let the market decide, or even for it to support both full reserve and fractional reserve banking. Any real libertarian should object to government interference in banking, though.

----------


## Truth Warrior

> I'm happy to let the market decide, or even for it to support both full reserve and fractional reserve banking. Any real libertarian should object to government interference in banking, though.


 The market has decided.<IMHO> Fractional reserve banking is fraud. 

As a real libertarian, I object to government. *PERIOD*.

----------


## user

> The market has decided.<IMHO> Fractional reserve banking is fraud. 
> 
> As a real libertarian, I object to government. *PERIOD*.


I'm no fan of fractional reserve banking, but I don't think it is necessarily fraud. If a private bank is upfront about not being a full reserve bank, and some people choose to deposit their money at that bank anyway, where is the fraud?

----------


## Truth Warrior

> I'm no fan of fractional reserve banking, but I don't think it is necessarily fraud. If a private bank is upfront about not being a full reserve bank, and some people choose to deposit their money at that bank anyway, where is the fraud?


 The fraud is most usually in the, "not being upfront about".

----------


## user

> The fraud is most usually in the, "not being upfront about".


Oh I agree, I'm just saying fractional reserve banking doesn't have to mean fraud.

----------


## Truth Warrior

> Oh I agree, I'm just saying fractional reserve banking doesn't have to mean fraud.


  Sorry, to me it's just shady and "gaming the system" AKA fraud.  

Would you care to agree that we just disagree?

----------


## user

> Sorry, to me it's just shady and "gaming the system" AKA fraud.  
> 
> Would you care to agree that we just disagree?


To be honest, I'm not sure we really disagree. I'm just thinking of a hypothetical where an instance of fractional reserve banking wouldn't be fraud. Nothing like that exists today, as far as I know, but no one can be sure what the market comes up with in the future.

----------


## Truth Warrior

> To be honest, I'm not sure we really disagree. I'm just thinking of a hypothetical where an instance of fractional reserve banking wouldn't be fraud. Nothing like that exists today, as far as I know, but no one can be sure what the market comes up with in the future.


*"Prediction is difficult, especially when it's about the future." - Yogi Berra*

----------


## noxagol

How then, absent fractional reserve, would banks make loans?

----------


## user

> How then, absent fractional reserve, would banks make loans?


I don't think they would, unless they were more than just a bank. Investors would make loans.

----------


## Truth Warrior

> How then, absent fractional reserve, would banks make loans?


 The way that we all tend to think that they do. People make deposits and are paid interest on them. Banks loan money and charge higher interest than they pay the depositors, the profit is the spread.

----------


## noxagol

> The way that we all tend to think that they do. People make deposits and are paid interest on them. Banks loan money and charge higher interest than they pay the depositors, the profit is the spread.


But if they have to keep all the money deposited on hand, there is no money to loan out.

----------


## Truth Warrior

> But if they have to keep all the money deposited on hand, there is no money to loan out.


That's where "prudent" loan making and collateral comes in.  Keep enough money on hand *at all times* to meet anticipated customer withdrawals, plus some for the improbable emergencies.

----------


## user

> The way that we all tend to think that they do. People make deposits and are paid interest on them. Banks loan money and charge higher interest than they pay the depositors, the profit is the spread.


Where do they get the money to loan?

----------


## user

> That's where "prudent" loan making and collateral comes in.  Keep enough money on hand *at all times* to meet anticipated customer withdrawals, plus some for the improbable emergencies.


That sounds like fractional reserve banking to me...

----------


## sratiug

> How then, absent fractional reserve, would banks make loans?


The same way YOU would make a loan to a friend.  YOU would only loan money that YOU actually had.  Why would any libertarian believe that an individual has fewer rights than a corporation?  If you were a bank you could just print your friend the money and charge him interest.  As an individual you go to jail.  What in the hell is "free market" about that?

----------


## Truth Warrior

> That sounds like fractional reserve banking to me...


OK! Whatever.  http://en.wikipedia.org/wiki/Fractional-reserve_banking

----------


## user

> OK! Whatever.  http://en.wikipedia.org/wiki/Fractional-reserve_banking


I'm just trying to understand what you mean. Correct me if I'm wrong, but with full reserve banking you keep all of the money on hand, not just enough "to meet anticipated customer withdrawals"...

----------


## scooter

> That's where "prudent" loan making and collateral comes in.  Keep enough money on hand *at all times* to meet anticipated customer withdrawals, plus some for the improbable emergencies.


You just described fractional reserve banking.  Thanks for making my point for me.

The error is not the system.  It's the government not allowing those "un-prudent" loan makers to go bust.

----------


## Truth Warrior

> You just described fractional reserve banking. Thanks for making my point for me.
> 
> The error is not the system. It's the government not allowing those "un-prudent" loan makers to go bust.


 *The government is both the ERROR AND the SYSTEM.*

----------


## noxagol

So what your saying, keeping 10% of money on hand and loaning out the other 90% is bad. 

But keeping an amount on hand equal to or greater than what you anticipate will be taken out as withdrawals and prudently loaning out the rest is ok?

Unless I'm mistaken, which I'm not, they are the same thing.

----------


## scooter

You've hit my point yet again.  I must be having a lasting influence.

The government is terrible and should leave banking alone.  That doesn't mean banks are evil, or even that government is evil.  It means that both oftentimes have morons in command.  If left alone, the morons running banks would fail, but they've always got the morons in government to bail them out.

----------


## noxagol

> The same way YOU would make a loan to a friend.  YOU would only loan money that YOU actually had.  Why would any libertarian believe that an individual has fewer rights than a corporation?  If you were a bank you could just print your friend the money and charge him interest.  As an individual you go to jail.  What in the hell is "free market" about that?


No, the ONLY bank that can print up money is the Federal Reserve. The rest can lend out ONLY what has been given to them by depositors.

----------


## scooter

> So what your saying, keeping 10% of money on hand and loaning out the other 90% is bad. 
> 
> But keeping an amount on hand equal to or greater than what you anticipate will be taken out as withdrawals and prudently loaning out the rest is ok?
> 
> Unless I'm mistaken, which I'm not, they are the same thing.


You are not mistaken.  What he has described as the ideal situation is exactly the way it operates now.  The only difference is that the government sticks its nose in the process, which is the only thing that I argue should be changed about it.

----------


## noxagol

> You are not mistaken.  What he has described as the ideal situation is exactly the way it operates now.  The only difference is that the government sticks its nose in the process, which is the only thing that I argue should be changed about it.


Yeah.

----------


## noxagol

I'm not so convinced that fractional reserve banking even makes more money either. I just worked it out a little. 

Bank A gets 100 dollars and loans 90 out. The total amount is still 100 dollars.

Bank B gets the 90 dollars loaned out and loans out 81. 

The total amount is the 10 in reserve at bank A, the 9 in reserve in bank B, and the 81 loaned out, which adds up to 100 dollars. (10(a)+9(b)+81(loaned)=100)

Bank C gets the 81 dollars and loans out 72.9 keeping 8.1 on hand in reserves. The total amount of money is still 100 dollars (10(a)+9(b)+8.1(c)+72.9(loaned)=100)

Bank D gets the 72.9 dollars and loans out 65.61 keeping 7.29 on hand. Still only 100 dollars total (10(a)+9(b)+8.1(c)+7.29(d)+65.61(loaned)=100)

And this continues ad infinitum if you want to go to infinite decimals. Still failing to see the inherent evil of this fractional reserve. I don't see any money being created.

----------


## scooter

You're a little off on the calculations.

Bank A gets $100 and loans out $90.  They still maintain a promise to a depositor of $100, but the $90 they loans is deposited into another bank by whoever got paid by the loan.  Thus there are $190 in promised deposits in two banks, but that money only came from an original $100.

The error of the people who think this is evil is their failure to recognize two things.

First, as the guy who took out the loan from bank A pays it off, he removes money from deposit somewhere else (let's say bank C) and puts it back into bank A, eventually replacing the $90 they loaned out and erasing it from existence.

Second, as each loan is made, it is backed by the collateral of the borrower.  If the bank loans out $90 of the original $100, the person who borrowed does not fully own the asset they purchased until the note is paid off.  It is up to the bank to be sure that they get enough collateral to have an asset that at least balances the liability of the original $100 deposit that they used to make the loan.

So in short, fractional reserves do lead to new money, but only temporary credit money that is erased as credit contracts.  This credit expansion and contraction is purely driven by free market operations and the demands for currency, and thus, it is actually a very beneficial way of allowing the money to expand and contract.  Also, money created by fractional reserves have backing in the form of the collateral, or whatever was purchased with the loan.

----------


## noxagol

OK, yeah I did leave that out. I was just looking at the actual amount of money in existence.

----------


## Trance Dance Master

Homelessness did not exist in the United States prior to the Civil War.  Afterwords, it became legal for banks to confiscate property as collateral for defaulted loans.  No financial institution is allowed to deny the citizens' right to property according to the Constitution.  Now the banks own all the land.

----------


## acptulsa

> Homelessness did not exist in the United States prior to the Civil War.


Then who did all that trapping and discovered the West along the way?  No, I don't think this was even true of the cities...

----------


## noxagol

> Afterwords, it became legal for banks to confiscate property as collateral for defaulted loans.  No financial institution is allowed to deny the citizens' right to property according to the Constitution.  Now the banks own all the land.


Where does the Constitution say that?

----------


## Trance Dance Master

> Then who did all that trapping and discovered the West along the way?  No, I don't think this was even true of the cities...


Explorers and homeless aren't the same group.

http://www.amazon.com/Citizen-Hobo-C.../dp/0226143783



> Where does the Constitution say that?


Amendment V

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a grand jury, except in cases arising in the land or naval forces, or in the militia, when in actual service in time of war or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; *nor shall private property be taken for public use, without just compensation.* 

There's a good reason why Thomas Jefferson said this:

"If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered."

----------


## noxagol

> Explorers and homeless aren't the same group.
> 
> http://www.amazon.com/Citizen-Hobo-C.../dp/0226143783
> 
> Amendment V
> 
> No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a grand jury, except in cases arising in the land or naval forces, or in the militia, when in actual service in time of war or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; *nor shall private property be taken for public use, without just compensation.* 
> 
> There's a good reason why Thomas Jefferson said this:
> ...


This doesn't apply to banks. This is in regard to eminent domain and the government taking property from people for public use. A bank is not a public institution so it is for private use, and the person who received the loan to purchase the house agreed to use the house as collateral which would be forfeited if the borrower failed to pay back the loan.

----------


## Trance Dance Master

> This doesn't apply to banks. This is in regard to eminent domain and the government taking property from people for public use. A bank is not a public institution so it is for private use, and the person who received the loan to purchase the house agreed to use the house as collateral which would be forfeited if the borrower failed to pay back the loan.


It didn't apply to banks because the banks were to be kept in check by the 1792 coinage act.  Now the banks have more power than the government itself.

There's a good reason why Mayer Amschel Rothschild said this:

"Give me control of a nation's money and I care not who makes the laws."

And Jefferson said this:

"I believe that banking institutions are more dangerous to our liberties than standing armies."

----------


## scooter

> This doesn't apply to banks. This is in regard to eminent domain and the government taking property from people for public use. A bank is not a public institution so it is for private use, and the person who received the loan to purchase the house agreed to use the house as collateral which would be forfeited if the borrower failed to pay back the loan.


Exactly!  A person doesn't "own" their property until they fully pay off the bank loan they used to buy it.  Until this happens, the bank can do whatever they want with it if the borrower doesn't pay.  That's part of the whole process of making sure they have reserves or assets that can cover their deposits.  There would be some pretty pissed off depositors if the bank let borrowers run away with properties without paying off their loans.

Fractional reserves existed long before the civil war or the paper money standard.  The banks could always take their collateral if a borrower didn't pay.

And please stop using that Thomas Jefferson quote.  There is no proof anywhere that he actually said that, nor does it fit with his word usage and writing style of the time.  There are tons of great Jefferson quotes, I hate to see that false one spread around so much.

----------


## noxagol

> It didn't apply to banks because the banks were to be kept in check by the 1792 coinage act.  Now the banks have more power than the government itself.
> 
> There's a good reason why Mayer Amschel Rothschild said this:
> 
> "Give me control of a nation's money and I care not who makes the laws."
> 
> And Jefferson said this:
> 
> "I believe that banking institutions are more dangerous to our liberties than standing armies."


It still doesn't apply because banks are private institutions taken the property for private uses. The only reason the bank have more power is because the government illegally gave the Federal Reserve the sole monopoly over the only money that can be forced upon people and this happens to be a fiat currency. Take this away by going to a 100% free market control over money without the influence of government force and the banks have no more power than you or I. Again, the government is the one to blame, not banks.

----------


## Trance Dance Master

> Until this happens, the bank can do whatever they want with it if the borrower doesn't pay.


Doesn't pay in what?  Suffer death unto those who debase the currency.



> The banks could always take their collateral if a borrower didn't pay.


How often was the collateral the homestead?  How often was that taken?



> And please stop using that Thomas Jefferson quote. There is no proof anywhere that he actually said that


You don't look too hard.

http://etext.virginia.edu/jefferson/...s/jeff1325.htm

"I sincerely believe... that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale." --Thomas Jefferson to John Taylor, 1816. ME 15:23 



> Fractional reserves existed long before the civil war or the paper money standard.


The banking system existed, but wasn't always as powerful.  Banks had to compete.  When loans went bad, the bank failed.  Now everybody pays for all the bad loans via inflation.



> Again, the government is the one to blame, not banks.


The banks financed Woodrow Wilson to take control of the government.

----------


## Trance Dance Master

"The most powerful force in the universe is compound interest." -Albert Einstein

"Power tends to corrupt, and absolute power corrupts absolutely." -John Acton

----------


## noxagol

> The banks financed Woodrow Wilson to take control of the government.


And the only reason the banks could get any power from getting Wilson into office is because government ignored their own rules. Again, government is to blame, not the banks. You can thank Lincoln for destroying the last and greatest check on centralization of runaway power in the federal government.

The state, in all things, is always the enemy.

----------


## sratiug

> No, the ONLY bank that can print up money is the Federal Reserve. The rest can lend out ONLY what has been given to them by depositors.


Depositors do not "give" money to a bank.  They put money in the bank for storage.  If the banks were not printing money to loan then they wouldn't be afraid of a run, because they would have all the money they were supposed to have.  If banks were not printing money, you wouldn't need interest on your deposit to keep up with inflation.  You could afford to pay the bank to store your money as it increases in value.

----------


## noxagol

> Depositors do not "give" money to a bank.  They put money in the bank for storage.  If the banks were not printing money to loan then they wouldn't be afraid of a run, because they would have all the money they were supposed to have.  If banks were not printing money, you wouldn't need interest on your deposit to keep up with inflation.  You could afford to pay the bank to store your money as it increases in value.


The bank you put money into does... not... print... new.... money...!!! You agree to let them use a portion of your money for loans in exchange for storage and them paying you a percentage of your money back.

----------


## Trance Dance Master

> And the only reason the banks could get any power from getting Wilson into office is because government ignored their own rules.


And the reason why the government was willing to do that?  Because the banksters engineered bank runs to spread panic, and fooled the people into believing they needed some new rules that gave banks more power.  Wilson himself was rather dismayed about what the banksters suckered him into doing.

"I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men." -Woodrow Wilson, after signing the Federal Reserve into existence



> You agree to let them use a portion of your money for loans in exchange for storage and them paying you a percentage of your money back.


You give them your money and you never get it back sometimes.   Putting money in a bank is little different from lending it to somebody else yourself.  You speculate that you might get something back.  Money put in the bank 10 years ago would buy a lot less now than it would then, but since the thieves only take a small cut each year you don't notice that it's gone.

----------


## sratiug

> And the reason why the government was willing to do that?  Because the banksters engineered bank runs to spread panic, and fooled the people into believing they needed some new rules that gave banks more power.  Wilson himself was rather dismayed about what the banksters suckered him into doing.
> 
> "I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men." -Woodrow Wilson, after signing the Federal Reserve into existence


I'm fairly certain I didn't post that.

----------


## noxagol

> And the reason why the government was willing to do that?  Because the banksters engineered bank runs to spread panic, and fooled the people into believing they needed some new rules that gave banks more power.  Wilson himself was rather dismayed about what the banksters suckered him into doing.


The government was willing to do that because it allowed the government to engage in all sorts of spending they wanted to do all along. Again, thank Lincoln for giving the people no real recourse to countering this. Without the aid of government, there would be no problem. The government is the enabler of evil. 

The state, in all things, is always the enemy.

----------


## sratiug

> The bank you put money into does... not... print... new.... money...!!! You agree to let them use a portion of your money for loans in exchange for storage and them paying you a percentage of your money back.


It effectively prints money when it loans your deposits out to other people and pretends to still have your money for your checking account.  When you take your money out somebody had to print it up for either you or the guy they loaned your money to.  Money can't be in two places at once without making another copy.

----------


## noxagol

> It effectively prints money when it loans your deposits out to other people and pretends to still have your money for your checking account.  When you take your money out somebody had to print it up for either you or the guy they loaned your money to.  Money can't be in two places at once without making another copy.


It still has assets it can sell of if needed. The only time a bank fails is when it makes too many loans that go bad, as evident from the housing bubble crash. WAY to many toxic loans were made and now everybody is suffering, once again, because the government is intervening. 

So if you don't want banks to loan out any money they get from deposits, how would they make loans at all? The lack of lending would cripple any growth.

And what's more, you are agreeing to it. If you don't like it, find a bank that doesn't lend out your savings.

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## Trance Dance Master

> The government was willing to do that because it allowed the government to engage in all sorts of spending they wanted to do all along.


The government became a tool of the banks.



> Without the aid of government, there would be no problem.


The founders adopted the principles of the constitution to make sure government's role was to protect liberty against tyrants.  No government could ever possibly become as big a problem as the one we have today without everyone being forced to finance it, and that's what the banksters do.  Whether it's a government or a corporation or an army, it's the banks who control the money supply that determine the success or failure of said government, corporation, or army.



> WAY to many toxic loans were made and now everybody is suffering, once again, because the government is intervening.


The banksters lowered the rates to encourage toxic loans.  "First by inflation..."  And then raised the rates to confiscate property.  "Then by deflation..."

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## scooter

> You don't look too hard.
> 
> http://etext.virginia.edu/jefferson/...s/jeff1325.htm
> 
> "I sincerely believe... that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale." --Thomas Jefferson to John Taylor, 1816. ME 15:23


That's not the quote you used before.  That's an entirely different one.  This one is real, the other one is a conspiracy-theory fake.

You hit the nail on the head about the difference in the system today being government involvement and bank failues being paid by the citizens.  But that goes to my argument of the government being the problem.  The banks still operate on the same free market principles they always have.  They just now have a government that loves to stick its neck in places where it shouldn't.

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## Trance Dance Master

> You hit the nail on the head about the difference in the system today being government involvement and bank failues being paid by the citizens.


Let's not forget that the banks rigged the failures to encourage government to subsidize a greater level of their counterfeiting. 



> This one is real, the other one is a conspiracy-theory fake.


It's real enough to make its way to 37,000 websites.

http://www.google.com/search?hl=en&c...++&btnG=Search



> The banks still operate on the same free market principles they always have. They just now have a government that loves to stick its neck in places where it shouldn't.


That's like saying drug companies still operate on free market principles, even when they've tooled the government into banning competing drugs that they can't patent.

You have to place blame on those who've ruined the government, not just blame government.

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## acptulsa

> Explorers and homeless aren't the same group.


You show me a book cover citing a century of homelessness and I'm supposed to believe it mysteriously came into existence a hundred years ago?  That book title doesn't even prove the author thinks that way--just that he only wants to talk about the last century.  Homelessness is eternal, actually.  Oh, yes, it existed before the Civil War.

Things generally exist long before they come up with the politically correct name for them...  

P.S.  And until we pay for things, we don't own them.  Our creditors do.

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## Trance Dance Master

> Homelessness is eternal, actually. Oh, yes, it existed before the Civil War.


Not the way it did after in America.  Why did things change?  Why did all those vets lose their homes?  Because of the bankers.  They just love war.  Children wake up homeless on the land their ancestors conquered.  Nothing gives the banks more wealth than a costly war.



> And until we pay for things, we don't own them. Our creditors do.


Then you advocate giving bankers control over all the wealth they loan without them having to take the risk.  In fact, you say we have to pay them interest just because they control the money.  Banking is risky for good reason.

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## sratiug

> It still has assets it can sell of if needed. The only time a bank fails is when it makes too many loans that go bad, as evident from the housing bubble crash. WAY to many toxic loans were made and now everybody is suffering, once again, because the government is intervening. 
> 
> So if you don't want banks to loan out any money they get from deposits, how would they make loans at all? The lack of lending would cripple any growth.
> 
> And what's more, you are agreeing to it. If you don't like it, find a bank that doesn't lend out your savings.


We know that is impossible with the government sanctioning this fraudulent inflation.

Banks should only loan money they actually own.  If the bank has money they can loan that money.  If they don't have money why are they in the business of loaning money?  Oh, because they are banks and they can generate new money on a machine with the press of a button.  Even if the money is backed by collateral, what is the $#@!ing difference.  I could print myself a million dollars to buy a house and promise to destroy a million over the next 30 years.  If I don't destroy a million why should the bank get my house?  That money was stolen from all holders of fed notes through inflation, even if it is eventually paid back.

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## sratiug

> So in short, fractional reserves do lead to new money, but only temporary credit money that is erased as credit contracts.  This credit expansion and contraction is purely driven by free market operations and the demands for currency, and thus, it is actually a very beneficial way of allowing the money to expand and contract.  Also, money created by fractional reserves have backing in the form of the collateral, or whatever was purchased with the loan.


Beneficial to bankers that wind up owning everything.  This artificial credit expansion and contraction of fiat money and fractional reserve banking is what causes exagerated bubbles and busts.  How can that be a good thing?

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## scooter

> Beneficial to bankers that wind up owning everything.  This artificial credit expansion and contraction of fiat money and fractional reserve banking is what causes exagerated bubbles and busts.  How can that be a good thing?


It's only a good thing if the free markets set the rates.  Then fractional reserves would allow the money supply to expand and contract based on the demand for money.

Bubbles are caused by the government manipulation of this process and by artificially low rates.

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## Fox McCloud

> It's only a good thing if the free markets set the rates.  Then fractional reserves would allow the money supply to expand and contract based on the demand for money.
> 
> Bubbles are caused by the government manipulation of this process and by artificially low rates.


but expanding the money-supply in such a manner, regardless of your standard (paper, gold, silver, oil, toilet paper), is inflationary in nature--while it isn't permanent, and not as severe, it still causes inflation, and there-in is why I oppose it; I view any amount of unnatural inflation (except where-in physical labor/work/etc is required to increase the supply, as in mining more gold/silver, etc) as fraudulent in nature, as I said before, it transfers wealth (albeit temporarily) from those who hold dollars to those who are getting loans. Yes, it's only temporary, but it still exists, and I believe that's why a number here oppose fractional reserve banking.

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## user

> but expanding the money-supply in such a manner, regardless of your standard (paper, gold, silver, oil, toilet paper), is inflationary in nature--while it isn't permanent, and not as severe, it still causes inflation, and there-in is why I oppose it; I view any amount of unnatural inflation (except where-in physical labor/work/etc is required to increase the supply, as in mining more gold/silver, etc) as fraudulent in nature, as I said before, it transfers wealth (albeit temporarily) from those who hold dollars to those who are getting loans. Yes, it's only temporary, but it still exists, and I believe that's why a number here oppose fractional reserve banking.


I think it depends on whether or not the fractional reserve banking is voluntary. There's no reason such a system couldn't coexist with full reserve banking, and no one would have to take the risk of depositing their money at a fractional reserve bank.

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## Fox McCloud

> I think it depends on whether or not the fractional reserve banking is voluntary. There's no reason such a system couldn't coexist with full reserve banking, and no one would have to take the risk of depositing their money at a fractional reserve bank.


the thing is, let's say that a gold/silver standard develops...furthemore, let's say people wise up and drop the whole stupid currency game and decide to price everything in "gold grams"....ok, now, under a fractional reserve banking system AND a full-reserve banking system, those who inflate (fractional reserve) would still effect those who do not (full reserve)....so I really don't think they could co-exist.

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## Bradley in DC

> the thing is, let's say that a gold/silver standard develops...furthemore, let's say people wise up and drop the whole stupid currency game and decide to price everything in "gold grams"....ok, now, under a fractional reserve banking system AND a full-reserve banking system, those who inflate (fractional reserve) would still effect those who do not (full reserve)....so I really don't think they could co-exist.


That is the crux of your misunderstanding of the topic thread.  _In an environment of competitive note issue,_ they could (and do) co-exist.  So long as there is a market pricing mechanism it would work.  

EDIT: just as the gold bullion, gold bond, gold lease, gold option and other gold prices fluctuate against other currencies (fractional reserve fiat ones).  As I explained in the Mises lecture, the important thing is the market pricing mechanism.

Bad analogy, but look at how we discount the currency of Zimbabwe against, say, the US dollar.

The Suffolk Bank, the Scottish free banking era, etc., all operated as a clearing house not only to exchange notes--but importantly to discount the notes of wayward banks issuing irresponsibly.

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## Fox McCloud

> That is the crux of your misunderstanding of the topic thread.  _In an environment of competitive note issue,_ they could (and do) co-exist.  So long as there is a market pricing mechanism it would work.


Ok, then let me ask you this; what would prevent Bank A issuing a loan that was based upon a 10% reserve ratio (and since this is the free market here, they chose this for whatever reason), and they have $1000 in reserve...so they loan out the max they can to 1 person, which is obviously $900....what, in your system prevents this person from depositing this check from Bank A to Bank B (which also happens to use a 10% reserve ratio) that uses different issue of notes....now, what prevents this bank, despite having different notes, from loaning out $810 in their own notes?

Also, on that same line of thinking, assuming everyone eventually starts using the gold-gram in all their transactions (though with your concept of competing banks issuing different notes)...since everything is priced in gold grams, how would a retailer or seller be able differentiate the value of them?

After all, if bank A practices full-reserve banking, the customers uses their bank notes, then you'd pay say 2 gold grams for product X....then, you have bank B who practices fractional reserve banking (with a 95% reserve requirement)--the amount would be so little that it would be very difficult for retailers and consumers to notice the change in value between the two (especially if the bank does not specify they they loan out 5% of their customers money). If the people who used these bank notes to purchase product X, and they payed 2 gold-grams as well...then they would actually be getting a _slight_ discount, since the banking system would create more notes than there was actual gold in reserve (though it would be very VERY small, as Bank B held 95% of their customer's deposits in reserve).

I really don't see any way of preventing a situation like that, other than outlawing fractional reserve banking....now granted, a lot then bring up that "well, government intervention would be required and that goes against the Free Market"...at first that seems correct, but I'd disagree and point to Rothbard's argument, that it merely has to be recognized under common law as fraudulent in nature, and therefore not legal to do.

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## Bradley in DC

> Ok, then let me ask you this; what would prevent Bank A issuing a loan that was based upon a 10% reserve ratio (and since this is the free market here, they chose this for whatever reason), and they have $1000 in reserve...so they loan out the max they can to 1 person, which is obviously $900....what, in your system prevents this person from depositing this check from Bank A to Bank B (which also happens to use a 10% reserve ratio) that uses different issue of notes....now, what prevents this bank, despite having different notes, from loaning out $810 in their own notes?
> 
> Also, on that same line of thinking, assuming everyone eventually starts using the gold-gram in all their transactions (though with your concept of competing banks issuing different notes)...since everything is priced in gold grams, how would a retailer or seller be able differentiate the value of them?
> 
> After all, if bank A practices full-reserve banking, the customers uses their bank notes, then you'd pay say 2 gold grams for product X....then, you have bank B who practices fractional reserve banking (with a 95% reserve requirement)--the amount would be so little that it would be very difficult for retailers and consumers to notice the change in value between the two (especially if the bank does not specify they they loan out 5% of their customers money). If the people who used these bank notes to purchase product X, and they payed 2 gold-grams as well...then they would actually be getting a _slight_ discount, since the banking system would create more notes than there was actual gold in reserve (though it would be very VERY small, as Bank B held 95% of their customer's deposits in reserve).
> 
> I really don't see any way of preventing a situation like that, other than outlawing fractional reserve banking....now granted, a lot then bring up that "well, government intervention would be required and that goes against the Free Market"...at first that seems correct, but I'd disagree and point to Rothbard's argument, that it merely has to be recognized under common law as fraudulent in nature, and therefore not legal to do.


Nice.  Random responses...

Are you familiar with the "option clause" part of this debate in the literature?  if you left it out for brevity, allow me to introduce it--it's in the original lecture which I finally listened to yesterday!  (at the risk of returning to the thread topic)  

First of all, though, yes, you're right, relatively limited transportation, technology and communications were serious impediments to free banking in the colonial US, 1700s Scotland, etc.  I posit that the improvements we've made in these areas would go a long way towards making free banking more viable now than it was then.

Richard Rahn wrote "The End of Money and the Struggle for Financial Privacy" which basically boiled the debate down to putting "money" in the form of ones and zeros on the back of plastic and letting the issuers sort out the rest (rough simplification).  

Are you familiar with Judy Shelton?  She has argued for gold as the unit of account rather than $ or pounds or whatever.  In an exchange between her (gold) and Kevin Dowd (free banking) at a Cato monetary policy conference years ago, they had this same discussion.  It was great.  I wanted to lock them in a room together until they worked it all out.  I'm not sure if it's online somewhere...

No one in the real world believes that banks treat deposits as warehouse receipts as Rothbard would like us to believe.  We all know that banks lend out our money.  There is no fraud.

Arbitraguers make their livings on trading on the small differences, yes.  Welcome to the world of finance.

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## Unspun

> it should not be legal, under any circumstance, to loan out or offer on any market more than you own.


So futures speculation should be regulated in your opinion I take it.

Oil and commodities speculators, also fractional reserve bankers, are criminals is what you just said by this statement quoted above.

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## Fox McCloud

> So futures speculation should be regulated in your opinion I take it.
> 
> Oil and commodities speculators, also fractional reserve bankers, are criminals is what you just said by this statement quoted above.


I would say that no one should be able to purchase something that is not in existence at the time they purchase it, no matter what the product is...if there's 1,000,000 barrels of oil on the open market, and investors/speculators/buyers/etc. purchases (not just one person, the whole collective group) purchase a total of 1,200,00, then I would say that should not be allowed; I would constitute that as a dishonest scale, to use a Biblical term.

Why would government intervention need to be involved? Common law must merely recognize that having a claim on something that is not there is fraudulent in nature, regardless if the investor/speculator/buyers/etc. knows about it or not.

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## Trance Dance Master

> I would say that no one should be able to purchase something that is not in existence at the time they purchase it, no matter what the product is...if there's 1,000,000 barrels of oil on the open market, and investors/speculators/buyers/etc. purchases (not just one person, the whole collective group) purchase a total of 1,200,00, then I would say that should not be allowed; I would constitute that as a dishonest scale, to use a Biblical term.
> 
> Why would government intervention need to be involved? Common law must merely recognize that having a claim on something that is not there is fraudulent in nature, regardless if the investor/speculator/buyers/etc. knows about it or not.


The issue is that those additional 200,000 barrels will be available to the market in the future.  Futures trading began thousands of years ago with rice.  Nobody knew exactly how much rice was going to be available during the next harvest, but prices were negotiated for the future purchases and sales by putting up a margin payment to buy or sell.  

If the sales were dishonest, displeased buyers and sellers would find a new exchange.  Just like Iraq sought to trade their oil in markets where the means of exchange was something other than fed notes.

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## Dr.3D

> So futures speculation should be regulated in your opinion I take it.
> 
> Oil and commodities speculators, also fractional reserve bankers, are criminals is what you just said by this statement quoted above.


Well, read this article and then suggest what you think should be done.
http://www.washingtonpost.com/wp-dyn...082003898.html

If it is happening with oil, then it must be happening on other commodities as well.

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## rockandrollsouls

> I fail to see how loaning out 90% of deposits creates more money than is there. Do explain.


Read the fractional reserve banking section at this link. Rothbard details it fairly well http://www.lewrockwell.com/rothbard/frb.html

Let me know if it clicks after you read it.

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## rockandrollsouls

> The issue is that those additional 200,000 barrels will be available to the market in the future.  Futures trading began thousands of years ago with rice.  Nobody knew exactly how much rice was going to be available during the next harvest, but prices were negotiated for the future purchases and sales by putting up a margin payment to buy or sell.  
> 
> If the sales were dishonest, displeased buyers and sellers would find a new exchange.  Just like Iraq sought to trade their oil in markets where the means of exchange was something other than fed notes.


Exactly. Futures are completely different from the concept of frb...they can't be compared. You hit the nail on the head. Futures are what the name implies. With FRB one creates title to property that is not there.

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## The_Orlonater

May I ask why the market would decide fractional reserve banking?

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## user

> May I ask why the market would decide fractional reserve banking?


Interest

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## The_Orlonater

> Interest


The market...?

Haven't banks been doing that for a while. Print more and loan more. Then charge interest on it?

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## user

> The market...?
> 
> Haven't banks been doing that for a while. Print more and loan more. Then charge interest on it?


I think deposits in fractional reserve banks would be seen as investments with risk (no FDIC insurance), unlike full reserve banks. The potential return would be higher.

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## The_Orlonater

> I think deposits in fractional reserve banks would be seen as investments with risk (no FDIC insurance), unlike full reserve banks. The potential return would be higher.


But wouldn't it increase the money supply.

Look, I still see it as fraud and fraud shall be illegal. Just like stealing is illegal.

I sometimes get the feeling people confuse libertarianism with anarchy.

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## rockandrollsouls

> Interest


What an ignorant answer.

The market wouldn't decide on frb, but I believe it would be a factor. You could, perhaps, receive a higher return on your money by letting it sit in bank x that practices frb. There would be full disclosure and contract, and because of the slight risk you would receive a better return on your money. 

I think this is how the market would put frb into play.

Those who wanted to be more secure would choose a bank with full reserves. 

However, none of this matters with our monetary policy, as what was supposed to be gold deposit certificates and gold is now certificates and more certificates.

frb in an economy with a commodity currency = probable and plausible. frb with our fiat money = impossible, foolish, and a rouse.

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## user

> What an ignorant answer.
> 
> The market wouldn't decide on frb, but I believe it would be a factor. You could, perhaps, receive a higher return on your money by letting it sit in bank x that practices frb. There would be full disclosure and contract, and because of the slight risk you would receive a better return on your money. 
> 
> I think this is how the market would put frb into play.
> 
> Those who wanted to be more secure would choose a bank with full reserves. 
> 
> However, none of this matters with our monetary policy, as what was supposed to be gold deposit certificates and gold is now certificates and more certificates.
> ...


Um, what the hell? You just called my answer ignorant and then said exactly the same thing I've been saying. Seriously, WTF?

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## rockandrollsouls

> Um, what the hell? You just called my answer ignorant and then said exactly the same thing I've been saying. Seriously, WTF?


because it's way more complicated than a single word. don't be so butthurt. I just see answers like that as cocky and ignorant. "why is the sky blue?" "because." I mean come on. Sorry you're tweaked over it but someone asked a question and you gave a vague, arrogant answer. Why bother answering at all?

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## user

> because it's way more complicated than a single word. don't be so butthurt. I just see answers like that as cocky and ignorant. "why is the sky blue?" "because." I mean come on. Sorry you're tweaked over it but someone asked a question and you gave a vague, arrogant answer. Why bother answering at all?


I wasn't "tweaked" over it, just completely confused because you ended up saying the same thing I've said. If you'd said "arrogant" instead of "ignorant" I would've understood even if I disagree with you. As for "why bother answering at all?" I could ask the same of you, since again you just repeated what I (and maybe others as well) already have said.

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## LibertyEagle

Everybody be nice now.  Please.

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## Live_Free_Or_Die

nt

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## user

> I'll tell you what I am going to open up a fractional reserve bank so I can start working off of your money.  Who wants to be the first depositor?  Step right up all you fractional reserve advocates.


I have no intention of doing that, just like I don't plan on doing hard drugs. I'm saying there's no legal reason someone else can't do those things.

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## Live_Free_Or_Die

nt

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## sratiug

> I have no intention of doing that, just like I don't plan on doing hard drugs. I'm saying there's no legal reason someone else can't do those things.


I'd think it would be closer to polygamy.  Polygamy may be illegal.  But having two girlfriends at once isn't.  It is a benefit to everyone, until you get caught.

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## Conza88

> I'd think it would be closer to polygamy.  Polygamy may be illegal.  But having two girlfriends at once isn't.  It is a benefit to everyone, until you get caught.


lol... How I found freedom in an Unfree world. by Harry Browne.
Relationship section in there... read it  

I wonder though; I technically don't think you can _"cheat"_ on anyone unless you have entered into marriage. You know; whole legal contract thingo with your partner and the state recognizes you as a couple in the courts etc.. 

Because clearly if you are just going out, you can't OWN that other person..  They are free to do what they want with their property 

Just wondering, would going into marriage; pretty much mean - signing away your freedoms?  ! It's voluntary though so, I guess it's  lol

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## rockandrollsouls

> I have no intention of doing that, just like I don't plan on doing hard drugs. I'm saying there's no legal reason someone else can't do those things.



There kind of is. It's called counterfeiting.

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## user

> There kind of is. It's called counterfeiting.


What are you talking about? Read the posts first.

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## rockandrollsouls

> What are you talking about? Read the posts first.


I did. You were saying there is no reason someone can't go and start a fractional reserve bank. Well, there is. It's called counterfeiting.

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## user

> I did. You were saying there is no reason someone can't go and start a fractional reserve bank. Well, there is. It's called counterfeiting.


In the post you quoted, I was referring to _depositing money_ in a fractional reserve bank. Read that post and the one quoted in it.

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## Bradley in DC

Here is more background on the thoughts and arguments of the author:

http://www.ronpaulforums.com/showthr...53#post1642153

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## sratiug

> In the post you quoted, I was referring to _depositing money_ in a fractional reserve bank. Read that post and the one quoted in it.


Which is similar to depositing a fed note into a copy machine.  Which would be, counterfeiting.

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## anaconda

Just attended the first meeting tonight of a Money & Banking class at San Jose State University. Hummel is the Professor. Sounds like a very sharp dude, I must say. One of his required texts is Murray Rothbard's _What Has Government Done To Our Money?_

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## anaconda

> When a bank takes money into a demand account, representing to the depositor that the funds are available at any time and even presents them with a statement of their "balance", and then turns around and intentionally acts in a way that they KNOW puts them in a position where they cannot possibly perform on the agreements they have made, that is fraud.  If any other business did it, they would be prosecuted.
> 
> People like farmers DO sell things they don't have.  But the terms are spelled out in the contracts and everyone knows what they are getting.
> 
> It is true that over time, the public would learn from bank failures.  Unfortunately, history shows that they don't learn the right thing.  Instead they learn to depend on government for help and end up where we are today with a massive scam for a money supply.


But I believe the bank can in fact honor the withdrawal request at any time. If they don't have the liquidity they just borrow from the Fed.

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## DamianTV

Holy Necropost Batman!  This thread's been dead since 2008!

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## anaconda

> Holy Necropost Batman!  This thread's been dead since 2008!


Seemed worthy of revival plus I had new first hand information

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## DamianTV

I think the title of the thread caused a lot of preconceived notions about anything relevant to the situation.  Although your data is relevant, it probably would be perceived differently (better) as its own thread...

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## enjerth

Well, of course fractional reserve banking (a business method) is more libertarian than the gold standard (legal tender laws). But that's apples and oranges. And legal tender laws on top of fractional reserve banking is worse than either.

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## goldencane

I apologize for bringing up this old thread, but I guess it is better than starting a new topic. I can't seem to find a good explanation of my question.

While I support free banking based on principle, I am confused about what it's supporters say creates business cycles. Before central banking and a national monetary policy, we still had business cycles, and I know the anti-fractional reserve people will say it was because private banks used fractional-reserves, but what explanation do free bankers give for the business cycles?

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## Working Poor

http://lisafrequency.newsvine.com/_n...-a-riddle-poll

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