Fractional reserve banking is fraud, period.

[heavenlyboy34]

A free market + fractional banking = huge spike in interest rates as banks scramble for liquidity without government aid. Only without fractional banking could the free market have truely stable interest rates.

I think you're confusing FRB with central banking. There would only be liquidity crises if banks took on an insane amount of bad debt-highly unlikely in the absence of a central bank because if the banks take that much risk they're very likely to go under in cases of default.

 

[heavenlyboy34]

To say free market fractional reserve banking is fraud, is to say loaning someone money is a fraud. It's not! Attack the fed, not fractional reserve banking itself.

this^^ Not a perfect analogy (lending in FRB generally comes from direct deposits), but a very good one.

 

[GeorgiaAvenger]

No it isn't, unless people are intentionally mislead on what happens to their money. The problem is central banking.

 

[hazek]

Where are the loans you speak of going to originate? I don't know of any lender who has enough capital to back up every loan. Thanks.

You should take a look at the real world experiment that is Bitcoin and the lending that goes on there to get your answer: https://bitcointalk.org/index.php?board=65.0

 

[rpwi]

This^^ IIRC, it was Friedman who said that the FED could be replaced by a computer in an honest money system and Murray agreed.

Friedman was very influential and getting the Fed in 1979 to abandon fed fund rate targeting and for them to target a constant growth in the money supply (M1). This system got more criticism than it deserved...and for a brief period in time we came much closer to having a genuine market for interest rates.

The simplicity is very appealing and had the advantage of minimizing the amount games the banks and Fed can do to harm the economy. (Friedman was very critical of Open Market Churning)

The mistake was that M1 was targeted...of all monetary aggregates...this was not the best. MB would have been best...as this was the least manipulatable. They could have set say MB to grow at an annualized 1% rate, THIS could have been done by a computer and we would have been good.

M2 or M3 would have given a better gauge of inflation...but IMO MB is the base in which all money is pyramided so it would have suited Friedman's plans much better than M1.

 

[hazek]

To say free market fractional reserve banking is fraud, is to say loaning someone money is a fraud. It's not! Attack the fed, not fractional reserve banking itself.

How exactly does lending money created out of thin air equal lending money? I'm simple baffled by this statement.

 

[rpwi]

Ok... As heavenlyboy stated, you are going to have to explain this.

I don't know about interest rates being lower...but without bank money inflating the cost of the dollar, the amount of money you would have to borrow would be much less which IMO would offset things. Personally, I suspect interest rates would be higher without fractional banking.

 

[Travlyr]

To say free market fractional reserve banking is fraud, is to say loaning someone money is a fraud. It's not! Attack the fed, not fractional reserve banking itself.

Not true. Fractional Reserve banking is fraud. It is a trusted holder of assets promising ownership of those assets to more than one owner. For example, it is no different than a farmer with a 1000 bushel grain bin full of grain selling 1000 bu. to Billy while selling Betty the exact same 1000 bu. of grain too. It is fraud straight up. Two people cannot own 100% of the same asset.

 

[heavenlyboy34]

You should take a look at the real world experiment that is Bitcoin and the lending that goes on there to get your answer: https://bitcointalk.org/index.php?board=65.0

Thanks for the link. The first think I peeked at was this:

This isn’t a charity and there is real money at stake. There are real defaults (about 400 coin worth to date) and lending is a high risk process, that’s why the interest rates are high. However, Starfish is well capitalised and I have significant funds tied up in income generation rather than simply speculating on the price of coins.

Lending and Seeking a Loan
I decide if you’re a good credit risk or not. I may seek a credit check with other regular lenders, and I will use whatever other subjective measures I want.
It would be useful to know what you want the funds for. Mining rigs, bridging finance and the like are much more likely.
Short term or small loans have higher costs to set up and look after, so don’t expect to get things too cheap.
Having evidence of ability to repay when (not if) things go wrong is an advantage.

Loan Types:
Small and short - there are probably other lenders who can provide a better service/rate.
Over seven days, up to one month, 10% to 15% monthly – rate will be confirmed in offer.
Larger loans (100 coins plus) may be syndicated, and I would start to want some evidence of collateral, ID, emailed verification.

Repayment – each loan will have a specific address advised upon confirmation of terms by the borrower.
Late Repayments/defaults – when you get into trouble, contact me at earliest. (it has been suggested to me this should be 1%/day)

Deposits
Currently deposits paying 1.5% per week. Calculation is 1.015^(#days/7) To maintain adequate reserves, I may limit deposits, and you’ll need to contact me ahead of time before sending your coins so I can set up a unique deposit address for you.
Terms are generally on-call and a 10 BTC minimum. While I try to accommodate at-call withdrawals, it can be delayed.
Choice is either compounding or weekly interest payments.
The current 1.5% per week will be maintained until the end of June, at which time it will be reset to 1%/week.

Other
I have a life, and am not here 24 hours per day. It might take time for me to respond.

IBB – I like what IBB is doing and have both donated to IBB and purchased a couple of shares. The amount I donate is a little random.

Bad Debts:
There are a few names that I'll list. Willing to remove on repayment.
PunkAs, SirChiko, DoubleIcarus, Kais3r and Gurg2.0/KuJoking7. Wezzy in Australia is a weasel.

To provide a little more info on the lending scene
January activity
- 4 loans repaid (approx 320BTC)
- 11 loans current (five 100BTC or over, five under 100BTC)
- 1 bad
- 1 inter-bank loan (repaid)

February activity
- 11 loans repaid (approx >1500BTC)
- 20 loans current (ten 100BTC or over, ten under 100BTC)
- 2 bad/suspect, 1 overdue
- IBB donation 2.67

March activity (Updated 10 April 2012)
- 12 loans repaid (approx 1100BTC)
- 16 loans current (most 100BTC or over, two under 100BTC)
- 4 bad loans (loss 223 coins), 1 further suspected bad
- IBB donation 0.00 (due to loss on the month overall from the above)
- 16 deposits (total approx 2500)

April activity (Updated 1 May 2012)
- 2 loans repaid (approx 500BTC)
- 9 long term loans paying interest as required
- 18 loans current (most 100BTC or over, three under 100BTC)
- 1 bad loans (loss 70 coins)
- IBB donation 10
- 19 deposits (total approx 3300)
- 8 deposits repaid (at call 2,000)

It seems that the bitcoin economy has a lot in common with FRB.

 

[hazek]

It seems that the bitcoin economy has a lot in common with FRB.

Are you just trolling me or do you seriously believe this crap?

 

[heavenlyboy34]

Not true. Fractional Reserve banking is fraud. It is a trusted holder of assets promising ownership of those assets to more than one owner. For example, it is no different than a farmer with a 1000 bushel grain bin full of grain selling 1000 bu. to Billy while selling Betty the exact same 1000 bu. of grain too. It is fraud straight up. Two people cannot own 100% of the same asset.

Please address this point I raised earlier:

Pardon my ignorance, but where do loans and consumer credit originate from in your understanding of a 100% reserve system?

Those who oppose FRB in EVERY instance have a lot of explaining to do in regards to how the economy is actually going to grow without it.

 

[heavenlyboy34]

Are you just trolling me or do you seriously believe this crap?

No trololol. Did you see what I quoted from the link you provided?

 

[rpwi]

To say free market fractional reserve banking is fraud, is to say loaning someone money is a fraud.

There is a difference.

Scenario A:

Non-bank loans a 10 year 100k loan to person A. Non-bank has 100k loan asset that matures in 10 years and the person has a 100k loan liability that matures in 10 years.

Scenario B:

Bank Z loans a 10 year loan worth 100k to person A like before, but finances it with a 10 day loan worth 100k.

The difference between the two, is that bankers work by mismatching short term debt with long term assets. You're making promises in the aggregate that you can't keep.

As long as bankers don't mismatch the maturities from assets to liabilities...I wouldn't have any problem with them. But then they wouldn't be considered a bank.

 

[Travlyr]

Pardon my ignorance, but where do loans and consumer credit originate from in your understanding of a 100% reserve system?

From savings.

100% reserve is the only honest system. Everything else is slight of hand fraud.

Can you create hamburger out of thin air? Can you create a car out of thin air? Can you create money out of thin air? No to all. Fractional reserve is simply theft of resources by privileged fraud. While it is an accepted practice it is not even legal. It is a capital crime according to the Coinage Act of 1792.

 

[Bohner]

A free market + fractional banking = huge spike in interest rates as banks scramble for liquidity without government aid. Only without fractional banking could the free market have truely stable interest rates.

Interest rates wouldn't go from 2% to 35% overnight... it would raise gradually as more and more people take out loans.

Socialized risk is bad. Direct risk is bad too.

Socialized risk provides an incentive to make risky investments. Direct risk inhibits that incentive.

You don't want the bank to close your checking account because of bad loans.

They wouldn't be making bad loans to begin with if Fannie and Freddie wasn't guaranteeing them.

Conceptually the problem is not about bad investments of ratios...as long as we have fractional banking...we will ALWAYS have 'bad investments' and 'over-leverage'. When a bank mismatches short term liabilities with long term assets that is inherently risk and unstable and will always cause negative side-effects.

As mentioned before, they do this kind of shit because they know that the tax-payer is going to pick up the tab if those investments go bust. They would be a lot more careful if those losses were direct.

If people couldn't have bought those homes or started those businesses without counterfeited money driving down interest rates...then they shouldn't have.

99% of the population wouldn't be able to afford to buy a house or open up a business if they couldn't take out a loan.

That they do now represents mal-investment and will create derivative mal-investment and a bubble that pops that leaves savings ruined and jobs lost.

In a free market, interest rates would rise to the point where taking out a loan would be unfeasible before a bubble would form.

The other problem is fractional banking creates a lot of inflation that steals from you and I...much more so than inflation caused when the government creates dollars (MB).

Any inflationary period would be quickly squashed as interest rates begin to rise.

 

[Gumba of Liberty]

Pardon my ignorance, but where do loans and consumer credit originate from in your understanding of a 100% reserve system?

In a full-reserve banking system, banking is separated into its two natural functions. Banks would, first, warehouse or store money for its customers. It would provide a vault for which bank depositors would pay a small monthly fee. Second, banks would invest money in business projects. Banks would encourage investment by inviting their depositors to put some of their savings toward business ventures that they believe will produce a return (interest). Individual depositors would have a say in exactly where their money is invested, they would claim the benefits of investing wisely but they would also take full responsibly for business ventures that fail. Innocent depositors would not be on the hook for the poor decisions of investors and the banks would not flood the market with credit artificially increasing the price of essential industries (housing, business, education, medicine, etc.)

 

[hazek]

No trololol. Did you see what I quoted from the link you provided?

Yes. If you understand Bitcoin then you know what that person is doing is taking deposits, paying interest on them to the depositors and lending them out to borrowers at 100% reserve meaning no new bitcoins are being created in this process unlike in FRB.

The scheme in this example goes like this:

A -> depositor
B -> lender
C -> borrower

A relinquish his possession of bitcoins and gives to B for which B pays an interest, B then relinquishes his possession of these same bitcoins lending them to C charging an interest, once C repays, B gets the bitcoins + interest back and can now pay A the bitcoins + interest back.

Where in here do you see any fractional reserve banking?!

 

[Bohner]

From savings.

How do loans come from savings in a 100% reserve system?

 

[hazek]

In a full-reserve banking system, banking is separated into its two natural functions. Banks would, first, warehouse or store money for its customers. It would provide a vault for which bank depositors would pay a small monthly fee. Second, banks would invest money in business projects. Banks would encourage investment by inviting their depositors to put some of their savings toward business ventures that they believe will produce a return (interest). Individual depositors would have a say in exactly where their money is invested, they would claim the benefits of investing wisely but they would also take full responsibly for business ventures that fail. Innocent depositors would not be on the hook for the poor decisions of investors and the banks would not flood the market with credit artificially increasing the price of essential industries (housing, business, education, medicine, etc.)

And that's what honest banking is, there is no fractional reserve banking in your examples.

 

[hazek]

How do loans come from savings in a 100% reserve system?

Seriously? Are you seriously asking this question?!