Fractional Reserve Banking Is Not Fraudulent

[heavenlyboy34]

The source of confusion has been pinpointed already. There is a fundamental disagreement about whether a deposit in a bank transfers ownership or not. "Legally" now it does, prior to 1800's it was not decided by law.

Therefore, the question of whether FRB is fraud will stem from a combination of your stance on the ownership issue, and whether you wish to focus on the contemporary implementation of FRB, or an imagination of FRB operating in a libertarian utopia.

I'm sure you can see why I was decleared thread-winner. I have no confusion.

Yeah, the declarer was also misinformed on the facts of the matter.

 

[heavenlyboy34]

I'm kind of disappointed that this branch of the discussion died off because I've always been quite curious about the relationship between interest and inflation.

Let's say there's $10,000 "Liberty Bucks" printed by Libertarian Bank (assuming we go back in time to the days when private banks could issue their own notes), that's all the Libertarian bank notes that exist in the economy because Libertarian Bank is the only bank that can issue its notes (anything else is from "other bank"), and they loan $10,000 in Liberty Bucks to Bob on the condition that he pays back $11,000 Liberty Bucks by the end of the year. Where does that extra grand come from, if not from Libertarian Bank, and why would a bank loan money at interest, if it has to print more money to get paid back, which effectively devalues the original $10,000? I mean, think about it, why does it even work? Does interest itself inherently cause, or at least, require there to be inflation in order to work? I can't really pay you back something you loan me with interest, if what you gave me in the loan is all that exists.

It would seem to me that if you wanted a truly strong currency, you'd have to ban interest, and maybe even set fire to a few dollar bills every now and then for good measure. I mean, maybe Bob could simply shred, burn, destroy half of what he borrowed and then repay the bank $5,000 expecting to be thanked for effectively doubling the value of their currency, lol.

EDIT, Maybe it's only complicated by the existence of fiat currency backed by nothing, but it does make you wonder even more about how the people running our money system have managed to make it work when it doesn't seem to make any sense at all.

The same place borrowers get the money to pay back loans when they borrow for their business-returns on investment in capital goods and/or employment (not all businesses require employees, as you surely know)

 

[CCTelander]

Yeah, the declarer was also misinformed on the facts of the matter.

But his humility is a shining example to us all! /s

 

[wizardwatson]

But his humility is a shining example to us all! /s

The lord requires a humble heart, not a humble mouth. Many of the slithering snakes of the world put on a cloak of dignity, and manners, a nice suit, and prowl among the innocent with the blackest and hardest of hearts.

I am not tempted by the glory of being among the smarties of this place or that place. I slay zombies and melt nazi's faces. I don't seek their approval or admiration. I follow the Lord.

 

[wizardwatson]

Yeah, the declarer was also misinformed on the facts of the matter.

Perhaps. But I think "was" is the operative word here. The declarer doesn't declare till he's certain his argument is unassailable.

 

[heavenlyboy34]

Perhaps. But I think "was" is the operative word here. The declarer doesn't declare till he's certain his argument is unassailable.

Not necessarily. It happens on the webbernets all the time-on numerous forums and facebook, etc. In this very thread, too!

 

[r3volution 3.0]

I guess I didn't fully understand why people accept banknotes today, without a gold standard.

Because of legal tender laws, taxes on gold/silver, the requirement that taxes be paid in FRNs, etc.

"No matter where you earn the money, its origin was a bank and its ultimate destination is a bank. The loop through which it travels can be large or small, but the fact remains all interest is paid eventually by human effort."

Yes, all interest is paid by human effort. As is all rent, all utility bills, all pizza delivery bills, etc. In other words, you sell what you produce to buy what others produce; it's the essence of the market economy. The bank is not unique in this. It, like every other actor in the market, is selling its product in exchange for others' product.

It's incorrect to think of the bank as getting something for nothing. The banknotes which it gives to Bob aren't nothing, no more than bonds or other debt instruments are nothing. The bank had to accumulate wealth in the first place in order to loan it out, same as any other creditor; it had to forgo present consumption (its reward for which is interest).

To the extent that it's borrowing wealth and relending it (as opposed to lending out its own accumulated wealth), that too is not something for nothing; that's a valuable service, which allows creditors and debtors to find one another who otherwise wouldn't, ala say Ebay with regard to retail sellers and buyers.

People seem to like your post refuting of Walter here.

But this is all semantic gymnastics. The only point anyone is making about anything is whether a deposit is a loan or a deposit.

EVERYONE AGREES that money owned by people can be loaned.

The two sides of this argument disagree on only one thing, whether a deposit transfers ownership of the money to a bank or not.

A contract means whatever the contracting parties intended for it to mean. If A and B get together and make an agreement which they understand to be a loan, it's a loan - end of story. WizardWatson cannot come by later and tell them, "Nope, sorry, I know you thought you were making a loan, but it was actually a bailment, because I say so." If they thought it was a loan, it was a loan, and hence there's nothing fraudulent in the borrowing party relending it.

I and the rest of the world call that situation (i.e. a bank relending a call loan) fractional reserve banking, because it involves the bank holding fractional reserves. You want to reserve the term "fractional reserve banking" for a situation where a bank lends out a bailment, so as to preserve your claim that FRB is fraudulent. This is a odd use of language (like defining "selling real estate" as "selling real estate you don't own" so as to be able to claim that selling real estate is fraudulent), but whatever, just semantics.

Boy have you got this bass-ackwards.

Your scenario is not equivalent to the reality of FRB. It is fundamentally different.

Firstly, your scenario represents an agreement at the very least, if not a contract.

It is voluntary, whereas FRB is the product of state fiat. We are given no choice in the matter. See what happens when you try paying your taxes with chickens and babka.

"Is FRB faudulent?" is a meaningless question until an aspect is cited for context.

One does not deposit "money" in the bank. Currency != money. FRNs are not money - they meet none of the criteria.

ETA: The question of fraudulence is orthogonal to that of whether it is a valid monetary system, which is the more salient question. FRB may be non-fraudulent (MAY), but it is still invalid as a monetary system. In that sense, actually, it is fraudulent because it is presented as monetary when in fact it is nothing more than empty currency. It is nothing less than counterfeiting. There's the aspect.

You're conflating FRB and irredeemable fiat currency - separate issues, as discussed earlier in the thread.

With that, I'm going to go ahead and call it:

wizardwatson, still undefeated, is thread winner.

 

[osan]

You're conflating FRB and irredeemable fiat currency - separate issues, as discussed earlier in the thread.

What are you talking about?

 

[r3volution 3.0]

What are you talking about?

I'm talking about the post of your that I quoted, in which you conflate FRB and fiat currency (they are separate issues).

Your scenario is not equivalent to the reality of FRB. It is fundamentally different.

Firstly, your scenario represents an agreement at the very least, if not a contract.

It is voluntary, whereas FRB is the product of state fiat. We are given no choice in the matter. See what happens when you try paying your taxes with chickens and babka.

"Is FRB faudulent?" is a meaningless question until an aspect is cited for context.

One does not deposit "money" in the bank. Currency != money. FRNs are not money - they meet none of the criteria.

The underlined/bolded statements refer to fiat currency, not FRB.