Fractional reserve lending is NOT inherently fraudulent

[Optatron]

is it fraud if there's no possibility of the agreement being executed at any and all times, even if the customer is informed? I don't know.

I think the better wording would be "is it an acceptable agreement if it's not enforceable and we all know it"

 

[silverhandorder]

So by your logic, a store can't sell you an item for $1 because you have no idea it's actually only worth 1 cent no matter what the cost adds up to?

That is different. I am being sold a product in your example. I can decide if I want to buy it or not.


I have no problem with a bank going out and doing this on their own. I would not do business with them. If they have a run on the bank and can not pay back people their deposits that is when they can be accused of fraud.

If they asked, and were not told, or told a lie, that'd be fraud.

If the bank demanded nobody ask, that'd be a sign, but none of these outright happened. If you ask a bank how much cash they have, they either don't know, or will tell you they can't tell you, or tell you they don't have what you think they have.

That bank would not stay in business. However I would not have a problem with that business plan lol...

being screwed comes in many different forms, not all are bad and wrong.

are peopel being screwed if they have to pay $10-15 extra by eating at a restaurant? NO, because they AGREED TO IT.

Again you are bringing irrelevant examples. I sure as fuck do not agree to them inflating the money supply through fractional reserve banking. Inflation is bad. Some people may agree to inflation but they have no right to do it to me.

 

[Optatron]

Loaning out money that does not exist, then they charge interest on that same money that does not exist....... which allows more banks to loan money that does not exist, then they charge interest on that same money that does not exist....... which allows more banks to loan money that does not exist, then they charge interest on that same money that does not exist...... which allows............................ see above......

Nope..... nothing fraudulent here.

Nothing is fraudulent if all parties are informed 100% of the mechanism.

However, there IS an argument that because banks don't own the money supply, nor gotten consent of ALL PEOPLE WHO USE FRN MONEY, they cannot (be allowed to) affect their supply.


the below ignored until the above answered.

I have this theory about people who suck.

You see......... I believe that most people suck, in fact the vast majority of people suck. When two groups of people both suck, and they start fighting, what is the outcome? A compromise that sucks even worse. Later this compromise will have detractors, who will then compromise with something else that sucks, this stupid fracas continues until everything in the entire world sucks. Such is the nature of people who suck. Making the rest of us swim in the cesspool they create.

I believe fractional reserve lending is a wonderful working example of the above theory.

 

[Optatron]

That is different. I am being sold a product in your example. I can decide if I want to buy it or not.

yes, and banks sell you a shitty deal, you can decide whether you want it.

I have no problem with a bank going out and doing this on their own. I would not do business with them. If they have a run on the bank and can not pay back people their deposits that is when they can be accused of fraud.

No, it's not a fraud if they never promised they can deliver in the first place.

That bank would not stay in business. However I would not have a problem with that business plan lol...

thanks/

Again you are bringing irrelevant examples. I sure as fuck do not agree to them inflating the money supply through fractional reserve banking. Inflation is bad. Some people may agree to inflation but they have no right to do it to me.

fair enough, so the only problem you have with inflation is not 100% of the people agreed to it.

 

[aravoth]

Nothing is fraudulent if all parties are informed 100% of the mechanism.

I believe you just proved my point. The overwhelming majority in this country don't have a clue what Fractional Reserve lending is.

But a better point still, is that even if 49% of the population knew what Fractional Reserve Lending was, the other 51% could force them into it. The 49% doesn't agree, knows it's fraud, and can't do shit about it. The 49% doesn't even have to take out loans to be in debt under this system. Once one person gets a personal loan, everyone begins to pay for it through currency devaluation. There is nothing smart, nothing moral, and nothing enlightening about this ridiculously stupid and dominating system.

 

[Feenix566]

As we discussed in many previous threads, there's a difference between

A. Taking $10 in, lending $9, keeping only $1.
vs.
B. Taking $10 in, claiming to have $100, and lending out $90.
vs.
C. Taking $10, keeping it all.

A. Is the typical bank operation of fractional reserve
B. Is outright printing money, increasing money supply, "lending money that doesn't exist"
C. Simply depositing money and doing nothing with it.

The act of A in and of itself is NOT fraudulent, it ONLY is fraudulent if the depositor of the original $10 was told he can cash it at any time, and it won't be lent out without his consent (it which case, it's a broken promise or breach of contract). It's also fraudulent if a borrower was told the $9 he borrows wasn't originally borrowed from somebody else, and isn't aware can be asked back any time.

http://www.market-ticker.org/archives/1019-Rebuttal-To-Mish-FRL.html

WHAT'S WRONG WITH FRACTIONAL RESERVE AND LENDING IF EVERY PERSON AFFECTED AGREES TO EVERY PART OF IT?

Fraud means somebody was lied to, somebody was not told the whole story, but what if DEPOSITOR KNOWS, BANKS KNOWS, BORROWER KNOWS, ALL AGREE?

Fractional reserve banking is scenario B, not scenario A. You have the "fractional" part mixed up. It doesn't mean they lend out a fraction of what they have. It means they have a fraction of what they lend out.

Hope that clears it up for everyone.

It's fraud because the bank is claiming to have wealth it doesn't really have. The Federal Reserve cuts a check for $100,000 and hands it to bank A. The check is backed by nothing. No one can take that check back to the Fed and get anything for it. Bank A then cuts checks to borrowers for $1,000,000 total. Those borrowers then use the money to buy a house or whatever. They pay sellers with the checks. The sellers take the checks to banks B, C, and D, and deposit them.

In lieu of a banking cartel, this would present a problem. Banks B, C, and D would come to bank A with the checks and expect to get something for them. Bank A doesn't have anything to give them, so this would lead to bank A collapsing. But with the Federal Reserve system, all the banks are colluding with each other. So they don't demand anything from each other for the checks.

This all sounds great, but there's a problem. Just like everything else, the value of the dollar is determined by its rarity. The more dollars there are, the less each one is worth. Our entire pricing structure is based on this. When the Federal Reserve creates money out of thin air, they're devaluing the dollar.

The first people who get their hands on the money can go out and spend it in a market whose pricing structure is based on the rarity of the dollar where it was prior to the money creation. As more dollars get injected into the market, it gets easier for people to get dollars, and people start to "feel richer". As this happens, prices across the entire economy are gradually adjusted upward to relect the new rarity of the dollar. This pricing adjustment lags behind the money creation.

The people who got the new money first got to take advantage of a pricing structure that did not accurately reflect the true value of the dollar. The people who sold them stuff got ripped off. That's the fraud.

 

[Optatron]

Fractional reserve banking is scenario B, not scenario A. You have the "fractional" part mixed up. It doesn't mean they lend out a fraction of what they have. It means they have a fraction of what they lend out.

Hope that clears it up for everyone.

O RLY??

Why do we need the Fed if every bank can literally multiply money any time?

Why do we have bank runs and bank failures if multiplied money can always be made?

 

[Optatron]

I believe you just proved my point. The overwhelming majority in this country don't have a clue what Fractional Reserve lending is.

That's their fault for not asking, not the banks fault for not telling them, nor is it fraud.

But a better point still, is that even if 49% of the population knew what Fractional Reserve Lending was, the other 51% could force them into it. The 49% doesn't agree, knows it's fraud, and can't do shit about it.

Yes they can, by not participating in it.

The 49% doesn't even have to take out loans to be in debt under this system. Once one person gets a personal loan, everyone begins to pay for it through currency devaluation. There is nothing smart, nothing moral, and nothing enlightening about this ridiculously stupid and dominating system.

if it's so guaranteed currency will devalue, the 49% can invest in what they believe benefits and counteracts devaluation/inflation.

 

[Feenix566]

O RLY??

Why do we need the Fed if every bank can literally multiply money any time?

Why do we have bank runs and bank failures if multiplied money can always be made?

The Fed is the only entity that can legally print actual money. The Fed places restrictions on the bank as to how fractional they can be. Currently, the rule is that the banks must keep 10% of their outstanding debt in reserve. Once they've hit that limit, they can't extend their debt any further by printing checks.

 

[tmosley]

Yeah, I've got both of those saved in pdf and I am organizing getting them re-printed. Now how about you go read a grown up book like Man, Economy, State.. Human Action and then YOU'LL understand economics... Or you could read What has Govt Done to our Money for starters... anything that actually deals with the issue of FRB is probably a smart choice..

What is hilarious, is quite literally you are out of your depth... just as optatron is. Literally no idea.. and since he isn't intellectually honest - I'm not going to waste my time with him.

So:

Money, Bank Credit, and Economic Cycles by Huerta de Soto​

Quite sad isn't it.. lmao

If you like it so much, then why don't you understand anything about what it says? The Goodbank clan did fractional reserve lending in the way the OP stated, but you still decried it as fraud, despite the fact that it is against the very definition of fraud. It's so hilarious that you have done so much work, yet you still have no idea what you are talking about.

Ben Bernanke did a lot of work studying the Great Depression, yet he still managed to not understand a damn thing about it.

I suggested the comic because it is easy reading, clearly explained, etc. Read it again. Then read it a third time. Read it until you understand what is going on at that bank.

Fractional reserve banking is only a problem when it creates money. In the case that the OP stated, it loans out nine dollars for every ten dollars it receives in deposits. So long as the customers are told that their money is being lent out in that way, and they are informed that they will have full access to their money most, but not all the time (ie during bank runs...which are incredibly rare when banks are unregulated). The loans must be repaid at some point, so the money comes back. Any loans that aren't repaid are covered by the interest on those that are repaid. It's a simple concept. You should save your derision for the mirror.

Edit: Haha, I think there was some confusion here, started by the terms used in the OP, as Feenix pointed out. I suppose I was thinking of the case where a gold standard was in effect, and the bank kept the full amount of gold in its vault, while lending out gold notes, which appears to inflate the money supply, but doesn't, since the money is all backed by gold, and any unsupportable issuance of notes is not a problem beyond the loss of deposits, as the supply of gold doesn't change.

That said, full consent fractional reserve banking STILL isn't fraud. The only fraud comes into play when the printing press is used. Otherwise, any bad debt or excess notes are simply washed away as null and void when the bank goes under, keeping the money supply stable.

 

[Feenix566]

if it's so guaranteed currency will devalue, the 49% can invest in what they believe benefits and counteracts devaluation/inflation.

That's why we buy gold.

 

[Brian4Liberty]

Fractional reserve banking is scenario B, not scenario A. You have the "fractional" part mixed up. It doesn't mean they lend out a fraction of what they have. It means they have a fraction of what they lend out.

Yes, I believe your Scenario A would be considered Full Reserve Banking. They haven't created money out of nothing. If the entire business can be conducted with gold coins, I believe that everything is kosher...

 

[Optatron]

Yes, I believe your Scenario A would be considered Full Reserve Banking. They haven't created money out of nothing. If the entire business can be conducted with gold coins, I believe that everything is kosher...

Brian, if scenario B was true, and every bank can literally multiply money in every transaction, EVEN BY 2 (not 10), would we have "inflation" or occassional, historical, hyperinflation?

NO, we'd have overnight hyperinflation, but the upside is banks would never fail or have bank runs, because they can always multiply money whenever they want to.


Seriously, if Bank A has $10
Lends to Bank B, Bank B can lend $10 and keep $10
they can go back in circles and in 10 seconds, they can each have $2560
How the hell do banks fail? What's stopping banks from making 1,000,000,000,000 in one day?
(who CAN'T they bail out?)
Why do banks bother "approving" loans? Just to waste time and pretend to be legit? C'mon!

That's quite different in the velocity of money manipulation than only claiming to have ten, when you only have $1 in hand, but STARTED WITH TEN at one point.

 

[Feenix566]

EDIT: This post contained inaccurate information, so I removed it.

 

[Optatron]

If we went from 100% reserve banking to 10% reserve banking overnight, then yeah we'd have hyperinflation overnight. But we've had a fractional reserve system sinze 1913. That's why the dollar has lost 95% of its value since then. It's been a gradual transition.

Which means we didn't have scenario B, we had scenario A if anything less than 100%.

Are you suggesting we went from 100% reserve to 80%, then 50% then 10%?

Again, if that were true, even if it was started last year, we'd have overnight runaway inflation in which nobody would need money.

When bank B gets a check that originated from bank A, that doesn't add to their reserves. Only the checks they get from the Fed can do that.

If the Fed wants to create $1 trillion in one day, they can. In fact, they have. But the banks lend it out slowly, so the process is gradual.

So not ever bank is allowed to multiply money, good.

Which means ,WE DO NOT HAVE SCENARIO B!

If the Fed wants to create $1 quintillion in one day, they can. Then we would have hyperinflation overnight. Then the Fed wouldn't be able to line their own pockets with newly printed money any more. They'd probably get lynched. That's the only thing stopping them from doing that.

Ok, back to my question.

Yes I agree printing money without consent is FRAUD.

But if you DID NOT do that, such as scenario A, you agree it's not fraud if it's honest and transparent?

 

[aravoth]

Yes they can, by not participating in it.



if it's so guaranteed currency will devalue, the 49% can invest in what they believe benefits and counteracts devaluation/inflation.

It is guaranteed, and there is no way to not participate.

 

[Optatron]

It is guaranteed, and there is no way to not participate.

yes there is, by not trading in their currency, by not living in the country that's being manipulated.

so I take it you're 100% invested inflation?

 

[FindLiberty]

A. Receiving $10 in deposits, lending out $9,
keeping only $1 on hand...

Giving the impression (and making it a temporary reality
via the reserve system) that there's still $10 deposited
at that bank (always available to the depositor),
and/or showing $19 as assets in the accounting,
falls somewhere between fraud and a Ponzi scheme.

It's institutionalized counterfeiting, it's the Creature!

Using this system to create even more money out of thin
air is also immoral - epecially when it's used to reward friends
and punish enemies.

 

[axiomata]

Anti free-bankers are statists. (That should piss Conza off to no end.)

 

[Feenix566]

Which means we didn't have scenario B, we had scenario A if anything less than 100%.

Are you suggesting we went from 100% reserve to 80%, then 50% then 10%?

Again, if that were true, even if it was started last year, we'd have overnight runaway inflation in which nobody would need money.

I don't have any numbers for historical reserve requirements. It would be interesting to find out.

So not ever bank is allowed to multiply money, good.

Which means ,WE DO NOT HAVE SCENARIO B!

No, that's not what I said. Banks A and B both get checks from the federal reserve, and they're both allowed to lend out ten times more debt than they have in reserve.

Ok, back to my question.

Yes I agree printing money without consent is FRAUD.

But if you DID NOT do that, such as scenario A, you agree it's not fraud if it's honest and transparent?

100% reserve banking would not be fraud, I agree.