Fractional reserve lending versus.... what?

[Paul Or Nothing II]

Fractional reserve lending is OK until there is a run on the bank. Discussion of fractional reserve banking in this particular interview begins around 7:50. The commentator asks Ron if the bank must have an amount in reserves equal to the amount of the loan. To which Ron says "No, uh, uh...yah." But I believe this would still be fractional reserve banking with a 50% reserve requirement. Ron then says if the bank keeps $100 for 3 months then it can loan out $100 for 3 months. But that seems like fractional reserve banking to me, too. I think it just means that the depositor isn't allowed to demand his money for that 90 days (like a Cd or something..). But maybe I misunderstood.

Again, fractional vs full reserve debate is concentrated on DEMAND-DEPOSITS, that is, deposits that the banks must pay up on demand & will bear no interest

Time-deposits will still be lent because depositors will have granted authority to loan them & will have given up it's possession for the period of the time-deposits in return for the interest

And no, there's no perfect correlation between time & demand deposits to be 50-50 percent, lending of all deposits don't have the same impact on the economy

Actually, the bank is allowed to create $90 in new money.

No, the full original $100 is still with the bank.

Again, the money for loans is created by the bank. Banks don't fund loans from deposits.

No, they lend the 90 that they have & then it's re-deposited & then re-lent & so on Please look at the chart on that previous page, posted by "Steven Douglas"

You've pretty much outed yourself here: You don't believe we own the money.
I certainly don't own the parking space, the Twilight video, or the web server. One of those is a free service and the other two I'm actually paying money to rent - they clearly belong to the other party.
By making this comparison you're claiming that we don't have legal claim to the money we put in the bank.
You get points for consistency - since inflation serves only to take value out of the money and give it to someone else, it makes sense that your support for this idea would be fundamentally backed by the idea that we don't own it to begin with.

There's a reason Dr. Paul supports the idea of competing currencies.
If your central bank is so great, if it works so well, and everyone involved in it shits rainbows, then end the cartel.
It should have absolutely no problem running full reserve banks out of existence.
If the dollar is so great, then people won't choose to own commodities instead.

We don't have to argue the point. You're the one who's ok with the state enforcers pointing guns at everyone, who's ok with them hauling people off to prison for more time than rapists and murderers get when they find a completely legal loophole to your precious cartel system.
The burden of proof is on you.
The easiest way you can prove it is to stop threatening people who want to try something different with prison gang rape.

+1

Why are you assuming that I'm speaking of Austrian economics? Support of the banking system does not mean opposition to Austrian economic models, and not every Austrian economist supports the abolition of fractional reserve banking.

I don't think any true Austrian would support GOVERNMENT-CONTROLLED FRB, yes, they may support FRB conducted under a truly free-banking environment where each bank would issue its own notes & would disclose the fact that they're in fact FRB & therefore demand-deposits with them are "subject to availability", that's perfectly fine, some people might go for it, others won't but people would have CHOICE to opt out of a currency that loses purchasing-power for the benefit of those who control it & their buddies

Am I free to end this "business relationship" with the United States Federal Government?
Am I free to transact in money which is not Federal Reserve notes?


I thought I implied in my last post that I think you're perfectly free to enter into any relationship you think fit. The problem is that *I* am not.
Given that you're cheerleading for the side that thinks we ought not to be able to enter into business relationships, I assume you're not a proponent of the free market.

You yourself have said that they don't have your money waiting for you. E.g.:

e-gold: forced into a plea bargain in which they pled guilty to operating an unlicensed money-transmitting business, in a plea deal to only have to pay millions in fines (as oppsed to getting raped in prison).

E-Bullion: facing felony charges of conducting unlicensed money transactions.

Liberty Dollar: Bernard von Nothaus is facing 15 years in prison, $250,000 in fines, and has to turn over $7 million in precious metal to the federal government.

(ETA: In case you don't see what I'm getting at, these were all viable businesses with real customers, which were shut down.)

I never claimed the market is anywhere close to perfect. Nobody else did either. You accuse others of using strawmen? At least we have some kind of reasoning behind assuming you're in favor of cartel central banking (your arguing in favor of it is a reasonable indicator, I think).
The claim is that the market will decide winners and losers.
I repeat: If you think that central cartel banking is so great, have the confidence in it to allow competition.
Stop putting people who are attempting alternatives in prison.

Do you know what a straw man argument is? It's a real thing, not just something people throw around on forums as an insult.
It's when you accuse people of talking about FEMA camps when the reality is that person has concrete evidence that people are going to regular prison.

+1

Well said

You're relating two things that are actually rather seperate. Fractional reserve banking can not cause a continual inflation of the money supply. Instead, it increases the effect of the printing press.

If the size of the money supply is fixed by the central bank or other currency issuer, it would still be fixed with fractional reserve banking. The size of the reserve would determine the maximum size of the money supply after the money multiplier effect of fractional reserves. So long as the required reserve ratio remains the same, no inflation is possible beyond that point. If the currency issuer has knowledge of the reserve ratio, they know how much currency needs to be issued in order to meet their money supply goal.

See, this whole premise that central-banking can always control moneysupply was proven wrong during Great Depression & guess what, it's being proven wrong RIGHT NOW. Interest-rates are near zero, Bernanke is full tilt going for a massive inflation but guess what, moneysupply is shrinking because market is already overloaded with debt & banks have also cut back on lending

Further, when you argue for central-banks controlling moneysupply, you're essentially arguing for them fixing the price (purchasing-power) of money thru central-planning. So do you also believe that government should fix prices of other things like grains, oil, cars, etc etc? I hope you know that price-controls have been tried many times by many governments throughout history (under Nixon in US after going off gold-standard) but they ALWAYS fail because the answer is simple - central-planning does not work - because a bunch of "experts" sitting in a room with their theories don't have all the information required to predict prices because prices are products of the markets

The assumption, therefore, is that perfect knowledge of interest rates would yield perfect investment and continual, stable growth.

As I explained above, fractional reserve banking does not result in unpredictable, artificial, or unsustainable changes in the size of the money supply. Austrian-based central banking will create an Austrian-based market environment with or without fractional reserve banking.

There's no "perfect" but allowing markets to determine supply & prices is what free marketers believe, communist/socialist central-planners on the other hand believe in all-wise, omniscient, honest, angelic group of few people making all the right decisions for the rest of the population

And, this is why I've said, PLEASE inform yourself about Austrian Economics by going to mises.org, that would have saved you from the embarrassment of writing stupid things like "Austrian-based central banking" *facepalm*

For the record, Austrians believe in freedom, choices, free markets, NOT central-planning & all-wise omniscient angelic government entities deciding what's best for everyone

If, for example, we traded directly with gold instead of dollars, every bank would still need to forecast how much gold each of their branches would need to have available for their customers. The only difference that fractional reserves would make is whether they loan out their excess or warehouse it. The result is the same.

Again, you don't seem to grasp the fact that there's no need to "forecast" anything, they should hold the demand-deposits & pay up on demand & lend time-deposits as they deem fit, that's all, otherwise it's breach of contract & fraud

Without increasing the monetary base there is a limit on the inflation that fractional reserve banking can accomplish, but the very act of creating money out of thin air and lending beyond your reserves lowers interest rates below what the rates would be if they were based only on available savings. This means that eventually the projects that were undertaken to take advantage of the lower interest rates would turn out not be to profitable as the prices of inputs rise for the projects rise, so the need to borrow more money increases and makes available capital more scarce and increases the interest rates that you now rely on to finish the unsustainable project.

Now without a central bank or printing press to pyramid on top of this or inflate the monetary base it does limit the damage that can be done by the business cycle. That is why the depressions in the 1800s were not nearly as severe as the Great Depression or what we have today.

+1

 

[Domalais]

If the rich man had the option of loaning the money directly, and if the law would back him up in this venture - perhaps by offering legal protection of contracts - instead of threatening him with prison if he signs those contracts - he'd lend money in a heartbeat.

Of course. And he could also raise his own sheep, shear them himself, and knit his own sweaters. Why would he pay a shepherd or a tailor? When he's done he can fell some trees, cut it into lumber, and start building his own house. Think of all the money he will save by spending his time performing less profitable activities instead of the thing that made him rich!

 

[Travlyr]

Look, the issue I think is that you think government CAN be honest & angelic, which I'm afraid is simply not true if we look at history of governments, democratically elected or otherwise. Governments are ALWAYS corrupt because people are self-interested so if they're sitting on a coercive monopoly that can rob & dictate people aka "government" then those on it will no doubt try to use such power to benefit themselves, which is exactly why governments make "legal" FRB, "corporate personhood" & so on, it's because government has always been corrupt & helping the special interests, be it bankers or whoever, benefits them & that's always going to be true more or less

That is simply not true. Governments are not ALWAYS corrupt. Until we get a critical mass of people to unlearn that lie our liberty will be elusive. Power comes from authority. If a big brute claims to be in charge, then he may be in charge until somebody comes along with a weapon. Then the person with the weapon is in charge, until somebody comes along with a bigger badder weapon... on and on, etc. Then it becomes whoever has the most weapons, biggest military, or police state. That takes money. Fiat money is tyrannical while sound money is liberating.

In a sound money system, (separation of money and government) government power is limited to whatever the taxes will buy. Power brokers can't inflate their way to tyranny. That is why counterfeiters take-over governments. Governments without money are small. Power is elusive. Rulers with the power to create unlimited amounts of money are tyrannical. That's what happened in 1861. In order to transform the great experiment in liberty into a tyrannical Union/Empire, they had to subvert the government (the constitution) and start printing money. Debasement of currency usurped the constitution. Not all by itself; however, it was the principle factor. The bankers risked being hanged for their conspiracy. I don't know why they weren't.

Here are the facts: Governments are simply a means to order. Laws of the land are required if landownership is allowed. There is no escaping that fact in the 21st century. Laws of the land create governments. There is no way around it. So, if property ownership is to be embraced, then government must be embraced. There is no way around it. The trick is to keep it as honest and lest oppressive in people's lives as possible. That's the hard part. Keeping the bankers mitts out of it is the key. Unfortunately, statelessness is a lie that stands in the way of liberty, peace, and prosperity. Sadly, now it is even a fad.

Yes, Lincoln misused power & he didn't have the authority to do it either BUT the bottomline remains that he was government so blaming only the "evil bankers" is futile without blaming the "evil government" who legatimizes the system

Even in the video you posted earlier in the thread, Rothbard said that the 20 years prior to Lincoln's war was a time of free banking. So, Rothbard doesn't even agree with you on that point.

Here's the deal, many people here & elsewhere keep saying "Fed is private" (it really isn't, it's more llike a "hybrid" of private & government sector) so why not go sue them for stealing purchasing-power? What will happen do you think? Of course, government will protect them so one must see that the government is the problem - even when Paul talks about issues, he doesn't go on rants about "evil bankers", he blames the government, he blames Fed which again is a part of government one way or another so if we want to win a war then we must know who the real enemy is & to me & obviously to Paul, it's the government, if the government is reigned in then all those exploiting its power will be left powerless anyway, be it bankers or corrupt corporations or whoever.

The bankers are unlawful. They do not obey the supreme law of the land ... the constitution. They are pretending to be legitimate. They have the power of printing money (unconstitutionally), the military industrial complex (unconstitutionally), CIA, FBI, IRS, etc. (all unconstitutional) and the power of media which they own.

Of course Ron Paul doesn't go on public rants about "evil bankers." He is trying to get elected. He doesn't go around saying 9/11 was an inside job either, but he knows it was. Separating the language is tough while telling the truth. A lot of people can't handle the truth. When Ron Paul talks about the government being the problem, he means the illegitimate unconstitutional government.

Ron Paul is one of the strongest advocates for government in the world today. The U.S. Constitution formed our republics. Ron Paul - "I am an advocate a very strong advocate of following very strictly the rule of law the Constitution of the United States." It doesn't get much clearer than that.

Rothbard agrees,

"The power to counterfeit is the power to abuse. It is not enough to urge the government to use it more moderately. The power must be taken away. Counterfeiting is fraud, and no one should have the right to counterfeit, least of all government, whose record of counterfeiting throughout history is black indeed. Money and banking must be separated from the State, just as Church and State are separated in the American tradition, just as the economy and the State should be separated." - Murray N. Rothbard

Separating the money from the State (getting rid of the central bank) is the key to liberty. Separation of money and government ends the tyrannical abusive power of the State. That's what Rothbard is saying and that is what Ron Paul is working towards.

Here is how it is done. Not by hating the State but by embracing it. The Purse & The Sword by Dr. Edwin Vieira Jr.

Do you think courts are so honest & angelic that they can't be bought even though most of the government clearly is bought? Again, bring a suit & see what happens! And what these coercive courts say is irrelevant because let's say they deem it "Constitutional", will that make it so? I don't think so. So what's the point of bringing up courts? They won't go out of business if they're making wrong decisions so they've little incentive to do that anyway so they'd rather take money & use their coercive "legal" power to justify positions of those who will make them rich.

I do not think courts have always been honest. At least they haven't been honest since the people quit enforcing Article VI Clause 3 on the judges, but I think there is a way to force honesty into the court system. The solution is to enforce Article VI Clause 3 again.

Again, sorry but the supposition that government was all honest & angelic until a "coup d'etat" took place is unrealistic in my opinion, government is pretty much a synonym for corruption & that has pretty much always been the case because they're a coercive monopoly of power.

"the supposition that government was all honest & angelic until a "coup d'etat" took place" That claim was never made by me. I claimed that as long as sound money free banking was respected, then liberty, peace, and prosperity was the order of the day for free people. I backed my assertion up with Alexis de Tocqueville in Democracy in America evaluation.

I find the United States to be a great experiment in liberty, peace, and prosperity, but it wasn't perfect. It needs to be obeyed to be effective and amended to meet the challenges of the 21st century. That is the only reason I support Ron Paul, "The Champion of the Constitution." If he believed that all governments were corrupt, then I would not support his bid for president.

Sorry that wasn't my point, I just happen to have immense hatred for the word "democracy" & what it stands for, & more so when it's used to described United States.

I feel the same way about democracies, but in this case it was simply the name of his book.

 

[fisharmor]

Of course. And he could also raise his own sheep, shear them himself, and knit his own sweaters. Why would he pay a shepherd or a tailor? When he's done he can fell some trees, cut it into lumber, and start building his own house. Think of all the money he will save by spending his time performing less profitable activities instead of the thing that made him rich!

Why are you here? You deserve a trophy - this is quite possibly the most monstrously anti-free-market thing I've ever read on this site.

 

[Domalais]

Why are you here? You deserve a trophy - this is quite possibly the most monstrously anti-free-market thing I've ever read on this site.

I'm eagerly anticipating your explaination on how opportunity costs are anti-free-market.

I suppose that in a truly free market, resources are not scarce and opportunity costs do not exist?

 

[The Gold Standard]

No. In order for the monetary base to inflate beyond the targeted size of the issuer, the required reserve ratio would have to change.

The monetary base are the reserves. If they grow then so does the money supply regardless of the reserve ratio.

You're vaguely on the right track here, but you're mistaking cause for effecct.

It doesn't matter what the interest rate is. There's no such thing as 'the interest rate was too low.' It only matters that the interest rate is sustainable without devaluing the currency. More loanable funds will cause lower interest rates. As long as the cause of the loanable funds is not the continuous expansion of the money supply, that is fine. The inflation is the problem. If there's no inflation, it doesn't matter if the interest rate is 1% or 50%. So long as it's predictable and sustainable, it will not cause misguided investment.

None of this makes any sense at all. If you are going to centrally plan interest rates, the way you lower the rate is to flood the market with credit, increasing the supply of loanable funds. You say the inflation is the problem and the interest rate doesn't matter, but the interest rate is a result of the inflation. The only interest rate that will not cause malinvestment is the interest rate set by the market based on real savings. That is the rate that tells investors how much money is available for the project and how long are consumers willing to wait on the project and what have you. Say the banks start lending out at 50% reserves. That is going to lower interest rates. Then 30%. Then 10%. Maybe some banks aren't at 10%, some are at 20%. Those are all different interest rates with no new information, but entrepreneurs don't know that.

Wait - what?

At the beginning of the 1800s, the Treasury was printing as fast as it could, with no targets or goals other than paying for the war.

In the mid 1800s, individual banks were printing as fast as they could, with no targets or goals other than a vague approximation of what they had in their vaults (sometimes).

In the late 1800s, banks held reserves in Treasury bonds... which the Treasury was printing as fast as it could to finance the war and reconstruction.

There's no point in the 1800s that you can point at and say 'look, there, the money supply was stable, the currency was sound, it's fractional reserve banking's fault.' You're blaming the compounding effect (fractional reserve), when you should be blaming the source of the problem (unsound money).

The Treasury did inflate several times throughout the 19th century, but not constantly like now. Even at times where the Treasury wasn't inflating the banks got carried away lending with very few reserves because the government would suspend specie payment when they failed. All of these were the reasons you had business cycles in the 1800s. The reason we didn't have a Great Depression back then is #1 there was no Federal Reserve to constantly inflate even through the busts, and #2 the government did not try to intervene and stop the corrections.

 

[Domalais]

The monetary base are the reserves. If they grow then so does the money supply regardless of the reserve ratio.

That's not quite what the monetary base is. Assuming that there are no central bank reserves, the monetary base is the total value of all bills and coins that have been issued.

I'll try to explain in a different way.

No more dollars. No central bank. You and I are going to create a new currency tomorrow. PaulBux. We get to decide how big of a monetary base to print/mint. No matter if we have fractional reserve banking or not, we have just as much control over the total size of the money supply.

So we do some math, and we decide that based on the number of people we expect to use our currency, and the area we are supplying with currency, and the amount of gold we have in our vaults, that 5,000 PaulBux (PB) will give us the quantity and value (PB / oz) we want. We print it.

If the required reserve ratio is 100% (no fractional reserve banking), then 5,000 PB is both the monetary base (total currency) and the total size of the money supply. There's no expansion, and there are no 'electronic PaulBux.' Every person or bank that has a PaulBux on their books has one in their hand/safe/etc.

If the required reserve ratio is 20%, then 5,000 PB is the monetary base, but once that's in our banking system, the total size of the money supply is limited to 25,000 PB. It can never get any bigger than that. If we still wanted that 5,000 PB number as the size of our total money supply, we would have only issued 1,000 PB instead of 5,000 PB.

My point is that we, as the currency issuer, know both of those numbers. No matter what the reserve ratio is, we know both how big the monetary base is and how big the money supply is. We control it, still. We know what needs to be in our vaults to back that money.

The only interest rate that will not cause malinvestment is the interest rate set by the market based on real savings.

If you don't have fractional reserves, then the interest rate is not based on real savings, because those savings are not available to be loaned.

That is the rate that tells investors how much money is available for the project and how long are consumers willing to wait on the project and what have you. Say the banks start lending out at 50% reserves. That is going to lower interest rates. Then 30%. Then 10%. Maybe some banks aren't at 10%, some are at 20%. Those are all different interest rates with no new information, but entrepreneurs don't know that.

What you're describing is expansionary monetary policy using the reserve ratio instead of printing money. It's functionally no different than printing money. In the part of my post that you quoted, I specifically said "As long as the cause of the loanable funds is not the continuous expansion of the money supply, that is fine." You're expanding the money supply by reducing the reserve ratio, so yes, that is not a good thing monetarily.

 

[The Gold Standard]

If you don't have fractional reserves, then the interest rate is not based on real savings, because those savings are not available to be loaned.

Again, this is not true. The savings would not be available to the saver while they are loaned out, but they would be available to be borrowed. Putting money in a checking account is not savings and it should not be loaned out. Putting money in an account where you can access it after so much time is how 100% reserve banking would work.

What you're describing is expansionary monetary policy using the reserve ratio instead of printing money. It's functionally no different than printing money. In the part of my post that you quoted, I specifically said "As long as the cause of the loanable funds is not the continuous expansion of the money supply, that is fine." You're expanding the money supply by reducing the reserve ratio, so yes, that is not a good thing monetarily.

Having a reserve ratio below 100% is the same thing as printing money. There is just a limit on how much the banks can print. You are saying, "As long as the cause of the loanable funds is not the continuous expansion of the money supply, that is fine." There are only 3 ways loanable funds can increase. #1 Someone deposits their money in the bank (and doesn't expect to use it anytime soon). #2 The government or central bank prints money (or buys assets or whatever). #3 Banks lend money they don't have. Every dollar deposited in a checking account is freely available to be spent in the economy while $9 new dollars are created out of thin air and spread around various other banks.

#1 is the only scenario that does not counterfeit the money. Everything else has negative effects on the economy.

 

[Madison320]

Banking is evil. "Banking was conceived in iniquity and born in sin." Their initial job was to store money because it was hard to keep money safe in a cave or while traveling. Those concepts are no longer valid. Home safes are safe and it is easy in modern times to travel without getting molested.

Your home safe does not pay interest.

I've never understood why many who believe in austrian economics have a problem with fractional reserve banking. For the record I like just about everything else about austrian economics, just not the the aversion to fractional reserve banking.

Assume you have a totally free market economy with free market banking:

Bank A has a long standing excellent reputation, a sound credit rating and practices fractional reserve banking. They offer 8% annual interest for their saving's account.

Bank B also has a long standing excellent reputation, a sound credit rating and but does not practice fractional reserve banking. They offer 2% annual interest for their saving's account.

Which bank are you going to put your money? I'm taking my chances and going with Bank A.

 

[Domalais]

Having a reserve ratio below 100% is the same thing as printing money. There is just a limit on how much the banks can print.

Having a reserve ratio below 100% is the same as printing money once, when the currency is first issued and distributed. That's entirely different from printing money every month, or printing money when the economy isn't as rosy as you like, or because the wind is coming from the west, or because a bank failed. So long as the money supply is stable and/or predictable, you're good.

 

[Travlyr]

Your home safe does not pay interest.

I've never understood why many who believe in austrian economics have a problem with fractional reserve banking. For the record I like just about everything else about austrian economics, just not the the aversion to fractional reserve banking.

Assume you have a totally free market economy with free market banking:

Bank A has a long standing excellent reputation, a sound credit rating and practices fractional reserve banking. They offer 8% annual interest for their saving's account.

Bank B also has a long standing excellent reputation, a sound credit rating and but does not practice fractional reserve banking. They offer 2% annual interest for their saving's account.

Which bank are you going to put your money? I'm taking my chances and going with Bank A.

For the record, I do not consider myself an Austrian. I've read some of their stuff. That's all.

Bank A is expanding the money supply at the expense of everyone else unless they have their own currency. If they have their own currency, then Bank A currency can expand to whatever limits the bank owners want. I don't think I would trust Bank A currency because it is inflating away, but that would be our individual choices. If you wanted to participate, it wouldn't bother me. If their customers couldn't pay their loans for some reason, a flood or other natural disaster, then Bank A loses and so does everybody holding Bank A currency. I'd rather not worry about that.

Maybe I would make loans that pay 10% interest to people I trust with my savings. It would be up to me. I could be the banker.

 

[Madison320]

For the record, I do not consider myself an Austrian. I've read some of their stuff. That's all.

Bank A is expanding the money supply at the expense of everyone else unless they have their own currency. If they have their own currency, then Bank A currency can expand to whatever limits the bank owners want. I don't think I would trust Bank A currency because it is inflating away, but that would be our individual choices. If you wanted to participate, it wouldn't bother me. If their customers couldn't pay their loans for some reason, a flood or other natural disaster, then Bank A loses and so does everybody holding Bank A currency. I'd rather not worry about that.

Maybe I would make 10% loans to people I trust with my savings. It would be up to me.

In a free market banking system I feel pretty confident that the currency would be gold or silver. Are you saying that a bank that uses gold as currency and practices fractional reserve banking is inflating the money supply? Would you prohibit that by law?

 

[fisharmor]

I'm eagerly anticipating your explaination on how opportunity costs are anti-free-market.

I suppose that in a truly free market, resources are not scarce and opportunity costs do not exist?

Your presumption - that your word on opportunity costs is the final truth of the matter - is the essence of central planning.
You said that rich men wouldn't lend money.
I said they can't lend money because they're going to get thrown in a rape cage if they do.
You responded by saying it's not in their interest.
That is completely, utterly, astronomically beside the point.

In a truly free market, competitors are free to enter fields. This obviously results in a field with many competitors.
If there are many competitors, competition is stiff.
Businesses are forced to cut waste and innovate in order to lower production costs.
If they don't figure out more inexpensive ways to provide the same or better goods and services, eventually someone does, and outcompetes the others.
The way they outcompete the others is by offering the same or better goods or services at a lower price.
The business succeeds through offering better value to consumers. The customers benefit from lower price (i.e. increased standard of living).

In a cartel system, comptetitors are restricted or altogether barred from entry to that field. This obviously results in a field with few competitors.
If there are few (or no) competitors, competition is lax or absent.
Businesses have no incentive to cut waste or innovate. Production costs remain level, or in a best case scenario they go down much more slowly than they would in the free market.
Therefore prices remain level or actually go up.
Plus with very few actors there is incentive for them not just to refrain from competing, but to collude. Indeed they've already colluded in that they are likely the ones who pushed for barriers to entry in the field.
The businesses prosper, but the consumer is fucked.

We have a cartel system with lending, heavily regulated, which regulations are written by or at least reviewed and edited by the cartel ( and therefore guaranteed to actually serve their interests ).
When you nonchalantly declare that the barrier to entry in the lending business is because it's not in the interest of someone to attempt entry, and totally ignore the point that that barrier exists, how are you not outing yourself as a central planner?
More to the precise point, how the everliving fuck do you know if it's in the lender's interest?
The only possible way you can claim to know this is if you are a true believer in state planning.

I work for a company owned by a man who made an *additional* fortune about a decade ago off of bad checks that had been written off by businesses.
Conventional wisdom said the potential payout was almost nil, given that the checks were worthless paper.
According to you, his extra millions don't exist and all those people he employed should have gone hungry.
And saying that similar people in similar situations should be thrown in rape cages - that is a truly monstrous idea.
I'm not going as far as using the "C" word, but I'm beginning to see similarities. You're both pretty comfortable with ruining and imprisoning people who don't climb into your particular mold.

 

[Travlyr]

In a free market banking system I feel pretty confident that the currency would be gold or silver. Are you saying that a bank that uses gold as currency and practices fractional reserve banking is inflating the money supply? Would you prohibit that by law?

If it debases my currency, then that is theft. Yes, theft should be against the law. As long as it doesn't debase my currency against my will then it makes no difference to me. i.e. as long as Bank A prints their own ... I don't care. If Bank A and Bank B both use the same currency, then Bank A's action would inflate everybody's currency. That's not honest or fair.

 

[Madison320]

If it debases my currency, then that is theft. Yes, theft should be against the law. As long as it doesn't debase my currency against my will then it makes no difference to me. i.e. as long as Bank A prints their own ... I don't care. If Bank A and Bank B both use the same currency, then Bank A's action would inflate everybody's currency. That's not honest or fair.

But how do you define "debasing" currency? My point is that under a gold standard you can't debase the currency.

Let me reask my question more specifically. Both you and Bank A are using gold as currency. Bank A practices fractional reserve banking. Do you consider this theft against you?

 

[Steven Douglas]

But how do you define "debasing" currency? My point is that under a gold standard you can't debase the currency.

WRONG. Why do you think Roosevelt declared a bank holiday? We were on a gold standard, and the currency had been debased. Lincoln's Greenbacks debased the currency, by conflating future promises with existing wealth. In other words, HE BORROWED AGAINST EVERYONE'S EXISTING HOLDINGS. That is where the value of that currency was STOLEN - not borrowed - because the currency holders themselves were not parties of interest.

Long after the civil war, Greenbacks could finally be redeemed...by their bearers, and only after the damage to the currency was done.

Let me reask my question more specifically. Both you and Bank A are using gold as currency. Bank A practices fractional reserve banking. Do you consider this theft against you?

Of course it is, no different than Greenbacks, which used future promises to pay in order to borrow real value against existing real holdings. It forces ALL currency holders into a lending situation where they are being borrowed from, but are not parties of interest to the loan. So they are not being borrowed from at all. They are being stolen from. You don't conflate debt with real money, and you don't equate a promise to pay with payment.

Fractional reserve lending is a form of temporal counterfeiting, or collusional check kiting against real currency, akin to selling hundreds of percent of shares (promises to pay) in the same company, on the understanding that you will buy back those shares from your profits before anyone notices that contradictory counter-party claims on the same wealth were issued. Meanwhile, the value of those shares did not come out of thin air - it came from the dilution of everyone else's REAL holdings, and the deliberate distortion of the value thereof.

So yes, it is a form of theft - against all currency holders. Nothing subtle about it.

 

[Travlyr]

Coinage Act of 1792

Penalty on Debasing the Coins.

Section 19. And be it further enacted, if any of the gold or silver coins which shall be struck or coined at the said mint shall be debased or made worse as to the proportion of the fine gold or fine silver therein contained, or shall be of less weight or value than the same out to be pursuant to the directions of this act, through the default or with the connivance of any of the officers or persons who shall be employed at the said mint, for the purpose of profit or gain, or otherwise with a fraudulent intent, and if any of the said officers or persons shall embezzle any of the metals which shall at any time be committed to their charge for the purpose of being coined, or any of the coins which shall be struck or coined at the said mint, every such officer or person who shall commit any or either of the said offenses, shall be deemed guilty of felony, and shall suffer death.

 

[Madison320]

WRONG. Why do you think Roosevelt declared a bank holiday? We were on a gold standard, and the currency had been debased. Lincoln's Greenbacks debased the currency, by conflating future promises with existing wealth. In other words, HE BORROWED AGAINST EVERYONE'S EXISTING HOLDINGS. That is where the value of that currency was STOLEN - not borrowed - because the currency holders themselves were not parties of interest.

Long after the civil war, Greenbacks could finally be redeemed...by their bearers, and only after the damage to the currency was done.



Of course it is, no different than Greenbacks, which used future promises to pay in order to borrow real value against existing real holdings. It forces ALL currency holders into a lending situation where they are being borrowed from, but are not parties of interest to the loan. So they are not being borrowed from at all. They are being stolen from. You don't conflate debt with real money, and you don't equate a promise to pay with payment.

Fractional reserve lending is a form of temporal counterfeiting, or collisional check kiting against real currency, akin to selling hundreds of percent of shares (promises to pay) in the same company, on the understanding that you will buy back those shares from your profits before anyone notices that contradictory counter-party claims on the same wealth were issued. Meanwhile, the value of those shares did not come out of thin air - it came from the dilution of everyone else's REAL holdings, and the deliberate distortion of the value thereof.

So yes, it is a form of theft - against all currency holders. Nothing subtle about it.

Hold up. I was not talking about a monopoly banking system like the federal reserve where you are forced to use their currency. I said a totally free market banking system, no government currency whatsoever. I think history shows and logic will tell you that in a totally free market banking system the currency of choice will be gold. The competing banks may use notes to represent the gold but that doesn't change the fact that gold will be the primary currency.

So with a totally free market banking system, would you make fractional reserve banking illegal?

Hey Travlyr, I'm curious about your answer as well.

 

[The Gold Standard]

Having a reserve ratio below 100% is the same as printing money once, when the currency is first issued and distributed. That's entirely different from printing money every month, or printing money when the economy isn't as rosy as you like, or because the wind is coming from the west, or because a bank failed. So long as the money supply is stable and/or predictable, you're good.

It puts a limit on the inflation of roughly ten times the money supply. If you think that is moral that is up to you. Your claim that this doesn't induce business cycles is wrong though.

According to Austrians, in a free market interest rates serve the function of coordinating time preferences through the economy. If interest rates are high that means spending is high and savings are low. People are spending their money now and not worried about spending in the future. When savings (real savings, like CDs or long term investment accounts, not checking accounts) rise, that increases the supply of loanable funds and lowers interest rates. Businesses know that consumers are more geared toward consuming in the future, so it is a green light to take on longer term projects that will bear fruit in the future.

With fractional reserve banking, interest rates will be affected by people moving money in and out of demand accounts that they fully intend to consume with now, but if enough people load their checking accounts it will drive down interest rates and lead entrepreneurs to believe that people are saving for future consumption, when they aren't.

Also just because the limit is 10 times the money supply doesn't mean the credit supply will always be that much. It will fluctuate based on any number of factors, and affect interest rates in ways that do nothing but hide the real information businesses need.

I suppose in theory if the money supply was completely constant and outstanding credit was always 10 times the money supply and demand deposits were banned from being loaned out, the market could still determine the real interest rates and make wise decisions. That would never happen in practice though.

 

[The Gold Standard]

Hold up. I was not talking about a monopoly banking system like the federal reserve where you are forced to use their currency. I said a totally free market banking system, no government currency whatsoever. I think history shows and logic will tell you that in a totally free market banking system the currency of choice will be gold. The competing banks may use notes to represent the gold but that doesn't change the fact that gold will be the primary currency.

So with a totally free market banking system, would you make fractional reserve banking illegal?

Hey Travlyr, I'm curious about your answer as well.

No one wants to put a government regulator in each bank branch to make sure they aren't fractional reserve lending, but a simple solution would just that the bank owners are personally charged with fraud if a bank can not redeem a customers deposits. That should solve the problem pretty well.