Some Fed shill defending fractional reserve banking (surprise) anyone got a response?

Because we're America and we're exceptional?
:rolleyes: I added the sarcasm for yah...

Who eventually picks up the tab of the FDIC assuming the debt from banking Mal-investment? Well if the bank goes under, the government does. We have gone through the FDIC forcing banking to fork-up 3 years of insurance premiums up front to bailout the failing system. It all will circle back to the consumer and taxpayers. Higher fees and interest rates from the banks and lower interest and benefits paid out by the banks. Of course anything in debt consumed by the FDIC, etc will be paid by the taxpayers too.

If you look on the US Treasury's monthly statement... we the American taxpayers are still paying for the S&L bailout of the late 80's/early 90's. $3 Billion a year is expensed/paid on a 30 year S&L debt bond. That's on top of the $50 Billion Congress gave the S&Ls Bailout directly.

The banking establishment is well protected in the fractional reserve banking and practically unlimited risk taking.
 
customers probably won't like having to pay for the service of holding their deposit in the full reserve bank

and the bank can't lend that money, by definition, it's required to hold the full amount of that deposit in reserve


please, give me an example of how such a bank would procure funds to loan out

use the funds earned from the services you charged to hold their deposits
 
customers probably won't like having to pay for the service of holding their deposit in the full reserve bank

You pay for it now, whether or not you deposit your money in a bank. It's called inflation.

any scenario where you say fractional reserves are illegal, requires holding 100% of deposits

but, it's probably more likely horses wii replace cars, than full-reserve banks replace fractional ones

Time deposits are hence renamed to loans. You loan the bank your money, with no payments due until the end of the loan determined by the contract, due in the full amount of principle plus interest at that time.

Interestingly, I had run the numbers a year or two ago and came up with roughly ten percent of all bank deposits being in demand accounts (your non-lendable amounts) and 90% in time accounts so that is really what we have with a ten percent reserve requirement in existance today so if we did allow 100% of time accounts to be lent out and 0% of demand accounts to be lent out, you would have the exact same situation.

The reserve requirements on institutions having less than $10.7 million in capital is 0%, and then less than $58.8 million must 3%, and more than that is 10%.

There is also no reserve requirements on time deposits, so it's 0% of your 10%, 3% of your 10% (0.3%) and 10% of your 10% (1%). This means that the current real reserve requirements are between 0% and 1%.
 
Here's the core of the issue:

I deposit $100 in a demand deposit to a fractional reserve Bank that has 10% reserve requirement. I can withdraw it at any moment.
The bank lends out $90 of my $100. What happens now is that I have $100 on my account, and the borrower has $90 on his account. Poof, $90 more money.
At that point, the bank has zero on deposit. They are required to either attract enough more deposits to be able to have the $90 loan out or borrow money to put back into their reserves. Poof. Another $100 gets taken out of circulation to replace the $100 you withdrew from the bank and put into circulation. They are required to balance their accounts at the end of the day.
 
At that point, the bank has zero on deposit. They are required to either attract enough more deposits to be able to have the $90 loan out or borrow money to put back into their reserves. Poof. Another $100 gets taken out of circulation to replace the $100 you withdrew from the bank and put into circulation. They are required to balance their accounts at the end of the day.
That doesn't make any sense. Not really sure what you're trying to say.

The $90 that was lent out is removed from circulation once the debt is repaid. That's why credit expansions cause temporary inflation and a bubble. Credit creates money, repaying credit removes money - but only in a fractional reserve system.

The problem hinges on the illusion that your demand deposit account seems to have all the money you deposited there, while it is infact lent out. But hey, if only you try to withdraw all of your money, you can successfully do that. It's there isn't it? It sure feels like it. Except it isn't.

With a time deposit, you know that your money is being lent out, and you cannot access it because it's not there. Therefore you don't own the money until a specific date decided by you and the bank.
 
Last edited:
That doesn't make any sense. Not really sure what you're trying to say.

The $90 that was lent out is removed from circulation once the debt is repaid. That's why credit expansions cause temporary inflation and a bubble. Credit creates money, repaying credit removes money - but only in a fractional reserve system.

The problem hinges on the illusion that your demand deposit account seems to have all the money you deposited there, while it is infact lent out. But hey, if only you try to withdraw all of your money, you can successfully do that. It's there isn't it? It sure feels like it. Except it isn't.

With a time deposit, you know that your money is being lent out, and you cannot access it because it's not there. Therefore you don't own the money until a specific date decided by you and the bank.

Yup, this is a good explanation. The person that deposited that $100 "feels" that he still has $100 that he can request on demand, so his spending actions will reflect this (he will spend other money that he makes instead of depositing it to save it, for example). In reality, $90 of his $100 may be being spent somewhere else in the economy. So the base money supply M0 (gold or government fiat dollars etc) hasn't gone up, but "checkbook money" M1 (which is a little less liquid than cash) HAS increased by $90 (from $100 to $190) in the economy.

What we are advocating for is that: checkbook money <= base money supply

So the original $100 could not be lent out. Only the original depositor is able to use it as money.
If he chose to do so, he could open up a time deposit at the bank for 1 year. That $100 could be lent out, but the original depositor knows that he cannot get that money on demand until 1 year, he can not write checks to pay for things with that money until then. This keeps the money supply stable.
 
Last edited:
Let me try again then. You could have spent $100 you earned but did not want to spend it right now so you put it into the bank until you want it. The bank has a reserve requirement of ten percent so they are allowed to make loans up to 90% of that or in this case, $90. Instead of $100 being spent (by you), now $90 is elgible to be spent (the other $10 is at the bank). You see something you like and decide to take your $100 out of the bank and buy it. Now there is $190 out there- your $100 plus the $90 the other guy borrowed. OK so far?

But now the bank has a problem. They have $90 out in loans but zero dollars in the form of deposit to back that up. They have to balance their deposits and loans at the end of the day so they have to replace that $100 you took back. Two ways they can get $100 again. They can try to get more people to put money in their bank in the form of deposits or if they can't do that they can borrow. When they borrow that $100 to replace your $100, that reduces the money circulating (money which can be spent) by the same amount as what you took out. There is no longer any extra $90 out there. They have to somehow get $100 to back up the $90 they lent. Or they can call the loan (a rare action).
 
Let me try again then. You could have spent $100 you earned but did not want to spend it right now so you put it into the bank until you want it. The bank has a reserve requirement of ten percent so they are allowed to make loans up to 90% of that or in this case, $90. Instead of $100 being spent (by you), now $90 is elgible to be spent (the other $10 is at the bank). You see something you like and decide to take your $100 out of the bank and buy it. Now there is $190 out there- your $100 plus the $90 the other guy borrowed. OK so far?

But now the bank has a problem. They have $90 out in loans but zero dollars in the form of deposit to back that up. They have to balance their deposits and loans at the end of the day so they have to replace that $100 you took back. Two ways they can get $100 again. They can try to get more people to put money in their bank in the form of deposits or if they can't do that they can borrow. When they borrow that $100 to replace your $100, that reduces the money circulating (money which can be spent) by the same amount as what you took out. There is no longer any extra $90 out there. They have to somehow get $100 to back up the $90 they lent. Or they can call the loan (a rare action).

You're missing a key part...all the depositors ACT as if they have their deposits as cash (they're basically as good as cash), this decreases their demand for money hence increasing their spending because it effectively increases the money supply, thereby raising prices.

There is an illusion that there is more money than there actually is.
 
Last edited:
As far as inflation is concerned, the only money which counts is the money actually being spent- competing with other dollars to be exchanged for goods and services. More money chasing goods and services can tend to raise the prices (amount of money need to be exchanged for) them. Money at the bank or under a mattress doesn't count.

I don't quite understand what you mean when saying having money at the bank decreases the demand for money. A decreased demand for (spending) money is indeed why the put the money in the bank in the first place- not the other way around- and if it is there, they are not spending it ("increasing their spending").
 
Last edited:
As far as inflation is concerned, the only money which counts is the money actually being spent- competing with other dollars to be exchanged for goods and services. More money chasing goods and services can tend to raise the prices (amount of money need to be exchanged for) them. Money at the bank or under a mattress doesn't count.

I don't quite understand what you mean when saying having money at the bank decreases the demand for money. A decreased demand for (spending) money is indeed why the put the money in the bank in the first place- not the other way around- and if it is there, they are not spending it ("increasing their spending").

They spend other money that they may have as if all of their other deposits are fully backed by cash (which they are not).
 
Back
Top