Travlyr
Member
- Joined
- Dec 15, 2009
- Messages
- 14,088
Because we're America and we're exceptional?
I've heard that... we'll see... only time will tell.
Because we're America and we're exceptional?
I've heard that... we'll see... only time will tell.
What? Look up FDIC on wikipedia to understand what it does. The rest is just basic economics, google "Moral Hazard".show me a link to the source of that information
Because we're America and we're exceptional?
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
customers probably won't like having to pay for the service of holding their deposit in the full reserve bank
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
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.
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.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.
That doesn't make any sense. Not really sure what you're trying to say.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.
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).
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").