The Fractional Reserve Banking Debate

[AlexMerced]

YouTube - The Fractional Reserve Banking Debate

 

[Sentient Void]

Enjoyed the video, Alex.

Right off the bat, remember I'm speaking for an FRB system in which there is no central bank nor government intervention/regulation/FDIC, etc.

I see and understand where you and the other camp are coming from on this in regarding it as fraud, among other good points - and this was initially my thought on this. However, is it really fraud if the banks were to inform their customers of the nature of their FRB system? I would say it is not - in a sense it could be said that saving your money under a bank that participates under a FRB system would be seen as form of investment and comes with some risk. Also, interest rates would be determined by the market, so when savings are reduced for whatever economic reasons - interest rates go up to rebuild reserves and stiffen lending practices, while if liquidity reserves are high they would lower rates and engage in perhaps more speculative investments. This not only ensures the bank stays in business and maintains / grows profits, but also naturally protects consumers and society from moral hazard. I also think it is safe to say that some market-based insurance company(ies) would act as insurance, playing a similar role to FDIC.

In regards to your statements about creating money out of thin air (and I think you were leading to the idea of inflation), in the years before 1913 when the US didn't have a central bank (even though it did have excessive banking regulations that reduced diversification assisting greatly with leading to failures), and even though we had an FRB system, the value of the dollar (exempting times of war of course) remained pretty stable, if I remember correctly. So it seems that as the economy grew, the money supply grew with it (and as it contracted, the money supply did as well) and actually helped maintain general stability of the dollar without too much inflation or deflation.

If anything, it seems that under a 100% reserve system, we would have constant deflation since the money supply wouldn't grow with the economy (money supply stays same + increased productive output / capital in economy = deflation). Now I don't personally have a particular issue with deflation, since as opposed to inflation (which naturally leads to an increased consumption based economy), it should lead to increased savings. However, savings is much less useful if it is not used as investment back into the economy as it is saved (of course savings might be saved for future consumption or investment, but usually much later on after a certain amount is accumulated). This could lead to increased deflation, since you would effectively be 'hoarding' money and taking it out of the economy. Without this money being constantly reinvested into the economy, I would imagine that the economy would grow much more slowly than otherwise. Albeit I acknowledge it would still grow through natural wealth-building and increased production through technological advancements, it just wouldn't be anywhere near as fast or effective. Also, although it may not be significant, deflation may at least slightly discourage people from spending in certain situations or under certain circumstances. The market distortion seen by potent deflation (if it were to happen) could be the opposite of inflation - whereas inflation sends false signals of economic prosperity, deflation could send false signals of economic deficiency.

Then, there's the issue of which is truly a free-market solution? FRB was, I believe, a natural market response to the demands of banking, customers, investment, etc to maximize profit potential. You would need a governmental force of some sort in order to *require* banks to keep 100% of money on reserve. Of course, the response might be that government isn't needed, since less than 100% FRB is a violation of property rights and fraud - but again, I would say as long as customers know how a bank works under such a system, they should be free to engage in it, as they have and do. After all, all of us here know about our FRB system, but we engage in it anyways (just in case it would be said that people wouldn't engage in it if they knew).

Now, in a truly free market you'd probably have banks that do FRB competing on the market with banks that hold 100% reserves. In the end, if the FRB system is stable (as it was in Canada even during the Great Depression, btw we had bank failures before our central bank due to govt intervention), and gives things like free checking, pays interest to it's savers, lends out money and achieves increased profits for it's shareholders, etc... whereas the 100% reserve bank (in order to make a profit) requires fees for savings storage, card and account usage, transfers, etc, and doesn't offer nearly as much profit potential across the board - the FRB banks would (I would think) mostly beat the competition and become the general norm and accepted form of banking over time. Not to say that 100% reserve banks would definitely completely disappear, though they might considering how hard it would be to compete with the other banks for customers and making profit and contributions to the community through increased loans and interest payments to it's depositors.

In conclusion...

It seems that it comes down to this... 100% reserve banking sounds doable and is the best method of protecting people's savings and we would still see the economy grow. Economic growth would be much more stable, and boom/bust cycles would be minimal and probably relating only to natural/artificial disasters or *significant* changes in industry (such as moving from agrarian to industrial based economy, or industrial to service-based, or service-based to financial, etc), but may also be less painful when the market actually corrects and re-allocates capital and liquidity. This seems the safest route, although increased standard of living (from investment and technological progress) and economic growth may be much slower.

A FRB system would contribute, in my eyes to significantly greater economic growth and wealth creation, accelerated standard of living and prosperity through the mechanisms of increased investment and maximizing the use of existing liquidity in the market. Although such a system has more risk involved, it seems that such a system should still be generally very stable absent a central bank and govt intervention (again, similar to Canada during the Great Depression). Boom/bust cycles *may* be more frequent or potent, but nowhere *near* as bad as we have now under govt intervention and a central bank, central planning, etc. Anyways, I believe that under a free-market-based FRB system, standard of living and technology would rise the quickest, and this is ultimately why I would favor the FRB system over a 100% reserve system, despite higher risks.

 

[AlexMerced]

I agree, a FRB system with Natural risk (no FDIC/Federal Reserve) would work out fine, but while they'd have the consent of their depositors to lend out their deposits lending out the deposits would still have a effect on non-depositors purchasing power which is my main issue with that system, though it's totally fine otherwise.

I don't think either system would be better for growth, how you bank doesn't increase the REAL resources and demands in the economy, although it does effect purchasing power.

So the strengthening of purchasing power will still make for the same growth and investment, and those who hoarde money will just further strengthen the purchasing power of the investments till they produce goods to get those savings to be spent.

Things wouldnt change much, what would change is the culture of leverage, and that's awesome.

 

[Sentient Void]

I agree, a FRB system with Natural risk (no FDIC/Federal Reserve) would work out fine, but while they'd have the consent of their depositors to lend out their deposits lending out the deposits would still have a effect on non-depositors purchasing power which is my main issue with that system, though it's totally fine otherwise.

However, a constantly deflating currency would have an effect on everyone in the same (just opposite effect) way. So if the objective is to see a minimal effect on anyone not engaging in this or that practice to incentivize a certain behavior with money in and of itself, we would want to avoid constant and/or potent inflation and deflation. Anything that makes prices less reliable (inflation *or* deflation) would make 'prices' less reliable (similar but opposite to what the ABCT says, aka the Wicksellian Rot, about inflation prices sending false signals), and send false signals to entrepreneurs and other businesses to make sound judgements and therefore undermines economic performance, and growth suffers. Mises and Hayek have both explicitly stated that deflationism has negative economic ramifications. It seems to me that letting the market handle interest rates in an FRB system may be the best way to keep prices stable. Also, remember that under our old FRB system (sans central bank/fdic), the dollar remained stable and did not lose nor gain much value. This is probably because money supply rose/fell accordingly with natural market forces. So this is a clear-cut example of the dollar's price stability in such a system and allows focusing not on money in and of itself as some sort of hedge or investment, but keeping it *solely* as medium of exchange and conveying the most accurate information possible to consumers, entrepreneurs, et al.

Consistent and/or potent deflation would lead to an unnatural savings rate, similar but opposite to how we have an unnatural consumption rate with our constant and soemtimes potent levels of inflation. The best situation for money is for it to remain as neutral as possible. Both inflation and deflation distort the role of money.

There would of course still be a natural decline in many prices even *with* monetary equilibrium, but that would be due to increased productivity and efficiency in the economy, technological advancement, etc. That's simply a sign of a healthily progressing market/economy (the technology industry in the US which is largely unregulated, despite our levels of inflation, is a great example). This shows that people are getting richer and the standard of living is rising in regards to said existing markets.

I don't think either system would be better for growth, how you bank doesn't increase the REAL resources and demands in the economy, although it does effect purchasing power.

So the strengthening of purchasing power will still make for the same growth and investment, and those who hoarde money will just further strengthen the purchasing power of the investments till they produce goods to get those savings to be spent.

Things wouldnt change much, what would change is the culture of leverage, and that's awesome.

I'm assuming we're both agreeing that in a free-market under both systems, they would be 'hard currencies', as in backed by some substance (gold, silver, unobtainium, whatever). As such, they would be legitimate stores of wealth... I understand you believe that neither system would be better for growth and only the culture of leverage would change, but if they were actual stores of wealth, wouldn't having them being constantly used and cycled through the economy in different forms of investment be preferable? I guess the the best way to think about it is to take opposite logical extremes of the situation - what would be better for the economy, everyone investing their extra money (from underconsuming), or everyone always hoarding their extra money (from underconsuming) and never using it? Would both situations lead to the same economic growth? I disagree, and this is partly why I feel a natural, free-market FRB system is preferable and better for economic growth.

Then there's the issue of the associations between free individuals. As an example, let's say we had a completely 100% capitalist economy, no central bank, no fdic, no govt intervention. An austrian paradise (assuming for a second we somehow got it working without the need for govt). If competing banks offered FRB and 100% reserve banking (and told their customers how their systems worked), in a voluntary society respecting property rights, FRB I would imagine not only exist, but as I described in my previous post, would probably prosper over the 100% reserve banks due to services offered, interest paid, profit potential, etc. This would show a natural progression in a free-market, catering to natural demands of consumers/investors/businesses in an economy. It seems to me that in a 100% capitalist society, 100% reserve banks would probably not be in demand at least nearly to that of FRB. Thinking about it now, a truly free-market would probably result in both types of systems... whereas the FRB banks would be like modern day banks, and 100% reserve banks would simply be warehousing agents for stores of wealth. However I still think the FRB banks would be much more prosperous as profit-generating ventures and offer more services and value to individuals and the economy.

In conclusion, I still think 100% reserve banks would be stifling to an economy, and a 100% reserve system, in order to be maintained and enforced by it's very nature must be a regulated system which would go against the demands of free individuals engaging in voluntary transactions (while still obeying the NAP). It seems you would need some kind of entity with a monopoly of force (governing entity), to ensure a 100% reserve system. So I would not only argue against a 100% reserve system not only on economic grounds, but even on moral grounds as well, since FRB could simply be recognized and understood as a form of investment and would need to be actively prevented by said governing agency.

 

[DamianTV]

There is a real easy way to sum the whole thing.

Is a Fractional Reserve Banking System in any way shape or form a part of an HONEST MONEY SYSTEM? I think not.

 

[Sentient Void]

There is a real easy way to sum the whole thing.

Is a Fractional Reserve Banking System in any way shape or form a part of an HONEST MONEY SYSTEM? I think not.

Of course, feel free to explain *why* you feel it's not an honest money system. Have you actually read the entire discussion?

Oh, and calling it fraud is not a legitimate reason - because it's not fraud if the customers know how such a system works - and is seen as an investment entity.

It also comes down to this - do you believe in / have faith in a free market system that respects property rights of individuals and engaging in voluntary transactions, or do you not? FRB is a natural response from the market, and to force banks and individuals from freely engaging in such a system, is a violation of said rights.

 

[Stary Hickory]

Sentient Void I won't quote that whole paragraph, however.

Just legalizing fraud does not eliminate the negative consequences assoicated with it. In any case if a fraudulent system were to compete along side an honest system people would eventually eliminate the fraudulent system. And you argue that FRB is ok as long as people understand the fraud.

The thing is fraud requires ignorance on the part of another party to be of any benefit to those seeking to comitt the fraud. There is no way a fraudlent banking system, no matter how legal, would not find it necessary to exploit ignorant victims. So as we can see here, the fraudulent system must decieve and victimize just to realize the benefits of engaging in fraud. It simply has to work like this.

No rational person would enter into a scheme where he would come out financially worrse off UNLESS he did not understand the nature of that scheme. The fraudulent system must prey on the innocent and ignorant, that is the whole reason it is immoral. The Bank panics were a perfect example of how legalized fraud can hurt innocent and ignorant people. The negative consequences will always be there and so will be the necessary deception, or else fraud is simply not fraud.

 

[Sentient Void]

Sentient Void I won't quote that whole paragraph, however.

Just legalizing fraud does not eliminate the negative consequences assoicated with it. In any case if a fraudulent system were to compete along side an honest system people would eventually eliminate the fraudulent system. And you argue that FRB is ok as long as people understand the fraud.

The thing is fraud requires ignorance on the part of another party to be of any benefit to those seeking to comitt the fraud. There is no way a fraudlent banking system, no matter how legal, would not find it necessary to exploit ignorant victims. So as we can see here, the fraudulent system must decieve and victimize just to realize the benefits of engaging in fraud. It simply has to work like this.

No rational person would enter into a scheme where he would come out financially worrse off UNLESS he did not understand the nature of that scheme. The fraudulent system must prey on the innocent and ignorant, that is the whole reason it is immoral. The Bank panics were a perfect example of how legalized fraud can hurt innocent and ignorant people. The negative consequences will always be there and so will be the necessary deception, or else fraud is simply not fraud.

But you're missing my point. It has nothing to do with 'legalizing fraud'. FRB, in and of itself, simply *isn't* fraud. It's not fraud, because the FRB is an *investment mechanism* (I'm sure this is even in the contract when signing up for an account with a bank). A 100% reserve 'bank' isn't a bank at all, and doesn't fit the definition of a bank. It would simply be a warehousing or storage facility. In storage facilities you pay fees to keep your money there. It's also a pretty clear signal that a bank isn't a storage facility, because you don't pay to keep your savings there - *they* pay *you* interest. You're, in a sense - making a loan to them. They then take that money you gave them, make loans to others (investments) to make interest on (to make a profit), and pay you out accordingly.

In a sense we already have 100% reserve 'banks' everywhere - safe deposit boxes for example. Why don't you and others put money there? because they don't give you a good deal or incentive. Actual banks, however, do give you such a deal/incentive. FRB are a natural market reaction, and are not fraud, period.

Essentially you are transferring your saved money from your pocket, to the pocket of the banks, with the idea that the bank will take that money you deposited, invest it through promising and profitable lending practices and return an interest to you on your money, depending on the interest rate set by the market. There is risk involved, which is why it is an investment. This is why a savings account should be just that - a *savings* account, and not to be treated like a checking account, and why they are used and treated differently in the first place.

 

[Sentient Void]

Also, here... for everybody who feels that there is something logically or legally absurd about FRB... here's a good overall video I've found (from an Austrian Economist professor) that talks exactly what I've been talking about here, which (I didn't even know until I started looking for it today) is apparently called 'Free Banking'. The whole video is good, educational and informative on FRB sans central bank, fdic, excessive regulation, etc (again, called 'Free Banking')... but if you like - head specifically to 34:25 to see the logical fallacy people are making with this.

Overall, I recommend anyone interested watch the whole video, as it talks about '100% reserve banking' vs 'Free Banking', allegations of supposed fraud, legality, logic, etc, along with how 'Free Banking' works and has worked in the past according to competition, game theory, etc.

http://fee.org/media/video/free_banking/

 

[Stary Hickory]

But you're missing my point. It has nothing to do with 'legalizing fraud'. FRB, in and of itself, simply *isn't* fraud. It's not fraud, because the FRB is an *investment mechanism* (I'm sure this is even in the contract when signing up for an account with a bank). A 100% reserve 'bank' isn't a bank at all, and doesn't fit the definition of a bank. It would simply be a warehousing or storage facility. In storage facilities you pay fees to keep your money there. It's also a pretty clear signal that a bank isn't a storage facility, because you don't pay to keep your savings there - *they* pay *you* interest. You're, in a sense - making a loan to them. They then take that money you gave them, make loans to others (investments) to make interest on (to make a profit), and pay you out accordingly.

In a sense we already have 100% reserve 'banks' everywhere - safe deposit boxes for example. Why don't you and others put money there? because they don't give you a good deal or incentive. Actual banks, however, do give you such a deal/incentive. FRB are a natural market reaction, and are not fraud, period.

Essentially you are transferring your saved money from your pocket, to the pocket of the banks, with the idea that the bank will take that money you deposited, invest it through promising and profitable lending practices and return an interest to you on your money, depending on the interest rate set by the market. There is risk involved, which is why it is an investment. This is why a savings account should be just that - a *savings* account, and not to be treated like a checking account, and why they are used and treated differently in the first place.

Well no not really at all. You miss entirely the problem with fractional reserve banking. You are attempting to argue here that the impossible is possible. You are advocating two parties laying claim to the same resources. For example.

Would it be proper for someone to agree to hold someone else's car for an indefinite period of time while and then lend that same car out to someone for personal benefit? This is what you are in effect arguing is proper and beneficial. Now we have two individuals who SIMULTANEOUSLY expect to utilize at their discretion the very same car. The person who stored the car expects that it is there when he needs it and the person who borrowed the car also expects that he can keep it for the agreed term.

This is fraudulent because two parties are planning their lives around utilizing the exact same resource. If the owner of the car needs it to conduct his daily affairs it is not there, and he has wasted time and energy planning his life around the availability of this car. This wasted energy and time is the equivalent of malinvestment in the larger economy under our current monetary system.

Just because we start to use monetary units there is no need to change the equation. The very second a bank creates fractional reserve credit the money is instantly debased. Every single soul that uses this money as a store of value is potentially defrauded. Everyone who holds these monetary units has a certain expectation of purchasing power based on the money's current value in goods and services. However thanks to the creation of new money, someone now must do without.

When you systematize this kind of behavior the fraud becomes rampant and manifests itself in inflation, sudden bouts of deflation (when liquidity stops flowing), defunct retirement plans, and so on. How on earth can you argue that this is not fraud?


And also just because both parties agree to the terms does not make it any less wrong. See here is where you also go astray. The depositor of money is making a deposit....NOT A LOAN. However the bank is treating this deposit as a loan. People are willing to deposit because they have a guarantee from the FDIC backed by FORCE of violence. This is the crux of the matter, the government forces the use of it's money and defacto the population is FORCED to deal with inflation(fraud). The fraudulent activities of the bankers get's FORCED on everyone who utilizes dollars. If what you call harmless was really just that government force would not be necessary. And let's be clear about free checking accounts....they are not free, inflation is the price everyone is FORCED to pay for the existence of FRB and these so called "free" services.

 

[Sentient Void]

Well no not really at all. You miss entirely the problem with fractional reserve banking. You are attempting to argue here that the impossible is possible. You are advocating two parties laying claim to the same resources. For example.

Would it be proper for someone to agree to hold someone else's car for an indefinite period of time while and then lend that same car out to someone for personal benefit? This is what you are in effect arguing is proper and beneficial. Now we have two individuals who SIMULTANEOUSLY expect to utilize at their discretion the very same car. The person who stored the car expects that it is there when he needs it and the person who borrowed the car also expects that he can keep it for the agreed term.

This is fraudulent because two parties are planning their lives around utilizing the exact same resource. If the owner of the car needs it to conduct his daily affairs it is not there, and he has wasted time and energy planning his life around the availability of this car. This wasted energy and time is the equivalent of malinvestment in the larger economy under our current monetary system.

Just because we start to use monetary units there is no need to change the equation. The very second a bank creates fractional reserve credit the money is instantly debased. Every single soul that uses this money as a store of value is potentially defrauded. Everyone who holds these monetary units has a certain expectation of purchasing power based on the money's current value in goods and services. However thanks to the creation of new money, someone now must do without.

When you systematize this kind of behavior the fraud becomes rampant and manifests itself in inflation, sudden bouts of deflation (when liquidity stops flowing), defunct retirement plans, and so on. How on earth can you argue that this is not fraud?


And also just because both parties agree to the terms does not make it any less wrong. See here is where you also go astray. The depositor of money is making a deposit....NOT A LOAN. However the bank is treating this deposit as a loan. People are willing to deposit because they have a guarantee from the FDIC backed by FORCE of violence. This is the crux of the matter, the government forces the use of it's money and defacto the population is FORCED to deal with inflation(fraud). The fraudulent activities of the bankers get's FORCED on everyone who utilizes dollars. If what you call harmless was really just that government force would not be necessary. And let's be clear about free checking accounts....they are not free, inflation is the price everyone is FORCED to pay for the existence of FRB and these so called "free" services.

Remember, I'm talking about a *FREE BANKING* system of FRB. Meaning without an FDIC, without a central bank and a governmental monopoly on money, without significant or unnecessary regulation/intervention from the govt, and under a market of natural risk. A lot of what you are arguing against is due to your understanding of our *current* system, which I am not advocating nor have I ever in this discussion. For example, under Free Banking, banks were naturally much higher capitalized and did not engage in anywhere near as much risky activity as they do today. Reserves were also higher. The market dictated their actions, interest rates and business practices, not central planners and regulators.

Anyways, first of all, your analogy is much too simplistic and is an inaccurate representation of how FRB (in and of itself) works and ignores diversification and volume of customers. The fact of the matter is that those deposits are backed by assets that can be sold in order to redeem the deposits. These can be assets that the bank has on it's books, or it has in the past asked for the money from shareholders if it really came down to it, among other methods. Worst case scenario, the deposits are redeemable as IOUs at the option of the banks and would be paid at the end of a period, at interest. Many if not all banks still have wording in their terms that say you must give 90 days prior to a withdrawal of deposit. They don't enforce this, but it is there as an option if for whatever reason there would be a run on the bank. This was one of *many* ways that banks reduced potential of a bank run.

A more accurate and appropriate analogy would be to say...

I'll agree to hold your car for an indefinite period of time, backing up that car-deposit liability with *many* other cars (of the same make, model, and condition) in my lot in case you need it back. Also, I have many other assets (company stock, for example, collateral from lien holders, among other sellable assets) that I can sell to meet my deposit-liabilities, which may or may not take some time to get the money for to replace your car. Meanwhile, I'll pay you a percentage of the profits I make from lending out your car to other people who need a car now and don't have it who will pay interest on my car loan to them. Keep your car in my lot, and I'll continue to pay you interest. I of course do not have all of the cars deposited in my lot, as they are being used, but have more than enough for what I've come to expect in this business for my depositors who come to take their car back because they need it. If, for whatever reason, more people come to take their cars back than I have cars in my lot, then I will sell some assets to meet such a demand, or will issue an IOU to you until I can meet my obligations. There is of course some (although very minimal) risk involved that you may not get your deposit back. Feel free to do business with me or not.

Of course, this is still simplified but it is at least a *lot* more accurate than your version.

This. Is. Not. Fraud. It is a form of INVESTMENT. I don't know how many different ways I need to explain this. As for saying it was like a loan, that was merely to help illustrate how the system is actually working and how it should be perceived.

As for your argument that FRB in and of itself leads to inflation, you're completely wrong - the system I'm describing does *not* lead to inflation. Our *current* system leads to inflation, yes - but I am not advocating our current system. The creation of money *in and of itself* does *NOT* lead to inflation, or a lowering of purchasing power of the currency/notes in circulation. The creation of *EXCESS* money, compared to the the growing/shrinking size of the economy, is what leads to inflation.

To help illustrate, let's examine an opposite situation. If you have a circulation of however much money in an economy, and the economy's productive capacity, capital, etc GROWS - you would have deflation and monetary dis-equilibrium. HOWEVER - if the money supply GROWS *naturally* *WITH* the economy, through market-based interest rates, etc, you have monetary equilibrium, and this minimizes false deflationary (Wicksellian Rot) / inflationary (Austrian Business Cycle Theory) signals leading to a much more prosperous and productive economy.

Of course, you don't have to engage in the FRB system. There are 100% reserve 'banks' everywhere, except they're called warehouses, storage facilities, or storage security lockboxes if you like the added security. Fact is, whether under an inflationary or deflationary economy, you'd prefer the real bank since it would be much more convenient and give you incentive to keep your money there instead.

Of course, as I said in my last post, you could further educate yourself by watching the video I posted earlier on 'Free banking' by an Austrian Economist professor.

I also recommend you watch another video on the theory of 'Monetary Equilibrium', by another Austrian Economist professor.

http://fee.org/media/video/monetary-equilibrium-theory/

Many Austrians have *no* problem with FRB, as long as it's under a Free Banking system. This is what I've been advocating. Von Mises and Hayek had *no* problem with FRB in and of itself either, again as long as it were under a Free Banking System.

Rothbard, on the other hand, did have a problem with it. I love Rothbard to death, love his books, ancap theories etc for the most part (I am an An-Cap myself) - but I, and it seems many others have a serious disagreement with him on this - and rightfully so.

 

[AlexMerced]

Well I would agree that artificial deflation would be just as bad as artificial deflation, the deflation I'm talking about is just adjustment to the ACTUALLY money supply, not the phantom money supply created by FRB.

The deflation would only go as far as the money in circulation such as inflation can only continue till it catches up with the money supply.

After the initial adjustment the only deflation would occur due to productivity gains, which is great.

The initial adjustment would have to be pretty large due to how inflated our current system is, but it wouldn't be perpetual, it'd be temporary like inflation, the only reason we have constant inflation cause the money supply is constantly growing, if the money supply was restricted to it's base units or real money deflation and inflation could occur due to monetary manipulation.

Even with FRB it would lead mild monetary manipulation, much milder than now, and probably not that problematic, but it's still not transparent and allows the banks to destroy other peoples property, their money.

So even if it's not a fraud issue, it's a property rights issue.

 

[Stary Hickory]

Remember, I'm talking about a *FREE BANKING* system of FRB. Meaning without an FDIC, without a central bank and a governmental monopoly on money, without significant or unnecessary regulation/intervention from the govt, and under a market of natural risk. A lot of what you are arguing against is due to your understanding of our *current* system, which I am not advocating nor have I ever in this discussion. For example, under Free Banking, banks were naturally much higher capitalized and did not engage in anywhere near as much risky activity as they do today. Reserves were also higher. The market dictated their actions, interest rates and business practices, not central planners and regulators.
.

I understand all of the differences of what you are propsoing, you are arguing that fraudulent activities are harmless and actually beneficial investment opportunities. When in fact they are harmful and deceptive, and there is no defending them at all. If someone sold you a car without an engine would that be fair? How about only 5% of the cars sold at this place had no engines despite claiming to be selling quality cars?

Anyways, first of all, your analogy is much too simplistic and is an inaccurate representation of how FRB (in and of itself) works and ignores diversification and volume of customers. The fact of the matter is that those deposits are backed by assets that can be sold in order to redeem the deposits. These can be assets that the bank has on it's books, or it has in the past asked for the money from shareholders if it really came down to it, among other methods. Worst case scenario, the deposits are redeemable as IOUs at the option of the banks and would be paid at the end of a period, at interest. Many if not all banks still have wording in their terms that say you must give 90 days prior to a withdrawal of deposit. They don't enforce this, but it is there as an option if for whatever reason there would be a run on the bank. This was one of *many* ways that banks reduced potential of a bank run..

Ok first the anaology is not too simplistic you simply get confused when money is used a a substitute in barter. Just because we start using money as a substitute to goods and services does not mean it can suddenly change the physical limitations of this world allow the simotaneous use and accounting for physical goods and services.

A more accurate and appropriate analogy would be to say...

I'll agree to hold your car for an indefinite period of time, backing up that car-deposit liability with *many* other cars (of the same make, model, and condition) in my lot in case you need it back. Also, I have many other assets (company stock, for example, collateral from lien holders, among other sellable assets) that I can sell to meet my deposit-liabilities, which may or may not take some time to get the money for to replace your car. Meanwhile, I'll pay you a percentage of the profits I make from lending out your car to other people who need a car now and don't have it who will pay interest on my car loan to them. Keep your car in my lot, and I'll continue to pay you interest. I of course do not have all of the cars deposited in my lot, as they are being used, but have more than enough for what I've come to expect in this business for my depositors who come to take their car back because they need it. If, for whatever reason, more people come to take their cars back than I have cars in my lot, then I will sell some assets to meet such a demand, or will issue an IOU to you until I can meet my obligations. There is of course some (although very minimal) risk involved that you may not get your deposit back. Feel free to do business with me or not...

Well now you have "magical assets" that are always available to cover the shortfalls. This is not very intellectually honest. If banks had additonal assets and wealth that could cover the gaps in their reserves, then there would be NO NEED to engage in fractional reserve banking. You also refuse to admit that when a bank creates credit it creates inflation. You want to say you can expand the ratio of money to goods and services and see no inflation....this is not logical whatsoever.

Of course, this is still simplified but it is at least a *lot* more accurate than your version.

This. Is. Not. Fraud. It is a form of INVESTMENT. I don't know how many different ways I need to explain this. As for saying it was like a loan, that was merely to help illustrate how the system is actually working and how it should be perceived.

As for your argument that FRB in and of itself leads to inflation, you're completely wrong - the system I'm describing does *not* lead to inflation. Our *current* system leads to inflation, yes - but I am not advocating our current system. The creation of money *in and of itself* does *NOT* lead to inflation, or a lowering of purchasing power of the currency/notes in circulation. The creation of *EXCESS* money, compared to the the growing/shrinking size of the economy, is what leads to inflation. ...

I don't know what to do with you really, if you cannot admit that increasing credit realtive to goods and services does not create inflation. This is simple supply and demand. Inflation is a manifestation of fraudulent accounting. You lack a severe understanding of money and how it's most valuable service is being a tool for accounting for all the goods and services in our economy.

And here you sound like a Kensyian or a Chicago school hack. Why should people be robbed the benefits of increased efficiency and hard work? You argue that there is no inflation when effieciency is increasing and the money supply/credit increases enough to cause no rise in prices. However you fail because of a lack of understanding of what inflation is. It is an increase in the money supply not an increase in prices.

The fact that such thinking has debased our dollar 95% already does not disuade you it seems. Prices should fall when products become cheaper or easier to make. There is no justifcation for saying that fraudulent bankers should be allowed to create credit to syphon off these savings. Also you miss another point. People can invest simply by not spending money, but by saving, and without the bank robbing them.

When people save in an economy without crooked bankers,there is a mild deflation in prices for every person who restrains from buying. This means that the purchasing power of all remaining money increases...which means investments using this money are increasing in purchasing power too. In short you can invest in projects more cheaply. A person who saves invests in the ENTIRE economy over all possible investments simotaneously. This person is investing in society as a whole. When this person resumes spending inflation will occur to the extent he spends, however the increased investment was accounted for correctly because there was a decrease in consumption to the exact extent consumption increased on the behalf of investors and consumers.

When banks increase credit, without a sacrifice in consumption they FORCE others to restrict their consumption so that the bank can invest in their stead. Now a bank cannot just force others to consume less and then invest their propery outright. They require a decption to do so, this is so that no one gets upset. This is inflation, it is done in secret and no one knows to what extent the inflation really is(how much the ratio to goods has changed) if it will affect them directly or if it will at all. This means people making ECONOMIC CALCULATIONS have a much harder time planning for the future. The more rampant the credit expansion the more out of whack people's economic calculations get.

Also bear in mind that in order to create credit and operate on low reserves banks require either a good reputation built on years of honest banking or an agent of force mandating the use of their fraudulent bills. The honest reputation or appearance of one is necessary for people to trust the bank enough to not withdraw their money, this is exactly when a bank strikes.

I see you here arguing for conmen and theives, you are giving moral cover to a dishonest practice that has a history of destruction throughout many countries. The system you say is harmless leads to banks collapsing and yelling for aid because they were simply engaging in honest trade(as you define it). It compels politicains to bail out these banks, leads to mergers of government and banks to inflate and rob the people. It also finds it's victims amongst those who get robbed either because a bank refuses or cannot give them back THEIR property or because the bank simply inflates or is bailed out by an authority who can debase the currency.

Your sole argument throughout has been the existence of "magical investments" and magical "liqudity" the idea that there is always another sucker to fool. Yet we have seen banks fail and explode many many times due to dishonest accounting. People lose everything, because a bank has promised people the impossible, both access to their money and simotaneously investing it.

It's basic accounting, really it is. There is nothing society can gain by purposely decieving itselfm yet you seem to perceive some benefit in doing so despite all the evidence to the contrary.

 

[Sentient Void]

I understand all of the differences of what you are propsoing, you are arguing that fraudulent activities are harmless and actually beneficial investment opportunities. When in fact they are harmful and deceptive, and there is no defending them at all. If someone sold you a car without an engine would that be fair? How about only 5% of the cars sold at this place had no engines despite claiming to be selling quality cars?

That's a strawman, and it is not fraud as long as depositors understand that their deposits are not guaranteed on demand. How many other ways can I explain this to you?

Look, this is where you are going wrong. You're conflating property rights with contract rights. If I gave a bank money to hold (as in a lock box) then it would be outright theft if the bank let out my mother's jewelry in some form. But if I contract with a bank (by depositing cash in a savings account),then I have full knowledge (or should have if I read bank policy) that my money *will be lent out*. I accept those terms in return for interest. Of course, the bank promises to redeem my principle upon demand and if it cannot, then I should be able to sue it in exactly the same manner as I would sue anyone else who breached a contract. However, banks do not promise to redeem principle on demand (in their contracts), and if they did, and a bank run happened, they should then rightly be sued for fraud.

Ok first the anaology is not too simplistic you simply get confused when money is used a a substitute in barter. Just because we start using money as a substitute to goods and services does not mean it can suddenly change the physical limitations of this world allow the simotaneous use and accounting for physical goods and services.

If you really feel that your analogy is not a simplistic representation of how FRB works, then it is not I who am confused. I also never said in any way that using money as a substitute 'changes' the physical limitations of this world', and if you interpret my arguments as such, then it further shows your misunderstanding of FRB.

Well now you have "magical assets" that are always available to cover the shortfalls. This is not very intellectually honest. If banks had additonal assets and wealth that could cover the gaps in their reserves, then there would be NO NEED to engage in fractional reserve banking. You also refuse to admit that when a bank creates credit it creates inflation. You want to say you can expand the ratio of money to goods and services and see no inflation....this is not logical whatsoever.

Huh? "Magical assets"? I spoke directly of what assets could be sold in order to cover *some* deposits in the case of a bank run, and how it would be handled through a "come back later" policy. "Always able to cover the shortfalls"? Did you not read, "There is of course some (although very minimal) risk involved that you may not get your deposit back."? You seem to stating and believing two different things at the same time here...

1) That simply increasing the money supply no matter what results in inflation. This is absolutely 100% *not* true. If the money supply grows/contracts *WITH* capital goods and production in an economy, you have monetary equilibrium, and the price of a dollar will remain stable (ie, NOT inflate). Of course, if you believe that capital and production does not grow in an economy, you would not have much real growth. Is this what you believe? Because if capital does not grow, *then* you would be correct, and any additional growth of the money supply would result in inflation. However this is just not the case.

and 2) "expand the ratio of money to goods and services and see no inflation". I never said nor advocated *any* such thing, so this is yet *another* strawman. Expanding the ratio of money to an economy would, yes result in inflation. *As I said* - this is *EXCESS* creation of money. However, under a 'Free Banking' FRB system, the market would determine appropriate interest rates which would contribute to the growth/contraction of money based on the circumstances in the market.

Once again, I cite the USD under our old relatively free banking system, in which the dollar remained pretty stable (outside times of war) while our economy grew and banks added notes into circulation, backed by gold. There are also other examples in history that support this - Scotland, and Canada come to mind. So economic theory, logic and history has proven you wrong - FRB under Free Banking, in and of itself did and does *not* lead to inflation. BTW, banks failed during this time for govt intervention distortions, though such as laws against diversification and expansion.

I don't know what to do with you really, if you cannot admit that increasing credit realtive to goods and services does not create inflation. This is simple supply and demand. Inflation is a manifestation of fraudulent accounting. You lack a severe understanding of money and how it's most valuable service is being a tool for accounting for all the goods and services in our economy.

Well, for starters, you could actually read and follow my posts and understand how FRB actually works under a Free Banking system.

And here you sound like a Kensyian or a Chicago school hack. Why should people be robbed the benefits of increased efficiency and hard work? You argue that there is no inflation when effieciency is increasing and the money supply/credit increases enough to cause no rise in prices. However you fail because of a lack of understanding of what inflation is. It is an increase in the money supply not an increase in prices.

A Keynesian or Chicago school 'hack'? You must be kidding! F.A. Hayek, Ludwig Von Mises, Peter Schiff, George Selgin, Steve Horowitz, Larry White and MANY other notable Austrian Economists have *NO* problem with Free Banking, and *NONE* of them have said that it would lead to anything you're describing. Now I'm getting irritated with your arrogance and ignorance and will simply have to debunk you here and now...

"What is needed to prevent any further [monetary abuse] is to place the banking business under the general rule of commercial and civil laws compelling every individual and firm to fulfill all obligations in full compliance with the terms of contract.... Free banking is the only method available for the prevention of the dangers inherent in credit expansion.... Under free banking it would have been impossible for credit expansion with all its inevitable consequences to have developed into a regular — one is tempted to say normal — feature of the economic system. Only free banking would have rendered the market economy secure against crises and depressions."

Do you *REALLY* wish to argue with the FATHER of Austrian Economics?

As for yet your other strawman - I *never* said inflation was an increase in prices. *Inflation is a decrease in the value of a monetary unit* - which LEADS to higher prices.

The fact that such thinking has debased our dollar 95% already does not disuade you it seems. Prices should fall when products become cheaper or easier to make. There is no justifcation for saying that fraudulent bankers should be allowed to create credit to syphon off these savings. Also you miss another point. People can invest simply by not spending money, but by saving, and without the bank robbing them.

When people save in an economy without crooked bankers,there is a mild deflation in prices for every person who restrains from buying. This means that the purchasing power of all remaining money increases...which means investments using this money are increasing in purchasing power too. In short you can invest in projects more cheaply. A person who saves invests in the ENTIRE economy over all possible investments simotaneously. This person is investing in society as a whole. When this person resumes spending inflation will occur to the extent he spends, however the increased investment was accounted for correctly because there was a decrease in consumption to the exact extent consumption increased on the behalf of investors and consumers.

When banks increase credit, without a sacrifice in consumption they FORCE others to restrict their consumption so that the bank can invest in their stead. Now a bank cannot just force others to consume less and then invest their propery outright. They require a decption to do so, this is so that no one gets upset. This is inflation, it is done in secret and no one knows to what extent the inflation really is(how much the ratio to goods has changed) if it will affect them directly or if it will at all. This means people making ECONOMIC CALCULATIONS have a much harder time planning for the future. The more rampant the credit expansion the more out of whack people's economic calculations get.

Also bear in mind that in order to create credit and operate on low reserves banks require either a good reputation built on years of honest banking or an agent of force mandating the use of their fraudulent bills. The honest reputation or appearance of one is necessary for people to trust the bank enough to not withdraw their money, this is exactly when a bank strikes.

I see you here arguing for conmen and theives, you are giving moral cover to a dishonest practice that has a history of destruction throughout many countries. The system you say is harmless leads to banks collapsing and yelling for aid because they were simply engaging in honest trade(as you define it). It compels politicains to bail out these banks, leads to mergers of government and banks to inflate and rob the people. It also finds it's victims amongst those who get robbed either because a bank refuses or cannot give them back THEIR property or because the bank simply inflates or is bailed out by an authority who can debase the currency.

Your sole argument throughout has been the existence of "magical investments" and magical "liqudity" the idea that there is always another sucker to fool. Yet we have seen banks fail and explode many many times due to dishonest accounting. People lose everything, because a bank has promised people the impossible, both access to their money and simotaneously investing it.

It's basic accounting, really it is. There is nothing society can gain by purposely decieving itselfm yet you seem to perceive some benefit in doing so despite all the evidence to the contrary.

Completely irrelevant, and yet another strawman. This rant/tirade right here is not refuting FRB in and of itself, under a Free Banking system - but instead our corporatist, corrupt and govt-mandated Fed (central bank) monopoly, under a completely fiat money system backed by nothing, and under FDIC insurance and excessive govt regulation. I have not advocated for this system and am vehemently against it all. We have nothing even *remotely* close to a Free Banking system.

In the end, it comes down to this - *tons* of high-profile Austrians (along with the FOUNDER, Ludwig Von Mises) have no problem with Free Banking, and history has shown (when it was actually practiced) that is one of, if not the, most stable financial systems for money in existence. This is free-market money, through and through, and respects property rights under contract. The only way to enforce a full, 100% Reserve banking system (which, again, is not banking but warehousing) would be a VIOLATION of the free market and a VIOLATION of property rights - since you'd need a government agency to say - NO, you cannot engage in such a contract. That is ABSURD. Again, I love Rothbard to death on virtually everything else, but I - among *many* very notable Austrian economists, rightly disagree with him on this.

So I also ask - are you *for* the free-market, or against it?

 

[teacherone]

there is nothing fraudulent about frb as long as it meets two simple conditions:

1) all parties are aware of the mechanism and agree to it.
2) the bank is allowed to fail in the event of a run.

fulfill those two conditions and you have free market banking.

cautious customers aware of the risks involved can choose a 100% reserve bank to store their money and will receive little or no interest on their deposits.

more risk prone customers will choose banks with frb and get a better return on their deposits as those banks will be more profitable.

when the banks fail, only the depositors, the creditors, and the bank's owners will foot the bill.

and the cautious banks and customers will shake their heads at the stupidity of it all.

but that's freedom baby!

 

[CryLibertyOrDeath]

Sentient Void I won't quote that whole paragraph, however.

Just legalizing fraud does not eliminate the negative consequences assoicated with it. In any case if a fraudulent system were to compete along side an honest system people would eventually eliminate the fraudulent system. And you argue that FRB is ok as long as people understand the fraud.

The thing is fraud requires ignorance on the part of another party to be of any benefit to those seeking to comitt the fraud. There is no way a fraudlent banking system, no matter how legal, would not find it necessary to exploit ignorant victims. So as we can see here, the fraudulent system must decieve and victimize just to realize the benefits of engaging in fraud. It simply has to work like this.

No rational person would enter into a scheme where he would come out financially worrse off UNLESS he did not understand the nature of that scheme. The fraudulent system must prey on the innocent and ignorant, that is the whole reason it is immoral. The Bank panics were a perfect example of how legalized fraud can hurt innocent and ignorant people. The negative consequences will always be there and so will be the necessary deception, or else fraud is simply not fraud.

So let's have big momma government step up to the plate for her little ignorant brats that ruin their lives because they don't read things they sign. What a liberty-oriented solution to finance.

 

[Stary Hickory]

That's a strawman, and it is not fraud as long as depositors understand that their deposits are not guaranteed on demand. How many other ways can I explain this to you?

Well then if their deposits are not GUARANTEED on demand this is not fractional reserve banking. This is a LOAN. Learn the difference please. When there is no expectation to instant access to money then there is no accounting problem and there is no fractional reserve banking.

Look, this is where you are going wrong. You're conflating property rights with contract rights. If I gave a bank money to hold (as in a lock box) then it would be outright theft if the bank let out my mother's jewelry in some form. But if I contract with a bank (by depositing cash in a savings account),then I have full knowledge (or should have if I read bank policy) that my money *will be lent out*. I accept those terms in return for interest. Of course, the bank promises to redeem my principle upon demand and if it cannot, then I should be able to sue it in exactly the same manner as I would sue anyone else who breached a contract. However, banks do not promise to redeem principle on demand (in their contracts), and if they did, and a bank run happened, they should then rightly be sued for fraud.

Nope here I though you almost understood it but NOPE FAIL. See here you have again simply changed what you are saying to suit the argument. Se in your first quote you say

"is not fraud as long as depositors understand that their deposits are not guaranteed on demand"

Now you say:

"the bank promises to redeem my principle upon demand and if it cannot, then I should be able to sue it in exactly the same manner as I would sue anyone else who breached a contract"


So you see you make two statements totally contradicting one another, both in defense of the same thing. Which way is it? Are people to expect their deposits not to be garanteed on demand or not? You need to decide what your really think and not try to twist words to suit a point.

If you really feel that your analogy is not a simplistic representation of how FRB works, then it is not I who am confused. I also never said in any way that using money as a substitute 'changes' the physical limitations of this world', and if you interpret my arguments as such, then it further shows your misunderstanding of FRB.

Explain how please? You seem to believe that loaning physical objects such as cars or tractors or anything else differs as soon as you represent these things with money. If you cannot create tractors, trains, cars, houses, food, desks, and chairs out of thin air by typing an entry into a computer accounting program it follows you cannot POSSIBLY do this with money that merely represents it, that is unless you deceive people.

Huh? "Magical assets"? I spoke directly of what assets could be sold in order to cover *some* deposits in the case of a bank run, and how it would be handled through a "come back later" policy. "Always able to cover the shortfalls"? Did you not read, "There is of course some (although very minimal) risk involved that you may not get your deposit back."? You seem to stating and believing two different things at the same time here...

Yes you deal with the ugly fact of insolvency( and history speaks volumes about bank insolvency) by coming up with "assets" that can always be pulled in to shore up shortfalls. It matters little to you debasing a currency creates investments that are bound to fail because they are made using a money that will go down in value, causing all sorts of miscalculations.

1) That simply increasing the money supply no matter what results in inflation. This is absolutely 100% *not* true. If the money supply grows/contracts *WITH* capital goods and production in an economy, you have monetary equilibrium, and the price of a dollar will remain stable (ie, NOT inflate). Of course, if you believe that capital and production does not grow in an economy, you would not have much real growth. Is this what you believe? Because if capital does not grow, *then* you would be correct, and any additional growth of the money supply would result in inflation. However this is just not the case.

Keynesian economics or at best Chicago school. "Monetary Equillibrium", this term in itself is an arrogant expression. Who can decide what is Monetary Equillibrium? You assume first that some entity has perfect knowledge to create "Monetary Equillibrium" and secondly that it is warranted. There is no need to keep prices stable....what you say is not inflationary is inflationary. FRB creates inflation that increases prices that would have fallen due to increased efficiency and technological gains. This is INFLATION. You are focused only on prices not VALUE and WEALTH. You are afixed on a number that can be printed on a piece of paper. You cannot see past the fiat paper and see the economy function as value and wealth are traded amongst subjective market participants.

And why is this valuable to society? That all things cost the exact same NO MATTER how much more efficient and cheap the processes become that produce them? A lower price reflects lower demand or a cheapening of the factors of production. Why should society be robbed of these savings by the shady dealings of bankers?

and 2) "expand the ratio of money to goods and services and see no inflation". I never said nor advocated *any* such thing, so this is yet *another* strawman. Expanding the ratio of money to an economy would, yes result in inflation. *As I said* - this is *EXCESS* creation of money. However, under a 'Free Banking' FRB system, the market would determine appropriate interest rates which would contribute to the growth/contraction of money based on the circumstances in the market.

It's not a straw man, FRB is just that creating credit out of thin air. Here you go again totally backpedalling from your previous statement about creating equilibrium by increasing the money supply to do what? Create "Monetary Equillibrium",and only god himself could know what that could possibly be. The only legitimate way to determine prices in a free market it to allow the people to trade and barter until a overall value for goods and services is established. You advocate inflating to alter these values at some bank, so that prices remain stable.

Once again, I cite the USD under our old relatively free banking system, in which the dollar remained pretty stable (outside times of war) while our economy grew and banks added notes into circulation, backed by gold. There are also other examples in history that support this - Scotland, and Canada come to mind. So economic theory, logic and history has proven you wrong - FRB under Free Banking, in and of itself did and does *not* lead to inflation. BTW, banks failed during this time for govt intervention distortions, though such as laws against diversification and expansion.

So your argument against the fraudulent system is that anyone who engages in it can be eliminated using the free market. Why yes it is possible. Just like it is possible for a Shoe salesman selling empty shoe boxes to random people to be put out of business by customers who spread the word. Or like doctor who gets a reputation for sexually abusing his patients. In both these cases the free market would probably rid themselves of such people, however I happen to believe that when you steal, violate contracts and promises, and defraud your customers you should be held accountable and that laws should stop such activities.

In every case banks who successfully engage in fraud in the free market always utilized the "perception" that they were honest and dutiful in their obligations. Without this deception banks could not defraud.

Well, for starters, you could actually read and follow my posts and understand how FRB actually works under a Free Banking system.

I understand both. Seemly better than you. I don't think you quite have it figured out yet whether depositors have a claim to their deposits on demand or not....this makes all the difference when determining if you are talking about FRB.

A Keynesian or Chicago school 'hack'? You must be kidding! F.A. Hayek, Ludwig Von Mises, Peter Schiff, George Selgin, Steve Horowitz, Larry White and MANY other notable Austrian Economists have *NO* problem with Free Banking, and *NONE* of them have said that it would lead to anything you're describing. Now I'm getting irritated with your arrogance and ignorance and will simply have to debunk you here and now...

Mises preferred free banking to government enforced fiat. Hayek and Mises would not have supported banks creating fiduciary media to maintain "Monetary Equillibrium" this sounds very Chicago style

Do you *REALLY* wish to argue with the FATHER of Austrian Economics?

I don't have to why don't you do it yourself


Ludwig Von Mises

"[Fiduciary media] should logically be subjected to the same principles that have been established with regard to money proper; the same attempts should be made in their case as well to eliminate as far as possible human influence on the exchange ratio between money and other economic goods. The possibility of causing temporary fluctuations in the exchange ratios between goods of higher and of lower orders by the issue of fiduciary media, and the pernicious consequences connected with a divergence between the natural and money rates of interest, are circumstances leading to the same conclusion. Now it is obvious that the only way of eliminating human influence on the credit system is to suppress all further issue of fiduciary media. The basic conception of Peel's Act ought to be restated and more completely implemented than it was in the England of his time by including the issue of credit in the form of bank balances within the legislative prohibition.…

It would be a mistake to assume that the modern organization of exchange is bound to continue to exist. It carries within itself the germ of its own destruction; the development of fiduciary media must necessarily lead to its breakdown.… It will be a task for the future to erect safeguards against the inflationary misuse of the monetary system by the government and against the extension of the circulation of fiduciary media by the banks.[15]
"

 

[Stary Hickory]

So let's have big momma government step up to the plate for her little ignorant brats that ruin their lives because they don't read things they sign. What a liberty-oriented solution to finance.

Well lets get rid of all laws. We don't need government intervening in murder theft or anything. You argue a silly point. Because once the bank defrauds people, the very government "big momma" as you call it steps in so that those harmed cannot have recourse by taking back that which was swindled.

The same big momma government is protecting banks who are kicking out homeowners out of their homes even though it was FRAUD and FRB that caused the deception. The Banks get the homes and the poors saps who got mixed up in the fraud bubble get the shaft. And if they try and reclaim what they lost big momma government will step in and stop them.

 

[Stary Hickory]

there is nothing fraudulent about frb as long as it meets two simple conditions:

1) all parties are aware of the mechanism and agree to it.
2) the bank is allowed to fail in the event of a run.

fulfill those two conditions and you have free market banking.

cautious customers aware of the risks involved can choose a 100% reserve bank to store their money and will receive little or no interest on their deposits.

more risk prone customers will choose banks with frb and get a better return on their deposits as those banks will be more profitable.

when the banks fail, only the depositors, the creditors, and the bank's owners will foot the bill.

and the cautious banks and customers will shake their heads at the stupidity of it all.

but that's freedom baby!

K then this is not really FRB, it is a variation of a loan.

 

[AlexMerced]

As far a 100% Federal Reserve Banking goes, listen to the most recent Lew Rockwell podcast, and Joe Salerno makes a pretty good case why FRB should not exist period.

But I don't think anyone made any counter argument to the Property Rights issue, that even if the depositors consent and it's not fraud, that by leveraging their depositors they are still destroying the purchasing power of their non-depositors which is destruction of property.

Given natural price level changes will occur due to productivity gains and losses, but that's not the fault of one particular economic actor, credit expansion has a culprit.