The Return of Sound Money

[Zippyjuan]

It sounds like we're arguing about semantics.

The term "fractional reserve banking" normally refers to how banks handle demand deposits - not time deposits.

If some people are using the term differently, well okay, what's in a word, but that's not what I'm talking about.

The definition does not specify any particular type of accounts- only to "deposits". Both savings and demand accounts are types of deposits.

 

[wizardwatson]

Explain to me Wiz who is being defrauded by fractional reserve banking.

I don't want to derail Helmuth's thread.

You want to be educated, here you go:
https://www.lewrockwell.com/2008/11/walter-e-block/is-fractional-reserve-banking-fraudulent/

I'm not the one who disagrees with 100% reserve banking, and Helmuth's general aim. I'm not the one who doesn't see ending FRB as a "end game" and who disagrees with Ron Paul on FRB in general. That's you.

Why should I give you the time? I know my level of intelligence and I've gathered enough of you to know the payoff for getting into long convo's with you where it won't benefit third party readers is negative. You might benefit, but I fear that will just make you a better arguer against people I'd rather have win arguments in opposition to you. So you don't get one-on-one special consideration from me. You're just an opponent for spectators.

 

[Zippyjuan]

Explain to me Wiz who is being defrauded by fractional reserve banking.

Is it fraud to loan out deposits? He did say that deposits are loans to the bank (which they are). If I loan you $20 and you loan that money to somebody else have you committed fraud? It is only fraud if you fail to repay the money you were loaned. So is lending out money you don't have. If making loans is fraud and depositing money in a bank is a loan then your deposit is also fraud.

From Rockwell:

But if I deposit some cash with the bank, I don’t retain my property interest. Instead, I’m making a loan to the bank and I obtain a contractual right to repayment on demand. If I demand my cash (plus interest, if any) and the bank fails to pay me, then I can sue it for breach of contract and demand expectation damages. If the bank were not a bank but just an ordinary borrower, and it was insolvent, then I have to race other creditors for its assets; otherwise, my contract right is converted into a claim in bankruptcy, and I have to share with other creditors. (Since it is a bank, I may well obtain full compensation from the government, but that is not relevant to the debate.)

If you asked the bank whether it might lend out your money, it would most certainly tell you that it would. So it is not lying to you, and there can’t be fraud. Nor is there any other contradiction, incompatibility, or problem with the arrangement. Depositors take a risk that the bank will breach the contract but anyone who enters a contract takes the same risk.

This says that a bank is NOT committing fraud by being a fractional reserve bank and making loans. They only commit fraud if they fail to pay you back.

 

[wizardwatson]

Is it fraud to loan out deposits? He did say that deposits are loans to the bank (which they are). If I loan you $20 and you loan that money to somebody else have you committed fraud? It is only fraud if you fail to repay the money you were loaned. So is lending out money you don't have. If making loans is fraud and depositing money in a bank is a loan then your deposit is also fraud.

You are lost too, apparently. A deposit is not a loan. If it was a loan how could you take it out whenever you wanted?

Read link in post #82 zippy. Try to guess which side Rev is on, and which side I'm on.

I feel like all the Ron Paul supporters left and I'm like talking to NSA robots or something.

 

[Zippyjuan]

You are lost too, apparently. A deposit is not a loan. If it was a loan how could you take it out whenever you wanted?

Read link in post #82 zippy. Try to guess which side Rev is on, and which side I'm on.

I feel like all the Ron Paul supporters left and I'm like talking to NSA robots or something.

Let's read post #77 and see what you said instead.

Well, technically he's right. A time "deposit" isn't really a deposit. It's a contractual loan essentially. The depositor of a C.D. for instance is loaning the money explicitly to the bank. Savings accounts are the same way assuming they are not on demand. These facilities could still exist with a 100% reserve bank, because there's no counterfeit effect.

 

[r3volution 3.0]

Is it fraud to loan out deposits?

If the deposit is a loan, no. If it's a bailment, yes.

Which is it? Well, that depends on what the bank and depositor agree to.

If they're both under the impression that it's a loan, then it's a loan, and there's no fraud.

If the bank lies to the depositor and tells him it's a bailment, then the bank's defrauded him.

One can argue that in the actual system that presently exists, depositors are being defrauded, led to believe that their depositors are bailments. That's clearly not true, but, even if were true, it wouldn't mean that FRB should be outlawed. No more than a grocery store caught selling water as milk would justify outlawing all groceries. Any business can be fraudulent; you outlaw the fraud, not the entire business.

 

[r3volution 3.0]

A deposit is not a loan. If it was a loan how could you take it out whenever you wanted?

Do you know what a call loan is?

Ever heard of a margin call?

 

[Zippyjuan]

If the deposit is a loan, no. If it's a bailment, yes.

Which is it? Well, that depends on what the bank and depositor agree to.

If they're both under the impression that it's a loan, then it's a loan, and there's no fraud.

If the bank lies to the depositor and tells him it's a bailment, then the bank's defrauded him.

One can argue that in the actual system that presently exists, depositors are being defrauded, led to believe that their depositors are bailments. That's clearly not true, but, even if were true, it wouldn't mean that FRB should be outlawed. No more than a grocery store caught selling water as milk would justify outlawing all groceries. Any business can be fraudulent; you outlaw the fraud, not the entire business.

Did the bank tell you they would not loan out any money? If you asked them, would they tell you they were not going to loan out your money? Do you expect a bank not to loan out any money? If you deposit money do you expect to get back the exact same notes you deposited in the same condition? Unless they did, it is not a bailment.

Again from the Rockwell article:

“If you asked the bank whether it might lend out your money, it would most certainly tell you that it would. So it is not lying to you, and there can’t be fraud. Nor is there any other contradiction, incompatibility, or problem with the arrangement. Depositors take a risk that the bank will breach the contract but anyone who enters a contract takes the same risk.”

 

[r3volution 3.0]

Did the bank tell you they would not loan out any money? If you asked them, would they tell you they were not going to loan out your money? Do you expect a bank not to loan out any money? If you deposit money do you expect to get back the exact same notes you deposited in the same condition? Unless they did, it is not a bailment.

Zippy, I think you're gettng mixed up responding to Wiz and myself at the same time.

I'm arguing that demand deposits are NOT bailments.

I'm arguing that FRB is NOT fraudulent.

We're in agreement (as least with respect to the legitimacy of FRB).

 

[Zippyjuan]

Zippy, I think you're gettng mixed up responding to Wiz and myself at the same time.

I'm arguing that demand deposits are NOT bailments.

I'm arguing that FRB is NOT fraudulent.

We're in agreement (as least with respect to the legitimacy of FRB).

Sorry if I confused things.

 

[r3volution 3.0]

Sorry if I confused things.

No problem

On another note, just noticed that the article you posted is from Walter Block. He's one of the few libertarians to challenge Rothbard's fallacious argument against FRB (Bob Murphy may have as well, IIRC), which I'm personally convinced Rothbard made disingenuously (didn't like FRB for economic reasons but didn't want to admit that banning it would violate libertarian ethics), as he was far too intelligent to not see the error in the reasoning.

EDIT: Er, nevermind, read that wrong, Block's on the other side. It was Posner taking the correct, pro-FRB position.

 

[wizardwatson]

Zippy, I think you're gettng mixed up responding to Wiz and myself at the same time.

I'm arguing that demand deposits are NOT bailments.

I'm arguing that FRB is NOT fraudulent.

We're in agreement (as least with respect to the legitimacy of FRB).

Sorry if I confused things.

I'm really happy you to could come together in support of Fractional Reserve Banking here in a sound money related thread in grassroots central at ronpaulforums.com

Brings a tear to my eye, really.

Fractional Reserve Banking IS FRAUD, just like Ron Paul says.

Just like you can't legally make a contract with two people saying you will be at two different locations at once, you can't make a contract saying the same dollar is available for two people you owe it to to withdraw at the same time.

I'm with Block on this. It may be the norm, but liberty isn't the norm.

If you support FRB you're disagreeing with Ron.

 

[wizardwatson]

No problem

On another note, just noticed that the article you posted is from Walter Block. He's one of the few libertarians to challenge Rothbard's fallacious argument against FRB (Bob Murphy may have as well, IIRC), which I'm personally convinced Rothbard made disingenuously (didn't like FRB for economic reasons but didn't want to admit that banning it would violate libertarian ethics), as he was far too intelligent to not see the error in the reasoning.

I think you are recalling incorrectly. Walter Block is the one in that article zippy quoted, that I posted, lambasting Eric Posner's attack on Walters anti-frb stance.

So...yeah, not sure what you're confusion is here.

 

[Zippyjuan]

I'm really happy you to could come together in support of Fractional Reserve Banking here in a sound money related thread in grassroots central at ronpaulforums.com

Brings a tear to my eye, really.

Fractional Reserve Banking IS FRAUD, just like Ron Paul says.

Just like you can't legally make a contract with two people saying you will be at two different locations at once, you can't make a contract saying the same dollar is available for two people you owe it to to withdraw at the same time.

I'm with Block on this. It may be the norm, but liberty isn't the norm.

If you support FRB you're disagreeing with Ron.

So what would your alternative to Fractional Reserve Banking be? A 100% reserve bank which is unable to make loans?

 

[wizardwatson]

So what would your alternative to Fractional Reserve Banking be? A 100% reserve bank which is unable to make loans?

The act of loaning need not be attached to the act of providing a reserve banking and payment system. We're just used to them being associated.

 

[r3volution 3.0]

Just like you can't legally make a contract with two people saying you will be at two different locations at once, you can't make a contract saying the same dollar is available for two people you owe it to to withdraw at the same time.

That's not what the contract says.

The contract says "I agree to loan $100 to ABC Bank at 1% per year, the loan being callable on demand."

The $100 is not available to two people at the same time.

It's available to the bank until the depositor calls the loan.

 

[Zippyjuan]

The act of loaning need not be attached to the act of providing a reserve banking and payment system. We're just used to them being associated.

Where does the bank then get money to loan out? Their own pockets? Or do they cease lending?

 

[wizardwatson]

Where does the bank then get money to loan out? Their own pockets? Or do they cease lending?

The initial loan has to be explicit. Anyone can make a loan. This isn't some kind of magical thing only banks can do, or that by doing you become "a bank". Banks can loan their assets, which might be proceeds from explicit loans from customers.

That you are baffled by this basic concept only shows how indoctrinated we are with the current banking establishments practices.

 

[Zippyjuan]

The initial loan has to be explicit. Anyone can make a loan. This isn't some kind of magical thing only banks can do, or that by doing you become "a bank". Banks can loan their assets, which might be proceeds from explicit loans from customers.

That you are baffled by this basic concept only shows how indoctrinated we are with the current banking establishments practices.

Like deposits? You stated earlier that they were explicit loans to the bank from their customers.

Well, technically he's right. A time "deposit" isn't really a deposit. It's a contractual loan essentially. The depositor of a C.D. for instance is loaning the money explicitly to the bank. Savings accounts are the same way assuming they are not on demand. These facilities could still exist with a 100% reserve bank, because there's no counterfeit effect.

 

[wizardwatson]

Where does the bank then get money to loan out? Their own pockets? Or do they cease lending?

Let me be more clear.

Banks have safety deposit boxes. They already perform a type of 100% reserve system doing that.

With 100% reserve banking it's like everything is in a safety deposit box. Does that change things like using my debit card or writing a check? No it does not. Once you write a check, that's permission for the bank to debit your account and credit their own and dispense the funds to the recipient of your check. (Or use software to clear with other banks).

It also doesn't change the practice of loaning. But anyone with sufficient capital can make loans, and typically loans require some form of collateral anyway. I doubt if 100% reserve banking came into being though that loaning services would remain so tightly coupled.