Two Arguments Against the Fed We Should Make Over and Over

[Zippyjuan]

Treasuries don't count as part of a bank's reserves. https://en.wikipedia.org/wiki/Bank_reserves

'Bank reserves' are a commercial banks' holdings of deposits in accounts with a central bank (for instance the European Central Bank or the applicable branch bank of the Federal Reserve System, in the latter case including federal funds), plus currency that is physically held in the bank's vault ("vault cash").[1] Some central banks set minimum reserve requirements, which require banks to hold deposits at the central bank equivalent to at least a specified percentage of their liabilities such as customer deposits. Even when there are no reserve requirements, banks often opt to hold some reserves—called desired reserves—against unexpected events such as unusually large net withdrawals by customers or bank runs.

 

[Dr.No.]

They sure can. Treasuries are counted as bank reserves. Banks can lend whatever they want as long they have 10% in reserves.

No, treasuries are not counted as bank reserves. Plus, the whole "10%" reserve idea is a myth; it hasn't been the case since the late 60s. Basically, CDs, money market accounts, investment accounts, savings accounts, etc. pretty much don't require any reserves (no legal requirement). Checking account have some minimal reserve requirements, between 0 and 10%. Moreover, the money created from a loan are essentially the reserves that back the loan.

That is why the federal reserve/treasury bonds. It provides an outlet for reserves to flow through. Now, the banks can hold reserves to fulfill requirements, but can also use it to buy government debt with some return. That puts upward pressure on the short-term interest rate.

 

[mrsat_98]

Plank 5 of the communist manifesto --- Powerful central bank,

5. Centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly.

The Federal Reserve System, created by the Federal Reserve Act of Congress in 1913, is indeed such a "national bank" and it politically manipulates interest rates and holds a monopoly on legal counterfeiting in the United States. This is exactly what Marx had in mind and completely fulfills this plank, another major socialist objective. Yet, most Americans naively believe the U.S. of A. is far from a Marxist or socialist nation.

 

[Dr.No.]

Yes, the USA is far, far, far from a Marxist nation. Learn what Marxism is...complete wealth distribution, government control of production, abolishment of the private sector, etc. etc.

Whether it is a socialist nation or not depends on your definition of socialist. Ancap guys would argue any government is socialism. People in Europe would argue it is when government infiltration reaches a certain level.

Moreover, Austrians foolishly claim that the federal reserve artificially lowers interest rates. No, the federal reserve artificially increase interest rates. The natural rate of interest is zero. Without government rules and interference that force banks to hold currency and/or provide an alternative for that currency, banks would be able to create credit with no limitations...presumably, the legal limitation that they have to pay it back, so basically, they would create credit only on the basis of the credit-worthiness of the borrower. Just like in the era of free banking, with near-zero interest rates.

 

[Seraphim]

That's a nice thought, but the average American can barely wipe his or her own ass. We would have to dumb this down quite a bit.

These two points were actually quite simple to understand. The average person can and DOES grasp this if it is shared to them in a reasonable and civil conversation. How do I know? I've seen numerous times in conversations I've had.

 

[Son_of_Liberty90]

 

[DamianTV]

Who can loan out 1000x more money than they have? If a bank does that, they are guilty of fraud.

Banks do not loan out ANY money they have. They have not done so as a standard practice of fractional reserve banking. Banking IS Fraud.