Fractional reserve lending versus.... what?

[Travlyr]

I'd beg to differ, there's nothing wrong with "banking" per se, but the problem lies in the fact that government grants them an authority to engage in legalized theft.

And I hold firm to my stance. Perhaps I should have prefaced it with "modern." Modern banking is evil. Then perhaps we'll be in agreement. Yet, I disagree "that government grants them the authority to engage in legalized theft." In 1861, Salmon P. Chase was in clear violation of the law when he started printing "Greenbacks." The whole gang subverted the Constitution so that they could have their war. All the participants should have faced charges of debasement of currency which is a capital offense. But the bankers needed to print money to engage in war for profit while taking America into debt. Indeed that worked for them as evidenced by the 14th Amendment.

Section. 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

Shall not be questioned? Well we're questioning it now! Sure enough the War Between the States worked for the bankers. They loaned paper and got paid back in gold. Their power grew. They continued their shenanigans throughout the following decades, and finally won complete control in 1913 with total subversion of the Constitution.

The Federal Reserve Act of 1913 was clearly performed by a conspiracy of international bankers that resulted in a coup d'état of the American republic. The bankers control the money supply and consequently the people. Even today, the question of constitutionality of the Federal Reserve System has not been answered. Bankers do not have the authority of government. They have the power of weaponry and the authority of media. Certainly there is no authorization in the Constitution itself.

In a truly free-market with free-market & where there's no "corporate personhood" to shield the bankers from losses, banks would be an essential link between savers & borrowers & aid in the production of more goods & services by taking on the risk in lieu of the savers to lend money to producers to produce & raise the living-standards of the society.

I agree with that. Alexis de Tocqueville in Democracy in America makes an interesting observation about how life was without the bankers in control of the money supply,

AMONG the novel objects that attracted my attention during my stay in the United States, nothing struck me more forcibly than the general equality of condition among the people.

Sound money, 100% redeemable FTW!

[PaulConventionWV]

you notice how you keep asking the wrong question? Why do you assume we NEED loans and credit?
What happens, if starting tomorrow, we had no car loans, home loans, credit cards?
Don't you think one or few of these things will happen?
Demand for goods drop, costs and profits drop, production drops, waste drops. It'll hurt lots of people who want to profit off loans, houses, cars and credit cards, but is that a bad thing? Isn't a good society one which less people are employed to finance loaning, and more people are employed to either produce good or reduce wasteful products?

So, in other words, the prices would go down in order to keep up with market demand?

[The Gold Standard]

Let's run through a hypothetical situation. Suppose you have a Blockbuster membership subscription, entitling you to rent any movie you please for as long as you want for a monthly fee. You also really want to watch Twilight, because you heart you some twinklevamps.

You drive to Blockbuster. On the way, you are on roads whose number of lanes are determined based on forecasts of traffic flows. Traffic is a little congested. When you arrive, you park in a parking lot whose size is determined by forecasts of patrons per hour and average length of stay. You have a hard time finding a parking space. Upon going inside, you find that - to your dismay, all the copies of Twilight are rented out! How can this be??? You have a membership which states that you can rent any movie you want, any time that you want! Blockbuster should carry enough copies of each movie such that every member could rent one particular movie at a given time!

In a fury, you drive back home and create three Youtube videos - one about the evils of the fractional movie rental system, another on the fractional road system, and the last on the fractional parking lot system.

What? This is the opposite of fractional reserve banking. It is was fractional reserve movie rental, there would be no need to keep track of who actually has possession of the movie, they would just create a copy of the movie out of thin air to lend to you.

[The Free Hornet]

Missing the point much, are we? The point is that every industry is based upon forecasted demand for resources. What makes banks magically different such that they receive your fractional ire?

FDIC. Highways will clear up and teens will return their copies of Twilight easing demand. The money lost due to the moral hazard of bailout banking is not coming back. Not after rush hour, not after the third viewing of Twilight. It is gone forever.

That said, you are right to defend fractional reserve X in particular when one does not pay for 100% usage (like residential internet versus business internet). The problem is the Fed and government mismanaging our monetary and banking system. FRB is just something else they can screw up.

[Domalais]

NAME ONE

The recession that lasted from October 1873 to March of 1879 is the longest economic contraction on record in the United States, at 65 months in length.

[The Gold Standard]

The recession that lasted from October 1873 to March of 1879 is the longest economic contraction on record in the United States, at 65 months in length.

You need to expand your education beyond what you were taught in the government schools. There was no depression in the 1870s. There was explosive economic growth though.

Murray Rothbard who is not the greatest of economists compared to a Ludwig von Mises, but does a good job debunking the “Long Depression” myth in his History of Money and Banking in the United States (available from Mises.org in hardcover and as a free PDF download http://mises.org/books/historyofmoney.pdf):
Orthodox economic historians have long complained about the “great depression” that is supposed to have struck the United States in the panic of 1873 and lasted for an unprecedented six years, until 1879. Much of this stagnation is supposed to have been caused by a monetary contraction leading to the resumption of specie (gold) payments in 1879. Yet what sort of “depression” is it which saw an extraordinarily large expansion of industry, of railroads, of physical output, of net national product, or real per capita income? As Friedman and Schwartz admit, the decade from 1869 to 1879 saw a 3-percent-per-annum increase in money national product, an outstanding real national product growth of 6.8 percent per year in this period, and a phenomenal rise of 4.5 percent per year in real product per capita. Even the alleged “monetary contraction” never took place, the money supply increasing by 2.7 percent per year in this period. From 1873 through 1878, before another spurt of monetary expansion, the total supply of bank money rose from $1.964 billion to $2.221 billion—a rise of 13.1 percent or 2.6 percent per year. In short, a modest but definite rise, and scarcely a contraction. It should be clear, then, that the “great depression” of the 1870s is merely a myth—a myth brought about by misinterpretation of the fact that prices in general fell sharply during the entire period. Indeed they fell from the end of the Civil War until 1879. Friedman and Schwartz estimated that prices in general fell from 1869 to 1879 by 3.8 percent per annum.

Unfortunately, most historians and economists are conditioned to believe that steadily and sharply falling prices must result in depression: hence their amazement at the obvious prosperity and economic growth during this era. For they have overlooked the fact that in the natural course of events, when government and the banking system do not increase the money supply very rapidly, free-market capitalism will result in an increase of production and economic growth so great as to swamp the increase of money supply. Prices will fall, and the consequences will be not depression or stagnation, but prosperity (since costs are falling, too) economic growth, and the spread of the increased living standard to all the consumers.

http://66.147.244.196/~theinvio/?p=2768

[Paul Or Nothing II]

Missing the point much, are we? The point is that every industry is based upon forecasted demand for resources. What makes banks magically different such that they receive your fractional ire?

Is it a breach of contract or fraud that your internet service provider is unable to provide full bandwidth to all their customers simultaneously?

What company provides your telephone service? What would happen if all of their customers attempted to place a call simultaneously?

YES, "we" are missing a point! Breach of contract is breach of contract, under fractional-reserve-banking, banks PRETEND as if demand-depositors can get their money out any time they want when they CAN'T & that's why they'd to come with a "lender of last resort" BS which literally creates money "out of thin air"

And again, you're trying circumvent the fact that fractional-reserve-banking is essentially THEFT of people purchasing-power

Is the FRB perfect? No. Have they made mistakes? Yes. Is it the best possible system? Arguably no. Did business cycles exist before the FRB? Yes. Were recessions worse before the FRB? Yes.

Since the creation of the FRB, business cycles are longer in duration and have less intense contractions.

LOL FRB pretty much always existed but general populace just didn't understand it well enough but still they knew something fishy was going on & that's why, historically, there's been a lot of distrust & hate with regards to banking, it was only in recent centuries that workings of FRB were made available to public at large

Like fisharmor says, NAME ONE boom-bust-cycle that wasn't created by FRB, you won't be able to because it's the artificial increase moneysupply that FRB causes is what leads to "excess capacity" & inflationary boom which MUST necessarily result in a bust as the markets & prices correct themselves when the realization sets in that there's less money than was previously thought during the boom-period

How, exactly, could you have a bank with more than one branch and have each branch be in a position to honor all of the bank's obligations?

Oh yeah, because the money belonging to various branches of a bank, don't actually belong to that bank!

Can you get any more ridiculous in your defense of inflationism? Of course, banks will move the money around its branches, but the point which you quite conveniently like to circumvent is that the bank would still have all the money because it's obligated to make available because it won't have lent it out like FRB-banks do!

Other state-mandated cartels work the same way as the state-mandated banking cartel! This is irrefutable proof that state mandated cartels are good!

LOL

This is strictly true, but it's also misleading.

There are other factors at play, which, IMO, are at the heart of what's wrong with FRB: first, when a bank makes a loan, they don't lend deposits. When a loan is funded, the bank creates brand new money, just for that purpose.

The second problem is that the newly created money can be deposited into another bank, where it becomes the foundation for another loan (creating even more money).

The net result with a 10% reserve is that a single $1000 cash deposit can expand into $9000 worth of loans (ever wonder why banks complain so much when you withdraw large amounts of cash?).

While I think the current banking and monetary systems are badly broken, I'm not in the camp that thinks all banks must always be evil or dishonest. There is a useful, honest way to do banking. The key to keeping it honest is to eliminate the multiplicative factor. One way to do this would be for banks to deduct loans from their reserves.

For example, if I deposit $1000 cash, that becomes bank reserves. With a 10% minimum reserve requirement, they would have $900 in "excess reserves," which could be loaned. With the current way of doing things, they would create $900 in new money to fund the loan. Instead, they should lend out $900 of the original deposit, without creating new money. The depositor might still see that they have $1000 on deposit. If the $900 loan gets deposited back into the same bank, the bank should still only have $1000 in deposits. Today, the way it works is that they would then have $1900 in deposits, and could loan 90% of that amount, even though they created $900 of those dollars from thin air.

So the solution to FRB is FRB?

Let's for simplicity's sake, say there's one bank & people re-deposit the money they earn :
Ok, lets say A deposits 100 oz into Bank B, Bank B loans 90oz to C, C buys machinary with it from D & then D deposits it into Bank B, then Bank B lends 81 oz to E who purchases car from F & F deposits with Bank B & then Bank B lends 72.9 oz to G & then he buys stuff & then it's re-deposited & so on & so on

See, Bank B actually has only 100 oz for real but but it has "deposits" which far exceed that amount which is what causes inflationary boom which ends in a bust once the market realizes that there's not as much as money as was once believed & there's a "correction"

Under an honest monetary system, there'd be segragation between time-deposits & demand-deposits & only time-deposits will be lent

And I hold firm to my stance. Perhaps I should have prefaced it with "modern." Modern banking is evil. Then perhaps we'll be in agreement. Yet, I disagree "that government grants them the authority to engage in legalized theft." In 1861, Salmon P. Chase was in clear violation of the law when he started printing "Greenbacks." The whole gang subverted the Constitution so that they could have their war. All the participants should have faced charges of debasement of currency which is a capital offense. But the bankers needed to print money to engage in war for profit while taking America into debt. Indeed that worked for them as evidenced by the 14th Amendment.

There's little "modern" about FRB, it's been pretty much there for a long time in various periods, the only thing that's "modern" is centralization & cartelization of the whole thing, for which governments are fully responsible because it's the government's who have established these "legal" cartels

You seem to emphasize too much on "evil bankers" while exonerating the MAIN CULPRIT in all this - The Government.
No private business has any legitimate power to force the people so throughout history banks have always relied on the State for legimimacy of their fraud.

If Chase is at fault then so is US government, especially Lincoln, who was a life-long supporter of cartelizing the banking, high taxes, favoritism to special interests; he was the one who issued the greencrap to fund an unnecessary war, he didn't care about slavery, he just wanted to save the Union & trample on principle of States Rights to centralize power, which he's clearly mentioned in his speeches that if he could save the Union without abolitshing slavery then he'd do it, he created the first income tax, he cartelized banking through 1864's National Banking Act, raised tariffs & what not so it would be naive of us to exonerate the government & only run after the "evil bankers"

Even today, the Fed exists by the authority of the US government otherwise it would have been burned down by people by now, it's "legality" & justification lies with US government so government's role in all this MUST be acknowledged if there's ever to be a free society

I agree with that. Alexis de Tocqueville in Democracy in America makes an interesting observation about how life was without the bankers in control of the money supply,
Sound money, 100% redeemable FTW!

Umm, America, a "democracy"? That's what progressives want, democracy = mob-rule so it's inconsistent with individual rights & liberty

[Paul Or Nothing II]

The recession that lasted from October 1873 to March of 1879 is the longest economic contraction on record in the United States, at 65 months in length.

Umm, is this a joke or something? Are you just trolling like "onlyrp"?

Of course, FRB existed in 1870s & CENTURIES before that & the fact that you don't even know this destroys all of your credibility (which you COULD'VE had if you had known such basic things) PLEASE learn some history before you make such baseless claims!

[Domalais]

Other state-mandated cartels work the same way as the state-mandated banking cartel! This is irrefutable proof that state mandated cartels are good!

Yes, good job, you've successfully ignored what I said. Still, I enjoy speaking with you via this fractional bulletin board system, which could not possibly handle the load if all of its users posted simultaneously.

[Domalais]

Umm, is this a joke or something? Are you just trolling like "onlyrp"?

Of course, FRB existed in 1870s & CENTURIES before that & the fact that you don't even know this destroys all of your credibility (which you COULD'VE had if you had known such basic things) PLEASE learn some history before you make such baseless claims!

Yes, what an idiot I must be to misuse an acronym like FRB, which clearly has a strong, defined, and singular meaning in economic and banking circles.

That meaning, by the way, is not fractional reserve banking.

http://lmgtfy.com/?q=frb