Fractional reserve lending versus.... what?

[Paul Or Nothing II]

Fractional reserve lending is OK until there is a run on the bank. Discussion of fractional reserve banking in this particular interview begins around 7:50. The commentator asks Ron if the bank must have an amount in reserves equal to the amount of the loan. To which Ron says "No, uh, uh...yah." But I believe this would still be fractional reserve banking with a 50% reserve requirement. Ron then says if the bank keeps $100 for 3 months then it can loan out $100 for 3 months. But that seems like fractional reserve banking to me, too. I think it just means that the depositor isn't allowed to demand his money for that 90 days (like a Cd or something..). But maybe I misunderstood.

Again, fractional vs full reserve debate is concentrated on DEMAND-DEPOSITS, that is, deposits that the banks must pay up on demand & will bear no interest

Time-deposits will still be lent because depositors will have granted authority to loan them & will have given up it's possession for the period of the time-deposits in return for the interest

And no, there's no perfect correlation between time & demand deposits to be 50-50 percent, lending of all deposits don't have the same impact on the economy

Actually, the bank is allowed to create $90 in new money.

No, the full original $100 is still with the bank.

Again, the money for loans is created by the bank. Banks don't fund loans from deposits.

No, they lend the 90 that they have & then it's re-deposited & then re-lent & so on Please look at the chart on that previous page, posted by "Steven Douglas"

You've pretty much outed yourself here: You don't believe we own the money.
I certainly don't own the parking space, the Twilight video, or the web server. One of those is a free service and the other two I'm actually paying money to rent - they clearly belong to the other party.
By making this comparison you're claiming that we don't have legal claim to the money we put in the bank.
You get points for consistency - since inflation serves only to take value out of the money and give it to someone else, it makes sense that your support for this idea would be fundamentally backed by the idea that we don't own it to begin with.

There's a reason Dr. Paul supports the idea of competing currencies.
If your central bank is so great, if it works so well, and everyone involved in it shits rainbows, then end the cartel.
It should have absolutely no problem running full reserve banks out of existence.
If the dollar is so great, then people won't choose to own commodities instead.

We don't have to argue the point. You're the one who's ok with the state enforcers pointing guns at everyone, who's ok with them hauling people off to prison for more time than rapists and murderers get when they find a completely legal loophole to your precious cartel system.
The burden of proof is on you.
The easiest way you can prove it is to stop threatening people who want to try something different with prison gang rape.

+1

Why are you assuming that I'm speaking of Austrian economics? Support of the banking system does not mean opposition to Austrian economic models, and not every Austrian economist supports the abolition of fractional reserve banking.

I don't think any true Austrian would support GOVERNMENT-CONTROLLED FRB, yes, they may support FRB conducted under a truly free-banking environment where each bank would issue its own notes & would disclose the fact that they're in fact FRB & therefore demand-deposits with them are "subject to availability", that's perfectly fine, some people might go for it, others won't but people would have CHOICE to opt out of a currency that loses purchasing-power for the benefit of those who control it & their buddies

Am I free to end this "business relationship" with the United States Federal Government?
Am I free to transact in money which is not Federal Reserve notes?


I thought I implied in my last post that I think you're perfectly free to enter into any relationship you think fit. The problem is that *I* am not.
Given that you're cheerleading for the side that thinks we ought not to be able to enter into business relationships, I assume you're not a proponent of the free market.

You yourself have said that they don't have your money waiting for you. E.g.:

e-gold: forced into a plea bargain in which they pled guilty to operating an unlicensed money-transmitting business, in a plea deal to only have to pay millions in fines (as oppsed to getting raped in prison).

E-Bullion: facing felony charges of conducting unlicensed money transactions.

Liberty Dollar: Bernard von Nothaus is facing 15 years in prison, $250,000 in fines, and has to turn over $7 million in precious metal to the federal government.

(ETA: In case you don't see what I'm getting at, these were all viable businesses with real customers, which were shut down.)

I never claimed the market is anywhere close to perfect. Nobody else did either. You accuse others of using strawmen? At least we have some kind of reasoning behind assuming you're in favor of cartel central banking (your arguing in favor of it is a reasonable indicator, I think).
The claim is that the market will decide winners and losers.
I repeat: If you think that central cartel banking is so great, have the confidence in it to allow competition.
Stop putting people who are attempting alternatives in prison.

Do you know what a straw man argument is? It's a real thing, not just something people throw around on forums as an insult.
It's when you accuse people of talking about FEMA camps when the reality is that person has concrete evidence that people are going to regular prison.

+1

Well said

You're relating two things that are actually rather seperate. Fractional reserve banking can not cause a continual inflation of the money supply. Instead, it increases the effect of the printing press.

If the size of the money supply is fixed by the central bank or other currency issuer, it would still be fixed with fractional reserve banking. The size of the reserve would determine the maximum size of the money supply after the money multiplier effect of fractional reserves. So long as the required reserve ratio remains the same, no inflation is possible beyond that point. If the currency issuer has knowledge of the reserve ratio, they know how much currency needs to be issued in order to meet their money supply goal.

See, this whole premise that central-banking can always control moneysupply was proven wrong during Great Depression & guess what, it's being proven wrong RIGHT NOW. Interest-rates are near zero, Bernanke is full tilt going for a massive inflation but guess what, moneysupply is shrinking because market is already overloaded with debt & banks have also cut back on lending

Further, when you argue for central-banks controlling moneysupply, you're essentially arguing for them fixing the price (purchasing-power) of money thru central-planning. So do you also believe that government should fix prices of other things like grains, oil, cars, etc etc? I hope you know that price-controls have been tried many times by many governments throughout history (under Nixon in US after going off gold-standard) but they ALWAYS fail because the answer is simple - central-planning does not work - because a bunch of "experts" sitting in a room with their theories don't have all the information required to predict prices because prices are products of the markets

The assumption, therefore, is that perfect knowledge of interest rates would yield perfect investment and continual, stable growth.

As I explained above, fractional reserve banking does not result in unpredictable, artificial, or unsustainable changes in the size of the money supply. Austrian-based central banking will create an Austrian-based market environment with or without fractional reserve banking.

There's no "perfect" but allowing markets to determine supply & prices is what free marketers believe, communist/socialist central-planners on the other hand believe in all-wise, omniscient, honest, angelic group of few people making all the right decisions for the rest of the population

And, this is why I've said, PLEASE inform yourself about Austrian Economics by going to mises.org, that would have saved you from the embarrassment of writing stupid things like "Austrian-based central banking" *facepalm*

For the record, Austrians believe in freedom, choices, free markets, NOT central-planning & all-wise omniscient angelic government entities deciding what's best for everyone

If, for example, we traded directly with gold instead of dollars, every bank would still need to forecast how much gold each of their branches would need to have available for their customers. The only difference that fractional reserves would make is whether they loan out their excess or warehouse it. The result is the same.

Again, you don't seem to grasp the fact that there's no need to "forecast" anything, they should hold the demand-deposits & pay up on demand & lend time-deposits as they deem fit, that's all, otherwise it's breach of contract & fraud

Without increasing the monetary base there is a limit on the inflation that fractional reserve banking can accomplish, but the very act of creating money out of thin air and lending beyond your reserves lowers interest rates below what the rates would be if they were based only on available savings. This means that eventually the projects that were undertaken to take advantage of the lower interest rates would turn out not be to profitable as the prices of inputs rise for the projects rise, so the need to borrow more money increases and makes available capital more scarce and increases the interest rates that you now rely on to finish the unsustainable project.

Now without a central bank or printing press to pyramid on top of this or inflate the monetary base it does limit the damage that can be done by the business cycle. That is why the depressions in the 1800s were not nearly as severe as the Great Depression or what we have today.

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