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Thread: An economy with savings based credit

  1. #1

    Default An economy with savings based credit

    Hello folks,

    I wanted to know the historical affordability of homes. In our times, there is no way, we can afford homes, cars, holidays without taking a loan.

    Also, all those loans are not backed by real savings, thanks to the fractional reserve system.

    I was therefore wondering, if we were to have an economy based on credit that is backed by real savings, would we have the same economic growth we have now, and the standard of living we have now.



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  3. #2

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    Quote Originally Posted by mohassan View Post
    Hello folks,

    I wanted to know the historical affordability of homes. In our times, there is no way, we can afford homes, cars, holidays without taking a loan.

    Also, all those loans are not backed by real savings, thanks to the fractional reserve system.

    I was therefore wondering, if we were to have an economy based on credit that is backed by real savings, would we have the same economic growth we have now, and the standard of living we have now.
    No, we would not have the standard of living we have now. It would be much higher. Since loans would be harder to get housing prices couldn't soar out of reach of cash buyers. Prices of computers and electronics that have deflated despite our current system would probably be 10% of what they are now. Prices of nearly everything would be much lower than today. Nominal wages wouldn't look as good until you look and see what they would buy.

  4. #3

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    The middle class would have more money and the banking elite wouldn't exist if credit had to be backed by something.
    Original supporter of Ron Paul since 2007 and I stand with Rand.

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    Quote Originally Posted by mohassan View Post
    Hello folks,

    I wanted to know the historical affordability of homes. In our times, there is no way, we can afford homes, cars, holidays without taking a loan.

    Also, all those loans are not backed by real savings, thanks to the fractional reserve system.

    I was therefore wondering, if we were to have an economy based on credit that is backed by real savings, would we have the same economic growth we have now, and the standard of living we have now.
    How does fractional reserve system work? A bank is required to have deposits before they can make loans and those loans are limited to a FRACTION of the money they have on deposit. If I deposit say $1000, they can make loans of $900 on a ten percent reserve requirement. The ten percent is the fraction which must be reserved (hence the term). They are not allowed to loan out more money than they have in deposits.

    What would you consider "affordability of homes"? At any point in time you have portion of the population which can afford then and those who can't. Aside from the recent housing bubble, the price of homes had pretty much followed growths in incomes and the overall rate of inflation.
    Last edited by Zippyjuan; 11-01-2012 at 01:59 PM.
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  6. #5

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    Quote Originally Posted by The Gold Standard View Post
    No, we would not have the standard of living we have now. It would be much higher. Since loans would be harder to get housing prices couldn't soar out of reach of cash buyers. Prices of computers and electronics that have deflated despite our current system would probably be 10% of what they are now. Prices of nearly everything would be much lower than today. Nominal wages wouldn't look as good until you look and see what they would buy.
    Without credit, technology wouldn't advance as quick as it did. I am of the understanding that, if we have credit backed by savings, we would have a slower growth but a sustainable growth nonetheless. Do you think credit backed by savings can have the same pace of growth, as the current artificial credit?

  7. #6

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    Quote Originally Posted by mohassan View Post
    Without credit, technology wouldn't advance as quick as it did. I am of the understanding that, if we have credit backed by savings, we would have a slower growth but a sustainable growth nonetheless. Do you think credit backed by savings can have the same pace of growth, as the current artificial credit?
    No one said credit would not be available. It would be more scarce, but available. And if your savings-backed credit is accompanied by a pure free market free from government restraints then sure you could have the same pace of growth.

  8. #7

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    Quote Originally Posted by Zippyjuan View Post
    How does fractional reserve system work? A bank is required to have deposits before they can make loans and those loans are limited to a FRACTION of the money they have on deposit. If I deposit say $1000, they can make loans of $900 on a ten percent reserve requirement. The ten percent is the fraction which must be reserved (hence the term). They are not allowed to loan out more money than they have in deposits.
    Yes they keep $100 of your money in reserve and lend out $900. The problem however, is that your account still shows $1000. The money is both available to you, and the other borrower. So hence why we have M0 money supply of $1000, and an M1 money supply of $1900. Fractional reserve banking is problematic because it promises depositors that they can demand their money at any time, when in fact, if everyone was to demand at the same time, there would be a bank run.

    Its a bit similar to your local gym, which has a capacity of 200 members, but sign up 500 members, as they think all 500 members won't show up at the same time. All is well until they turn up at the same time. Morally questionable at best.

  9. #8

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    It's worked for pawn brokers for centuries :shrug:

    Credit will always exist, jsut as money will always exist as a convenient middle ground to the limitations of bartering (the person you're bartering with might not always need what you have, thus money will always exist).

    Back to the point, no you wouldn't have nearly the amount of people living beyond their means, but that's the way it should be... However this does not preclude a strong economy, which is far more important to general standards of living than is predatory lending.
    The kids they dance and shake their bones,
    While the politicians are throwing stones,
    And it's all too clear we're on our own,
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    I don't have the $1000. The bank does. They promise to give it back later. When they loan out $900, they have $100 and the borrower has $900 and I have zero. If I take my money out of the bank, they now don't have enough reserves. $1000 is still the total amount of money actually out there. They have to borrow money from somebody else or try to recall the loan.

    If I loan $100 to my friend Bob and he loans $50 to Frank, Frank owes Bob $50 and I am owed $100 by Bob but is there $150 out there being spent? No- there is just $100. Frank has $50 and Bob has $50 and I have zero. $150 is owed- but there is not $150 circulating. The same $100 is being moved around.
    Last edited by Zippyjuan; 11-01-2012 at 02:14 PM.
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  11. #10

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    Quote Originally Posted by The Gold Standard View Post
    No one said credit would not be available. It would be more scarce, but available. And if your savings-backed credit is accompanied by a pure free market free from government restraints then sure you could have the same pace of growth.
    Sorry I meant un-backed credit. Ok so you think real credit may well be scarce but if accompanied by a free market, we would have the same pace of growth. Im still skeptical about that.

    As for the affordability of homes, if you look at home price to earning ratio (minimum wage).

    1968 - Minimum wage - $10.34 per hour in 2011 US Dollars ($1.60 nominal)
    1968 - Median home price - $161,594 in 2011 US Dollars ($25,000 nominal)
    1968 - Price to earning ratio - 15628 hours = 390 working weeks of 40hours a week = 7.8 YEARS
    2011 - Price to earning ratio - 14.6 YEARS

    How would we decide what is affordable, how inflated are the price of homes?

  12. #11

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    @ Zippy

    Nope, you are talking about savings deposits. I'm talking about demand deposits. I'm talking about regular accounts, where you can demand your money at any time. With savings accounts you waive access to your deposit for a specified time. With demand deposits, it is your money at all times and "supposedly available" at all times. Not in reality.
    Last edited by mohassan; 11-01-2012 at 02:27 PM.

  13. #12

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    Quote Originally Posted by The Gold Standard View Post
    No one said credit would not be available. It would be more scarce, but available. And if your savings-backed credit is accompanied by a pure free market free from government restraints then sure you could have the same pace of growth.
    Spot on. Also, rampant wasteful consumerism with planned obsolescence and resultant massive waste of resources would not rule the day. Goods would be built to last, as they once were, but no longer are now.

    In addition, whole populations would also not grow as fast in the absence of additional, completely artificial economic stresses. It is proven that financially stable populations tend to maintain themselves, while impoverished, economically unstable populations with higher mortality rates and threats to survival tend to breed more. Far more. You can't fuck with mother nature; life will out. That is not a pointy-headed conscious decision on anyone's part; it is a survival mechanism programmed into the human DNA. I fully attribute most of the unnecessary population growth worldwide in the past century to one of the most insidious side-effects of Ponzi economies and other economically repressive regimes that deliberately stress (read="STIMULATE") whole populations.

    So yes, there would be slower growth, but wholly sustainable. MORE IMPORTANTLY - no growth would be required. Even now, growth is not required to sustain "the economy", so much as the current financial sector's Ponzi economy only, and all its pernicious side-effects, which absolutely requires an ever-expanding circle of debt to maintain its own illusion of solvency. With sound currencies in circulation and no legal tender laws or other barriers to entry, a savings-based economy would grow, maintain, or even SHRINK, naturally.

    That's not bad news for lending institutions and governments -- unless being put into their proper places and forced naturally back down to their naturally required sizes is considered bad news.
    Last edited by Steven Douglas; 11-01-2012 at 02:40 PM.

  14. #13

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    I'm completely confused what you're getting at here.

    What you call "growth" I call bubbles, so no, in a non-manipulated economy you may see less "growth" (bubbles), but you also wouldn't see such massive downturns from that "growth" when the bubble bursts.

    A healthy economy will provide sustained growth, not booms and busts.
    The kids they dance and shake their bones,
    While the politicians are throwing stones,
    And it's all too clear we're on our own,
    Singing ashes, ashes, all fall down...

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    Quote Originally Posted by mohassan View Post
    @ Zippy

    Nope, you are talking about savings deposits. I'm talking about demand deposits. I'm talking about regular accounts, where you can demand your money at any time. With savings accounts you waive access to your deposit for a specified time. With demand deposits, it is your money at all times and "supposedly available" at all times. Not in reality.
    When I tried to check the numbers, I came up with a figure of about ten percent of all bank deposits being demand accounts (don't have that handiliy available right now but used Federal Reserve statistics). The reserve requirement is ten percent. That gives us roughly a 100% hold on demand deposit amounts and free lending of time deposits. Don't have the figures handy at the moment.

    Let me ask a question. If a system where a fraction of deposits being required to be kept on reserves is a bad one (fractional reserve banking), what would be the better system? A full reserve system (where 100% of all deposits would be required to be kept on hand- leaving none for making of loans) or a free or zero reserve requirement system where any and all deposits could be loaned out? Thanks for sharing your thoughts.
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  16. #15

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    Quote Originally Posted by Zippyjuan View Post
    A full reserve system (where 100% of all deposits would be required to be kept on hand- leaving none for making of loans) or a free or zero reserve requirement system where any and all deposits could be loaned out? Thanks for sharing your thoughts.
    Full reserve, would mean banks can not lend out demand deposits. Loans would come from savings deposits. Can you not see the difference between demand deposits and savings?

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    Quote Originally Posted by mohassan View Post
    Sorry I meant un-backed credit. Ok so you think real credit may well be scarce but if accompanied by a free market, we would have the same pace of growth. Im still skeptical about that.

    As for the affordability of homes, if you look at home price to earning ratio (minimum wage).

    1968 - Minimum wage - $10.34 per hour in 2011 US Dollars ($1.60 nominal)
    1968 - Median home price - $161,594 in 2011 US Dollars ($25,000 nominal)
    1968 - Price to earning ratio - 15628 hours = 390 working weeks of 40hours a week = 7.8 YEARS
    2011 - Price to earning ratio - 14.6 YEARS

    How would we decide what is affordable, how inflated are the price of homes?
    Minimum wage is arbitrary and can be changed at any time. I would not use that as a measure of affordability of housing (or anything else). Less than two percent earns the Federal minimum wage anyways.

    Comparison between nominal and real (adjusted for inflation) historical housing chart (blue line is nominal and black line is real or adjusted prices- scale is logrythmic):
    http://visualizingeconomics.com/2011...ates1890-2010/


    Link to larger image: http://visualeconsite.s3.amazonaws.c...0_2010_log.png
    Last edited by Zippyjuan; 11-01-2012 at 02:51 PM.
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  18. #17

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    Quote Originally Posted by TheGrinchWhoStoleDC View Post
    A healthy economy will provide sustained growth, not booms and busts.
    I don't know if you were addressing me or not, but there is a big difference between 'self-sustaining' and 'sustained growth'.

    It is only when artificial stresses are placed on an economy that the illusion of a perpetual growth requirement sets in, regardless of available resources or natural human needs. There is no human requirement for a healthy economy with sustained growth to grow in perpetuity, even if it was physically possible -- which it is not. Just as individuals mature and stop growing, but continue to sustain themselves, and just as fish and other animals reach individual and aggregate population sizes that are optimal for their environments, economies and populations can also reach self-sustaining maturity, and can stabilize such that there is no massive growth or shrinkage required. Neither bubbles, with booms and busts, nor 'sustained growth' which never ends.

  19. #18

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    Quote Originally Posted by Steven Douglas View Post
    I don't know if you were addressing me or not, but there is a big difference between 'self-sustaining' and 'sustained growth'.

    It is only when artificial stresses are placed on an economy that the illusion of a perpetual growth requirement sets in, regardless of available resources or natural human needs. There is no human requirement for a healthy economy with sustained growth to grow in perpetuity, even if it was physically possible -- which it is not. Just as individuals mature and stop growing, but continue to sustain themselves, and just as fish and other animals reach individual and aggregate population sizes that are optimal for their environments, economies and populations can also reach self-sustaining maturity, and can stabilize such that there is no massive growth or shrinkage required. Neither bubbles, with booms and busts, nor 'sustained growth' which never ends.
    I was adressing the OP's idea that this artificlal growth (leading to booms and busts) might allow for more "growth", but ont a healthy economy.

    This topic is a bit above my financial understandings, but I think (?) we're arguing similar things.
    The kids they dance and shake their bones,
    While the politicians are throwing stones,
    And it's all too clear we're on our own,
    Singing ashes, ashes, all fall down...

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    Quote Originally Posted by mohassan View Post
    Full reserve, would mean banks can not lend out demand deposits. Loans would come from savings deposits. Can you not see the difference between demand deposits and savings?
    That is a mixed reserve system- not a true full reserve banking system. As I mentioned, the current reserve requirement is roughly the same percent for reserves as the pecent of all deposits which are demand deposits (ten percent) so little would actually change if we moved to that system.

    http://glossary.econguru.com/economi...eserve+banking
    Term: full-reserve banking

    Definition: A (hypothetical) method of banking in which banks keep 100 percent of their deposits in the form of bank reserves, meaning there are no deposits available for interest-paying loans. Full-reserve banking is one of two theoretical alternatives designed to help illustrate a contrast to the fractional-reserve banking actually practiced by modern banks. The other alternative is no-reserve banking. With full-reserve a bank essentially operates as a storage business, merely storing customer deposits until they are withdrawn.
    Last edited by Zippyjuan; 11-01-2012 at 03:06 PM.
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  21. #20

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    Quote Originally Posted by Zippyjuan View Post
    That is a mixed reserve system- not a true full reserve banking system. As I mentioned, the current reserve percent is roughly the same percent for reserves as the pecent of all deposits which are demand deposits so little would actually change.

    http://glossary.econguru.com/economi...eserve+banking
    Banks are basically meant to operate as a storage business, as per the definition. That is full reserve banking.

    Banks could also act as intermediaries for loans as investment bankers. In such operation, there are no deposits really, because customers are investing their money, and taking on risks via the bank, who then lends that money to borrowers and businesses. So there is really no storage, so no need for a reserve.

  22. #21

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    Excessive credit (loans) cause mal-investment. What that means is that society is made up of individuals who produce and consume based on preferences and when there is excessive credit they will consume the wrong things in the wrong amount. This will cause industry to invest in the wrong things, in the wrong amounts during the boom portion of this artificial business cycle. When the bust part of the cycle happens, individuals and businesses will go bankrupt because they over consumed or over-invested in infrastructure that is unsustainable. You might have a bunch of extra houses out there that nobody can afford at current prices, but not enough goods and services available for those who built the houses and produced all of the other goods and services.

    In a free market, growth is more sustainable, you don't have the boom and bust cycles.
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    Banks could also act as intermediaries for loans as investment bankers. In such operation, there are no deposits really, because customers are investing their money, and taking on risks via the bank, who then lends that money to borrowers and businesses. So there is really no storage, so no need for a reserve.
    So you would be in favor of getting rid of the reserve requirement then?

    That is different from the impression I got from your first post:
    Also, all those loans are not backed by real savings, thanks to the fractional reserve system.
    Last edited by Zippyjuan; 11-01-2012 at 03:38 PM.
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  24. #23

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    Quote Originally Posted by Zippyjuan View Post
    So you would be in favor of getting rid of the reserve requirement then?

    That is different from the impression I got from your first post:
    Im in favor, of full reserve banking, as that will mean credit will be based on savings.

  25. #24

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    Full reserve banking means DEPOSIT banking, not LOAN account banking.

    Full reserve means NO LOANS.

    It's all well and fine to be for full reserve banks, but to espouse it as a system is equally as dangerous and counter productive as systems based on fractional reserve banking.

    **As a sidenote: I am for full reserve banking in the sense that I want my bank to, at least for my deposit account, have full reserves. I do NOT espouse this as an enforced system - merely my preference within the market place for my savings/money**

    Quote Originally Posted by mohassan View Post
    Im in favor, of full reserve banking, as that will mean credit will be based on savings.
    Last edited by Seraphim; 11-01-2012 at 03:29 PM.
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  26. #25

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    I still do not understand the point of this thread.
    The kids they dance and shake their bones,
    While the politicians are throwing stones,
    And it's all too clear we're on our own,
    Singing ashes, ashes, all fall down...

  27. #26

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    Quote Originally Posted by Seraphim View Post
    Full reserve banking means DEPOSIT banking, not LOAN account banking.

    Full reserve means NO LOANS.

    It's all well and fine to be for full reserve banks, but to espouse it as a system is equally as dangerous and counter productive as systems based on fractional reserve banking.

    **As a sidenote: I am for full reserve banking in the sense that I want my bank to, at least for my deposit account, have full reserves. I do NOT espouse this as an enforced system - merely my preference within the market place for my savings/money**
    I understand full reserve in the sense that, banks can lend money, but as long they lend money that exists. Hence not inflate the money supply. So technically you are correct, full reserve means deposit banking not LOAN account banking. I agree with you.

  28. #27

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    Now if a bank decides it wants to expand its offerings to its client base, it can offer a variety of accounts. A deposit (full reserve account) where they act merely as the safekeeper of your money or a host of other sort of loan accounts in which your money is used to generate INCOME through varioues loan/investment ideas.

    I would agree that in the loan type of account I would want to use only banks that offer loans based on FIRM capital (savings) as a opposed to fictionally created paper/digital credits that are POOF created into existence - with interest attached.


    Quote Originally Posted by mohassan View Post
    I understand full reserve in the sense that, banks can lend money, but as long they lend money that exists. Hence not inflate the money supply. So technically you are correct, full reserve means deposit banking not LOAN account banking. I agree with you.
    "Like an army falling, one by one by one" - Linkin Park

  29. #28

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    Quote Originally Posted by mohassan View Post
    Without credit, technology wouldn't advance as quick as it did. I am of the understanding that, if we have credit backed by savings, we would have a slower growth but a sustainable growth nonetheless. Do you think credit backed by savings can have the same pace of growth, as the current artificial credit?
    And an honest growth.

    When the counterfeiters created the currency they added nothing to the pile of stuff we all have they just shifted the boundaries of ownership. Some of the money may of been used well but it is like most other criminal activity, it drags us all down with it.

    We were progressing well with out the counterfeit. Honest people earned and loaned and saved an honest dollar. Sure it was hard. Sure it took work. A man that loaned an honest dollar took an honest risk.

    Now you have a situation where the honest man making an honest loan can't compete with the criminals in their counterfeit. Banking is broken in both directions.

    Every honest occupation has been leached on by the counterfeiters to the point that sound businesses that have lasted since the beginning of time just can no longer make ends meet.

    Sure we have a fancy military that dress in shiny armor and they've been co-opted by the global government, but is that where it's at?

    When you look at the picture of this lady maybe consider where we've come. I'm thinking she is in hard times following the counterfeiting and backlash from it following World War One.

    But look at her. She has hard times but she has a beautiful family. I thinking she has her dignity.



    We have come a long way since then. Are we really better of than she was?

    Most of the good growth after that, and what should have been sustainable growth, was done with a hard earned dollar.

    Most of the crap that came after those hard times came from the counterfeit. I'm thinking seventies and on.


    We used to have a saying; "He who has the gold makes the rules."

    From the way it looks to me is that the counterfeiters have printed themselves up at least twenty six counterfeited dollars to out rule the honest man and his one dollar. That was the man that truly did know what he was doing.
    Last edited by Carson; 11-01-2012 at 04:22 PM.

  30. #29

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    While I was writing my post above I kept flashing back to a radio commercial for San Jose.

    I tried to dodge it but I'm thinking they have a proposition to help with the budget because it is better than more cuts. From the way it sounds it has been sooooo hard for them.

    Check out where they rule from.


  31. #30

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    The primary confusion, along with needless (and needlessly complex) debates comes from the conflation of BANKS (bailments) with LENDING INSTITUTIONS (deposits on loan)--as if they were one and the same. It does not matter if bailments and loanable deposits occur from the same institution; the behaviors are unique, and need not be--SHOULD NEVER BE--conflated.

    With a BANK there would be 100% "reserves", with NOTHING LOANED OUT, nothing put at risk, since money is only being stored, as a BAILMENT, for which bailment fees would be involved.

    Continuing, and keeping these two concepts completely separate...

    With a purely LENDING INSTITUTION, there need be ZERO RESERVES. Not 100% reserves. ZERO. 100% of what is 'loaned' (placed on deposit, or 'loaned to the LENDING INSTITUTION') can be re-loaned out to others at interest. Where the LENDING INSTITUTION gets its operating capital (or even whether it does) is strictly its affair, like any other business with capital requirements. And since LENDING INSTITUTION behavior is not BANK BEHAVIOR, there need be no requirement for a RIGHT NOW demand for anyone. Lending institutions can do this, of course, but at their own peril. Otherwise, it is abundantly clear that YOUR MONEY IS GONE. LOANED OUT. Make arrangements with the bank if you need any of it back. All of the TIME BALANCE requirements for deposits versus loans would be up to the discretion of the LENDING INSTITUTION. If the LENDING INSTITUTION borrows short and lends long, it may well end up bankrupt. And deservedly so. Their risk, their reward.

    LENDING INSTITUTION ENVY

    Banks, generally speaking, would prefer NOT to act as a mere vault security guard for YOUR MONEY. It is much more profitable to them if they are permitted to behave as LENDING INSTITUTIONS, which can then serve as a middleman lender, putting other people's money at risk in addition to their own. For that to happen, TITLE TO YOUR MONEY must be relinquished. The moment the BANK gains title to YOUR MONEY, it is NO LONGER YOUR MONEY, and the BANK, for the purposes of that transaction, is NO LONGER BEHAVING AS A BANK, but rather a LENDING INSTITUTION.

    "FRACTIONAL RESERVE BANKING" is therefore a grotesque misnomer, as it conflates BANKING with LENDING INSTITUTIONS. With the aid of the courts (beginning with England) the de facto assumption for everyone is that, unless explicitly stated otherwise, NO DEPOSITS are considered bailments. ALL DEPOSITS are considered loans to the LENDING INSTUTITION (no real banking involved)--with title of ALL moneys transferred to the bank and put at risk from the moment of deposit. There is a further conflation and blending of the LENDING INSTITUTION'S CAPITAL REQUIREMENTS with the money it is handling -- as if that was all part of some mixed bag that everyone else needed to be concerned about, but that's another story.

    Contrary to what many FRB-defending nut-brains claim, the general public is NOT generally aware of how banking and finance works, or the Very Important Differences between BANKS and LENDING INSTITUTIONS, regardless how much the public is "made aware", whether it be by bold notices or fine print. They are certainly not aware that money on deposit is not truly "theirs". Point to anyone's account balance on their statement, and ask them WHO OWNS THAT BALANCE? Ask them if they understand that "their" money is not really theirs, let alone is it kept on premises or in a vault somewhere. Go ahead and condescend to them, as you show off your semantic preciseness, and explain to the average depositor that they "OWN" only a claim on the bank, but that their money is not technically "THEIRS" any more. Explain to them they don't actually receive TITLE to their money until it is physically returned to them by the bank. To the majority of individuals it won't matter. The idea that their deposit is nothing but an IOU to a debtor bank that borrowed from them, and holds complete title to their money, does not even compute. Most are easily double-talked with reality-obfuscating language. The language says one thing, while the USUAL BEHAVIOR says the opposite, based on the USUAL REALITY of the RIGHT NOW demand claim that each depositor has on whatever is ON (not "IN") their account.

    And there's another part of the semantics verbal shell game played by LENDING INSTITUTIONS. You don't have MONEY "IN" YOUR ACCOUNT. There is nothing "IN" about it, any more than you have money "IN" A RECEIPT. A positive account balance with a LENDING INSTITUTION is nothing more than a STATEMENT OF DEBT. The actual money represented by that debt is not "IN" your anything-at-all. It is elsewhere.

    So now that all banks have become LENDING INSTITUTIONS which are pretending to be banks, and behaving in a way that IMPLIES that all deposits are bailments, while EXPLICITLY treating them as at-risk loans, the only thing left is to make sure that all depositors are duly warned in legalese and financial industry double-talk. And for most depositors, an FDIC guarantee is all they need to hear. For all intents and purposes, LENDING INSTITUTION = BANK.

    Now that ALL NEW CURRENCY comes only through banks, and ALL EXISTING CURRENCY is also channeled through banks, we can roll up our sleeves as the vast majority of currency is pooled into a massive risk network. Individuals NO LONGER DETERMINE what is a bailment and what is a deposit, but since they have all been given a RIGHT NOW CLAIM to WHAT IS NOT THEIR MONEY -- it is now up to the banking system WHICH IS NOT A BANKING SYSTEM AT ALL, BUT RATHER A LENDING SYSTEM, to determine how much to "HOLD IN RESERVE" so that the entire insolvent, bankrupt LENDING system doesn't get caught with its pants down.

    SOLUTION: END THE PRESUMPTION THAT BAILMENTS ARE DEPOSITS. Let banks be banks, with one set of rules (100% RESERVES, FEES CHARGED), and let lending institutions be lending institutions. No "fractional reserve lending" even required. ZERO RESERVES, INTEREST CHARGED AND PAID OUT. Then the lending institutions would be free to write their own rules, balancing their own time requirements, with NOBODY outside their PRIVATE financial arrangements or debt instruments--all of which are fully understood by everyone--on the hook for anything at all.

    Do that, and there is no longer such a thing as a "run on the bank". You can't "run" on a LENDING INSTITUTION. You're bound by a contract. If they screw up, that institution might fail, and if it's fraudulent, people can go to prison. There can be "run" on a BANK, but no need, because a BANK really does just store money that you don't want to put at risk for a fee. If it's not there, guaranteed someone will go to prison, because that truly is fraud.
    Last edited by Steven Douglas; 11-01-2012 at 05:57 PM.

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