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Thread: An economy with savings based credit

  1. #31

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    Quote Originally Posted by Steven Douglas View Post
    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 to determine how much to "HOLD IN RESERVE" so that the entire insolvent, bankrupt 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.
    I would add, anyone and everyone who wants to start a bank or a lending institution is allowed that privilege without restriction other than be regulated by fraud laws.



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  3. #32

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    Quote Originally Posted by Travlyr View Post
    I would add, anyone and everyone who wants to start a bank or a lending institution is allowed that privilege without restriction other than be regulated by fraud laws.
    Absolutely. Once separated, there's nothing else to regulate or protect. Risk is risk, and there is absolutely nothing special or mysterious about lending institutions OR banks.

    If I loan you money privately, with terms we negotiate, it can be for your business, or to loan to someone else for a middleman fee. As long as it's understood and spelled out in the contract. Either way, my contract is WITH YOU, and between me and you only, NOT anyone else. And there is no reserve requirement. Where would that factor in? You would have no need to keep ANY of that money on hand -- just in case I need it for my day to day bullshit. Once my money is gone, placed at risk, IT IS GONE. If you want to offer or promise me terms that say I can get that money back faster, if it was needed in an emergency, it would be YOUR PROBLEM how you accomplish that. Penalty fee, whatever, just another contract term to be spelled out - and your default alone if you can't comply with that term.

  4. #33

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    Quote Originally Posted by mohassan View Post
    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.
    Zippy is a lost cause. He's had 12 pitchers of Kool-Aid just in the last hour.
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  5. #34

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    @ OP

    Growth would be slower, but there wouldn't be the busts associated with that rapid growth.

    And loans ARE backed by real savings in a fractional reserve system.

  6. #35

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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.

    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.
    No, in fractional reserve banking, you would deposit $1000, and they would loan out $10,000.

  7. #36

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    When I first heard about Fractional Reserves I'm thinking it was meant as a tool to keep banks from going under during a run.

    First of all came runs on banks. Some caused by panic. Knowing they made a bad investment and wanting to get your cash out. What ever.

    Then someone came up with an idea that if the banks kept a reserve of cash on hand they could help each other during a panic or a run on any one bank. Say you had ten banks total. If each one held out ten percent of their deposits and any one of them got in trouble the rest could come to the rescue.

    I'm thinking somehow that got hoard into what we have today. Actually that could be the wrong word but you get my drift. We've all seem them turn everything this way and that until all reason has been beat out of it.

    But anyway I think they worked it to make you think, MARVELOUS! What and Idea!

    Well let me tell you. I don't see anyway to make this work without a central bank counterfeiting to balance the books out. If you have $1,000 on deposit and loan out $10,000 someone, somewhere, is going to have to cough it up.

    I'm sure the a central back somewhere will gladly make you the loan...with interest, to make sure the books balance.


    AND I'm thinking I see someone that would have an interest in pushing the new understanding of Fractional Reserve Banking.
    Last edited by Carson; 11-01-2012 at 09:07 PM.

  8. #37

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    There are two basic sides to banking: One is the actual banking institution side, for the purpose of SAFE and convenient storage of money for daily and ongoing use, and also the lending institution side, as with money that is put to use as it is loaned out and put at risk in the economy. The decision of how much to save and how much (IF ANY) to lend out to others (READ=PUT INTO CIRCULATION) used to be up to each individual. That is no longer true.

    If we stand in the shoes of bankers, especially if we begin with John Maynard Keynes, the original problem (THEIR objective) was stupidly simple--with no mystery whatsoever to any of it, which I characterize thusly:

    "How wonderful for us (and the world, incidentally, of course) if we could decide for everyone how much of their money was "banked" for ongoing needs and usage, versus how much they were all making available for lending? What if we could marginalize the act of savings and make EVERYONE'S money available for lending -- with or without their consent?! Golly-gee willickers, wouldn't that be great?"

    In that respect, Keynes was the original "liberal", who sought out ways to FORCE other people's money into circulation, without any regard to their individual intent--and even, as it turned out, without regard to whether they were identified as parties of interest.

    Now comes the problem of setting up such a system, one that accomplishes just that BY DEFAULT, while at the same time tricking the public into thinking, "Well, that's just the way the system, and therefore the entire economy, works." The fact that all savings and all checkable demand deposits are considered loans to the "Fractional Reserve LENDING-never-banking System accomplished exactly that. The groundwork was laid for this a long time ago, as courts (starting in England) have long held that all bank deposits, unless explicitly stated otherwise, are considered deposits, or loans to the bank, and not bailments. That was the first de facto rip-off, long before Keynes and long before our Bank-Colluding Thief In Chief FDR provided for the government and banking system's outright default on the public and theft of anyone's gold.

    Economists, the courts, and the entire 'banking' system have gone so far as to argue, with utter conviction, that the public is somehow aware of all of this, and understands this process (forget its implications). The Non-Federal Non-Reserve Default Mandatory Lending System, with its legalese, 'clear' warnings and banking jargon, can now all claim, with straight faces, that all of this was done with everyone's knowledge, the consent part having been collectivized and dispensed with entirely, as every transaction becomes a form of 'implied consent' -- thank you, corrupt courts, banks, academia and politicians.

    So now we have a case where lending institutions are loosely and somewhat erroneously referred to as "banks" (A Very Bastardized Term), in a society where it is commonly understood that everyone needs a bank in order to function efficiently. ANY funds you channel into the banking system, however, and place on their ledgers for any length of time whatsoever, counts as money that belongs to the Lending Instution-Not-Bank, and not you, which moneys may then be put at risk -- even if you are not a party of interest to any of the rewards (beyond the convenience of a system that is essentially mandatory).

    The Fed (counterfeiter of first resort) was only there initially to provide cover for the illiquid banks. It wasn't until later that Keynes' 'methadone solution' became a full-scale heroine trafficking operation, with deliberate monetary inflation a matter of actual policy -- including the intended side effect of relegating savings to an exercise in foolish futility, as all currency holdings are routinely, invisibly and deliberately taxed out of existence. That, in effect, made BAILMENTS a non-issue, not that so-called 'banks' would have offered them anyway. No need, so long as RIGHT NOW demand, FDIC and a counterfeiter of first resort all collude to give everyone the impression and net effect of a bailment, while simultaneously and artificially destroying all its benefits, since no currency holdings are safe from deliberate debasement and dilution by the Fed.

    Fractional Reserve "Banking" is a bullshit term, one that only means that the COUNTERFEITING AND LENDING SYSTEM will decide, as it sticks its nose where it never belonged, how much everyone needs in the aggregate (the so-called RESERVE "BANKING" part), with ALL THE REMAINDER PRESUMED TO BE AVAILABLE FOR LENDING. And then some, once you add in all the further overly-deliberately complex centralized mechanisms for currency creation, manipulation, control and shell game shuffling (e.g., interest rates, M1, M2, etc., bond and mortgage asset purchases, discount windows, reserve requirements, etc., ad nauseam), which are just extensions of that same process and objective: How to collectivize the currency, and "MAKE" (often literally) more of it available for lending, with ZERO individual consent involved, or desired.
    Last edited by Steven Douglas; 11-01-2012 at 10:53 PM.

  9. #38
    Contributing Member Henry Rogue's Avatar
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    This question is for anyone. Do you think CDs, Certificate of Deposit (a timed deposit) would become popular in times of higher interest rates at least. I mean in a free market sound money economy.
    Last edited by Henry Rogue; 11-01-2012 at 10:57 PM.

  10. #39

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    Quote Originally Posted by Henry Rogue View Post
    This question is for anyone. Do you think CDs, Certificate of Deposit (a timed deposit) would become popular in times of higher interest rates at least. I mean in a free market sound money economy.
    No question about it, the history of CD's since 1967 bears that out big time. They would be all the more popular in a sound money economy with banks that are accountable, and have no artificial state-granted default protections, with interest rates that are set by the market, and not a central manipulator with conflicting directives and self-contradictory objectives. Banks really would be competing, not just for your money, but for your promise not to take it from them too fast.

  11. #40

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    Quote Originally Posted by Henry Rogue View Post
    This question is for anyone. Do you think CDs, Certificate of Deposit (a timed deposit) would become popular in times of higher interest rates at least. I mean in a free market sound money economy.
    Yes. People save more and spend less during times of high interest rates, thus are more likely to deposit money in CDs.

  12. #41
    Contributing Member Henry Rogue's Avatar
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    Quote Originally Posted by Steven Douglas View Post
    No question about it, the history of CD's since 1967 bears that out big time. They would be all the more popular in a sound money economy with banks that are accountable, and have no artificial state-granted default protections, with interest rates that are set by the market, and not a central manipulator with conflicting directives and self-contradictory objectives. Banks really would be competing, not just for your money, but for your promise not to take it from them too fast.
    Quote Originally Posted by Bohner View Post
    Yes. People save more and spend less during times of high interest rates, thus are more likely to deposit money in CDs.
    That's what i've been thinking. Between Bailments and and high risk lending, it seems like something for a person with a good amount of savings and low income (like a retired person) could use.

  13. #42

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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. The rate of growth we have is unsustainable. Plus, if big capital purchases (person and business alike) were afforded through savings and not through debt, I believe those assets would drop in price.

    The biggest problem with our monetary system is that it is debt based. If we were to liquidate all the debt, there would be no more money. Therefore, in this monetary system, inflation is the only way and deflation is a nasty word. It's backwards and it needs to be changed from the ground up.

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