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The Case Against Fractional Reserve Lending


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#1 Bloo Loo

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Posted 19 February 2012 - 04:55 PM

"Unfortunately, in their inflation predictions, most of the Austrian economists only consider money supply and not the collapse in credit and the value of that credit on the books of banks"

another myth, often quoted by those opposed to the evil Austrians.

Watching the bust phase video often published here, all those factors are there as players in the Austrian BUST. Excess Credit, the printing "Cure" and the reasons why Governments like the idea..the Central Banks role, collapses of banks, values of assets...all there....amd all derived from what happened in the BOOM...therefore all predicted, plotted and analysed.
WARNING

Your
country is at risk
if you
do not keep up repayments
on a gilt or other loan secured on it





#2 Errol

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Posted 19 February 2012 - 05:12 PM

See Detlev Schlichter's new book 'Paper Money Collapse' for an excellent case against FRB.

www.papermoneycollapse.com.

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#3 Bloo Loo

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Posted 19 February 2012 - 07:10 PM

what bust phase video?




from 2007.
WARNING

Your
country is at risk
if you
do not keep up repayments
on a gilt or other loan secured on it





#4 SnapCrackleNPop

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Posted 19 February 2012 - 09:51 PM



from 2007.

Section 8 Appropriate government policy -

The UK Gov/BOE is doing everything it shouldn't be...everything!
"We must not let our rulers load us with perpetual debt" Thomas Jefferson.


"The modern banking system manufactures money out of nothing" Josiah Stamp.

#5 mfp123

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Posted 19 February 2012 - 10:14 PM

how do you loan money out without a fractional reserve?

#6 MrB

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Posted 19 February 2012 - 10:35 PM

how do you loan money out without a fractional reserve?


Bonds, debentures etc. The 'time' element of assets and liabilities is kept in tandem, and all investments are someone else's savings, rather than conjured into existence magical credit.
1. Get up
2. Have a piss
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4. Get back from work

5. Read HPC
6. Watch The Bill
7. Go to bed


Stages 1-4 will happen between 7am and 5.30pm. Stage 5 is happening now. Stage 6 & 7 could happen anytime soon. Protect yourselves: buy an overpriced house!

#7 mfp123

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Posted 20 February 2012 - 12:11 AM

all a time deposit does is slow the system down, and prevents people from accessing their money.

however if you loan money out via a time deposit it is essentially a 0% reserve ratio.

you could loan the same bit of money out over and over again without having it stored in the bank i.e a £1 coin could turn into £1billion worth of assets and liabilities, however only 1 person could spend that £1 at a time.

but, in context of the overall system whats the difference between a deposit account, and a rolling time deposit that ends each day or after every 10 seconds?

under both systems, at the end of the day the person that controls the money supply is the same - its the central bank.

preventing banks from creating broad money in a 100% reserve system, doesnt prevent a central bank from creating and printing real money, so the effect is the same.

Edited by mfp123, 20 February 2012 - 12:17 AM.


#8 mfp123

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Posted 20 February 2012 - 12:27 AM

there's a big difference and that's to do with the political will that enables CB's to print.


no there isnt. if the central bank couldnt print money, a fractional reserve banking system would have maxed out ages ago and no new money could be created

yes normal banks create broad money, but their capacity to keep increasing this is dependant on the creation of new money by a central bank.

if there is £1000 in the system £10,000 of broad money can be created in the total banking system but it can never create any more. the only way it can do so is the creation of new money by central banks.

the only way you can get from £1000 to a £1trillion over a series of decades is the printing of new money by a central bank.

so ultimately everything still revolves around the central bank.

Edited by mfp123, 20 February 2012 - 12:29 AM.


#9 MongerOfDoom

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Posted 20 February 2012 - 12:31 AM

how do you loan money out without a fractional reserve?


You just give up the certainty of getting it back, or alternatively the interest :-)

I am amazed these nutters get so much publicity. Money is being printed left, right, and center, yet somehow it must be FRB that is the problem.

#10 Traktion

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Posted 20 February 2012 - 01:18 AM

IMO, it's not FRB that is the source of the problem, but rather the fraud involved in it [EDIT: in its current implementation, with a central bank, state backed fiat money etc].

If both savers and borrowers were informed in the fullest sense what is going on, then there wouldn't be so much confusion. In turn, this would lead to people being able to properly assess the risks involved.

It really boils down to whether you want your money safely stored somewhere or whether you want to swap your money for IOUs. There may be a few different options for the latter, with different risks (time deposit being at the lower end and fractional reserve being at the top end), but these primary options are easy to define.

Ofc, it would mean less credit in the economy, as many people would want to keep ownership of their money (custodial banking). In turn, the more risky banks could be allowed to fail, as there would be no need to provide state backed deposit insurance, as safe alternatives would exist.

As Mervyn King admits himself, we currently have a high risk system, when people have been told it is completely safe. It's a daft system, which doesn't reflect reality. That doesn't mean that there is no place for risky banking though - it just needs to be clearly sign posted, without the risk being obscured through bad/fraudulent contracts.

Edited by Traktion, 20 February 2012 - 01:27 AM.

Hayek: Denationalisation of Money - Competing, alternative currencies and breaking the money monopolies.
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#11 mfp123

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Posted 20 February 2012 - 02:01 AM

http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/

steve keen says no.

for those who can't be @rsed readin g it all,he basically argues that the FRB system of credit creation ran well ahead of CB printing over the last however many years.


that simply talks about what mechanism leads the other not what creates the other.

in it, it says:

If the entire banking system is at its reserve requirement limit, then the Federal Reserve has three choices:

refuse to issue new reserves and cause a credit crunch;
create new reserves; or
relax the reserve ratio.


i.e as broad money created by banks reaches its limit, the central bank needs to pump new money in to keep it growing.

so the power is fully with the central bank to expand or contract the money supply.

#12 R K

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Posted 20 February 2012 - 03:01 PM

Zanu, you may be interested in this summary of Aldy Haldane's 'Debt Loop'.

http://www.lrb.co.uk...e/the-doom-loop

Documenting the change from personal liability of the bank owners through joint stock banks through limited liability banking and laterly the perverse incentives created since the 70s (Thatcher and Reagan's deregulation of the sector and so on, carried on by Major and Blair).

Interestingly he says Basel III isn't enough and considers other capital and ownership structures to prevent perverse incentives for boards, higher or contingent capital and better regulation.

Whether politicians will do any of this stuff of course is moot.

As we've seen with Cameron and his 'we must get behind the bankers' rhetoric, and the move towards longer-term equity incentives (again part of the problem!) it may be a long slog!

Diamond and his cronies won't give it up without a fight and nobody seems willing to take them on, least of all the Tories.

At first, limited liability status was not taken up enthusiastically by banks: they were reluctant to give up unlimited liability, which they regarded as a badge of prudence. But the collapse of the City of Glasgow bank in 1878, caused by speculative lending and false accounting practices, ended that. Eighty per cent of the bank’s shareholders were made destitute. The opinions of bankers, Parliament and public alike shifted quickly. By 1889, only two unlimited liability British banks remained.


It seems what goes around comes around.

Edited by Red Knight, 20 February 2012 - 03:03 PM.


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#13 Traktion

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Posted 20 February 2012 - 03:56 PM

Zanu, you may be interested in this summary of Aldy Haldane's 'Debt Loop'.

http://www.lrb.co.uk...e/the-doom-loop

Documenting the change from personal liability of the bank owners through joint stock banks through limited liability banking and laterly the perverse incentives created since the 70s (Thatcher and Reagan's deregulation of the sector and so on, carried on by Major and Blair).

Interestingly he says Basel III isn't enough and considers other capital and ownership structures to prevent perverse incentives for boards, higher or contingent capital and better regulation.

Whether politicians will do any of this stuff of course is moot.

As we've seen with Cameron and his 'we must get behind the bankers' rhetoric, and the move towards longer-term equity incentives (again part of the problem!) it may be a long slog!

Diamond and his cronies won't give it up without a fight and nobody seems willing to take them on, least of all the Tories.



It seems what goes around comes around.


That sounds a very good read - thanks for the link.

Limited liability is a beast of the state and it gives the corporation protection at the expense of the individual. IMO, many of the problems of the corporations running the world are due to this legal identity they are given.

When it is your own house and your own freedom on the line, you tend to be a bit more responsible than when it is someone else's.

The thing is, I can't see any of this being reversed. I just can't see any government doing it. It seems that a voluntary rejection of the current system is the only feasible route away from fascism... either that or the eventual collapse of the current system, followed by the black hole left in its wake.
Hayek: Denationalisation of Money - Competing, alternative currencies and breaking the money monopolies.
Bitcoin - Free market, distributed, open source, e-currency.
Against Intellectual Monopoly - Stop the rent seeking through legal monopoly.
Freedomain Radio - Philosophical commentary and debate.
Khan Academy - Free market education, funded by voluntary donations.
Community Land Licencing - A distributed, non-state, alternative to land value taxation.

#14 easy2012

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Posted 20 February 2012 - 05:19 PM

sweet .cheers bloo


Hi Bob...

The book mentioned in the lecturer: American Great Depression by Rothbard

http://mises.org/Rothbard/AGD.pdf

#15 Game_Over

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Posted 20 February 2012 - 05:31 PM

Yes, we could avoid any chance of economic stagnation due to a collapse in credit by abolishing banks altogether

BUT we would have to return to the type of economy AND population levels we had in the middle ages

so essentially the cure would be worse than the disease.

Also while I agree Europe is f*cked for decades - the reason is the creation of the EUSSR - not the banking system

All socialist systems inevitably fail catastrophically so why anyone expected the European project to turn out any differently is beyond my understanding.




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