Posted: Thu May 18, 2006 4:18 am Post subject: Re: fractional banking and the gdp
Peak_Plus wrote:
I rufuse to discuss this on an accountant level.
Well, ok, but as the saying goes, the devil is in the details.
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My point is simple. The local bank takes $10 from me and lends $10 to the next guy. (OK, FRB only allows the bank to lend him $9)
This is not creating money.
Right?
Ok, I'll keep it simple. It wouldn't be creating money if, when you went to the bank to withdraw your $10, you were told "sorry, you can't have your money, we've loaned it to someone else." If no money has been created, how is it that both you and the person who's borrowed your money have use of this $10?
Joined: Oct 01, 2004 Posts: 214 Location: Germany/Ohio
Posted: Thu May 18, 2006 6:49 am Post subject: Re: fractional banking and the gdp
CrudeAwakening wrote:
Peak_Plus wrote:
I rufuse to discuss this on an accountant level.
Well, ok, but as the saying goes, the devil is in the details.
Well, I'll agree that the devil is part of the banking system, too
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Ok, I'll keep it simple. It wouldn't be creating money if, when you went to the bank to withdraw your $10, you were told "sorry, you can't have your money, we've loaned it to someone else."
That's exactly the point. If even a slightly statically larger portion of people than usual DID go to the bank all at once, that is exactly what the bank will tell me.
Remember the movie "it's a wonderful life?" That's exactly what James Stuart tells his customers. ("Joe, you can't have your money, it's stuck in John's house!" or something like that.)
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If no money has been created, how is it that both you and the person who's borrowed your money have use of this $10?
I DON'T have use of the $10, at least not limitless.
Have you ever gone to the bank and tried to withdraw more than 10 grand at a time? Without giving a day's notice? It doesn't work. (of course, every bank has a different limit) And if too many people "order" that for the next day, then the bank has to borrow from another bank. It's called the "overnight rate", meaning that the bank plans to pay it back on the next day, which doesn't always work, but it gives a buffer... _________________ This is the way the world ends,
Not with a bang but a wimper!
T.S. Eliot
Joined: Dec 25, 2004 Posts: 446 Location: Salem, MA
Posted: Thu May 18, 2006 10:36 am Post subject: Re: fractional banking and the gdp
Peak_Plus wrote:
deconstructionist wrote:
Let's say there is a "bank" which offers to keep our gold in its secure vault in exchange for a rental fee.
What? Are you nuts? you want me to pay the bank to hold my gold? I WANT INTEREST !!!!!!!
but they are providing you a service--security
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once the bank starts to issue more receipts than it has gold--the system is corrupt.
Like I've said 18 times already - a bank can only lend OUT what comes IN the other side. Who gives a crap if it's your money or the bank's money? What idiocy would lead you to want the bank to hold your gold? Just as long as they can pay me back when I need the money?!
that's the point--they can pay people back when they need the money ONLY IF MANY PEOPLE DON'T NEED THE MONEY AT THE SAME TIME. In the case of economic disturbances when people need their money, fractional reserve banks inevitably fail or need government bailouts because they don't actually have your money. They've loaned it out.
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it benefits the bank, as they are able to rent gold receipts and charge interest on gold reserves that do not physically exist.
Banks DO NOT issue money. They DO NOT take one dollar from a positor and give ten dollars in loans (without having to borrow the other nine). They do not own and store one ounce of gold (or $650, for that matter) and issue ten ounces of promisory notes with it.
i am assuming a gold standard and receipt currency vs fiat currency in my example
What planet are you from??? No wonder there is so much confusion on the issue. Money out of thin air? Nonsense. THE BANK SHOULD TAKE MY MONEY AND USE IT and not let it lay dormant in a corner.
they are using it for inflationary purposes--to create wealth without labor
THERE IS NO FREE LUNCH!!! Except, of course, with a money-producing institution like the federal government. But that's their job, too.
Alexander Hamilton borrowed British pound (yes, right after fighting the war) in order to "create" the US-Dollar. Currency is based on debt WHICH HAS TO BE PAID BACK. At least in theory, meaning it is some undefined time in the future, not right now.
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if everyone were to turn in their receipts and demand gold--the bank would be unable to honor this request
Of course a bank can't pay anyone back, if EVERYONE wanted their money back at once. That's a run on the bank. The system collapses. Now, imagine it the other way around - who would be able to pay back their mortgage if the bank wanted it back right away???? The bank would have my house in about 30 seconds!!!
it's called a "run on the bank" because bankers decided to call it that. what it is in truth is honest people wanting money that should honestly be theirs. when you deposited the money in the bank you didn't sign a waver saying that you were giving 90% of it to the bank to use for its own purposes and that you waive the right to withdraw the money whenever you damn well please. however, when you signed your mortgage papers, you entered into a contract with the bank that states that they are NOT allowed to call your entire loan due at a moment's notice. if the banking system was honest, you would have to sign a waiver stating that you understand that your money may not be there when you want it.
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so the bank has effectively stolen from the oroginal depositors
Stolen?! They are earning me interest!!! Besides, would you want your local bank to have millions in their safes, waiting to be robbed??? NONSENSE!
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in any other business, they would be shut down for fraud.
This isn't any other business. It's banking. It works - at least as long as the economy is growing.
every example of fractional reserve banking in history has involved massive collapses or would-be massive collapses that were avoided by government bailouts. it only works when governments create fiat currency out of nothing to bail out the system.
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and in our system--the fraud is two-fold, since there is no gold backing the money in the first place. the money is created out of thin air.
Again - but not at your local bank.
The Fed creates money--banks create credit--which is basically money. The bank has taken my $100 and loaned out $90 of it. That was not their money to loan. It was MINE. They didn't tell me that it may not be there when i want to withdraw it. That is fraud--plain and simple. The money was created out of thin air in the first place by the Fed, and then banks take it in deposit or borrow it from the Fed and charge interest on it. If that ain't usury i don't know what is... _________________ UNLESS
Joined: Dec 25, 2004 Posts: 446 Location: Salem, MA
Posted: Thu May 18, 2006 10:54 am Post subject: Re: fractional banking and the gdp
Peak_Plus wrote:
deconstructionist wrote:
Doly wrote:
Peak_Plus wrote:
As you see, it's not possible to "create" money at all (even in a semantical sort of way) in this manner.
I thought that was how money was created. If it isn't like this, how is it created?
it absolutely is possible, and it absolutely is how money is created. no, it doesn't sound logical--because it's not. fractional reserve banking is a scam.
Let me sum this up:
You are calling a scam the fact that a bank lends out the money that I lent to it? Yes?
so you are saying that a deposit into your savings account is a loan from you to the bank? sure, you and i understand this. but how many "average americans" understand that their money may not be there when they want to withdraw it? and that they support the system which makes it possible through the lost purchasing power if inflation?
Yes the money is "insured" by the FDIC but keep in mind the FDIC holds only 0.5% of the money that they insure in reserve. More often than not, when a large bank becomes insolvent, the FDIC covers the whole thing with newly created money--causing inflation. Yes, it's a scam.
for example: Continential Illinois failed in 1983--the Fed printed up most of the money (billions) to bail them out.
First Pennsylvania Bank failed in 1980. The fed again printed up most of the money (many hundreds of millions) to bail them out.
COUNTLESS S&L's failed in the late 80s/early 90s. he Fed again printed up most of the money to bail them out (many billions).
the list goes on:
SOUTHERN PACIFIC BANK, 2003, amost $100 million in bailouts
SUPERIOR BANK, 2001, over 400 million in bailouts
FIRST NB OF KEYSTONE, 1999, over $650 million in bailouts
CARTERET FSB, 1992, over $150 million in bailouts...
HOMEFED BANK, 1992--almost $1 billion in bailouts.
CROSSLAND SAVINGS BANK, 1992, almost $1 billion in bailouts
Since 1979, the FDIC has issued $193 billion in bailout funds, 99% of which it did not physically posess--therefore were printed by the Fed, causing inflation which robs the american people of purchasing power. if this is not a scam, what is it?
Posted: Thu May 18, 2006 2:20 pm Post subject: Re: fractional banking and the gdp
Peak_Plus wrote:
That's exactly the point. If even a slightly statically larger portion of people than usual DID go to the bank all at once, that is exactly what the bank will tell me.
Ok, I simplified it too much. You're referring to withdrawing CASH, and you're quite correct. What I'm saying is, for your statement that no money is created to be true, you shouldn't even be able to write a cheque on your $10 deposit, but you can.
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If no money has been created, how is it that both you and the person who's borrowed your money have use of this $10?
I DON'T have use of the $10, at least not limitless.
You do have use of your $10. You can write a cheque on it, and buy goods/services. The bank will honour your cheque because you have $10 in your deposit account. At the same time, it will honour a cheque written by whoever borrowed the $9 which was enabled by your deposit.
Joined: Oct 01, 2004 Posts: 214 Location: Germany/Ohio
Posted: Fri May 19, 2006 3:21 am Post subject: Re: fractional banking and the gdp
CrudeAwakening wrote:
You do have use of your $10. You can write a cheque on it, and buy goods/services. The bank will honour your cheque because you have $10 in your deposit account. At the same time, it will honour a cheque written by whoever borrowed the $9 which was enabled by your deposit.
...And then, if the bank's balance is in the red (in this case -$9) at the end of the day, it has to borrow from another bank to make up the difference.
Or can it leave the $9 borrowed AND leave your account at $0? _________________ This is the way the world ends,
Not with a bang but a wimper!
T.S. Eliot
Joined: Oct 01, 2004 Posts: 214 Location: Germany/Ohio
Posted: Fri May 19, 2006 3:52 am Post subject: Re: fractional banking and the gdp
deconstructionist wrote:
so you are saying that a deposit into your savings account is a loan from you to the bank? sure, you and i understand this. but how many "average americans" understand that their money may not be there when they want to withdraw it?
Do you think it matters what the average person thinks? It doesn't change the system
and that they support the system which makes it possible through the lost purchasing power if inflation?
Yes the money is "insured" by the FDIC but keep in mind the FDIC holds only 0.5% of the money that they insure in reserve. More often than not, when a large bank becomes insolvent, the FDIC covers the whole thing with newly created money--causing inflation. Yes, it's a scam.
Since 1979, the FDIC has issued $193 billion in bailout funds, 99% of which it did not physically posess--therefore were printed by the Fed, causing inflation which robs the american people of purchasing power. if this is not a scam, what is it?
THANK YOU.
Now we're getting to the heart of it. You have found a scam, but why blame fractional reserve banking? Why not blame bad credit policy? And the false security offered by the fed? Like right now, the banks are lending out money to help you finance ANYTHING! Simply bad risk management.
This has little to do with FRB, but a lot to do with the knowlege that the Fed will bail us out.
And a loose monetary policy.
Now, let me disagree with you on a few points, again, nothing of which has to do with FRB. Please, keep these points separate from FRB:
1) Light Inflation is NOT bad. Money is there to be used, invested. Not to be put under a pillow or pay a bank to "hold" it.
2) Deflation (here: rising demand for money while money supply remains constant) is much worse than "high" inflation (10-20%)
3) The gold standard is nonsense, because it can't be expanded to meet expanding needs (population, technology) _________________ This is the way the world ends,
Not with a bang but a wimper!
T.S. Eliot
Posted: Fri May 19, 2006 7:38 am Post subject: Re: fractional banking and the gdp
Peak_Plus wrote:
CrudeAwakening wrote:
You do have use of your $10. You can write a cheque on it, and buy goods/services. The bank will honour your cheque because you have $10 in your deposit account. At the same time, it will honour a cheque written by whoever borrowed the $9 which was enabled by your deposit.
...And then, if the bank's balance is in the red (in this case -$9) at the end of the day, it has to borrow from another bank to make up the difference.
Or can it leave the $9 borrowed AND leave your account at $0?
Yes, it's called accounting, a detail which you refuse to acknowledge, and therefore why you will never be able to understand how the system works. _________________ -Jeff
Joined: Dec 25, 2004 Posts: 446 Location: Salem, MA
Posted: Fri May 19, 2006 8:22 am Post subject: Re: fractional banking and the gdp
Peak_Plus wrote:
THANK YOU.
Now we're getting to the heart of it. You have found a scam, but why blame fractional reserve banking? Why not blame bad credit policy? And the false security offered by the fed? Like right now, the banks are lending out money to help you finance ANYTHING! Simply bad risk management.
i absolutely see your point... however, credit cannot be created in such large amounts without FRB. risky banking is encouraged by being able to have the same money be both an asset and a liability simultaneously.
This has little to do with FRB, but a lot to do with the knowlege that the Fed will bail us out.
And a loose monetary policy.
Now, let me disagree with you on a few points, again, nothing of which has to do with FRB. Please, keep these points separate from FRB:
1) Light Inflation is NOT bad. Money is there to be used, invested. Not to be put under a pillow or pay a bank to "hold" it.
2) Deflation (here: rising demand for money while money supply remains constant) is much worse than "high" inflation (10-20%)
3) The gold standard is nonsense, because it can't be expanded to meet expanding needs (population, technology)
i agree on point one. there is a natural rate of inflation that is experienced in a truly free market.
i agree on point two. but as we know the fed also takes money out of circulation as well. again--not totally related to FRB but definitely part of the manipulation of our money supply...
point 3 i disagree with, and i'll tell you why (well, i'm paraphrasing G Edward Griffin for the most part). the supply of gold is not so much important. the function of money is to measure the value of the items for which it is exchanged. as a measure of value, it makes no difference if we measure in yards, feet, inches, what-have-you. If the supply of gold in realtion to the supply of available goods becomes so small that a one-ounce coin would be too valuable for minor transactions, we can just use smaller denomiations (1 ounce, 1/2 ounce, 1/4 ounce, 1/10th ounce, and 1/20th ounce coins are currently being minted). The amount of gold in the world does not affect its ability to serve as money, it only affects the quantity that will be used to measure any transaction. _________________ UNLESS
Posted: Fri May 19, 2006 10:28 am Post subject: Re: fractional banking and the gdp
Peak_Plus wrote:
1) Light Inflation is NOT bad. Money is there to be used, invested. Not to be put under a pillow or pay a bank to "hold" it.
This looks like an unsubstantiated opinion to me.
Who are you to say when or how money is to be used?
If I want to work double shifts this week so that I can take next week off, all I should need to do is put my money under my pillow until next week.
If instead inflation will rob me of half the value of my money by next week, then it's not possible for me to take next week off even though I've done EXACTLY the same amount of work that I would accomplish working next week.
Why is it wrong that money simply acts as a store of vlaue? Why is it wrong to assume that I can buy $1 worth of goods tommorow with the $1 worth of work I did today?
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2) Deflation (here: rising demand for money while money supply remains constant) is much worse than "high" inflation (10-20%)
As an assertion that I again think ithis is wrong. If you happen to have more money than debt during deflation, then your money gains value, and you are better off Thus for those who have cash, deflation better than inflation.
Now, granted, we exist in an economy where few people have cash assets that can offest their debts, but this is also a result of the fiat currency and FRB system that we live in. It obviously doesn't make sence to hold cash when you KNOW that it will lose value over time.
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3) The gold standard is nonsense, because it can't be expanded to meet expanding needs (population, technology)
just one more unsubstantiated assertion?
Did the gold standard support the roman empire at it's peak?
How about the spanish empire? The english? How about the US prior to the federal reserve? How about most of the industrial world prior to the 1940's?
Did we not change in technology between the roman empire and the early 1900s or even the 1940s? Wasn't the population a bit bigger in the British Empire than in the Roman empire thousands of years previously?
How can it be that a system of money that doesn't meet expanding needs could be used in later generations by populations several orders of magnitude larger?
And how could one think that technology is somehow a problem with the gold standard? The ability to have up to the second prices for gold or silver and being able to buy anbd sell these things globally at a moments notice goes a long way to solving many of the problems often associated with the gold standard.
Posted: Tue May 23, 2006 4:30 am Post subject: Re: fractional banking and the gdp
Peak_Plus wrote:
CrudeAwakening wrote:
You do have use of your $10. You can write a cheque on it, and buy goods/services. The bank will honour your cheque because you have $10 in your deposit account. At the same time, it will honour a cheque written by whoever borrowed the $9 which was enabled by your deposit.
...And then, if the bank's balance is in the red (in this case -$9) at the end of the day, it has to borrow from another bank to make up the difference.
Or can it leave the $9 borrowed AND leave your account at $0?
Yes, the bank uses its reserves to meet depositor's withdrawals, and yes a FRB can't create reserves from nothing, and yes it can borrow reserves if it is deficient, but this doesn't alter the fact that credit-money was created at the point the loan was taken out. Once created, this is only destroyed on repayment of loan prinicipal. As DJ Mittens pointed out, if you can't follow the accounting, you won't "get it".
Posted: Tue May 23, 2006 5:48 am Post subject: Re: fractional banking and the gdp
CrudeAwakening wrote:
Peak_Plus wrote:
CrudeAwakening wrote:
You do have use of your $10. You can write a cheque on it, and buy goods/services. The bank will honour your cheque because you have $10 in your deposit account. At the same time, it will honour a cheque written by whoever borrowed the $9 which was enabled by your deposit.
...And then, if the bank's balance is in the red (in this case -$9) at the end of the day, it has to borrow from another bank to make up the difference.
Or can it leave the $9 borrowed AND leave your account at $0?
Yes, the bank uses its reserves to meet depositor's withdrawals, and yes a FRB can't create reserves from nothing, and yes it can borrow reserves if it is deficient, but this doesn't alter the fact that credit-money was created at the point the loan was taken out. Once created, this is only destroyed on repayment of loan prinicipal. As DJ Mittens pointed out, if you can't follow the accounting, you won't "get it".
So if Big Bank issues a credit card to Joe Consumption with a $10.000 credit limit has Big Bank increased either the money in circulation or money supply or just credit which is a fancy word for IOUs? If Joe buys a TV maybe the Big Bank can get back pennies on their dollars, but if Joe blows it on consumables, Big Bank and Big Bank's shareholders, plus any credit card receivables they flogged-off on Investor Jane are just plain out of luck, if Joe does not pay that IOU back. Credit is not money supply. _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Tue May 23, 2006 10:14 am Post subject: Re: fractional banking and the gdp
Having a line of credit is meaningless.
Using a line of credit, however, does increase the money supply. We'll assume the person will pay back their loan, and not declare bankruptcy (which, in fact, would increase the money supply even more).
If that person pays back the loan, and the interest, there is a net decrease in money supply, because not only is the principle out of circulation when it once was, but now so is the interest paid. So to keep the supply increasing, either the government prints more, or the banks create even more credit availability or give out even more loans. _________________ -Jeff
Posted: Wed May 24, 2006 12:56 am Post subject: Re: fractional banking and the gdp
DJ_Mittens wrote:
Having a line of credit is meaningless.
Using a line of credit, however, does increase the money supply. We'll assume the person will pay back their loan, and not declare bankruptcy (which, in fact, would increase the money supply even more).
If that person pays back the loan, and the interest, there is a net decrease in money supply, because not only is the principle out of circulation when it once was, but now so is the interest paid. So to keep the supply increasing, either the government prints more, or the banks create even more credit availability or give out even more loans.
If I give you a credit card with a line of credit of $10.000, and you do not use it, then it is a piece of plastic with potential versus kinetic energy.
If you use that line of credit, money supply is not affected. Why? Because as you use the credit card, making a promise to me to repay that personal loan, I pay the vendor upfront for the goods & serviced you buy with my own savings. If I am a bank, I use liabilities that I have incurred, in the form of on demand site deposits from customers to make those payments. If I do not have enough deposits, I sell some of my assets, in the form of securitized credit card receipts, to investors who use their savings to buy those ABSs.
Money supply has not contracted or expanded. Assets and equity have been converted into liabilities. Or more simply, savings into borrowings.
The vendor got his money in any case. If you pay the credit card loan back then I get my original loan back, plus any interest, less any discount from selling my credit card receipts. If I sold credit card receipts, the investors got their principle back, which they had bought at a discount. That discount represents their interest on their principle investment. The interest income that we earned collectively has to come from your savings. If not from your savings than from your future earnings.
The only growth came from you buying a good or a service that had to be produced and then paid for. That created economic growth. Increased GDP. If money supply only increases in line with GDP growth, it is not inflationary.
If there is money supply growth in excess of real GDP growth, it is because the central bank is following an expansionary monetary policy, and it has nothing to do with me giving you a credit card to use or not to use as the case may be.
Credit growth is not money supply growth. Credit growth is converting the present value of savings now into a stream of future income payments later. _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
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