So, it can therefore be concluded that using CDs like cash is completely harmless and would not contribute to a business cycle or inflation.
But this is exactly what fiduciary media or a demand deposit is. They are all IOUs.
My point is that it matters not who holds that CD. The funds are still inaccessable and it could be swapped around for goods many times and would still not have the same properties as a fractional reserve loan. I realize that fiat money are IOUs too, but a CD is more of an IOU for an IOU. haha The car dealer, in my previous example, has not received any real wealth that he can use to create new goods with. He has only received the future promise to be able to consume or produce.
An apple is an apple. An orange is an orange. A CD is a CD.
For something to be considered money, it must be widely accepted by most people for exchanges of goods and services.
In some areas apples, oranges, or even CDs might be considered money. In most areas, however, they would not be able to compete with better forms of money like silver, gold, and/or copper.
Inflation is simply the expansion of a money supply as occurs under FRB (MS=M0+M1). This does not occur under a 100% reserve system except to the extant that the money is able to be produced before being brought into the banking system (MS=M0+Mp). A rise in prices can be a symptom of inflation.
The original depositor may need his $1,000 back the following week, in which case the bank would have to take $100 from nine other peoples accounts and pray that they don’t also need their $1,000 the week after.
CDs can’t be money because CDs rely on a preexisting monetary and financial system. CDs must be denominated in some monetary unit. CDs can’t be self-defining money. It’s circular nonsense.
But of course, inflationists live in a world in which the laws of logic can be repealed by wishful thinking.
In the village of CD brokers, they might?
I CD could possibly be swapped for something, but this is not the same as using the money while it is lent to someone else. It is simply swapping the claim for future money for a present good. Harmless swap.
This is the case with demand deposits too. You are not using any money when you make transactions.
It is? But with a demand deposit you would withdraw your money (be it fiat or gold backed) and spend that real money on a good. Swapping a CD for a good is trading a note of future payment for a present good. I don’t understand your point.
I guess scineram can’t get past “all cats are four legged animals, therefore all four legged animals are cats”
If we continue trading the CD then the car dealer gives the CD to the car maker who then sends him another car. The car maker then sends the CD to the car part suppliers who then send the material to build another car. It doesn’t have to matter what the physical restrictions are for redemption. All that matters is that the note whether it is a check or a CD can be redeemed in the physical commodity. All that is happening when notes are being passed from one person to another is simply changing who has the claim on the underlying assets of the note. There is no requirement that the bank has to offer instantaneous redemption into the physical commodity.
It is quite likely that banks will only allow physical redemption in defined quantities and that physical redemption might actually come at a premium to the face value of the note. Some banks may actually charge a premium to redeem in small quantites of gold due to minting costs and other factors and almost certainly physical redemption will be limited to minimum requirements like 1 oz. It is entirely likely that if you went to the bank with your dollar note and wanted to redeem gold that the bank would tell you sorry we don’t redeem in quantities that small. Would that make the note worthless?, I don’t think so.
You are making an artificial distinction between a CD and a bank note. They are both pieces of paper that have value based on the ability to be redeemed in the physical commodity of gold. The only distinction is maybe the time frame for redemption. The point being is I can use both pieces of paper right now to purchase things even though specifically in the case of the CD the money has already been loaned out to someone else. I understand your fixation with the artificial distinction because your entire theory is based upon it.
Lets examine the CD on the open market instead of “withdrawing” my money from the bank and turning the CD into gold I withdraw from other people who buy the CD with gold. This is what the bank does on redemption in a checking account they use the gold of other people to meet redemption requirements. No functional difference and since all the bank depositors have signed contracts agreeing to this system you can’t claim it’ s fraud. As long as people are willing to allow their gold to be used to meet redemption requirements prior to a given expected time of redemption then there is no distinction. The only difference is the redemption in the case of the CD is taking placing with non-bank customers.
max liberty-"All that matters is that the note whether it is a check or a CD can be redeemed in the physical commodity. "
Money is defined as being generally accepted as payment for goods and services. Your comment in the previous post seems to indicate you understand this. Almost anything could be used as money and probably has at one time or another but when you loan that money out(like to the bank say for 6 mnths with 3% interest) just because you may be able to sell that loan to someone else for money or other products that does not make it money. furthermore If you find someone who pays full value please introduce me I’ve got a deed to the brooklyn bridge they may be interested in.
It is. I very rarely take cash form an ATM. Mostly I just buy train ticket on the net or pay with card. The majority of transactions today is only electronic. Banks hold little cash at hand because people just conduct transactions digitally with credit card or direct access.
By full value I assume you mean the face value of the CD plus the interest to date. Since the CD is accruing interest until the date of redemption what people would pay for it depends a lot on the interest rate and the terms of the CD. It is actually possible people could in fact pay a premium above the face value and accrued interest to date for example if the CD was paying an exceptionally high interest rate in comparison to other CD’s.
In the case of when gold is money then any piece paper claiming redemption in gold will act as a substitute for actually using gold. As long as the underlying redemption is possible in gold then the pieces of paper will be treated the same for the purposes of being substitutes for gold. In the case of the CD the bank in fact may have 0 holdings of gold but they are responsible for redeeming in gold which is all that really matters. The fact that there are intermediary instruments between the piece of paper and the redemption of the physical gold doesn’t matter. This is probably the root cause of Austrian conflict on this issue. What you and many Austrians say is that if I promise to redeem in gold then I have to have the gold on hand and can not use other assets that are convertible to gold and simply convert these other assets to meet gold redemptions. So from your perspective if a bank had 100 million dollars worth of silver and was using that asset to back 1 million dollars in gold deposits the bank is commtting fraud because they have 0 reserves of gold and furthermore they are doomed to be insolvent. What makes more sense is to say that the bank is required to have sufficient assets to meet it’s liabilities which makes the above scenario perfectly legitimate.
Well when you use your card to pay over the net you are withdrawing money from you savings account (or under 100# reserve, your demand account). Where do you think that money comes from? You can’t do such a thing with a CD as it is frozen in a loan account. Even though the CD can potentially be swapped for goods, these transactions are harmless and will not create credit expansion as fractional reserve loans will.
You are missing the entire point and are still not understanding the essence of a CD and how loan banking will not give rise to the money expansion that fractional reserve banking will. A fractional reserve system is uniquely inflationary in the following way:
Reserve requirements affect the potential of the banking system to create transaction deposits. If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the initial deposit of $100 into a maximum of $1,000 of money ($100+$90+81+$72.90+…=$1,000). In contrast, with a 20% reserve requirement, the banking system would be able to expand the initial $100 deposit into a maximum of $500 ($100+$80+$64+$51.20+…=$500). Thus, higher reserve requirements should result in reduced money creation and, in turn, in reduced economic activity.
No such thing could happen with a CD because that CD cannot be deposited and loaned out at further smaller increments as in the example above. Again, it does not matter how many times the CD is traded around because it can never be deposited. Rather, it is a claim for a previous deposit that must have time to mature for redemption. Loan banking, and CDs, but the brake on money expansion. Any trading with a CD, no matter how perfuse, will not cause any economic damage or be any equivalent of using the same money in two places because, again, it is trading a future promise of payment for a present good.
I just said I am not withdrawing anything. I transfer IOUs to whomever I pay. There is nothing to come from anywhere, the bank now simply owes money to someone else.
There is no reason it cannot be transferred to be frozen at someone else’s account.
Exactly right Scineram. This is why the CD can function exactly the same, it is just an IOU just like a bank note.