But a CD can be deposited. Any bank could accept a CD as a deposit and then issue you their bank notes for you to go out and use because they have an asset to back up those bank notes. As long as the CD has as it’s underlying asset something that either is gold or can be converted to gold then a bank could accept it as a deposit. I can see you are very confused about the physical redemption of gold versus the possibility of the physical redemption of gold.
James, I did not read this entire post to see if anyone else said this, but FRB is inflationary because the banks create greater and greater amounts of money substitutes, which are used as money, alongside actual money, such as gold/silver. That is the exact purpose of money substitutes - not a means of loaning the bank money. Money substitutes are denominated in money terms. If they are accepted as homogeneous units, this is expansion of the money supply (inflation) and it will cause rising prices.
The money substitutes (bank notes, checking deposits) have no absolute requirement to withdraw actual money from the bank when used as payment. For example, if we are both members of the same bank and I pay you for services via cheque, this puts absolutely no pressure on the bank to come up with actual money in the size of my payment.
This inflationary practice has limits, and should the bank exceed them, it will quickly become bankrupt. The less competition from other banks, the greater the size of the bank’s clientelle, and the less demand for cash there is, the more money substitutes it can issue without the actual money backing it.
Of course, in today’s banking environment, this doesn’t make much sense. There is no threat of bankruptcy. Capital regulation, deposit insurance, central banking, and irredeemable fiat currency make true bankruptcy impossible. If there is ever a case where a bank becomes insolvent, it is simply taken over by the government and slowly dissolved. The true nature of our banking system is that almost all risk and pain associated with bankruptcy has been socialized.
It’s pointless to discuss with fanatics like scineram and Max. They’ll just keep on ‘innocently’ missing the point.
It is not impossible to buy something with a time deposit. However, there is something called the universal law of time preference. People prefer goods now to goods at some point in the future. So a 50,000 CD redeemable in 12 months is not worth as much as 50,000 dollars today. If I surrender a good to you I would prefer for you to pay me at that instant rather than receive payment at some point in the future. Money today and money at some point in the future do not trade on par.
There is a difference between TIME deposits and DEMAND deposits. A bank can loan out a time deposit without increasing the supply of money and credit. If a bank loans out a demand deposit they increase the supply of money and credit. Fractional Reserve banking increases the supply of money and credit by loaning out demand deposits creating a property rights conflict between the depositor of funds and the person who the bank loans the funds to. Two entities would have a legitimate claim to the same property. This is not compatible with libertarian principles. FRB is a pyramid scheme and nothing more.
If you believe that people can voluntarily elect to participate in FRB then you are conceding that people have the right to participate in fraud so long as it is a fraud that is mutually agreed upon by two parties.
Truth
The CD is earning interest so that compensates for the time preference. It is quite possible that people will pay the face value of a CD today knowing that they are being comensated for the delay in redemption.
But banks are not required to have demand deposits. So a better question is what is a time deposit because if the bank poses any delay on redemption what you now think of as a demand deposit would become a time deposit. So since we are talking about physical redemption of gold then if the bank had for example a one day waiting policy for the physical redemption of gold that would make your demand deposit a time deposit. The function of the bank would be the same of course but your entire arguement has just collapsed since all time demand deposits are time deposits now.
All a bank note is, is a claim on the underlying asset, whatever the asset is. Just beacuse the bank offers redemption in gold does not mean the bank has to have physical gold, it only means the bank has to have assets sufficient to convert to gold to meet redemptions. See my example of a bank that has silver but offers gold as a redemption option.
Nonsense. You talk a lot but you dont say much. You should listen and learn. That CD cannot be redeemed for 12 months. It cannot be deposited in the way that money (fiat or gold) can be, and therefore that CD cannot be loaned out again and again at smaller increments as with fractional reserve banking to create inflation. Of course the CD can be deposited or given to a bank for safe holding - this is obvious, but is quite different than depositing cash because that CD cannot be touched or loaned out by the bank. Reread my last comment if you need further clarification, rather than me repeating myself here.
The backbone of this discussion/argument that we are having rests upon the inflationary factors of fractional reserve banking (which I describe to a T in my last post) and how they can be completely avoided through having two seperate forms of banking that do not allow fractional reserve - that of Loan Deposit Banking and Demand Deposit Banking. This would be the most likely outcome that the free market would decide, but obviously the free market could do whatever it wants as long as fraudulant and inflationary fractional reserve banking is outlawed. You insist that trading time deposit CD from a Loan Banking Account would be the same as the fractional reserve system but you are wrong and the last few posts between you and I have very clearly demonstrated this. A time deposit CD can be traded around town and placed back into various banks all year and it would have zero inflationary effects and it would not contribute to a business cycle. Don’t get so stuck in your ways that you can’t see the facts. 
joe and james this has been fun trying to explain to max how a time deposit is not the same as a demand deposit. Time deposits exist today in th\is world of frb where there is no regard for demand deposits. fractional reserve bankers can see the difference between a cd and a checking account so really there is no debate. It is Joe’s statement that always has bothered me the most. FRB is a fraud that is perpetrated on society for the benefit of the bankers and the recipients of the new money pure and simple I don’t care who agreed upon it.
Max - Gotta love those derivatives! Can’t wait for that bubble to burst.
Joe - Would you be comfortable depositing a dollar knowing that it is only backed by a dime?
Yes. That comment by max is nonsense. In a true free market where fractional reserve banking and inflation that steals people’s wealth is outlawed, a bank would never be able to use a CD that a customer has on deposit as a backing for a loan. That is pure nonsense and seems to be a desperate attempt on Max’s part to cling to his theories.
If person A traded a $10,000 CD to person B for a car and person B placed that CD into a bank for safe keeping then it would be exactly the same as when person A had the CD in a bank only now person B has it in a different bank and it is in his name instead of person A’s. When the CD was in person A’s posession, the bank clearly cannot make loans to other customers with it as backing because that completely destroys the purpose of loan banking. Just because person B receives the CD and puts it in a different bank (or the same bank) under his name does not mean that the bank could use it for backing of more loans. Total nonsensical dribble. That CD is a title for future money that is currently being used by a debtor. It cannot and would not be used as backing for loans. Period.
A time deposit traded even at some discount does increase the money supply, increase the the price level because the credit is used in exchange in addition to the gold that was loaned to the bank and then loaned out by the bank. I cannot make it any clearer. Today it is not for demand deposits are not banned by the state.
No, it absolutely does not. Go reread my last four or five posts and you should understand. I’m tired of repeating myself. lol
Me too. lol
There are the gold coins traded in the market and there are the time deposits to a lesser extent. This is more than using only the gold in exchange. Hence bigger money supply and price level.
The problem today rests in FRB being guaranteed by the state.
I know. Free banksters want frb unguaranteed by the government.
Alright this is the last time. Listen up.
Person A deposits $10,000 into a time deposit account and receives a CD for $10,000 that can be redeemed in one years time. Person B takes out a loan for 10,000 dollars and goes about his business buying a small house or whatever. No credit created - merely a transfer of wealth from person A to person B with the bank as the middleman. Enter person C. Person B trades his time deposit to person C for a car. No inflation has happened here. Upon first glance it may appear that the same money is being used by person A and person B, but all that is really happening is that person A traded his certificate for future payment to person C for a present good. An innocent swap that causes absolutely no inflation. Person C (the car salesman) cannot redeem the certificate for one year and in effect has no wealth for one year. Person C can continue trading that CD just in the way person A did if he wants to and the effect will always be the same. No inflation will ever be created because the real wealth is still being used by person B (the loan taker). All that is happening are simple and innocent swaps of a promise of future payment for a present good.
If you have read this along with my last 4 or 5 posts and you still don’t get it, I guess I can’t help you.
Well James, I suppose your original question has been sufficently resolved? I promise myself never to view this thread again, regardless of what banter is to follow … lol … cu
haha Yeah, I learned a lot during the course of this thread. I’ve been reading a lot on my own as well and I am much more knowledgeable than when I first asked my question. I had no idea this thread would explode with activity like this.
Explain why this scenario is impossible:
Person A has a CD. Person A uses the CD to buy a car from Person B. Person B goes to his bank and deposits CD in his account. Bank now has customer C that wants to borrow money for a car. Bank loans customer the money and when the owner of the car comes to collect his funds he agrees to accept the CD as payment. Repeat process.
The CD is just a substitute for the underlying asset which is either gold or something that can be converted to gold. When physical redemption takes place is not important as to how this money substitute can be used.
Your entire argument is based on the fact that a cd will trade as cash. Whats your stance on post dated checks money also?