This may seem like a very odd question. But why does the CB need to act as the lender of the last resort instead of becoming thee lender itself? Save the 2-3 % from the middleman. Take and print the money directly. If there needs to be a central authority then why have the middleman?
Don’t be the banker to the bankers but be the banker itself!
Keep in mind that I am talking about banking activities such as having Accounts, Deposits and loans. Not investment or security trading services.
Why does there need to be a central bank? Why does there need to be a money printer? Save the dying monetary system from the middle man.
The point behind a central bank is to let the other banks get away with fractional-reserve banking without the threat of bank runs. In other words, the central bank serves the “middlemen”, not the other way around.
But then why don’t they just take over is what I am saying.
Are you asking why the “middlemen” don’t take over? Or why the central bank doesn’t take them over?
Central Bank. Let the CB deal directly with the consumers. Drop the middlemen so that the consumer will get a reiief of a few percent and the bank will be free from the regulatory hassle.
Hey, I just had an original idea! Rather than having the government just regulate industries, why not let the regulators just do all the production? Let’s have the government own and produce everything and get rid of the middle-man! I bet that’s never been tried before!
Clayton -
you12 wrote:
“…why does the CB need to act as the lender of the last resort instead of becoming thee lender itself?..”
Perhaps because it would burst the fraudulent illusion of multiple stable competing banks leading to a rapid run on the CB and widespread aversion to their so called ‘money’?
The OP’s question seems to be “Why is the modern banking system so complex? Why not just have ONE national bank for everything/everyone?”
The answer is that it is partly down to history, partly down to the fact that the market is inherently global and so doing something like this would be shooting yourself in the foot. Lots of countries do essentially have a single, national bank but they do not number among the world’s largest economies. Also, there’s a hostage problem here… part of the incentive for a bank not to embezzle its customers is that once word gets out, all their customers can leave to go to another bank. If there’s just one, central, national bank, embezzlement cannot be stopped in this way. Finally, the vast complexity of the banking system - like the vast complexity of the tax code - serves to conceal the true nature and function of the banking system, namely, to print money. At every point in the modern banking system, the bureaucrat can honestly say “there is no printing of money here” as Bernanke has on multiple occasions. “We’re just buying government bonds on the market, just like everybody else” “we’re just making a loan to one of our sister banks just like we would to any other business” and so on. One of the chief purposes of the system is obfuscation so it has to be complex.
Clayton -
I figured my first response should have covered this, but maybe further discussion with examples of others who claim that is the answer, will be more sufficient…Paul Grignon and Bill Still are two of the better known…
As a libertarianI am not for central banking. Its a discussion I had with ‘non believers’ during which I raised this question and everyone looked at me like I was speaking in naavi. So I thought lets ask this question where I might get an aswer.
My basic thought process was since central bank already controls the money supply and the banks why not just do away with banks? I am not repeat not in favor of central banks. But why have this quasi control instead of full control purely as a hypothesis. Why or why not and what are the effects?
I am proposing the abolition of banks and the tasks performed by the banks to be performed by the central bank purely as a thought experiment and not as a policy proposal.
Instead of Cental bank loaning to other banks and the banks loaning to end consumers, let the central bank loan and deal with end consumers. Drop the midleman that is the private or nationalized banks.
It maintains the illusion of choice.
You mean force the other banks to close, right?
Yep. Why pretend to have control. Have control already.
He is trying to work within the statist framework and to make the system more “efficient.”
It’s like saying “why doesn’t the US conquer Mexico.” We are discussing this outside of the ethical viewpoint and only the economic one.
Not interested in efficiency. My interests are purely to understand what will or can happen economically. What will it lead to?
Drop the middlemen so that the consumer will get a reiief of a few percent and the bank will be free from the regulatory hassle.
Your posts suggest otherwise, but since your intent is cleared up, it’s all good now.
What would happen? It’s useful to look at what the situation would be 50 years from now: If anyone suggests privatizing banks they will jump on him: “Are you CRAZY? Let the FREE MARKET handle our money???!!”
The OP proposal/question makes perfect sense. Excellent use of reductio ad absurdum toward uncovering the current (central + fractional reserve) banking “system” (market? much less, free?) for the sham that it really is. If there must be a lender of last resort, what’s the point (motive, incentive, and whose?) of having all these other (seemingly independent, but heavily regulated) “lenders” anyway?
In a free market, there is an obvious need for intermediaries between savers of capital and investors of same. Today’s perversion called “banking” has almost nothing to do with this function and exists mostly as an instrument for market manipulation and wealth redistribution under the command of the Central Commitee. No need for intermediary “lenders” to do that.
Yep. Thanks. Thats the exact point I was trying to make still it would be good to know what will be the effects of such a system.