The current system is incredibly stable. The past 25 years minus the current recession have been the most stable probably ever. This is why it was called the Great Moderation (by Bernanke I know). You have assumed what you wanted to prove. You have not shown why aggregate time preference is unstable, which is the crux of the issue.
That is exactly right. That is the inconsistency. All of these institutional arrangements are just different ways of organizing the same thing. The money supply and interest rate would be essentially the same whether we happen to organize the loanable funds market through the current system, 100% reserves or even a system with no banks where everyone makes their own loans.
This is not what he is talking about. He is referring to a system in which CDs are exchanged for goods, not money.
I’m literally laughing out loud. I mean, one thing is an incoherent/confused defense of some theoretical form of ‘free’ banking (not free from fraud though…) but a wholly different thing is the idea that there’s nothing wrong with the current system and that it ‘proves’ that FRB ‘works’.
If CD’s are exchanged for goods then they are not CDs but FRB demand deposits. Then there is no point in asking what is the difference. He asked about the difference and I explained it.
CDs are not used as money by any means. That’s why they are CDs. Frankly the level of mental confusion some of the FRB advocates exhibit is staggering.
You have still not been able to provide a good argument on why timed deposits cause instability. You even failed to respond to the crux of my last post. Your argument has consistently revolved around the idea that timed deposits are the same as checking deposits, when they are in fact not (and to that you failed to respond to, apart from repeating the same thing over and over again). I am sure that you will respond to another post with the same argument which was already argued against, which is why these threads get rather boring over the long-run.
In any case, I do agree that the volume of lending would necessarily decrease in a free market.
If you look at the growth of M2, it shows some hints at why there was not a major recession until 2001.
It shows an accelerating pace of the growth in money stock.
Yeah, I’m still waiting for Jake to explain how is a bank run possible when using CDs.
I’m sorry but it is obvious that you do not understand my argument. I am not saying time deposits cause instability. On the contrary, I am saying that the current system is quite stable and that a 100% reserve system would function just the way the current system does, just more less flexibility. What was the crux of your last post? You seem to be making a large number of implicit assumptions that are impossible for me to respond to. Time deposits are currently not the same as the checking deposits but if modern checking accounts cease to exist then CDs will start to circulate like money. This is not unstable.
All I have seen are assertions that CDs will not be traded for goods and that banks can’t avoid making gross miscalculation errors. Both of these seem implausible at best. If there is some deeper argument that you are making please be explicit about it. Also, the graph you cited is meaningless without many further assumptions that I don’t want to get into.
You are saying that if checking deposits create instability, so do timed deposits. So, yes, you are claiming that timed deposits create instability (under the assumption that we are correct, of course). You are obviously not understanding our argument, that there is an explicit difference between the two types of deposits, and this difference is why one creates instability when loaned and the other does not.
But it’s not. You are claiming it’s stable based on its performance over the last 25 years, which is not the complete history of fractional reserve banking. Furthermore, there are reasons why this “stability” has existed, and it mostly has to do with the postponement of the crisis until recently. The crisis will further be postponed until the Federal Reserve ends its monetary expansion or trust is lost with the dollar.
No it would not. We have already been over this.
This is an argument you have presented as an assumption, given that you haven’t been able to prove it.
You are misunderstanding the argument. The argument is not that banks cannot avoid to make gross miscalculation errors. The argument is that loaning out money from checking accounts is inherently unstable. I do not support banning the practice; that would not be within the bounds of any free market. I am suggesting that there would be a natural tendency for the majority of banks to avoid such practices, since they are generally unstable.
You have not shown why the current system is unstable. You made an argument about volatile time preference and I responded that aggregate time preference is not volatile. If people are not taking money out of their checking account then de facto there is a demand for future goods. There is no distortion I can see. You also have not shown how checking accounts and CDs are different.
Also, saying the crash was delayed to today is an ad hoc argument. There is no evidence of gross misallocation during that period. You are using circular logic.
Basically what Jake is doing now is intentionally ignoring the special function of money in order to make his argument. His premise that anything can function as money is false so his argument is nonsensical. ##################
Anything can be recognized as money now according to Jake. He is taking us back to a barter economy in order to prove that time deposits are like demand deposits.
Well, if you ban current means of payments others will have to take their places. Like CDs.
so do these certificates of deposit involve deposits or not? maybe they are certificates of partial deposits? or certificates of not-deposits? sound good, eh?
Ridiculous strawman - or else you don’t understand what money is - or both.
Here. I have a $10,000 CD and I want to buy a pint of beer…
Banks would more than be willing to make that into $10,000 worth of $1 claims or any change you’d like it.
yes, just as pawn shops would be more than willing to take your superman comics collection worth more than £10,000 (to them) and give you 10,000 individual gold dollars if you’d like it. this does not prove that superman comics collections are money. rather it should be obvious that they arent presently money, but that the gold pieces you are getting for the superman comics collection are present money
How could possibly be relevant what is money now?