Your IBM shares are actually backed by the physical assets of the company. So no.
Your house is a physical commodity in and of itself, so no.
Yes, because they have inflated the money supply with printed pieces of paper backed by thin air.
Devaluing the money you have earned backed by your hard labor.
You are trying to support your argument with and apples to oranges comparison.
You have 3 transactions and you are trying to say that the two that are backed by or are actual physical commodities are exactly the same as the one that is backed by thin air.
I walk into a bank and make a time deposit, come back 1 year later and demand they repay me, but they can’t and they og bankrupt.
I walk into a bank and make a “demand deposit” (call loan), come back 1 year later and demand they repay me, but they can’t and go bankrupt.
What’s the difference? Why is one fraud and one not fraud?
Aso it is important to remember that it is not the legal tender laws which give money its value, it is its use as a medium of exchange - the influence the government has over whether or not a medium of exchange will become so is much less than most people would believe (as we know from Mises; T of M and C).
But the question is: why is irredeemable paper money, which has very little value as a commodity, accepted as a medium of exchange? And the answer is: because legal tender laws require people to accept it in payment of debts, and thus there’s demand for it on the market.
consider you have some wheat in a warehouse. You have certificates for that wheat, so you can claim it back any time. If you go and get the wheat out, and they don’t have it, they have misappropriated the wheat you deposited with them.
Correct. And the same would be true in the case of “demand deposits” if they actually were deposits, but they aren’t, they are call loans. It is not misappropriation for the bank to loan out the money you loaned to them, because that is what you agreed for them to do when you loaned it to them. The same as with a regular time deposit. The only way FRB can be fraud is if the banks pretend that they’re deposits, but if they recognize that they’re loans, there is no fraud.
Bank runs are a result of fraudulent activity.
Bank runs are the result of numerous creditors of the bank (people that made call loans [aka “demand deposits”] to the bank) calling in their loans all at once, and the bank not having enough money to cover all liabilities. It’s the same as when a broker gets a margin call. There’s nothing fraudulent in this. The customers who lose their money took a risk as creditors. They knew they were making a loan, and they knew it was possible that the bank would be unable to relay the loan. They chose to make the loan anyway because they thought the risks were outweighed by the rewards. FRB supplies a real demand. Customers can make time deposits, take risk, and earn interest. They can deposit their money in a money warehouse, and have access to their money without taking any risk, but they have to pay for this service. OR, they can make a call loan, which allows them the benefits of money warehousing, but without the fees and/or with some interest.
Your IBM shares are actually backed by the physical assets of the company. So no.
So the reason that it’s fraud when the bank sells paper money is because the paper money is not redeemable for something else?
So your position is that selling paper is a crime, unless that paper can be exchanged for something else?
Your house is a physical commodity in and of itself, so no
Paper is a physical commodity, is it not?
You have 3 transactions and you are trying to say that the two that are backed by or are actual physical commodities are exactly the same as the one that is backed by thin air.
Sigh, it seems you have no reasoning behind your position. Just these slogans “money from nothing,” “backed by thin air.” Where is it written that it’s unethical to sell pieces of paper unless they can be redeemed for other things? That makes no sense at all. And the paper itself IS something.
You are trying to support your argument with and apples to oranges comparison.
No, I’m trying to figure out why you think FRB is fraud. Apparently it’s just because it involves fiat money. And so now I want to know why fiat money is fraud in your opinion. Repeating slogans like “backed by think air” does not argue your case.
First off, of course a “time deposit”, that is, in historical legal principles, a loan, not being available on the date of redemption is fraud, just as much as the other case. This of course is the reason for the relatively forgotten “Golden Rule of Banking”, that says that you should not undertake maturity mismatching between your liabilities and your assets.
Yes, the value of money is based on its use as a medium of exchange, but no money can be forced to become the medium of exchange just through legal tender laws. Legal tender laws cannot force anyone NOT to accept some other commodity or even fiat money as money. Or, they can attempt to, but it will probably not last forever. This however is in my opinion secondary to our main discussion, which is apparently whether or not deposits are loans or not.
We can safely ay that terminology (be it judicial or just common phraseology) clearly has not helped us, since deposits and loans are both names for what we are referring to, I call them demand deposits, you call them call loans. The question is then what defines a loan and what defines a deposit? is there some difference? historically, yes. surely there also exists the idea that i could, for example, take out a classic regular deposit contract with a friend using my cigarette lighter. inevitable the terms of such a contract would stipulate that he should be able to give it back whenever i want, and cannot use it, even if he really wants to. We would have to consider this a deposit contract, not a loan contract.
An irregular deposit contract then, should follow the same principles. here we come to the heart of the matter, and that is that modern banking law and policy appears to view these wilfully named “demand deposits” as loans to the bank. This is where DeSoto hits hard in his book - he is dealing with the question of with whom availability lies in such a contract - but you seem to be saying that availability can be held by both parties simultaneously. Or, that it doesn’t matter, because if i claim my deposit they’ll pay me with someone else’s money. The principles however should apply to a bank with only one deposit (like in the case with my friend).
If they at any time are unable to pay me the money that I have the right to claim at any time, then that would have to be considered fraud, because in our contract we have stated that I can ask for my money back at any time.
Well, if it is a loan contract then I took on a risk and can’t ask my money back at any time, according to your statements. Or at least, I cannot consider it fraud when they cannot pay me back, even though the original contract (even in case of it being described as a “call loan”) says i CAN claim it back whenever I want. So I simultaneously can and cannot call it back. It is fraud if they can’t pay it back, but also NOT fraud because it’s a loan (that stipulates… that… I can demand it at any time???)… As you can see in this situation it appears our demand deposit/call loans are somewhat of a Schroedinger’s bank deposit. My demanding my call loan and it not being repayable is a sign of breach of contract (ie, fraud), but I am not allowed to consider it fraud because it is a loan and therefore i took on that risk, etc.
The only reason it happens in practice on any large scale is because of the “law of large numbers”. Chances are that if I want to take my money out, somewhere else there will be money available to give to me. This does not change the principles. It is also interesting how a bank could possibly avoid maturity mismatching in a situation when it has no idea what the maturities are on its deposits, because they don’t have one!
What is their evidence that the multiplier is false? I mean most modern mainstream econ teaches about it, let alone Rothbard. I know some people argue banks first make loans and then find the backing for it, which still means creating credit out of thin air.
Sigh, it seems you have no reasoning behind your position. Just these slogans “money from nothing,” “backed by thin air.” Where is it written that it’s unethical to sell pieces of paper unless they can be redeemed for other things? That makes no sense at all. And the paper itself IS something.
The only reason fiat money is “valued” at present is because there is the belief that the US government stands ready to back it with its debt. Fiat money isn’t valued due to what it is made out of but because it is widely accepted in transactions because of conditions the government has made favourable for it. I do not deny that banks which are able to accurately plan ahead cannot engage in fractional reserve banking on a free market, particularly by careful matchurity matching, but it still has fuck-all to do with the paper itself. The paper is just a claim on something else. Even for fractional reserve banks it is. Of course it isn’t unethical to sell paper per se. It is, however, to try and sell it as a claim on something else under false pretenses. That is a very different scenario.
It only becomes Fraud when you get people to actually use it as money, when it is backed by nothing.
You are telling people it is worth something when it is not. (the value of the paper it is printed on notwithstanding)
Ahhh… but the only way people will accept paper money for any other use than their ass is if they believe (correctly or not) that they can then redeem it for something of value.
In order to get people to accept the paper money then you have to tell them or at least imply it is redeemable for other commodities.
That is the whole point of money –so we can exchange the fruits of our labors without having to engage in direct bartering all the time
And if that paper is not directly backed by any physical asset or commodity you have just deceived people.
The deception is that you have gotten people to accept money that is inherently worthless because it is not backed by anything.
Whether or not they have willingly gone along with your Scheme is irrelevant. Once again, it just makes you a great con man.
First off, of course a “time deposit”, that is, in historical legal principles, a loan, not being available on the date of redemption is fraud, just as much as the other case
A borrower being unable to repay his creditor is fraud? No, it’s default.
Yes, the value of money is based on its use as a medium of exchange, but no money can be forced to become the medium of exchange just through legal tender laws. Legal tender laws cannot force anyone NOT to accept some other commodity or even fiat money as money.
They don’t have to. If you’re a borrower, and the State has decreed that your creditor MUST accept fiat currency, and that fiat currency is less valuable than any other currencies you could potentially use to repay the loan, you have an incentive to repay the loan in the less valuable fiat currency. Gresham’s law. Bad money drives good money out of circulation. But anyway, as you say, this is tangential to the issue at hand.
The question is then what defines a loan and what defines a deposit? is there some difference?
Certainly. A deposit is a bailment.
And a loan is money (or some other property) which the lender expects to have returned to him in accordance with whatever conditions the contract stipulates.
surely there also exists the idea that i could, for example, take out a classic regular deposit contract with a friend using my cigarette lighter. inevitable the terms of such a contract would stipulate that he should be able to give it back whenever i want, and cannot use it, even if he really wants to. We would have to consider this a deposit contract, not a loan contract.
Sure, this is a deposit, a bailment concerning money.
An irregular deposit contract then, should follow the same principles.
That’s the whole thing. It isn’t an irregular deposit contract. It isn’t a deposit contract at all. It is a loan contract. If there is any fraud in FRB, it lies solely and only in the fact that what is actually a loan is deceptively named a deposit. But of course this problem could be remedied, without changing the operations of FRB at all, if the banks simply called the thing what it is.
you seem to be saying that availability can be held by both parties simultaneously.
No, availability (if you mean “who has the money”) lies solely with the bank. What the customer has is the right, per the call loan contract, to call in his loan at any time. That is what he’s doing when he writes a check or withdraws cash from a branch or an ATM.
Or, that it doesn’t matter, because if i claim my deposit they’ll pay me with someone else’s money.
That is how ALL banking works. It is not fraud for a bank to pay back a creditor with someone else’s money. If I loan a bank $100 on a time deposit, and a year later they repay me with someone else’s money (i.e. not literally the same dollar bills I gave them), is that fraud? Of course not. Money is fungible. No creditor cares whether he gets paid back with the exact same bills that he loaned. The bank is not obligated to pay him back the exact same bills that he loaned.
The principles however should apply to a bank with only one deposit (like in the case with my friend). If they at any time are unable to pay me the money that I have the right to claim at any time, then that would have to be considered fraud, because in our contract we have stated that I can ask for my money back at any time.
The obligations of the bank toward the call loan lender are the same as the obligations of the bank toward the time deposit lender. The bank in both cases is within its rights to take the money it was loaned and do whatever it pleases with it. The bank in both cases has an obligation to repay the lender at the designated time: either at the end of the term, or when the loan is called in. A failure to meet this obligation is not fraud. It just means the bank has defaulted. Default is not fraud.
Well, if it is a loan contract then I took on a risk
Yes
and can’t ask my money back at any time
No, you can ask for your money back at any time. That’s why it is a call loan. The obligation to repay comes into effect when the creditor says it does, as opposed to at a predetermined time in the future. That is the only difference between a time deposit and a call loan.
I cannot consider it fraud when they cannot pay me back, even though the original contract (even in case of it being described as a “call loan”) says i CAN claim it back whenever I want
Again, default is not fraud.
So I simultaneously can and cannot call it back.
You have the legal right to call back the money, the bank has a legal obligation to give you the money. But what if the bank CANNOT give you money? That is default, not fraud.
It is fraud if they can’t pay it back
No, it’s default - as with any other loan. Do you think all defaults are frauds?
My demanding my call loan and it not being repayable is a sign of breach of contract (ie, fraud), but I am not allowed to consider it fraud because it is a loan and therefore i took on that risk, etc.
I hate to keep repeating myself, but when a borrower is unable to repay a loan, he is not guilty of fraud. He is in default.
The only reason it happens in practice on any large scale is because of the “law of large numbers”. Chances are that if I want to take my money out, somewhere else there will be money available to give to me. This does not change the principles. It is also interesting how a bank could possibly avoid maturity mismatching in a situation when it has no idea what the maturities are on its deposits, because they don’t have one!
All commerical banking is about managing risk. In the case of time deposits, the risk to be managed is the risk of default on the loans the bank makes with the money lent to it by its customers on time deposits. If too many default, the bank will be unable to repay its customers whn the terms of the time deposits expire. In the case of call loans, there’s that same risk of default on the loans the bank makes with the money it borrowed on call loans, and there is also the risk of “margin call” (aka bank run) where all the call loan lenders call in their loans at once. If a bank fails to manage its risk property, it may default - but it is not thereby guilty of fraud.
It only becomes Fraud when you get people to actually use it as money, when it is backed by nothing.
Can’t people use whatever they want as money? Why does money have to be backed by something for it to be legitimate?
You are telling people it is worth something when it is not. (the value of the paper it is printed on notwithstanding)
Again, value is subjective. If people agree that a paper currency is worth something, then it is worth something. Your opinions notwithstanding. But in fact, I’ll bet you don’t even really believe it’s worthless. If you do, how about you mail me all your federal reserve notes? They’re worthless, right?
Ahhh… but the only way people will accept paper money for any other use than their ass is if they believe (correctly or not) that they can then redeem it for something of value.
Do you think people might accept a paper currency in payment because they know they can go to the store and buy things with it? Do you have a job? Are you paid in FRNs? Why do you accept them? Is it because…they have value insofar as you can buy thing with them?
That is the whole point of money –so we can exchange the fruits of our labors without having to engage in direct bartering all the time
Correct, and paper money can be and IS RIGHT NOW being used for exactly that purpose.
And if that paper is not directly backed by any physical asset or commodity you have just deceived people
So when you accept your paycheck, you are being deceived? You don’t know that the paper money you’re paid in is irredeemable?
The deception is that you have gotten people to accept money that is inherently worthless because it is not backed by anything
Again, value is SUBJECTIVE. Nothing is “inherently worthless” or “inherently valuable.” Why is gold good as money? Is it “inherently valuable”? Is “VALUABLE” stamped on its molecular structure? No, it is valuable because people agree that it is valuable.
…by the way, you do realize that FRB banks operating in a free market would be issuing paper notes which ARE redeemable for a commodity currency, right? Not that issuing irreedemable paper money is wrong or should be illegal, it’s just that it cannot compete with hard currencies in the absence of State intervention such as legal tender laws.
Its important to point out that this article isn’t a Steve Forbes article…I know some may be getting that impression. His website has a ton of writers from all different schools, but mainly free market.
It’s very easy to conduct an argument on your terms and only on your terms. What borrower and what creditor? Listen to people here. They reject the very notion that the depositor is a creditor so you are not addressing them. He is depositing money for safe keeping and other financial services. He is holding money. He is not investing it. Big difference according to Misesian/Austrian theory of money and credit. Now you have to prove your initial premise and not assume it.
What borrower and what creditor? Listen to people here. They reject the very notion that the depositor is a creditor so you are not addressing them. He is depositing money for safe keeping and other financial services. He is holding money. He is not investing it. Big difference according to Misesian/Austrian theory of money and credit. Now you have to prove your initial premise and not assume it.
You’re right, it all boils down to whether you view a “demand deposit” as a genuine deposit (bailment) or as a call loan.
What I am saying is that it is legitimate for a bank to take call loans. I call this practice fractional reserve banking.
If you want to say that fraction reserve banking is when a bank takes bailment of money, and then misappriates it, well then fine FRB is fraud.
But then what about what I’m talking about! What if a bank takes call loans? Call that whatever you want, call it SuperDuperCallLoanBanking. It doesn’t matter. Is or is that not legitimate? I say it is, for all the reasons I’ve put forth.
“If ABC Bank prints up banknotes that say 'ABC banknote” how is that counterfeiting money? They aren’t pretending to print banknotes, they are printing banknotes. There is no deception here." and “Again, explain why a bank printing money is counterfeiting”
ABC Bank isnt printing banknotes and calling them ‘ABC banknote’ they are calling them physical gold where you can exchange it at the ABC bank. If ABC bank wants to make fiat currency i have ZERO problem with it. I believe in a free market there is a market for a fiat currency.
what is your definition of couterfeiting then?!!?!? this is dictionary.com definition of counterfeit -
made in imitation so as to be passed off fraudulently or deceptively as genuine; not genuine; forged: counterfeit dollar bills.
If a bank prints a note that says its worth one gold ounce and it doesnt have that gold ounce to back it up then they are committing fraud.
ABC Bank isnt printing banknotes and calling them ‘ABC banknote’ they are calling them physical gold where you can exchange it at the ABC bank. If ABC bank wants to make fiat currency i have ZERO problem with it. I believe in a free market there is a market for a fiat currency.
what is your definition of couterfeiting then?!!?!? this is dictionary.com definition of counterfeit -
made in imitation so as to be passed off fraudulently or deceptively as genuine; not genuine; forged: counterfeit dollar bills.
If a bank prints a note that says its worth one gold ounce and it doesnt have that gold ounce to back it up then they are committing fraud
What you’re calling fraud (failure of the bank to redeem banknotes for gold) is default.
A customer walks into the bank with 100 oz of gold. He makes a call loan to the bank. The bank can do several things, it can give him a checkbook, it can simply enter credits into an account, or it can issue him banknotes. What are these banknotes? If the customer presents them at the bank, is his withdrawing his deposit? No. He is calling in his loan, which the bank must then pay on demand (i.e. give him the gold). If the bank cannot pay, it is in default. It did not committ fraud.
What if the customer who got the banknotes from the bank spent them at the grocery store, and the grocer comes in to redeem them at the bank? The same thing as before, except the grocer is now the one calling in the loan. And again, if the bank cannot repay (give him the gold) it is in default. It did not commit fraud.
The same with checks. If the customer writes a check to the grocer, and the grocer takes the check to the bank to cash, he is calling in the loan.
Whatever the details, a failure of the bank to redeem for gold is nothing other than a default on a loan, which is not fraud.
no its not default. defaulting is when you cant make a scheduled payment so you default on the loan. When they give out notes they dont care if they ever get them back. So they will inherently always because they are writing notes that they know they cant pay back.
whats the point in calling it a call loan or demand deposit. we are talking about the same thing here.
The fact is they are claiming that one of there notes is x amount of gold that they dont own. they dont have. That doesnt exsist. They have fraudulently declared that one of there notes is X amount of gold when it is actually just a piece of paper. They have lied. They have counterfeited. They have committed fraud.
You are stuck in the idea of giving banks or anyone that authority to counterfeit. Think if money was something else. What if money was land? what if money were homes or boats or cars or eggs or cigarettes or albino bulls. Think about what they are actually doing when they give out something that isnt theirs. Think about the markets that the market the goods actually compete on. Its not right.
no its not default. defaulting is when you cant make a scheduled payment so you default on the loan.
So if you fail to make a scheduled payment it’s default, but if you fail to make a payment on a call loan (unscheduled) then its fraud?
So when a broker fails to meet a margin call (exactly the same as a bank failing to repay a call loan) he is guilty of fraud?
When they give out notes they dont care if they ever get them back. So they will inherently always because they are writing notes that they know they cant pay back.
They don’t “know they can’t pay back.” If they knew that, they wouldn’t do it. They don’t WANT to go bankrupt. They know that there’s a possibility that they wont be able to repay the loans, and so they manage that risk.
If I borrow money from a bank knowing there’s a chance I won’t be able to repay it, am I committing fraud?
The fact is they are claiming that one of there notes is x amount of gold that they dont own
When a corporation issues a security (borrows money), that piece of paper represents money which the corporation does not own. It represents money which the corporation plans and hopes to own when it comes time to repay the person holding the security. Did the corporation commit fraud?
They have lied. They have counterfeited. They have committed fraud.
Ok, so who is the victim of this fraud?
Also, would you define what you mean by fraud?
Here is a legal definition I found through Google, I don’t know if this is what you mean by fraud:
A false representation of a matter of fact—whether by words or by conduct, by false or misleading allegations, or by concealment of what should have been disclosed—that deceives and is intended to deceive another so that the individual will act upon it to her or his legal injury. Fraud is commonly understood as dishonesty calculated for advantage
You are stuck in the idea of giving banks or anyone that authority to counterfeit.
I fail to see how FRB involves counterfeiting. The banknotes can be exactly what they say they are: securities for call loans. That it is possible for the bank to default on this obligation does not make the banknote counterfeit. By that logic, the corporate security I mentioned above would be counterfeit because it’s possible that the corporation might default.
Suppose a gambler at a casino makes 5 bets on 5 different tables, and the casino let’s him make these bets without actually putting down the money on the table. He knows that if he loses all 5 bets, he won’t be able to cover the loss. He could cover, say, 4 losses, but not 5. Does this mean that he committed fraud?
I would say the gambler did not commit fraud. The casino knew very well it was possible that he might not have the money, and they decided it was worth it to let him make the bet anyway. No one was deceived. And if the gambler loses his 5 bets, he will owe the casino what he owes them. If he doesn’t have the money, then he is in default. The casino can come after him for whatever it can get.
So, say a bank and a depositor agree to these terms:
The depositor will be able to request any amount up to 80% of the entire deposit on demand, with the entirety available on demand 5 years after the date of the deposit. I don’t think this would expand the money supply, and allows a portion of savings to be used for investment.
Whether contracts like these would be commonplace is unkown to me, but would they at least be legit?