This is exactly how FRB works. You probably have money in a bank like this right now. It’s not stupid at all, it does have risks. The 60 day window is only designed to give the bank ample time to convert assets in the event everybody wants their notes converted back to gold. Generally, all redemption requests will be immediate. Do you not see that? What if I said the bank was holding 99.99% in reserve…do you see how from the depositor point of view he would almost certainly receive his money on demand instead of having to wait? So whatever the ratio is, is unimportant once we have established that it is not fraud.
Scineram answered this. The acceptance of these notes is up to people who can decide to accept them or not. Why should you be the one deciding for them?
- I do not believe you are the owner of the bank of Scineram, please let him speak for himself
- I am suggesting nothing, I am asking a question, is the gold that the notes represents in the bank, or is it in two places at once?
All contracts are promises to do things. That is all they are. If you are trying to discuss what can be contracted then I think that is a different topic. Does the contract I describe seem unenforceable in your mind? It seems fairly straightforward and quite commonplace in mine. Are loan contracts enforceable in your world?
It seems pretty clear that the bank now owns the gold since they are authorized to do whatever they want with it, and the depositor has a claim to be redeemed in gold or silver based on the terms of the contract. Its like loaning someone money, once you loan the money you don’t own it anymore, you just have a claim to be repaid.
Well, Scineram was responding originally to a question that was asked of me, so I was returning the favor since we think fairly much alike on this issue.
Gold, as we understand physics now, can not be in two places at once. What the bank could do is loan the gold to someone else and then replace the gold assets with loan assets or they could sell all the gold and buy silver or about any combination in between. So either the gold is in the bank or it has been converted into other assets.
Ok, in my example…
Bob wants Gold, Bank has Loans, Bob does not need an IOU, he needs the Gold that is agreed to be represented on the note, are you claiming that it is an acceptable business practice to create unredeemable notes? We have that system now, it was authorized by the Federal Reserve Act, making FRN legal tender for all payments…
It is not serving too well…
I didn’t read the whole thread, but if Bob is fully aware that the bank has loaned out his gold, and he has agreed to the risk that won’t be able to redeem his notes, then is it still unacceptable? If he thought it was a warehouse, then either there was fraud or ignorance.
Comparing the system now is whole other issue, I thought we were talking about fractional reserves under free banking (no central bank).
Bob received bank notes from a customer and is looking to redeem them
Bob goes to the bank and redeems the bank note for gold. Why is that ruled out as an option?
Okay. You are a fraudster defending a system you don’t even fully understand (or pretend not to - i.e. you’re playing dumb).
You want people to accepted your unbacked paper as if it were money - cause you are a fraudster. And you don’t understand that in a real free-market competition in fraud will wipe you, and the other fraudsters, real quick.
The system you describe is inflationary. The gold is loaned and bank notes are created, notes which unsuspecting people would (you hope) accept for a while.
But it turns out that unless a gang of criminals force people to accept partially backed notes (legal tender laws) people don’t accept notes which can’t be redeemed at face value. Well, maybe some masochists do, but the ordinary people won’t.
Because the gold has been loaned out.
Presumably this note indicates that it is from a fractional reserve bank and Bob accepted it. He could also have insisted on a warehouse receipt.
The note will say I will pay the bearer on demand A units of gold. The claim is transferred to whoever recieves the banknote. There shall be more depositors only a fraction of who will present notes for redemption so hopefully I will always have enough reserves.
The note can be redeemed at face value.
The money is backed 100% as a matter of fact. It simply uses a mix of assets instead of being just one.
There are no “unsuspecting” people since the contract is clearly laid out.
You have not made a single coherent agruement against the contract.
And if no gold was loaned out but it had all been converted to silver, is that still fraud too? So to meet demand requests I have to convert silver to gold, is that fraud if I sell silver and buy gold to meet demand requests. It would seem to me the only legitimate concern is does the bank meet its obligations under the contract and as a part of that does the structure of the bank make it impossible to convert one asset to another to meet redemption demands?
Does is seem impossible that the bank could sell silver to buy gold in order to fill redemption requests?
Does is seem impossible that the bank could sell loans in its portfolio to buy gold in order to meet redemption requests?
Only 100 notes/ounces can be redeemed (if we stick to my example of 1000 ounces deposited - 900 lent , 10% reserves). The other 900 notes (assuming 1 ounce notes) can’t.
No it is not. And it’s not really money of course, but IOUs. In the scenario I described, the money supply was increased by creating notes allegedly worth 900 ounces of gold which can’t be redeemed right now, but can magically be spent right now.
No. You are confused - or playing dumb - or a mix.
I’m not discussing contracts but basic economics.
Well, if you can do that then there’s no problem. But of course you can’t because in the scenario I’m talking about the gold has been LENT not converted to another liquid asset.
No, but that’s not what we are discussing.
No, but it’s irrelevant to the topic at hand.
that once again, yes, you, Max, were caught lying through your teeth. If you ever want people to take you seriously, I suggest you start being honest. The 1000 warehouse receipts (banknotes) that were given for the 1000 pieces of gold are in no way the same as the fractional-reserve notes we have now. Ergo, false analogy. Ergo, you lied. Period.
Yes, you are.
Yes, they do. Why? Because you never mentioned that when you wrote it in the first place. Ergo, they’re warehouse receipts. Deal with it.
Nor can more than one person have exclusive title to the gold. But THAT is what FRB gives. Since such is not logically possible, FRB is rendered fraudulent.
You’re gonna be talking past each other forever.
One side: If a note is not backed by 100% reserves, it’s fraud
Other side: It’s not fraud if there is full information, an understanding that redemption is not guaranteed
I don’t see how it can be fraud if there is full information – and market discipline will limit fractional reserve expansion – but the other side will just define fraud differently.
So under a free banking system couldn’t you have stores that say “warehouse receipts only” just like “cash only” today? So what’s the issue?