I understand the rational behind full reserve banking, but would banning fractional reserve banking be right? What if someone wants their money to be lent out with only fractional reserves kept? Wouldn’t banning fractional reserves be similar to occupational liscensure or drug prohibition? There are alternatives that could help, including contract law. For instance, banks could be required to disclose the reserves kept on hand at all times and what they are investing a person’s money in.
No one advocates banning Fractional reserve banking as such. What people advocate is banning fractional reserve banking which claims to be 100 percent reserve banking, which the current system does.
Ah…that must be FUD then. Personally, I don’t mind fractional reserve banking in a free market, as long as people know what they are getting into, which means more disclosure than there is now. I think if banks had to disclose and there was no FDIC or Federal Reserve, banks would be forced not to go crazy like they have in the past. I think most people know their money is being lent out, but just not to what degree that it’s being lent out.
neodoxy - completely disagree with you. Im pretty sure a lot of us advocate banning fractional reserve banking, and our banking system doesnt claim to be 100% reserve banking.
I dont think fractional reserve banking should be a subject where we should be in disagreeance either. FRB is theft therefore should be banned. No one has a right to devalue your currency if you dont agree to it.
As for the original post - As i said above, no one has a right to get higher returns at their bank at the expense of someone else’s money (higher returns would be the only reason anyone would want to have a bank loan out their money).
There are some ways that a bank can practice fractional reserve banking legally. If they told their customers that they are a fractional reserve bank, and the currency is only used by other people that use THAT fractional bank. What that means, Bank of America can create their own fiat money and anyone who wants to accept that note can and exchange it at bank of america for their preferred form of currency. Bank of America could also go into agreement with ALL major banks that want to practice fractional reserve banking and have a single fiat currency so that the currency can be exchanged at ANY bank. I dont think this would really work because i think most people would exchange their money for at the bank for their preferred currency. It could work if their fiat currency acted more like a share and provided the holder of the currency returns.
Or another option, if all the banks got together and purchased ALL of a certain commodity then they can use that. Example, if the banks got together and bought ALLLL of the silver in the world they could use that as their currency and loan out. Though that would be pretty impossible too.
The point is as long as their is a single person you doesnt want their currency devalued then it is illegal. If they want their money loaned out, then they are going to have to deposit their money for a fixed period of time ie a CD.
Fractional reserve banking in and of itself isn’t the problem. It is the fact that there is a monopoly where all people must accept fractional reserve banking. In a free market if people were willing to have fractional reserve banking it would be perfectly fine, people should be free to choose what kind of banking they themselves want, but it becomes a problem when the fractional reserve bank forces everyone to use their bank notes.
umm yes that what i said, but it is not fine to use a currency where there is at least one person who doesnt want it. So you cant have a gold standard, where people use gold as money, then practice FRBing with gold. You are inflating the price of gold and stealing wealth from people that didnt agree to it.
I’m not sure if I’m understanding you correctly Grant. This is how I see things. Bank A can be on the gold standard, Bank B can practice FRB with gold, and so on and so forth. As long as no one bank attempts to force anyone to use their currency then no problem arises. If Bank B wants to practice FRB with gold it doesn’t hurt Bank A, both banks would have different currencies, and so they won’t be harming each other. You may understand this better than I, if so please break it down, showing exactly how Bank B will be inflating Bank A’s currency.
what happens is the fractional reserve banks are actually ‘creating’ gold out of thin air. When people put money in a bank that they can take out at anytime then the gold is in the market. if banks loans out that gold prices rise because the market believes their is more gold out there then there really is.
if you deposit 1 oz of gold. the bank loans out that ounce of gold to someone and he buys product ‘x’ with that loan. Then you buy it right after him the price rises because there is a lower supply of that product and a greater demand for that product.
Now prices arent going to really change immediately, nor would they probably change for one less of a product, but someone is going to be hit with that inflation. If prices change then the consumer gets hit with the inflation. If prices dont change then the producer gets hit with the inflation.
So you just price competed with someone with your own money. It might not sound like a big deal when compared to one ounce of gold, but multiply that across the whole world and every bank and we have quite a bit of inflation.
From my understanding of your post, you are saying the following happens, resulting in Bank A being financially damaged.
Bank B who uses FRB with gold. Loans out their bank notes (which represent a certain amount of gold).
Loaning out the bank notes creates the illusion that there is more gold than there actually is.
Illusion results in the value of gold dropping.
Devalued gold damages Bank A because Bank A is 100% full reserve gold.
The 2nd point sounds iffy. Bank B, after printing out more notes for each unit of gold, will decrease the value of their currency due to their being the same amount of gold backing more currency. It’s certainly true that the printing of more money may temporarily create the illusory sense that there is more gold. But it seems that it would be just that, temporary, in that once it is realized that Bank B still has the same amount of gold, people will realize that there isn’t more gold and prices will go back to normal. Leaving Bank A just as it was before, while Bank B’s currency will still be devalued since they have the same gold backing more money, possibly even resulting in Bank A being better off than they were before.
“Im pretty sure a lot of us advocate banning fractional reserve banking, and our banking system doesnt claim to be 100% reserve banking.”
It says that all demand deposits could be withdrawn in cash at any point in time. This is fraudulent and something which only a 100 percent system could do by definition.
A bank in and of itself has no way to print more money, people have to accept money substitutes. If the money substitute claims to be redeemable only at that bank, or not depending upon what their reserves are looking like, then what is illegal about this? Banning fractional reserve banking which was open with its constituents is unlibertarian because it denies open and voluntary human behavior.
“The point is as long as their is a single person you doesnt want their currency devalued then it is illegal.”
Then you’re going to ban savings and the mining/discovery of more gold?
well the bank gets damaged just like every single person. So because bank B is loaning out more gold then they own that means there is more gold in the market. The actual gold deposits is irrelevant. They can loan out a trillion dollars against 1 gold oz and just be a bank that practices 0.0000000000001% fractional reserve banking. Maybe using bigger numbers is easier to see how it is inflationary. If you can see how that is inflationary then a single extra dollar is inflationary.
Its not temporary, since they will be doing it 100% of the time. Then they just keep moving the money around where prices havent inflated and start using their inflated gold against an uninflated gold economy. They start injecting it in that economy and then move out once they lose their purchasing power to ANOTHER spot thats doesnt have inflated gold and injects that economy. The last economy goes bust because businesses opened with that large increase of capital flowing through the town. It just keeps going around the world building up economies then moving out when profits slow, all while seeping wealth from the previous economies.
1 .its not fraud because you can. Goto the bank and prove me wrong then. The fed can print enough money to cover every bank and every deposit. Once the people realize that it is ok they put the money bank in and the fed reclaims what it had printed.
We are using ‘print’ like its not just hitting enter on a computer keyboard. They can ‘print’ or hit enter. Im comfused about everything after the first comma.
*last sentence of #2 - how is it unlibertarian to ban theft? If you make an agreement with someone else to take my money it might be voluntary to you two, but its not to ME!!!
how does savings devalue your currency? savings would increase your buying power because there is less gold on the market flowing. Discovery of more gold shouldnt be banned either. it costs money to mine it, pay for the miners, coin it, and then sell it. If mining for gold was so cheap and we can sell it for so much more we would all be gold miners. second point, discovery of gold doesnt mean there is anymore gold in the world. If everything was privitized that gold in the ground is own it just isnt being used yet. Even if everything wasnt privitized if we accept gold as currency we go in with the understanding that there is more gold in the earth not on the market yet.
While in our world it is not the case that everyone could just get all of the money, freshly printed or not, from the banks. You are right so long as the fed or FDIC exists.
I’m confused about everything that you said before the paragraph here. My point is money substitutes which are used by banks don’t just magically appear other places as money, the money substitutes have to be accepted in order to be worth anything. I can print of neodoxian dollars and have anyone accept them… Well fine maybe I could because that sounds cool but you know what I mean.
Money devaluation is not theft, you are choosing to use the currency. You do not have to use the currency (in a free market), you can trade entirely physical goods or use another currency. The value of money changes naturally. This is basic economics, and unless you bring about the ERE you cannot stabilize the prices of goods.
When I mentioned savings I was really associating it with its sister dissaving which has the same effect as inflation except (usually) following deflation, and everything else you said was frankly wrong. The market doesn’t care whether or not new gold cost many to be mined or not, it still results in inflation of the money supply as soon as it is traded as currency, and according to you this is stealing. The market isn’t effected by how much gold is in the world, only how much gold is on the market and it will therefore fluctuate in value, both on the goods and the money side of the table. Sorry, but this is not theft because you are not entitled to the goods which money grants you. The market is a voluntary phenomenon.
Bank B can’t loan out more gold than it has because it simply doesn’t have it to lend out. The only way Bank B could cause a distortion of the value of gold is to print out bank notes, putting those bank notes into circulation, and even then the distortion would only be temporary.
Who are “they”? In a free society, who/what is stopping you from issuing 1,000 times more GrantNotes (gold certificates) than the amount of gold you owned?
Perhaps you need to stop thinking of banks as firms with special privileges of any kind. There’d be no entity to grant them.
serpentis - yes they can. and they will. Thats what a free market is, the people get to choose and create their own money, but are we goingn to create the money? or the banks? if fractional reserve banking is legal, without a central bank, they are their own central bank. They will make their own notes and transfer money as they see fit. Most my family work in the banking sector and everytime i bust their balls about fractional reserve banking they cant even fathom how a bank could operate without loaning 10:1. I dont see how in the world yall would think they would just magically start having smarter business practices? Thats the ‘proven’ system, thats the ‘proven’ way to help the economy, so why would they change? When the banks fail and they will there will be streams for another central bank because of free market ‘failures’.
and IT SHOULDNT MATTER if it is temporary or not. Why does ANYONE have the right to devalue your currency?! Thats theft, thats immoral. Why would you support a practice like that? How do you propose small business owners that are struggling to manage prices when the money supply constantly changes?
“Why does ANYONE have the right to devalue your currency?! Thats theft, thats immoral. Why would you support a practice like that? How do you propose small business owners that are struggling to manage prices when the money supply constantly changes?”
And thus we have a supposed libertarian justification for an organization supporting price stabilization…
not suggesting they get all the money, but they will be skimming off local exchange rates. They will be creating booms and busts. If you think it is alright business practice then what is the limit? Why would a 99% fractional reserves be alright, but a .0000000000000000000000000001% be wrong (hopefully you think that should be wrong).
This whole money substitute is still confusing me. are you commenting on when i said exchange a bank’s note for another money substitute or are you making your own statement?
How is money devalutation not theft? So i can just counterfeit my own money then? Im going to assume your answer will be no, but whats the difference? If devalutation of currency isnt theft then creating your own money that looks like everybody else’s currency isnt theft. If i printed free market ‘neodoxians’ that everyone uses, to buy a $50 million dollar home then how can you morally stop me from doing it? They guy selling the house wants it because he wants the $50 mil and i want the house. You would just be getting in the way of two people peacefully doing business with each other. You might claim they have a copyright on the look of that currency. because thats your only stance, protection of IP.
what about the bank that does own the rights to print that money? how can you consider it a crime, if its not theft, to keep debasing your currency until its worthless? Until they have flooded the market with so much currency that its literally worthless. I think your only position on this would be they would go out of business and the better practicing banks would stay in business. But why would it matter? the whole time while the bank was debasing their currency they were exchanging it for the next currency or other investments.
Money does change naturally, but its not natural to expand the money supply.
thats not inflation, thats supply and demand. The saver that starts spending was just holding their money until goods hit the market they were willing to buy. Thats mainstream economics that defines inflation as a rise in prices. They earned that wealth and they get to spend it anyway and at anytime they see fit.
EVERYONE that would hold gold as money KNOWS their is gold in the ground still. They are accepting that. The banker that loans out all he wants isnt dealing in scarce resources like the miner is.
I NEVER said that mining gold is stealing. how does that make any sense? i SAID the gold has been there since Earth for anyone to mine. So how are you creating money out of thin air (like fractional reserve banking) when you mine a SCARCE resource out of the ground that has been around since before man? The market doesnt care how much gold is in the world? look at oil prices when oil starts ‘running low’, what do you think will happen to gold prices if we realized we have mined it all? The fact is mining is a process and hit enter on a keyboard happens in a blink of an eye.
I saw a video today with Paul Krugman and he said virtually the same thing that you just said. If you start quoting krugman you are wrong.
starts around 1:30 - ‘there is no promise a euronote does not have a promise on it that it will have a fixed purchasing power in terms of goods’.
z1235 - ALL banks that practice fractional reserve banking is ‘they’. i could, but no one would accept grantnotes, but that doesnt mean they wont accept jpmorgannotes, BoA notes, or whatever. And nothing would be stopping them (ANYONE whose currency is accepted) either. If you allow them to do it, then you ARE granting them to do it. Why in the world would they not do it if their customers want them to do it?
How am i granting special privileges to banks? I’m advocating the stoppage of THE special privilege! I dont get this. When did everyone jump on the fractional reserve banking bandwagon?
lol you cant be serious… are you? 100% reserves is the price stabilization. where do you think i would be supporting any organization for price stabilization? HOW is price stabilization bad??? thats what we want! the best way to do that is not screwing with the money supply!
and thus we have a supposed libertarian justification for an organization supporting the confiscation of person property.