The demand deposit should be named “you may get your money on demand, but maybe not”.
Really? Then why is it that from Ancient Greece, to Rome, Catalonia, Florence, Amsterdam all the way through until now that whenever banks have practised FRB they’ve failed, due to very the process that FRB sets in motion.
Which contract would this be? FRB is, by defintion, the use of money in demand deposits for the granting of loans.
If you sign a contract with your bank that specifies they hold your money, and there is a period of time where they are not holding it, then this is a violation of the contract, whether or not the bank is able to pay when you actually request your money.
If one was to have a contract with a storage facility which specified that the bank may sometimes not hold one’s money, and indeed may speculate in loans with it, then this is not a demand deposit - one is making some sort of loan to the bank.
But that’s the whole point is it not? Money is highly fungible, once you give your money to the bank you relinquish those individual pieces of gold or fiat money. Now, what you have is nothing but a claim to the same amount of whatever good you deposited, in other words you have a right to the the availability of goods of the same quality and quantity as those you deposited. So, at the end of the day that is what it comes down to, whether or not the bank, or warehouse, can honour all of their duties to satisfy the claims the depositors have for whatever the good in question is. So essentially, the moment that the banks reserves fall below the level of their obligations the bank has commited fraud.
I don’t know why you even bother disucssing this matter. Scineram and I, acting independently ,but with the same logic have routinely and utterly destroyed the Austrian Cult myth of FRB. You are like a prize fighter insisiting he is ready to fight after he has already been counted out.
I wll summarize:
The Austrians FRB cult has no clear definition of what a time deposit is, ie how much time in delay of redemption equals a time deposit.
Time deposits can be used to purchase things thus not eliminating the possibility of “dual” use.
There is no requirement for banks to offer demand deposits and most banks do not offer them now contrary to what the Autrian cult preaches.
Banks that hold fractional redeemable reserves are not inherently insolvent, contrary to what the Austrian Cult preaches.
The bank can use other assets to back it’s liabilities besides gold, despite what the Austrian cult preaches.
So move along folks nothing to see here, step over the dead corpse of Austrian cult FRB if you must.
Because this is false. The vast majority failed not.
The contracts never say they will hold your money.
Yes, availability when requested.
Totally.
Does not follow. They breach contract when reserves are insufficient to pay actual demands, which is called a bank run.
A few quotations from here:
Now, I’m not going to spoon feed you anymore, if you want to know more you can read the book yourself, needless to say, however, the book covers many more failures throughout history. As for the vast majority not failing? Well, that depends what we’re comparing it to, since a full reserve banking system will have no bank failings as such, much less systematic bank failings. Which are indicative of FRB, since it initiates the very process ( the business cycle) that causes large withdrawals of cash, when it does not have (By definition) the sufficient liquidity.
- It cannot be assured that the requests will not exceed the reserves on hand
- Especially since requests for money will increase in the bust phase of the business cycle, a cycle that results from fractional reserve banking
- This is granting your manipulation of the word “availability”, which is dishonest, since the fact that everybody has a right to the money which the bank is storing, the bank has the duty to make this money available, a duty it cannot fulfil with less than 100% reserves.
No, they breach the contract once the funds are not available to everybody. In other words, the moment obligations exceed reserves.
if we are talking about demand deposists, then they certainly do say this
to have money available on demand at any possible time the money must be there at all times. but frb loans out the money, so its not there at all times.
the fact that FRB can hide this, by having some reserves on hand to service withdrawal demands of a portion of its customers does not excuse the crime, it merely obfuscates it.
the scam is that FRB supposes that it can avoid breech of contract from being discovered - "aha, you didnt keep my funds on hand , but at some point had lent them to others’ , even though, by appeal to the strict logical entailments of the demand deposit contracts , they cannot be honoring all their depositors contracts, because they have only enough funds on hand to honor some percentage of the depositors contracts. its really not that much different from a thief, stealing some property, but being dressed up as a police at the time, so people watching ‘dont know’ that a crime has been committed. its only discovered long after, when the disguise has been discovered. its is not the discovery that makes the crime, it is the crime.
yes, if we agree that the money is fungible that the depositer isnt insisting on his particular coins but rather ‘just coins’ be available on demand then your paragraph seems to have force.until we recognise that even if we give up the requirement for it to be those particular coins that are returned to the depositor, the bank must still maintain sufficient coins(other coins , but to the same value) on hand, to meet is on demand obligation. i.e. “yes, the coin which you had scratched we transferred to someother location (who cares where!), but in order to honour our contract with you a coin with a quite different scratch was sourced and kept aside as being available for you at your future request.” as example.
true as per my paragraph beginning ‘the scam is.’ etc.
Once again the FRB fiction that banks are offering demand deposits. The banks are not doing this and no reason to think that all banks in a free society will offer demand deposits. Part of the Austrian myth.
again you have failed to coin a term to describe the kind of ‘deposit’ that you believe they legitimately offer. we know its not time deposit, you’ve told me its not demand deposit (though people i know with money in their bank accounts would be horrified to hear this), so what kind of accounts do they have?
you could be famous! please, coin a phrase!
I 100% agree.
A time deposit is a deposit in a bank which is collected on an exact date. It is more correctly called a loan. There will be a return on it (or a relative return), otherwise one would surely deposit one’s money where one could access it, or look after it onesself.
A time deposit is a loan to a bank. One cannot use warehouse receipts backed by time deposits because time deposits aren’t necessarily there. They are usually out doing something productive. To trade notes backed by time deposits would be using the same money twice. Some is being lent out already, and another set is being traded on the back of this money as if it were in the bank. What you are saying is patently untrue.
A demand deposit is defined as one available on demand. Nearly 100% of those things you would call bank deposits are demand deposits in that one can draw one’s money out on demand. A time deposit is a loan to the bank, and is a completely different entity. The fact that since around the 1930s, people have always expected to be able to draw all their money out instantly shows that people expect to have their money treated as demand deposits. This is sheer practical and historical fact.
If I make a promise to be faithful, then have sex with other women, I’ve violated that promise whether or not she catches me at it.
Umm, name one Austrian who has said that gold is the only thing to back money with? Every single Austrian argues that any free market currency is acceptable, but that gold and silver tend to be the commodities used as money. This does not mean that these are the only possible commodities, but that these fit the criteria most closely.
Your point is contigent upon the notion that nobody will demand pure warehousing activity on behalf of the banks, now, praxeology cannot tell whether or not this is the case (although, it seems unlikely that there would not be any demand for such a service). However, to the extent that there is no demand for such a good banks would merely offer their services as true financial intermediaries. The thing is, that the FRB that is seen today is purely the result of government priveledge.
i hope this thread has been useful for morganja.
This is inconsistent. Does the money have to be there on demand or any possible time? And the reason it is called demand deposit is because it is the former. Given this fact the rest of your post and the entire theory is refuted.
on demand means demandable at any time means any possible time.
i’d encourage you to rethink your position in light of this clarification or else convince me that ‘on demand’ doesnt mean, ‘whenever its demanded’ which therefore would have ‘on demand’ meaning other than ‘when its demanded at any possible time’
The on demand you refer to is a bank note redeemable in gold. Simply because it is redeemable in gold does not mean that I have to store gold. What it means is that I have to be able to fill the demand redemption in gold. If I have a bank that has a very simple policy that says in the contract that any physical redemption in gold can take up to two days then the bank has two days to convert any non-gold asset into gold in order to meet the redemption demand. Mind you that some sort of delay for physical redemption is quite likely if for nothing else but logistics. Also, there are always physical limitations to “demand” deposits such as when the bank is closed but I assume you would not consider that to be fraud.
The bank having other assets that it converts to gold does not make the bank inherently insolvent nor is the bank required to agree that it will only hold gold. As long as the bank and customer are aware of the banks activities there is no fraud. Thus your arguement that only 100% gold storage for bank notes redeemable in gold is a requirement and anything else is fraudulent is false. The bank is only in violation of its contract if it fails to meet its contractual obligation to redeem the bank note for gold and even then the bank is not inherently insolvent.
This would make all loans with call options fraud by that defintion. There is nothing fraudulent about having the option to give notice to the debtor that he has a certain time period to repay the loan. Like giving notice for physical redemption and having up to a two day waiting period.
Unable to deal with the issue at hand I see. Please prove that holding fractional redeemable reserves is inherently insolvent.
If there is no requirement that the bank only use gold to back it’s assets then your arguement that only bank notes redeemable in gold are possible is false. For example, I could have a bank that had a basket of commodities and offered redemption in any one of the basket of commodities but it is possible wouldn’t have enough of every item if everyone wanted redemption in one particular commodity because I would have to sell other items in the basket to adjust the ratio for redemption, that is not inherently insolvent or fraudulent. Please prove otherwise.
No, your point is based on any other bank than a 100% reserve reserve of the redeemable commodity is fraud is what we are discussing. Again, we are discussing banking in a free society, please stop interjecting the government to make your arguement. I understand why you do this, because your arguement can not stand on it’s own.
Is the bank required to give you the gold all the time or when you ask for it? The bank is only required to give you the gold when you ask for it and under the given conditions of the contract. The bank bears no other obligation. You are trying to argue that the bank can not promise to give you something it doesn’t have, however the bank is only required to meet the terms of the contract and if within the terms of the contract if the bank supplies the physical redemption that you request within the terms of the contract you can not claim fraud. It is quite possible a bank could have 1% gold reserves on all of its bank notes redeemable in gold and still easily meet it’s demand redemption requirements even with 100% redemption demand for gold.