Which countries lack deposit insurance?
Not that it matters, as your argument is a non-sequitor. Because deposit insurance doesn’t exist in one area does not proves that deposit insurance serves no function where it is located.
Oh god. You get more and more inane.
The Myth of Free Banking in Scotland
White responded to Rothbard’s criticisms in the third chapter of the second addition.
First, banks can go under when they’re over-extended, so yes, it does keep them from going under in that respect - or so the gold-bug argument goes.
Second, you’re right. It is possible, and it’s happening, which was largely the point.
First, the Cayman Islands are an example. For other places, like Jersey and even Andorra - not in the Caribbean, obviously - the deposit insurance scheme is much less formal and rather vague in terms of coverage, with little explanation for how an Andorran bank would be covered in the case of a collapse, which has yet to happen.
Second, oh boy, Rothbard again. [8-)] See my post above.
Actually your point was that “it works”, presumability by that you mean it works atleast passably well, which is evidently false.
Unless the bank claims insolvency or declares a banking holiday or simply refuses to open for business.
Which begs the question, are you unaware of these things or are you just ignoring them?
First, you’re referring to the very original topic and my point was not that the current banking system works so much that fractional reserve banking works. I don’t know why grasp to conflate a free market fractional reserve banking system with the current centralized fractional reserve banking system, because I don’t. To the most recent response, I was replying to the specific examples of banks functioning without needing government insurance deposits.
Second, that would be the extreme exception to the rule during 00.001% of the time. Not particularly concerning to most people in retrospect. So I’m aware of these things, but unlike most people here I’m also apparently aware of their rarities.
Wilmot-- why do you think FDIC insurance was created in the first place?
And second, again, do you consider fractional reserve banking an honest, stable, and safe practice?
I’m trying to get a picture of what your thought process is here, because you seem to have some overall point about FRB you’re trying to make but I’m not sure what it is.
FDIC was created after some banks got careless and went to the government to bail them out as opposed to taking it on the chin and liquidating their assets.
Second, yes, fractional reserve banks are stable, safe, and honest - they certainly are in the Cayman Islands.
Again, the implication that because a bank it outside the USA it exists as a Laizze faire institution.
Please explain why any foreign banking monopoly is more representative of a free market regime than is the American banking monopoly.
Again, this is not the implication at all. I’m not talking about laissez-faire, I’m talking about the lack of a deposit insurance scheme - that’s all.
You were offering a hypothetical “stable” foreign bank to prove that fractional reserve banks can stand on their own without government interventions, such as deposit insurance, even though those foreign banks are doing anything but standing on their own.
Except they are standing on their own.
I’m sorry, but central bank does not always mean this giant encompassing never-let-die entity that will do whatever it takes to keep a bank afloat. There are banks in the Cayman Islands that simply do not have those protections.
I think it’s wrong to equivocate central bank with protection of all private banks. Just because it’s the main function of the US central bank doesn’t make it the central function of other central banks.
In the instance of keeping private banks afloat, the primary tool used to do this is deposit insurance; without it, people like Salerno, for example, seem to argue that fractional reserve banks that are private could not function, but that is simply empircally untrue.
The major central banks of the world do just that, though.
What examples do you know of where a central bank functions significantly differently? Their main purpose is to act as a supposed “lender of last resort” because fractional reserve banking is a fraudulent and unstable system. They manipulate currency, robbing people blind, under the guise of “stabilizing a nation’s currency” while they proceed to do exactly the opposite. It’s one of the biggest lies in the history of mankind! Currency manipulation schemes have failed all throughout history, over and over again. When you examine the history of both central banks and other more blatant actions to devalue currencies, all you ever find is a mountain of evidence demonstrating their ultimate failure. Obviously these schemes don’t fail instantaneously–any ponzi scheme like Social Security can show that, but they have always failed with time.
Furthermore the inflation they create is immoral. If someone works to save $100 dollars in 1970 and they stuff that savings under the mattress, why should it’s purchasing power be drastically less today? Is the work that person did to earn that money any less real with the passage of time? How can the loss of that purchasing power be justified? And to make it worse, this encourages consumption in the present and discourages savings which could be used to invest in the future–making us all poorer in the long run.
I think it’s more important to examine the broader picture rather than looking for exceptions to the norm at any given point in time. Two years ago we could have said that the economy was “fundamentally strong”, and look what happened. Logic and reason beats emperical evidence in economics, especially in this world of obfuscating schemes and rigged statistics.
You should take a minute to think about how real insurance works if you feel that “deposit insurance” is legitimate. Insurance can only work correctly if used to protect against events that are predictable in their frequency of occurance. The level of risk has to be measurable. How do you measure or predict the likelyhood of too many depositors asking a bank for their money back? It can’t be done–that’s why the only one who can play this game is the government, who promises to take other people’s money to pay you back should your bank fail. The only reason they can afford to insure anything is because they have the supposedly limitless wealth of the taxpayers.
I don’t mean to sound rude or condescending, but I think we’re discussing a lot of things that have been explained in much greater detail and much more completely in a ton of books, like The Case Against the Fed, Empire of Debt, Meltdown by Thomas Woods, etc. I think we’re happy to discuss this on the forums here anyway, but there doesn’t seem to be any new ground being discovered. But if you want to get a feel for the reasoning that many of the “gold bugs” here use, that reading would probably be faster.
Do you have any evidence that those banks were bailed out by their central banks? Not even all american banks were bailed out.
Why should it not? Are you entitled to fixed prices? Protectionism anyone
?
What justifies this hypothetical right to value exactly?
Not sure what you’re asking for, I’m not talking about simple bailouts.
Example #1: Roman Empire currency inflation. (we know how this turned out) Example #2 in progress: American Empire currency inflation (via the Fed central bank).
Of course I’m not saying you’re entitled to fixed prices, price fixing has to be one of the most retarded ideas ever dreamed up, and it has nothing at all to do with protectionism either. I’m saying that you have a right to not have your currency devalued artificially by a central authority in control of that currency. This is theft, in stealth, because most people nowaways don’t even realize it as they believe the lie that it’s “necessary” or even blamed on things other than the thieves.
What justifies a right to the value of your savings? Basic property rights, it was earned by the owner. The currency is only a placeholder for what would have otherwise been bartered goods in the absence of a “legal tender” currency. In a barter economy the Fed couldn’t artificially create more actual goods, devaluing it, so why is this acceptable with currency?
Come on, this is libertarianism 101! You only have property rights in the stuff you saved. Not in any way in its value.
I think you’re assuming to much when you say banks are unstable as a rule. Of course some banks are unstable, but that doesn’t mean the banking industry as a whole is anymore unstable than any other. Like the industrial or retail sectors, banks are subject to creative destruction, all things remaining equal.
In any case, for systems that function significantly different, look south. The Mexicans have experimented with banking about as much as anyone and you can see that deposit insurance does not equal good banking, and sometimes may even impede it. Also look to today’s Cayman Islands, banks are not required to join deposit insurance schemes. In Switzerland, the central bank really only acts as the issuer of currency and regulations are the realm of the federal government or is left up to the cantonal banks.
Again, not to say that any banking system is absent its flaws of not being a laissez-faire banking system, it just seems that, observationally, the inadequacies that Mises thought existed with fractional reserve banking simply don’t pan out in reality.
I didn’t realize people were entitled to the value of a single good, a value which is inherently subjective.
In anycase, if yoiu want to bring this up, why not factor in the increased abilities for investment to have taken place thanks to the banking system? Couldn’t this have offset the concerns you have? Somebody advocating the current system could easily say, what would you prefer, a medieval life style on the gold standard or a modern lifestyle without one? I realize that’s a false dichotomy, but I don’t think it goes entirely unwarranted.
I would not have said the economy was fundamentally strong. Without much private growth in employment there was obviously something very, very wrong.
So the movement behind diversification in order to subvert risk is an entirely pointless one?
Believe me, I’m familiar with all of these books. I’m like Bryan Caplan in the regards that I’m a reformed “Austrian.” I’ve read most of the books that Rothbard wrote and I used to be all in it. Then I went to college and expanded my thought process. Just because I’m unconvinced does not mean I’m ignorant.
I’m going in this direction too, what convinced you?
