You’re confused. When I make a deposit, I don’t become a creditor. I simply make a deposit. If I made a loan, then I would become a creditor.
What is the term (time of repayment) of my “loan” to the bank?
I’m far from confused. In your mind, you might not be a creditor, but the law says differently. One of the three relationships established when you deposit money at a bank is the creditor-debtor relationship.
As for your question, the term of the ‘loan’ is open-ended. The bank’s liability comes due whenever you decide to claim it.
What difference would it be if I was having financial trouble, and you loaned me $1000 to help out. In our contract, we agree that the money must be repayed on demand.
(1) Are you depositing the money with me, or are you loaning it to me? Additionally, (2) who owns the money after you’ve loaned it to me? Last, (3) if I loan the money to someone before you demand repayment, have I expanded the money supply?
If you were asking me, I’d say it’s a loan for question 1. For question 2, I’d say that I own the money, and you own a demand instrument that entitles you to that money. I’d have a liability to you, but the money is mine until you demand repayment. Last, for question 3, I’d say the money supply is the exact same size. Some third party would have $1000, but neither you or I would have that $1000 anymore. I would have a promissory note, and you would have a demand instrument.
So if all deposits are just ‘open-ended loans’ when is a deposit just a deposit and not a loan? Why does the word “deposit” even exist in the English language at all?
Right off the top of my head, I can’t think of any instances where a deposit is not equivalent to an open-ended loan, unless we start talking about damage deposits for lease agreements. Even then, the lessor becomes the owner of the money until the end of the lease. Once the lease expires, I can contractually demand remittance of the deposit, less damages.
As for why the word exists, I don’t know. At the very least, it sounds a lot more PC than loan when you are trying to convince people to hand their money over to banks.
You’re mistaking demand deposits with time deposits. With demand deposits you are merely warehousing your money, with immediate demand to withdrawal those funds. Time deposits (savings accounts, CDs, etc) are quite different. With time deposits you are literally lending money to the bank in exchange for a promise to return your principle in the future with interest.
This is the exact same understanding from the point of view of the banks. Look at any contract with regard to deposits and they will reflect the same idea that I explained above. Also, notice that the contracts with regard to CDs are very explicit with regard to principle and interest, as well as time of repayment by the bank. Demand deposits are not loans, if they were then you could not withdrawal them on demand, and there would be a contract stipulating the terms of such a loan (time till repayment, interest, etc). Just because you no longer have to open a savings account, or pay a fee in order to open a demand deposit account does not change the fact that the depositor is the legal owner of the funds and is merely warehousing money with that particular financial institution.
For instance, I use Navy Federal Credit Union for most of my finances. In my contract there is absolutely no language to even hint that the funds that I deposit into my demand deposit account are anything but my property. However, when I read the sections with regard to savings accounts, the language is quite different. The same is true with all banks and credit unions. If you could point to me a contract from a bank where it specifically states that all demand deposits are loans to the bank, and that the bank has ownership rights to those funds, then I may concede the point.
Wow, I don’t know how this one slipped through. No two bills are homogeneous.
This is an enormous shortcut again. You haven’t proven that it is homogeneous, you have only asserted it. It’s a very simplistic view of the physical world, and one rife with error.
This really doesn’t say anything about the validity of the position.
It is pretty simple. Wheat of the same grade is traded at the same price throughout the world markets at any given time without regard to producer because of its homogeneity. Any unit of such goods can be interchangeable with any other. The same is true of $20 Federal Reserve notes, each $20 bill can be interchanged with any other $20 bill. If you could point to me in what respects $20 bills are not homogeneous, that they cannot be interchanged with other $20 bills at any given time, then I may change my position. Until then, no dice.
Also, I wasn’t attempting to prove any validity with that last statement that you quoted. That is why I put it at the very end of my post, and was in reference to the “history of governments and currency debasement”. The only point in the statement was that any claim against a bank with regard to debasing of the currency will get no traction in the US court system. I am not saying that it is either right or wrong, merely that that is the way it is and has been historically.
You’re confusing trade with homogeneity.
Right, it was a non sequitur.
LS,
Could you provide a counter-example of two homogenous things, so I can understand the definition you’re using?
Z.
Units of 24 carat gold are homogeneous. Same with Silver, Iron, platinum, etc. There are many examples. The primary defining factor is that each unit of such good is entirely interchangeable with any other unit of the same good at any given time.
With regard to money, no good can act as the general medium of exchange without each unit of such good also being homogeneous. Have you never read Rothbard? Shoot, the homogeneity of units of money is even referenced in the Mises Wiki. This is standard Austrian monetary theory, and it goes all the way back to Menger (i.e. the beginning of Austrianism). If each unit of a good was not homogeneous to every other unit of the same good, then such a good would be completely impractical to serve as a monetary unit. A monetary unit would never present itself, because all other units would be completely different goods altogether, and could never develop to being used as a medium of exchange. Economic calculation in terms of money prices would be impossible without each unit of money being completely interchangeable with other units of the same money. While money definitely is subject to the same rules as any other good (supply/demand, marginal utility, etc), each dollar unit is entirely interchangeable with other dollar units; the dollar in my pocket can be swapped for the one in your pocket, and it would change nothing.
Here’s a question: If you went to buy a widget for $15, you give the clerk a $20 bill, and he hands you back $5.
Would you complain that the clerk shorted you? Would the clerk try to say that you didn’t hand him enough money? Would you even call pieces of a commodity a “dollar”, or divisible units of such? Of course not, because due to its homogeneity, money can serve as a unit of calculation for all players in the market. Only homogeneous goods can serve this function to allow for calculation throughout an entire market or across multiple markets. If homogeneous goods never existed, we couldn’t even barter in terms of units of goods. Money just happens to be the homogeneous good that is most marketable.