Fractional reserve banking
category: general [glöplog]
Now you're doing it again....
Yeah, we're all miserable humans that don't care... NO - we care about ourselves, our nearest our families - like almost every other mammal on earth - how are you going to change that instinct? Some people have even more to offer (both money and/or work), and they're doing a fucking great job! But to think that all humans will do that is naive, since humans first of all care for themselves.
regarding the fractional banking and inflation, one should remeber that the banks issue contracts and not direct money. The contracts are worth what the parties involved agreed upon. Also the banks ensure that the contract-takers have security (real estate, machinery, etc), so that items of actual value is also part of the contracts.
You're completly free to NOT support the fractional bank system - and I'm very sure that if the people demanded acoounts, where you could have you money for a small fee they would exist (Hell, maybe they already exist, I don't know)
But it seems that the avaerage guy wants interest - he wants his money to grow (human nature), and thus the bank invests his money.
I have taken the consequnce, and invested my money myself in the business, that I think will repay me, thus not letting the bank control my money.
In short - you're free to do what you want - and if the demand for 100% backed acoounting is there, so is the bank that will supply this demand.
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Our ecenomy is litterally fuelled by blood atm. And that fucking sucks
Yeah, we're all miserable humans that don't care... NO - we care about ourselves, our nearest our families - like almost every other mammal on earth - how are you going to change that instinct? Some people have even more to offer (both money and/or work), and they're doing a fucking great job! But to think that all humans will do that is naive, since humans first of all care for themselves.
regarding the fractional banking and inflation, one should remeber that the banks issue contracts and not direct money. The contracts are worth what the parties involved agreed upon. Also the banks ensure that the contract-takers have security (real estate, machinery, etc), so that items of actual value is also part of the contracts.
You're completly free to NOT support the fractional bank system - and I'm very sure that if the people demanded acoounts, where you could have you money for a small fee they would exist (Hell, maybe they already exist, I don't know)
But it seems that the avaerage guy wants interest - he wants his money to grow (human nature), and thus the bank invests his money.
I have taken the consequnce, and invested my money myself in the business, that I think will repay me, thus not letting the bank control my money.
In short - you're free to do what you want - and if the demand for 100% backed acoounting is there, so is the bank that will supply this demand.
if that was true, how do you explain the danish SOCIAL democratic model?
what i see happen is were being taught by people who are far smarter than we are, that we are selfish creatures. When i talk to my own grand dad he tells me about people who stood together, neighbours that partied together, streets that knew everyone else and comunicated etc... we have been trained into a new situation, funny enough it has been following the growing demand for more product created by the monetary system itself.
That people are selfish is the nurnberg defense of dishonest industry. People are social, and a few people are utterly selfish, so why do we hand those few people so much power as to tell the rest of us we are like them? im nothing like them in that regard!
and no, im actually not free to not support it, first of all there are no alternative, meaning it is not even free marked. And today it is law to have a bank account if you make any kind of money.
what i see happen is were being taught by people who are far smarter than we are, that we are selfish creatures. When i talk to my own grand dad he tells me about people who stood together, neighbours that partied together, streets that knew everyone else and comunicated etc... we have been trained into a new situation, funny enough it has been following the growing demand for more product created by the monetary system itself.
That people are selfish is the nurnberg defense of dishonest industry. People are social, and a few people are utterly selfish, so why do we hand those few people so much power as to tell the rest of us we are like them? im nothing like them in that regard!
and no, im actually not free to not support it, first of all there are no alternative, meaning it is not even free marked. And today it is law to have a bank account if you make any kind of money.
Here's a good example to read upon, discussing some of the questions we debated
I'm not the author myself, but you can read the whole thread yourself here: http://forum.objectivismonline.net/index.php?showtopic=3311&st=80 - they're debating the same as we do, but probably on a more sane level :)
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Fractional reserve banking is not fraudulent.
When the depositor puts his gold in a fractional reserve account in Bank A, he knows that the bank does not hold 100% in reserve. He is not being defrauded.
When Bank A gives out a part of the deposit as a loan, the loaner also knows that the bank notes he recieved are not a 100% reserve.
When Joe buys bread at Sally's bakery and pays her with a Bank A bank note, Sally knows that that note is not from a 100% reserve bank. She is not being defrauded either.
If Bank A passes off full reserve notes and proceeds not to hold the full value in reserve, that is fraud. This is not inherent to fractional reserve banking.
If Bank A prints out full reserve bank notes for gold it does not have, that is fraud. This is not inherent to fractional reserve banking.
If Joe passes a Bank A note to Sally saying it is a 100% reserve note, he is defrauding her not Bank A.
In reality, it is very possible that Bank A would have both full reserve and fractional reserve accounts. It is possible that the bank would print two (or more) types of bank notes, according to the type of deposit. As was mentioned, fractional notes would trade for full notes at a loss.
Where is the advantage then? Time preference. I put 500 ounces of gold in the bank and get 500 fractional reserve notes, that trade for 495 full reserve notes. Of course I can simply go to the bank and redeem my notes for the 500 gold, trading for the full reserve notes would be stupid. My fractional account earns me 3% yearly, while a full reserve account costs 1% yearly (it is warehousing after all).
I win because my gold is working for me. The bank wins because it keeps part of the profit. The loaner gains because he gets capital to produce.
The key point is that the value of the bank's fractional notes is directly related to how trustworthy the bank is when it comes to redeeming notes. A bank that holds marginal reserves, has few clients or chooses poorly how to loan out money will have its fractional bank notes devalued in the market. A bank with lots of clients, that holds a healthy reserve and has good assets will have it's notes valued almost equal to gold (as in my example).
Why would bank notes from a bank that holds a 50% reserve on average not trade at 50% face value in the market, as some people seem to think would happen? Because anyone could simply take the note to the bank and redeem it for the full value. Some people might do exactly that, which is fine.
Any good bank will work hard to have it's fractional notes trade very close to face value. Any bank can only inflate it's own fractional notes - which is suicidal since it pushes customers away (why would you want to deposit your gold and get junk notes for it?) and increases the risk of a bank run that would mean liquidation of the bank (notice that in this case most likely all the customers get their money back from the bank's assets and capital).
And just to restate an important point that has already been made: a bank note is not a property certificate to a certain bar of gold, it is an IOU. The bank note you get when you put 500 ounces of gold in the bank does not mean you own those 500 ounces in the bank's vault, it means the bank promises to pay you 500 ounces of gold if you turn in that note. Likewise when a bank writes up 300 additional bank notes and gives them to a businessman, on condition that he pay back 350 a year from now and backed by the businessman's assets in effect the bank has 800 outstanding notes, 500 in the vault and a claim to 350 gold or equivalent assets.
I'm not the author myself, but you can read the whole thread yourself here: http://forum.objectivismonline.net/index.php?showtopic=3311&st=80 - they're debating the same as we do, but probably on a more sane level :)
Iblis: so now the monetary system is resposible for people wanting more good?... come on man... humans always wanted "more" since the dawn of humanity. More land, more gold, more food, you name it... And no monetary system existed when humans arised. You're not keeping focus on the discussion, but turning it into a moral-issue, which will never have any final solution, since it's... well, a moral discussion.
People are social - so are lions, but even then they kill eachother. When being social we first of all take care of those who are nearest - I'm not saying that this is how it should be, but I'm saying that this is in fact how it is, and always has been.
People are social - so are lions, but even then they kill eachother. When being social we first of all take care of those who are nearest - I'm not saying that this is how it should be, but I'm saying that this is in fact how it is, and always has been.
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When the depositor puts his gold in a fractional reserve account in Bank A, he knows that the bank does not hold 100% in reserve.
thats a lie, the majority of people are completely unware that this is the case, as un 100%. they are left with the impression, through all the bullshit talk about "risk", interrest, blahblahblah, that the bank guy now go into his own fucking private vault to get the money to give you! when its not the case. the post is based on wrong assumptions. And just because you make the information avaible that what youre doing is slight of hand and assfucking does not make it right. Jønke altso openly admits to be a lowlife criminal scumbag, so does that makes him nice that he is honest about it or make his case genuine?
what i find most interresting about his, is that the current model is so fiercyly defended by people who in fact has zero no benefit from it that could not be gained through an honest system that doesnt hurt the majorty of peple it touches.
puryx are you denying that were being forced to overconsume, in that case i know for a fact that you are just "rasmus modsat". The advertisement industry is so good at what they do, that today they are hired by our own politicians.
Iblis: I'm giving you a solid debate, and answers to what you're asking, but you're still not debating, but only arguing that it is a lie.
This is not a debate, this is a pure viewport of YOUR OWN opinion on this subject.
I should have stopped my discussion when I wrote it last time. You have no other arguments than "it's a lie, you arguments suck"
In fact by by writing as you're writing, you're saying that 100% of the population is stupid, since they havn't understood what the bank is about.
Now I wont continue this discussion, since I think Iblis has stepped out of it, when not argumenting, but only denying.
This is not a debate, this is a pure viewport of YOUR OWN opinion on this subject.
I should have stopped my discussion when I wrote it last time. You have no other arguments than "it's a lie, you arguments suck"
In fact by by writing as you're writing, you're saying that 100% of the population is stupid, since they havn't understood what the bank is about.
Now I wont continue this discussion, since I think Iblis has stepped out of it, when not argumenting, but only denying.
Iblis: fucking stop the conspiracy theme right now...
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why are you being rewarded less than we are?
We don't have all those fancy companies that your grandparents created in the past centuries. Your country still includes the wealth of the past: roads, universities, private properties. Perhaps our country was worse hit wars, has less resources, in the end, less capital.
It's nice of you that you care about how other people live. Maybe poverty and inequality would deserve another topic. My point is what I have already underpinned with arguments in my previous post, that inequality is not the fault of the present currency system.
I can't add much to the economics debate, but I agree with Iblis that people are being manipulated into consumption. It's true also that a lot of successful marketing techniques are based on scare tactics, and on pavlov-like association (*whistles* I'm love in it). (love / coca-cola). I don't think you can consider the desire to control people for your own gain 'conspiracy', when the evidence is flashed in our faces every day.
alienus: but what has that to do with the monetary system?
People will fall for the same trick, no matter what system - actually they did for ages...
If you look back in my posts I'm not denying consumerism - but a change of system will not make consumerism disappear.
People will fall for the same trick, no matter what system - actually they did for ages...
If you look back in my posts I'm not denying consumerism - but a change of system will not make consumerism disappear.
I guess it's the honesty involved in the monetary system that is being questioned. I'm not denying that people will use the techniques to make money for themselves - it's when that gain becomes power that the manipulation of your people becomes worrying.
alienus: I don't think you are on topic at all here. Or I don't understand what you are trying to say - we debated the fractional reserve banking as being fraud/non-fraud towards the population, a threat to the society, and generating growth etc.
Some people will always try to gain power backed by evil intents, which is a very bad thing, however not avoidable in our nature.
Some people will always try to gain power backed by evil intents, which is a very bad thing, however not avoidable in our nature.
puryx, if you read the whole post you will see me arguing for my stand point. Im not just saying that its a lie, im telling you WHY it is a lie. It is you who dont take it from what im actually writing. Most people are unaware of how anything works, and that IS a fact that you can take to the bank. this particular problem however requires our attention because it is spinning out of control again, and at the cost of a lot of lifes.
ger excactly. now look at wiki, at the history of fractional reserve, and you will notice some years being mentioned. We got a head start because we legalised cheating on the scale and the speculation thereon. What gave us a headstart with industrialisation was dishonesty, and i see no reason to keep this status quo as it creates unbearable chaos and unstability in the global village.
we cannot change the past, but we can influence the future for those generations to come, but only by being aware of the game played.
ger excactly. now look at wiki, at the history of fractional reserve, and you will notice some years being mentioned. We got a head start because we legalised cheating on the scale and the speculation thereon. What gave us a headstart with industrialisation was dishonesty, and i see no reason to keep this status quo as it creates unbearable chaos and unstability in the global village.
we cannot change the past, but we can influence the future for those generations to come, but only by being aware of the game played.
puryx, what alien are bringing up is directly connected to fractional reserve banking and its requirement for perpetual growth cycles. It NEEDS to create more and more shit, or find a way to make a cycle that allows for growth, and it does so in bubbles, the internet, real estate etc. and to sell it we are being forced upon by such brilliant minds as Edward Bernays, and that is what alienus is getting at.
The whole system, and the branches is forced to spawn are all based on dishonesty. In short you could say that the whole thing is based on aggresion when it doesnt have to be, and thats my point.
To implore the capitalist nurnberg defense that were selfish doesnt cut it, because then our own system makes no sense at all.
The whole system, and the branches is forced to spawn are all based on dishonesty. In short you could say that the whole thing is based on aggresion when it doesnt have to be, and thats my point.
To implore the capitalist nurnberg defense that were selfish doesnt cut it, because then our own system makes no sense at all.
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. We got a head start because we legalised cheating on the scale and the speculation thereon.
As I said, there's no relationship to the fractional reserve banking. Denmark is ahead because of its business infrastructure. Even if banking was forbidden, you would inherit your company shares from your grandfather and your father. If you don't have shares, you'd still get a larger salary because you live and work close to rich people. Again - even if there was no banking at all. Even if there was no money at all and all companies would work based on barter. (ouch!)
So this is why the currency system is not related to inequality.
Well, situation is that I answer what you ask, and you don't really debate it, but deny it, and at the same time you put in what I would call small pieces of propagandy, which sounds good, but doesn't stik to the subject, and then I will not continue discussing, because your mind is made up, and frankly I'm not interested in reading your opinion once more, becuase I already know it - call it a victory for you in the discussion - I don't care. Discussing stuff with someone that will not discus, but only pinpoint his opinions doesn't make sense.
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fractional reserve banking and its requirement for perpetual growth cycles.
There is no such requirement. A normal credit bank could shut down gracefully without EVER becoming unable to pay. If they stopped advertising and issuing new credits, refusing deposits beyond current credit portfolio, they would just let current credits roll out and terminate. Then the bank would shut down operation with a surplus (provided debtors paid back as agreed).
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increases the risk of a bank run that would mean liquidation of the bank (notice that in this case most likely all the customers get their money back from the bank's assets and capital).
ORLY?
bd: you could at least quote the entire context...
And about the fraud thing, I'm sure all banks would tell the truth if asked, but most people who deal with banks think the balance on their account reflects a pile of cash in a vault, which in turn has value guaranteed by the government. They're not told the truth unless they ask, and they don't ask because why would they. It's not like schools teach debt economics (unless you happen to be specialising in economics). Which is a bit weird, considering.
Buryx: I'm saving the environment by reducing bandwidth requirements. ;)
Well, it's a know fact that people don't care about money in the long term (this is also a fact regarding loans, pension etc etc.) - this is of course a very bad habit, but most people tend to only plan their economics 1 month ahead.
I'm quite sure that most people do NOT believe that the vault contains their actual deposits anymore - that wouldn't simply make any sense at all - even if the bank was full-reserve - it can be used as a image of understanding, but the reality is different, and I actually think that most people know so.
Back to the thing - when a bank contracts a loan it want security (as before stated in my posts) - this security is of course a security that enables the bank to pay back the deposits if the loan-taker fucks up his business.
You could potentially crash your bank if a lot of costumers wanted to withdraw their deposits during a VERY short period of time. This could of course happen in THEORY, just like a meteor could hit the earth, but it really doesn't. And if it actually happens, by far the most money is secured by safety in the loans, and if not, then by the state in a very last instance.
This could happen in ANY other company aswell, if you "invest" your money there.
What would happen to ANY system if some kind of disaster happend? I mean, what about insurances, money for rebuilding etc - these are the situations that could of course happen but rarely does, and when they do, there is not system to deal with it, because disasters are not "normal behaviour".
You'd probably need some kind of disaster to make people withdraw all their money at once, otherwise youd would have isolated issues, which can happen to any business under any system.
I'm quite sure that most people do NOT believe that the vault contains their actual deposits anymore - that wouldn't simply make any sense at all - even if the bank was full-reserve - it can be used as a image of understanding, but the reality is different, and I actually think that most people know so.
Back to the thing - when a bank contracts a loan it want security (as before stated in my posts) - this security is of course a security that enables the bank to pay back the deposits if the loan-taker fucks up his business.
You could potentially crash your bank if a lot of costumers wanted to withdraw their deposits during a VERY short period of time. This could of course happen in THEORY, just like a meteor could hit the earth, but it really doesn't. And if it actually happens, by far the most money is secured by safety in the loans, and if not, then by the state in a very last instance.
This could happen in ANY other company aswell, if you "invest" your money there.
What would happen to ANY system if some kind of disaster happend? I mean, what about insurances, money for rebuilding etc - these are the situations that could of course happen but rarely does, and when they do, there is not system to deal with it, because disasters are not "normal behaviour".
You'd probably need some kind of disaster to make people withdraw all their money at once, otherwise youd would have isolated issues, which can happen to any business under any system.
Do you want to know what I think?
Who could have say nitro would infact create a serious thread some months ago :)
Every system is vulnerable to disasters, so you shouldn't come up with UFOs and mass destructions. This all thread reminds me that I have "A Fault-Tolerant Distributed Online Banking System" to do :(
Who could have say nitro would infact create a serious thread some months ago :)
Every system is vulnerable to disasters, so you shouldn't come up with UFOs and mass destructions. This all thread reminds me that I have "A Fault-Tolerant Distributed Online Banking System" to do :(
What if all people suddenly want to take that money out of any given bank?
Perhaps it was nicer if you'd always HAD TO agree with the bank that you MAY NOT pick up your deposit before a given point in time (eg. 1 month, 3 months, 1 year, etc.). If this regulation was horribly strict, there couldn't happen a case like Northern Rock. If everyone wanted to get their money out ASAP, they could do - when their deposits terminate. The orignal business problem would still remain: banks can misrank their debtors. Even if debtors don't pay to the bank, the bank has to pay to the depositors. (So you CAN go bankrupt by being nice to your friends and offering them credits when they don't deserve it, etc. - that's why it's not a good idea to let a state ["politicians"] run consumer/corporate banks!)
Presently, banks are required to align the terms (time, length) of credits with the terms of deposits. However, they do not have to align them EXACTLY: this makes people get lower interest rates on debts, get some interest on not fixed deposits and often let them break up deposits with little or no penalty. Side problem being, if people go frenzy, things like Northern Rock happen. If you don't like this - you don't need to participate in such deposit conditions! (As Puryx said several times...) However, you're more likely to die in a car crash than lose your deposits in a consumer bank, but your willingness to take risk is up to your preference.
Perhaps it was nicer if you'd always HAD TO agree with the bank that you MAY NOT pick up your deposit before a given point in time (eg. 1 month, 3 months, 1 year, etc.). If this regulation was horribly strict, there couldn't happen a case like Northern Rock. If everyone wanted to get their money out ASAP, they could do - when their deposits terminate. The orignal business problem would still remain: banks can misrank their debtors. Even if debtors don't pay to the bank, the bank has to pay to the depositors. (So you CAN go bankrupt by being nice to your friends and offering them credits when they don't deserve it, etc. - that's why it's not a good idea to let a state ["politicians"] run consumer/corporate banks!)
Presently, banks are required to align the terms (time, length) of credits with the terms of deposits. However, they do not have to align them EXACTLY: this makes people get lower interest rates on debts, get some interest on not fixed deposits and often let them break up deposits with little or no penalty. Side problem being, if people go frenzy, things like Northern Rock happen. If you don't like this - you don't need to participate in such deposit conditions! (As Puryx said several times...) However, you're more likely to die in a car crash than lose your deposits in a consumer bank, but your willingness to take risk is up to your preference.