Full Reserve Banking

[Fake Boris]

No, it's not a requirement of fractional reserve banking that more money be created to pay back interest. This is because money once created can be used in more than one transaction.

No, it can't. This is a FACT.
When a loan gets repaid, under a fractional reserve system, money has to be destroyed and a new loan re-issued.

So in your universe, a gallon of milk jumping to $50/gallon while the bottom drops out of the housing market is a good thing?

This is extremely implausible. Not worth going on that tangent.

I'd say my opinion that "a business run like the US Government would quickly go out of business" is rather well founded.

This is a pointless comparison, given that that the US government is not in the business of selling goods and services.

[Aeson]

you have simply not understood what is being proposed. governments could create money directly, in various way, instead of money being almost wholly created by banks.

I understand that perfectly. You still aren't seeing that that relies on government being able to tell banks how much money they can create. You simply can't have a functional full reserve banking in a universe where government can't tell banks how much money they can create.

i don't see any evidence that that is the case. governments, or rather states, provide things that cannot be provided by private actors (national defence, large scale infrastructure for example), and provide many things more efficiently than the market can provide (health and education for example). it's true that private actors are more efficient at providing things that are within the economic model provided by classical economics, but there's no reason to believe that money creation falls under this category.

(of course i disagree that capitalist 'efficiency' necessarily leads to better outcomes, but that's another debate)

Public goods are where government is. This is because public goods are tend to be monopolies, and what keeps business efficient breaks down in monopoly situations. Government oversight is required at the very least.

What you are proposing goes well beyond a public good. The part where government is setting the money supply is not a problem, BECAUSE THEY ALREADY DO and it's something I agree they should do. You just have to realize they already do it so you aren't magically making it better by switching from fractional to full reserve banking.

i'm saying that the distinctions you draw ("i can change my bank, but i can't change my government" etc.) are irrelevant for the purposes of this discussion.

They are extremely relevant when you are proposing that we replace people's ability to have credit vs reliance on government when consumer credit is essentially impossible. In the first case there are institutions competing against each other to get my business, and do so in a fluid manner that can adjust to changes in my personal situation on the fly ... in the second case there's a monopoly making sweeping generalizations that no one can set properly, and no alternatives.

i asked what you meant by "efficiency" and for some evidence for your claims about it.

I did explain it. How much you spend to accomplish X. How much is wasted.

I can buy a toilet seat from Best Buy for $5 to $10. Government spends $200. Those are the "funny" type of inefficiencies, at least if you don't think about it too hard ... such as how those types of inefficiencies leave important things unfunded, like timely care for our veterans at the VA. But even that pales in comparison to the truly horrid and blatant ones. Like the war in Iraq, where we spend a $trillion to maim and kill our own soldiers so we could replace Saddam with ISIS and further drive down our reputation in the process. It's much worse than that sounds of course, since Saddam was the guy we were helping gas his own people before to oppose the government that rose up after we toppled a democracy. You may think that is an efficient use of capital (and human capital), but I certainly will never agree with you.

[Aeson]

No, it can't. This is a FACT.
When a loan gets repaid, under a fractional reserve system, money has to be destroyed and a new loan re-issued.

In system we have, government could just as easily choose to decrease the money supply as increase it. It's just generally a very bad idea to decrease the money supply because that would restrict growth and force a recession. This is true of any type of reserve system.

Your concept of an increasing money supply necessarily being a bad thing is just weird. If the central bank is doing a decent job, all it means is the economy is expanding and being given room to keep expanding.

This is extremely implausible. Not worth going on that tangent.

It's to illustrate how your relativistic measure of what is right and wrong in regards to asset vs CPI inflation is extremely unreliable.

This is a pointless comparison, given that that the US government is not in the business of selling goods and services.

It is very poignant in regards to citizen's income replacing the service of consumer credit. Because in that case you are having government providing an already inferior service in many ways, and hoping they do so at least as well as private business was handing the replaced service.

[C0ckney]

I understand that perfectly. You still aren't seeing that that relies on government being able to tell banks how much money they can create. You simply can't have a functional full reserve banking in a universe where government can't tell banks how much money they can create.

What you are proposing goes well beyond a public good. The part where government is setting the money supply is not a problem, BECAUSE THEY ALREADY DO and it's something I agree they should do. You just have to realize they already do it so you aren't magically making it better by switching from fractional to full reserve banking.

i really do not know how much more simply i can explain this, but i will try one more time. under the fractional system private banks create the vast majority (97% or so) of the money. under a full reserve system governments would create the money directly. this money could be distributed in a variety of ways; private banks may be used as intermediaries, but there many options.

Public goods are where government is. This is because public goods are tend to be monopolies, and what keeps business efficient breaks down in monopoly situations. Government oversight is required at the very least.

states are also better than private actor at providing goods such as health and education. these are known as publicly providing private goods and are not natural monopolies.

They are extremely relevant when you are proposing that we replace people's ability to have credit vs reliance on government when consumer credit is essentially impossible. In the first case there are institutions competing against each other to get my business, and do so in a fluid manner that can adjust to changes in my personal situation on the fly ... in the second case there's a monopoly making sweeping generalizations that no one can set properly, and no alternatives.

consumer choice has nothing to do with the money supply. is it too much to ask that you do a little research on what is actually being proposed, and this area in general, rather than making up objections based on your erroneous understanding of them?

I did explain it. How much you spend to accomplish X. How much is wasted.

I can buy a toilet seat from Best Buy for $5 to $10. Government spends $200. Those are the "funny" type of inefficiencies, at least if you don't think about it too hard ... such as how those types of inefficiencies leave important things unfunded, like timely care for our veterans at the VA. But even that pales in comparison to the truly horrid and blatant ones. Like the war in Iraq, where we spend a $trillion to maim and kill our own soldiers so we could replace Saddam with ISIS and further drive down our reputation in the process. It's much worse than that sounds of course, since Saddam was the guy we were helping gas his own people before to oppose the government that rose up after we toppled a democracy. You may think that is an efficient use of capital (and human capital), but I certainly will never agree with you.

so your explanation (which scrupulously avoids any reference of course to interests and power: the core of the matter) is a series of funny stories you read in the media and a big non-sequitur. no reason to take it seriously i'm afraid.

also your attempt to paint me as an iraq war supporter is par for the course with you, both in terms of logic and honesty.

[Aeson]

states are also better than private actor at providing goods such as health and education.

This is generally true for those who can't afford better. This falls in the safety net category.

For those who can afford it, better quality of care/education is possible.

consumer choice has nothing to do with the money supply.

You keep confusing topics. You are advocating replacing credit cards with a citizen's allowance, and that was what I was responding to with that statement. That change definitely affects consumer choice.

so your explanation (which scrupulously avoids any reference of course to interests and power: the core of the matter) is a series of funny stories you read in the media and a big non-sequitur.

The explanation you asked for what was I meant by "efficiency". So I answered about "efficiency". You avoided the clear explanation as to what I meant by "efficiency" that I posted. Which was, "How much you spend to accomplish X."

also your attempt to paint me as an iraq war supporter is par for the course with you, both in terms of logic and honesty.

You asked for examples of how government is not as efficient as business. I rightly guessed you think the Iraq war was a horrible waste of capital and human capital. Your disgust with even being associated with that government action is precisely the point I was driving for.

[C0ckney]

This is generally true for those who can't afford better. This falls in the safety net category.

For those who can afford it, better quality of care/education is possible.

yes, but that is not the issue. the issue is outcomes. it is recognised that better outcomes result from having more or less 100% of the population literate and educated to at least a secondary level. the private sector will not provide that. it is recognised, expect by a certain brand of right-winger (i don't include you in this) that it is better that everyone has access to healthcare. the private sector will not provide that.

You keep confusing topics. You are advocating replacing credit cards with a citizen's allowance, and that was what I was responding to with that statement. That change definitely affects consumer choice.

no. i advocated that money be created and distributed by the government rather than by private banks. there are diverse ways to do that and how it is actually done will depend on the particular situation and circumstances at the time, and also on political choices made. this is one of the main advantages of full reserve banking, it makes money creation and the means of doing so a matter of political choice.

i also advocate any such change as part of a wider package of measures, such as the moving of the tax burden from labour and capital to land (and other economic rents), which would move resources from rentiers and into the hands of the wider population, while at the same time stimulating economic growth.

The explanation you asked for what was I meant by "efficiency". So I answered about "efficiency". You avoided the clear explanation as to what I meant by "efficiency" that I posted. Which was, "How much you spend to accomplish X."

i also asked for evidence that money creation falls under the category of things that the private sector does better (or more efficiently) than the state; what you provided didn't qualify. and again it avoids the central point which is that it is better to have a matter of public interest dealt with by people who have the public interest, rather than private interests, at heart. it is better to have such matters under democratic control, however limited that may be in reality, rather under the control of private banks that are not accountable, in any real sense, to anyone.

You asked for examples of how government is not as efficient as business. I rightly guessed you think the Iraq war was a horrible waste of capital and human capital. Your disgust with even being associated with that government action is precisely the point I was driving for.

but to use that in the context of this debate is absurd. the iraq war has nothing to do with money creation. let's try a private sector example. the bhopal disaster, which lead to nearly 4,000 deaths, thousands of horrible injuries, and long term health problems and birth defects affecting tens of thousands. awful; and obviously, using your logic, this proves that the private sector cannot be trusted to create money.

[Aeson]

yes, but that is not the issue. the issue is outcomes. it is recognised that better outcomes result from having more or less 100% of the population literate and educated to at least a secondary level. the private sector will not provide that. it is recognised, expect by a certain brand of right-winger (i don't include you in this) that it is better that everyone has access to healthcare. the private sector will not provide that.

It is good to have a safety net for those who cannot provide for themselves. The private sector won't provide for them because there's no profit in it. Just as the government won't provide exceptional healthcare/education because it's incapable of doing so given it's

no. i advocated that money be created and distributed by the government rather than by private banks. there are diverse ways to do that and how it is actually done will depend on the particular situation and circumstances at the time, and also on political choices made. this is one of the main advantages of full reserve banking, it makes money creation and the means of doing so a matter of political choice.

It already is a political choice. The result of that political choice is a system you don't like, but that doesn't mean it wasn't determined politically.

i also asked for evidence that money creation falls under the category of things that the private sector does better (or more efficiently) than the state;

Control of the money supply should be in government's hands. And it already is.

but to use that in the context of this debate is absurd. the iraq war has nothing to do with money creation. let's try a private sector example. the Bhopal disaster, which lead to nearly 4,000 deaths, thousands of horrible injuries, and long term health problems and birth defects affecting tens of thousands. awful; and obviously, using your logic, this proves that the private sector cannot be trusted to create money.

You asked for examples of government inefficiency and were generally credulous of the wider claim that government is less efficient than business. I gave a recent example from a developed nation ... one of those we are discussing specifically.

Your counter example, while a horrific accident, falls far short in effect of what governments have intentionally done. It is from a developing nation no one is discussing, and much less recent. It does still display that there are problems in the private sector. Generally with these sorts of problems the best solution is proper government oversight ... safety regulations and building standards. Certainly the answer is not nationalizing all business!

Our financial system fits into the "best solution" category. Government regulation and guidance set the rules, determine the overall money supply, yet allow private entities to go about handling the details within those regulations. The best of both worlds.

[C0ckney]

It is good to have a safety net for those who cannot provide for themselves. The private sector won't provide for them because there's no profit in it. Just as the government won't provide exceptional healthcare/education because it's incapable of doing so given it's

you're missing some words here. but in any case the point i've made is very clear: the state is better at providing some things that can be provided by the private sector; and not just, as you claimed, things that are public goods or monopolies.

It already is a political choice. The result of that political choice is a system you don't like, but that doesn't mean it wasn't determined politically.

meaningless. and an utter failure to address the point.

Control of the money supply should be in government's hands. And it already is.

i've already explained this, but there are none so blind...

You asked for examples of government inefficiency and were generally credulous of the wider claim that government is less efficient than business. I gave a recent example from a developed nation ... one of those we are discussing specifically.

Your counter example, while a horrific accident, falls far short in effect of what governments have intentionally done. It is from a developing nation no one is discussing, and much less recent. It does still display that there are problems in the private sector. Generally with these sorts of problems the best solution is proper government oversight ... safety regulations and building standards. Certainly the answer is not nationalizing all business!

no i didn't. please stop making things up and changing what i say. it's on the same page of this thread; there's really no excuse for it. this is what i said:

these are unsupported assertions, and this has been pointed out, yet you base your argument on them. let's see some evidence; and a definition of "efficiency" while we're at it.

responding to these and similar assertions:

Which is good, because they're more efficient at it than government.

....

What you aren't accounting for though is that government is far worse at being efficient than a private business.

this was not an invitation for you to post silly examples of government waste, it was me asking you to back up your claims with some evidence. from your attempts to dodge, it looks like you haven't any evidence.

and the point about bhopal is that it, like the iraq war, is wholly irrelevant to a discussion about the money supply.

Our financial system fits into the "best solution" category. Government regulation and guidance set the rules, determine the overall money supply, yet allow private entities to go about handling the details within those regulations. The best of both worlds.

you've completely failed to demonstrate this; your assertions on the subject are deeply unconvincing and seem to be based on nothing more than your unshakable faith in the god of the invisible hand.

[Aeson]

you're missing some words here.

Sorry, must have gotten distracted. What I was saying is that government can't afford to give everyone the highest standard of healthcare attainable by the wealthiest via private health care. In both cases the failure has nothing to do with efficiency. Private enterprise just doesn't want to help people who can't pay. And it's just not feasible for anyone (government or otherwise) to provide the highest possible standard of healthcare to everyone.

but in any case the point i've made is very clear: the state is better at providing some things that can be provided by the private sector; and not just, as you claimed, things that are public goods or monopolies.

I've stated before having government providing a safety net is a good thing. You aren't shedding any new light on this discussion by bringing up specific cases where having government provide a safety net is a good thing.

meaningless. and an utter failure to address the point.

No, it is very apt. You want these things decided politically. They already are decided politically ... just in a way you don't like. What you are really saying is you want to bypass the political process and enforce your own will regardless of what our elected government would do instead.

i've already explained this, but there are none so blind...

You think the guy cutting the paper is controlling the money supply. He's only acting within the bounds set for him. (Same holds true for banks.)

no i didn't. please stop making things up and changing what i say. it's on the same page of this thread; there's really no excuse for it. this is what i said:

"i asked what you meant by "efficiency" and for some evidence for your claims about it."

You asked about what I meant by "efficiency".

this was not an invitation for you to post silly examples of government waste, it was me asking you to back up your claims with some evidence.

I provided an example of government waste and inefficiency in response to you asking about "efficiency".(I also posted my definition of efficiency twice, which you have ignored so far to continue to ask what my definition is.

and the point about bhopal is that it, like the iraq war, is wholly irrelevant to a discussion about the money supply.

You keep trying to fall back to an argument about the efficiency of government controlling the money supply. There is no argument there because I agree it's great the government controls the money supply.

You're just confused as to who is controlling the money supply currently.

[C0ckney]

Sorry, must have gotten distracted. What I was saying is that government can't afford to give everyone the highest standard of healthcare attainable by the wealthiest via private health care. In both cases the failure has nothing to do with efficiency. Private enterprise just doesn't want to help people who can't pay. And it's just not feasible for anyone (government or otherwise) to provide the highest possible standard of healthcare to everyone.

and if your aunt had a penis she'd be your uncle. so what?

(this is has nothing to do with the point you made and which i destroyed).

I've stated before having government providing a safety net is a good thing. You aren't shedding any new light on this discussion by bringing up specific cases where having government provide a safety net is a good thing.

are you really not capable of following a conversation? you made a claim about governments public goods and monopolies, i provided some examples of things the government does better which are neither. your support or otherwise for a 'safety net' is neither here nor there.

No, it is very apt. You want these things decided politically. They already are decided politically ... just in a way you don't like. What you are really saying is you want to bypass the political process and enforce your own will regardless of what our elected government would do instead.

cockney: a point
aeson: something irrelevant
cockney: that's irrelevant
aeson: no it isn't and here's some more nonsense

You think the guy cutting the paper is controlling the money supply. He's only acting within the bounds set for him. (Same holds true for banks.)

i really think it's about time you got some intellectual honesty.

"i asked what you meant by "efficiency" and for some evidence for your claims about it."

You asked about what I meant by "efficiency".

I provided an example of government waste and inefficiency in response to you asking about "efficiency".(I also posted my definition of efficiency twice, which you have ignored so far to continue to ask what my definition is.

i asked for two things, your definition of efficiency and some evidence to back up your claim. your claim was that the private sector is more efficient than the state. an example of a government acting wastefully does not support this claim, because it says nothing about the efficiency or otherwise of the private sector. this is really basic ****. you have provided zero evidence to support your position.

You keep trying to fall back to an argument about the efficiency of government controlling the money supply. There is no argument there because I agree it's great the government controls the money supply.

You're just confused as to who is controlling the money supply currently.

you're the one who brought up efficiency. my argument is based on interests and power. i think you really have a serious reading comprehension or honesty problem; though i don't rule out a combination of the two.

[Aeson]

(this is has nothing to do with the point you made and which i destroyed).

You didn't destroy my point. You simply said something (government is good at managing specific things) I had already said and pretended it was somehow arguing with me.

are you really not capable of following a conversation? you made a claim about governments public goods and monopolies, i provided some examples of things the government does better which are neither. your support or otherwise for a 'safety net' is neither here nor there.

In our conversation I have made statements about how governments are good at some things (public goods, regulating monopolies, providing safety nets). You have cherry picked one statement and pretended I didn't include safety nets, even though I had already specifically said safety nets. It's you who haven't been able to follow the conversation.

i asked for two things, your definition of efficiency and some evidence to back up your claim.

I gave the definition of efficiency I was using, and then several great examples of how government has failed spectacularly in that regard. You then pretended I didn't give the definition. I gave it again. You again pretended I didn't give the definition.

your claim was that the private sector is more efficient than the state.

In a specific manner as to what they were more efficient at. I said it's "good because banks are better at it" in regards to managing the legwork ...

I also noted where government is better suited. So your depiction of what I said is inaccurate.

an example of a government acting wastefully does not support this claim, because it says nothing about the efficiency or otherwise of the private sector.

I gave several examples. One was a direct comparison. (There are countless similar comparisons that can be made.) Another was showing how government is capable of truly egregious waste.

You countered with an example that you admit doesn't apply. It does apply though, as it shows the private sector isn't perfect. Which is why I had previously said there are things government can do that are very important. It calls for government oversight and regulation. Which goes nicely with what I've been saying about the money supply. Government doesn't have to cut the paper, give the loans, or take the deposits. (Well, they do have to give some loans and take some deposits, but not from the end customer.) They can adjust the regulations and interest rates to get the money supply where they want it to be without having to worry about the countless details of how it gets there.

you're the one who brought up efficiency. my argument is based on interests and power.

Yes, I brought up efficiency because it matters and you were ignoring it as a factor.

[C0ckney]

[I gave] several great examples of how government has failed spectacularly in that regard.

you could have given a thousand, but without any meaningful comparison between the state and the private sector you still wouldn't have backed up your claim. and that's the size of your contribution to this thread, a lot of twisting and turning, a lot of nonsense and logical fallacies, together with your usual big helping of intellectual dishonesty, but not a shred of evidence to back up the claim upon which you based your arguments.

i'm not interested in a faith based discussion, especially when the subject is so humdrum and uninspiring a deity as the god of the invisible hand, so i'll leave it there. if you want the last word, you're welcome to it.

[Fake Boris]

In system we have, government could just as easily choose to decrease the money supply as increase it. It's just generally a very bad idea to decrease the money supply because that would restrict growth and force a recession. This is true of any type of reserve system.

Wrong again. It's extremely difficult to reduce the money supply in full reserve banking, because it's not affected by credit crunches. At worst, there could be a reduction in the real money supply if there were growth and no new currency were issued. But that would be so obviously stupid no one would ever do it.

You keep making irrelevant claims because you don't understand the case being made.

Your concept of an increasing money supply necessarily being a bad thing is just weird. If the central bank is doing a decent job, all it means is the economy is expanding and being given room to keep expanding.

There's nothing inherently wrong with an ever increasing money supply. The problem is an ever increasing supply of credit money, an essential aspect of fractional reserve banking.

It is very poignant in regards to citizen's income replacing the service of consumer credit. Because in that case you are having government providing an already inferior service in many ways, and hoping they do so at least as well as private business was handing the replaced service.

Unsubstantiated bs again.

[N35t0r]

lol, ever increasing supply of credit money? Where do you get that from?

[hitokihitoshi]

I'm not a member of this forum, but I wandered in here yesterday and found myself so pissed off with Fake Boris that I had to take a moment to show that the guy has no ****ing clue what he's talking about. In particular, I'm going to show that the following statement is total BS: "If your average balance is 2K then they get to earn interest on 15-20K."

I'll start with three simplifying assumptions: (i) there are only two banks in the economy: a central bank and a single commercial bank; (ii) the commercial bank only finances itself using deposits --- i.e., no equity, no bonds etc; (iii) the commercial bank faces a 20% reserve requirement and always lends up to this cap.

So, let's suppose that person A comes along and deposits $400. The bank places $400*0.2=$80 in reserves and lends $400*0.8=$320 to person B. Person B uses the loan to buy something from person C, who then deposits the proceeds, which the bank then distributes between $320*0.2=$80 worth of reserves and $320*0.8=$256 worth of loans. Repeat and you end up with

$400*(0.8 + 0.8*0.8 + 0.8*0.8*0.8 + ...) = $400*[ ((1-0.8)^(-1)) - 1 ] = $1600

worth of loans, against $1600/4=$400 worth of reserves and $1600+$400=$2000 worth of deposits. Admitted, the 20% reserve requirement is kind of arbitrary, but replacing it with any number between zero and one hundred won't alter the fact that Boris should STFU right the **** now.