Full Reserve Banking

[Imran Siddiqui]

Claiming something is a fact without proving it is just a BAM, fakeBoris. Giancarlo couldn't have done worse.

[Fake Boris]

I simply posted

How could you possibly think that meant anything other than I shop for the best bank around?

Because It's A Thread About Full Reserve Banking And That Your Intervention Came On The Same Page I Said This (#38):

The bank would charge for checking services like any business.

Sorry for assuming you're keeping up with the conversation.

[Fake Boris]

Claiming something is a fact without proving it is just a BAM, fakeBoris. Giancarlo couldn't have done worse.

Fractional reserve banking is the most obvious & basic fact of economic life.

This is becoming great

[N35t0r]

Humanity's resistance to simple facts never ceases to amaze me.

So you deposit 10k, they loan out 8 of those 10 k, and magically the guy they loan it to deposits the cash back in the same bank?

Also, even if he did, the interests on those 8k would correspond to the guy that deposited them (and over which he is paying interest to the first bank).

Your position that they earn interest on the whole 'extended' amount is ridiculous and false.

Under your 'argument', then when I buy a chair I'm also being cheated, since with the profits from my chair, the chair company can expand, so they should be paying me for buying the chair!

[N35t0r]

Very short explanation:

It wouldn't cause hyperinflation because under fractional reserve banking, banks only keep around 10% of deposits in actual liquid reserves. The other 90% is composed of different non-cash financial assets (mostly debt).
In a full reserve reform, the Fed would buy assets held by banks with fresh money (which include private and public debts). These debts, now owned by the Fed, would be canceled. At the same time however, the reserve requirement for private banks would be raised to 100%. Effectively, this would force banks to keep the fresh monies in their vaults to back deposits. The money, not being recirculated, would not cause inflation.

So the Fed buys up all that debt, what do they do with it? condone it, or cash it in?

[Fake Boris]

So the Fed buys up all that debt, what do they do with it? condone it, or cash it in?

Write off

[N35t0r]

So you'd suddenly have billions (if not trillions) of dollars that were to be destined to repay loans that are now going to be spent buying things. And prices will not increase?

[Fake Boris]

So you deposit 10k, they loan out 8 of those 10 k, and magically the guy they loan it to deposits the cash back in the same bank?

When a bank is large enough, the only thing that matters is the average balance per depositor. Reserves flow out to other banks, but also in.

[N35t0r]

Generally, people who take out loans at X% interest don't deposit that money in zero-interest accounts, they invest it.

---

Those extra deposits are made by people, and the interest would be, if anything, due to the poeple who deposit that cash. Arguing that the bank earns interest over 15k when you deposit 2 is simply ridiculous.

[Elok]

It's a little more than that. Private interests are in charge of the money supply. What could possibly go wrong?

Private interests have had a hand in (not "been in charge of") the money supply at least since Hamilton set things up after the Revolution. I don't know how things worked beforehand. We have had a handful of crashes, some severe, but also very, very rapid economic growth. I understand the western banking system in general has caused problems--for Muslims, Native Americans, Chinese, Africans, and other people who didn't have access to it, because it gives us the means to move assets hella fast. Your system, by contrast, sounds like it would cause stagnation.

Your employer is generating plus-value, but not creating money, which makes this an altogether different case.

The bank doesn't "create" money, the mint does; the bank moves it around like any other business. It is generating value by giving ready access to money. It also eats a substantial portion of the risks involved, and has overhead costs like any other business. Similarly, my employer has me turn a handful of relatively cheap parts into an electronic lock control system selling for more than twice the cost of said parts. I do not get paid anything like the difference in cost for each lock. Astonishingly, my employers are not rolling around in piles of cash like Scrooge McDuck, because there are substantial hidden costs, starting with rent and utilities.

Very short explanation:

It wouldn't cause hyperinflation because under fractional reserve banking, banks only keep around 10% of deposits in actual liquid reserves. The other 90% is composed of different non-cash financial assets (mostly debt).
In a full reserve reform, the Fed would buy assets held by banks with fresh money (which include private and public debts). These debts, now owned by the Fed, would be canceled. At the same time however, the reserve requirement for private banks would be raised to 100%. Effectively, this would force banks to keep the fresh monies in their vaults to back deposits. The money, not being recirculated, would not cause inflation.

Okay, I've read this multiple times and it still doesn't make any sense to me. I will simply take it on faith that somehow the bank acts like a Schrodinger's cat box for debt money; it goes in and never, ever interacts with the outside world. That being the case, what is the point of this money? The whole purpose of money is to circulate. Money that can't be exchanged for goods or services is a scrap of worthless paper. It may be identical to other scraps of paper that can be so exchanged, but if they can't legally touch it, that's something of a cruel joke. In fact, from the bank's perspective, the money is a net loss, because it takes up physical space, has to be stored and protected, and gives them nothing. Also, if you give the government license to print its way out of debt, it will most certainly take advantage, and the banks will shortly be sitting on utterly fantastic and ever-expanding piles of cash they can't use. (Why are private hands less trustworthy than states, anyway? Lord knows the latter have done their share of hanky-panky.) I don't get how this works, at all. Nor why, under this system, the banks should not politely accept the Feds' cash at gunpoint, then carry on trade in a more traditionally managed and thus profitable currency while the dollar pile turns to dust inside the mountain they hollowed out to store it.

[N35t0r]

If the 'extra money' the banks create didn't create extra value, the economy would crash pretty soon (because loans wouldn't get repaid - see the housing bubble, that's an example of the extra money not creating nextra value).

However, most commercial loans go to finance investments, which create extra value.

[rah]

Because It's A Thread About Full Reserve Banking And That Your Intervention Came On The Same Page I Said This (#38):

God are you obtuse.
Just because a thread is about something doesn't mean crap at Poly.
But all of this still doesn't explain why you were right when you said the bank is cheating me. (because you can't)

[Pedotard]

Look guys I'm not about to give you a crash course on the basics of the monetary system. I've given you all you need, do your homework if you want to.

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.

Henry Ford

Henry Ford was an anti-semitic loon who thought Jewish financiers caused the first world war.

[Fake Boris]

Generally, people who take out loans at X% interest don't deposit that money in zero-interest accounts, they invest it.

Not, but the interests paid on said loans increases the bank's reserves, which enables it to issue more loans. Or the invested money is spent, on say, salaries, which find their way to checking accounts. This is not a rebute. Whichever way you go about it, the bank *has* to find a way to multiply a deposit. It's a constant.

Those extra deposits are made by people, and the interest would be, if anything, due to the poeple who deposit that cash. Arguing that the bank earns interest over 15k when you deposit 2 is simply ridiculous.

Unless you understand the basics of banking, which you don't.

[Fake Boris]

Okay, I've read this multiple times and it still doesn't make any sense to me. I will simply take it on faith that somehow the bank acts like a Schrodinger's cat box for debt money; it goes in and never, ever interacts with the outside world. That being the case, what is the point of this money? The whole purpose of money is to circulate. Money that can't be exchanged for goods or services is a scrap of worthless paper. It may be identical to other scraps of paper that can be so exchanged, but if they can't legally touch it, that's something of a cruel joke. In fact, from the bank's perspective, the money is a net loss, because it takes up physical space, has to be stored and protected, and gives them nothing. Also, if you give the government license to print its way out of debt, it will most certainly take advantage, and the banks will shortly be sitting on utterly fantastic and ever-expanding piles of cash they can't use. (Why are private hands less trustworthy than states, anyway? Lord knows the latter have done their share of hanky-panky.) I don't get how this works, at all. Nor why, under this system, the banks should not politely accept the Feds' cash at gunpoint, then carry on trade in a more traditionally managed and thus profitable currency while the dollar pile turns to dust inside the mountain they hollowed out to store it.

Elok, the reason why you don't understand is that you have yet to realize the monetary system isn't even close to working the way you think it is. What you don't understand is not full reserve banking, but banking in general.

As I said, the best for you would be to look for a tutorial. There are plenty on Youtube. It's a sincere suggestion. Currency is the most important defining factor of all our behaviours; people use it dozens of times a day; and yet they have no idea how it works.

I propose the following interpretative criterion:
economic situation where one agent doesn't understand what's going on = someone's getting screwed