Full Reserve Banking

[Fake Boris]

God are you obtuse.
Just because a thread is about something doesn't mean crap at Poly.

[N35t0r]

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.

Of course the money reenters the system. That's the value of banks. Arguing that they somehow owe you for the economic banefit of the money you deposit is as ridiculous as saying that manufacturers owe you when you buy their goods because they reinvest part of the profits.

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

great argument there

[Fake Boris]

The money does not "reenter the system".

Additional money is created at a faster rate than reserves, because it only takes one dollar of reserve to back ten dollars of deposits.

Thus, on 2K of deposits, the bank earns interest on much more.

Consider this thread my service to your education.

[Dauphin]

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!

A simpler way to look at it is to see a banks debt asset and liabilities and its cash reserves. The multiplier logic of loan 80% ad nauseum is not how it works in practice because it is across all banks, not just one, but the effect is measurable in totality.

I don't see why OB thinks you are being cheated by this phenomenon though.

E.g. You are a bank, with a requirement to have a minimum 10% cash to deposit ratio. You have someone deposit $100. You can then loan $900 by debiting another customers loan account $900 and crediting their current account $900. You have a ratio of $100 cash (from the first person) to $1,000 deposits (from the two). You have effectively created that $900.

[Elok]

Acting like a condescending ass in response to every challenge is not an argument.

[N35t0r]

A simpler way to look at it is to see a banks debt asset and liabilities and its cash reserves. The multiplier logic of loan 80% ad nauseum is not how it works in practice because it is across all banks, not just one, but the effect is measurable in totality.

I don't see why OB thinks you are being cheated by this phenomenon though.

Which is my point... the fact that you deposit the initial loan in that bank or in other only affects that bank by the initial deposit amount.

[Dauphin]

See my edit. The example may help.

[N35t0r]

The money does not "reenter the system".

What the **** do you think people who take out loans do with the money?

[Bereta_Eder]

I have no idea what you're talking about and I'm not going to read all that.
However,
Dauphin (or anyone else who thinks he knows this somewhat),
wasn't the case though, also and particulalry in the Irish crisis, that the central banks in various european countries simply ignored the warning signs of some private bankers about the minimum deposits a bank was supposed to hold before it could loan more? And that this was done in corelation with the private bank's directorate? Who actually forced their employees not to report the correct figures to the central banks anyway but keep loaning like there was no tomorrow?

[Elok]

See my edit. The example may help.

If I follow you right, you're saying the initial deposit gives them the effective license to loan out nine times as much (or four times, with an 80% margin)? Stands to reason. That's not "swindling" me out of anything, unless the bank oversteps, folds, and gets bailed out with my tax dollars. But the system itself robs me of nothing.

Okay, how about his inflation escape thing? His first explanation was unfathomable, and he won't elaborate. Is there some accounting trick that somehow makes that work?

[N35t0r]

See my edit. The example may help.

crap, my reply was ate by the fickle copy/paste gods.

In essence:
I see your point, but unless the bank wants to issue a loan that's anything other than a promise to pay, it needs to have enough cash on hand (from other deposits) to pay for the possibility that the guy who took out the loan wants to do anything with it. So it's not the 100 deposit that allows the bank to create the extra 900, but the aggregate of all its business.

In any case, this was a tangent related to Rah's post. OB still has to justify how several billion dollars (or maybe more?) which would have gone towards loan payments going instead towards buying stuff is not going to cause prices to go up.

[C0ckney]

In any case, this was a tangent related to Rah's post. OB still has to justify how several billion dollars (or maybe more?) which would have gone towards loan payments going instead towards buying stuff is not going to cause prices to go up.

funnily enough one of the main criticisms made (incorrectly i think FWIW) of full reserve banking is that it would lead to deflation.

[Aeson]

It would definitely be deflationary if Oncle would achieve what he seems to want with this. That being, to remove most of the profitability from the financial sector. What happens when a bank's stock loses 80% of it's value overnight? What happens when every bank's stock loses 80% overnight?

[dannubis]

Who actually forced their employees not to report the correct figures to the central banks anyway but keep loaning like there was no tomorrow?

The Greek governement ?

[C0ckney]

It would definitely be deflationary if Oncle would achieve what he seems to want with this. That being, to remove most of the profitability from the financial sector. What happens when a bank's stock loses 80% of it's value overnight? What happens when every bank's stock loses 80% overnight?

not necessarily, and although oncle boris has not really explained it very well, there's nothing inherently deflationary about full reserve banking. here's a quote from martin wolf on how it could work.

“First, the state, not banks, would create all transactions money, just as it creates cash today. Customers would own the money in transaction accounts, and would pay the banks a fee for managing them.

Second, banks could offer investment accounts, which would provide loans. But they could only loan money actually invested by customers. They would be stopped from creating such accounts out of thin air and so would become the intermediaries that many wrongly believe they now are. Holdings in such accounts could not be reassigned as a means of payment. Holders of investment accounts would be vulnerable to losses. Regulators might impose equity requirements and other prudential rules against such accounts.

Third, the central bank would create new money as needed to promote non-inflationary growth. Decisions on money creation would, as now, be taken by a committee independent of government.

Finally, the new money would be injected into the economy in four possible ways: to finance government spending, in place of taxes or borrowing; to make direct payments to citizens; to redeem outstanding debts, public or private; or to make new loans through banks or other intermediaries. All such mechanisms could (and should) be made as transparent as one might wish.

so instead of new money being created as debt, through policy measures designed to increase borrowing, it would be passed directly to citizens through tax cuts, public spending, or just giving them money (citizens income or similar ideas). money created in this way could be also used to repay public debts, or given to banks to lend to businesses in the productive - i.e. non-financial - economy. there would be diverse ways to create as much, or as little money needed to control inflation or the wider economy.