ShackledNation
Libertarian
The Federal Reserve is not limited by any reserve requirements or deposits when it creates money. So yes, money can be created without restraint.You are mistaken. Money creation by commercial banks is restrained first by the amount of their deposits and second by the reserve requirement.Paper money would never come into existence unless it was originally backed by a market created currency (like gold) or decreed by government (hence the name fiat currency). Would you ever barter for pieces of paper in exchange for your cow? Not unless that paper was a receipt to gold or the actual currency. Today we use paper because government decrees we use paper. It was once exchangeable for gold and silver. Now it is not, and can be created with no restraint.
First of all, I never said bank runs are not an issue. Since October of 2000, hundreds of banks have failed.Yes! So why is that a problem? You already admitted bank runs are no longer an issue. Bzzzzt! Wrong. If a bank gave money to both the depositor and borrower such that their reserve requirement at the end of the day was too low, they would simply borrow in the Fed Funds market. In your imaginary world, banks would never need to worry about reserve requirements or too many withdrawals, they would "simply create more money".Shackled said:When you deposit $100 in the bank, you probably worked for that money. Maybe it represented a day's work. Loaning that money out is perfectly fine. But if it is loaned out, you cannot have access to it. If you put $100 in the bank, and they loan out $90, the only way you can ever withdraw more than $10 is if you use the 10% reserves of other banking customers.
FDIC: Failed Bank List
I said that our government and the Federal Reserve subsidize banks (specifically the big ones in bed with government) so they do not fail. Maybe you are fine with that. As for why there is a problem...the point was not that you are using someone else's money. It was more the fact that the money is not there despite the banks giving every demand deposit customer access to their full accounts when only 10% is there. The problem is creating money to finance more loans rather than transfer actual saved money.
You aren't following me at all. If you read my post clearly, you would have seen that the result is more deposits. Let me reiterate.LOL! Make up your mind. Either they "simply create more money" or they need deposits in order to make loans.This created money is loaned out. This is done by making loans financed by deposits of already loaned funds. If a bank loans out $90, and then the debtor deposits that $90, the bank would still have $90. The depositor transferred $90 to the bank. The bank then transferred the $90 to the debtor, who then transferred it back into the bank. But under fractional reserve banking, the bank says there is $180. In order to do this, it must pretend that it never actually loaned out the depositor's funds. On the bank records, the depositor accounts will remain unchanged with every loan made from them, representing just that practice. But the debtor accounts will increase.
And your last point is wrong, the depositor accounts do not remain unchanged.
Every loan in which the borrower keeps the money at the same bank means a new deposit.
$100, first deposit.
$90 borrowed but stays at the bank, $190 in deposits and $90 in loans.
Next loan, $81 borrowed but stays at the bank, $271 in deposits, $171 in loans.
At every point in the cycle, loans are less than deposits.
Here is what would happen under a nonfractional reserve banking system. Bob deposits $100 in a bank. The bank loans out $90 of Bob's money by putting it in another account accessible to the debtor. It changes Bob's account to $10, alerting Bob that his money has been loaned. No money creation. But that is not what happens under our system.
The bank does not say Bob's account has $10 when it makes a loan. It says Bob's account still has $100. Deposits of debtors (those receiving loans from the bank) will increase as loans are made. But deposits of those who finance the loans with their deposits remain unchanged.
So you admit modern banking involves fudging the numbers to create money and the illusion of wealth? Modern banking is a nightmare that causes the business cycle. Enough with your pathetic personal attack responses. Such attacks are the mark of a closed mind. Taking deposits and making loans from deposits is perfectly legitimate. But that is not all that is going on. You deposit $100 in the bank. The bank loans out $90. That $90 is redeposited. There is now $190 according to the banks. It is unbelievable how difficult it is for you to see the absurdity in that. If a deposit was used to finance a loan, the money supply could not increase because money would be transferred. Instead, banks fudge the numbers so they can give customers the impression that their deposits are accessible on demand at all times. They simply create money to finance new loans. The amount of money they create is limited by how much is deposited. But as more money is created, more is deposited, and the supply will expand to no end.The solution is modern banking. If you don't like it, please, don't deposit money into or borrow from a bank. Their is no fraud involved. If you don't realize that banks are in business to take deposits (and pay interest on them) and make loans from those deposits (and charge interest on those loans), you're probably too dumb to open a bank account.When a normal loan is made, the provider of the funds for the loan would not be able to access the funds provided for the loan. Those funds would be in use by the debtor. Under our current system, when you deposit money in a demand deposit, it is not used to create loans but to create money. You always have access to your account. But if your account is used to make loans, how can this be? The solution is to fudge the numbers and create more money. This practice is bizarre at best and fraudulent at worst.
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