Should and will the Fed be abolished?

[expat_panama]

...since the early 1600's, both the depositor and creditor have had claims on collateral too. Given how banks habitually make loans for a fraction of the property being mortgaged, we end up with recourse way over face value of deposits.

...bank runs have shown how the system is inherently unstable...

There are very silly people that say car crashes have shown that auto transportation is inherently unsafe. The last wave of bank runs in the US was in 1933. From here: "Since the start of FDIC insurance on January 1, 1934, no depositor has lost a single cent of insured funds as a result of a failure. " We use cars and we use banks that are more stable than cars and saying banks are unstable is crazy.

...Some economist even like the idea that money is created, saying it is necessary. My view is that when money is created, it is not good.

America decided with its founding to create money. America is good and the fact that you and I both use money is good.

 

[expat_panama]

... So the bank loaned out $900 and then $810, totaling $1710 (and the process continues so the final number is much higher). The only real money deposited is the original $1000...

Some call it the 'multiplier effect', but it's nonsense to say the original $1,000, is the only 'real money' when it was created the same way and is no different than virtually all money created in the US.

...It is harder to see what is going on with a fiat currency. Let me use a gold backed currency as an example. You deposit 1000 ounces of gold in the bank in a checking account. The bank gives you $1,000. Because the economy uses the bank receipts as money, actual gold is not lent out. The bank simply issues more receipts to gold. The bank will loan out, say, $900, then $810, even though it is not loaning out any gold. Clearly, there are more receipts than real currency deposited. The reason it is more complicated today is because currency and paper receipts are now the same thing, so it is harder to see. Much of it is also done electronically...

It's the same process with or without the gold standard and the receipts are the same.

...It is all very fraudulent, because the original depositor's money is being used for loans greater than $1000)...

Words mean things. We can only communicate if we use the same standard definitions. From here:

fraud [frɔːd]
n

1. deliberate deception, trickery, or cheating intended to gain an advantage
2. an act or instance of such deception​

You use banks because you know what's happening and there is no deception and you loose no advantage. It is not fraudulent by a standard definition.

 

[editec]

How would that work? Banks have to hold your entire deposit in reserve? How would anyone get a loan?

Time deposits. You would have to pay to have demand deposits, but you would get interest for the time deposits. This is when you agree to give the bank ownership of your money for a certain amount of time. (This is done today as well). The banks then pay back the money with interest. Basically, you loan your money to the bank, and then the bank loans that same money out rather than printing new receipts that represent no new wealth.

Likely banks would suggest plans in which a certain amount of money is saved in time deposits and another amount is in the demand deposits. It would do it in a way so costs are minimized to customers (more will go to cheaper banks) but they still make profits off loans and fees. Maybe they would even offer free plans in which the payment by the customer was simply a certain amount of funds in a time deposit. The bank would profit off the interest, covering storage costs. The difference is, bank runs will be impossible, and prices will cease to continually rise over time, and instead fall (on net balance, of course some things will change in price as consumer valuations change). You would eliminate the moral hazard of government having to bail out banks, saving the tax payers billions in revenue. With the the inflation cycle ended, savings will grow in value over time, rather than diminish in value as the dollar loses purchasing power. Poorer families will not have to worry about complicated investment plans to move up the social ladder.

Banks would also likely lend out some of their profits to create an even larger supply of savings. This When you think about it, it is a much more logical, safe, and desirable system. Banks would also likely lend out some of their profits to create an even larger supply of savings. This larger supply will allow them to charge lower interest rates. Shareholders investing in the banks also contribute to that banks loanable funds. When you think about it, it is a much more logical, safe, and desirable system.

Here is a better explanation I found on google"

Hope that clears up confusion. When I first lost my faith in fractional-reserve banking, I asked the same questions. People have savings accounts and checking accounts already. The difference is that only savings could be loaned out, tying credit to savings. In the view of Austrians, it is the severing of the tie between savings and credit that causes over expansions and retractions in capitalism. If the currency you use to do business with is unstable and constantly changing in quantity, business itself will be unstable.

Live and learn, Kevin.

The stockholders in the 12 regional Federal Reserve Banks are the privately owned banks that fall under the Federal Reserve System. These include all national banks (chartered by the federal government) and those state-chartered banks that wish to join and meet certain requirements. About 38 percent of the nation’s more than 8,000 banks are members of the system, and thus own the Fed banks.

The concept of "ownership" needs some explaining here, however. The member banks must by law invest 3 percent of their capital as stock in the Reserve Banks, and they cannot sell or trade their stock or even use that stock as collateral to borrow money. They do receive dividends of 6 percent per year from the Reserve Banks and get to elect each Reserve Bank’s board of directors.

If the Fed is privately owned, why does the government get much much more of the Fed's earnings than the shareholders?

What profits does the Government get from the FED?

Can you give me the 2010 contribution the FED paid either in US corporate taxes or as profits?

Far as I know the FED RESERVE BANKS pay the Federal government and state governments NOTHING at all in the form of taxes or profits.

If you know that they do please lead me to the data that supports that claim, Kevin.

The ONLY organizations that I KNOW make money on the FED are the banks which own it.

They're, incidently, getting 6.0% per annum.

I have bank account in one of the banks that owns the FED and they pay me a current annual return of 0.1% on my deposits.

 

[Toddsterpatriot]

Time deposits. You would have to pay to have demand deposits, but you would get interest for the time deposits. This is when you agree to give the bank ownership of your money for a certain amount of time. (This is done today as well). The banks then pay back the money with interest. Basically, you loan your money to the bank, and then the bank loans that same money out rather than printing new receipts that represent no new wealth.

Likely banks would suggest plans in which a certain amount of money is saved in time deposits and another amount is in the demand deposits. It would do it in a way so costs are minimized to customers (more will go to cheaper banks) but they still make profits off loans and fees. Maybe they would even offer free plans in which the payment by the customer was simply a certain amount of funds in a time deposit. The bank would profit off the interest, covering storage costs. The difference is, bank runs will be impossible, and prices will cease to continually rise over time, and instead fall (on net balance, of course some things will change in price as consumer valuations change). You would eliminate the moral hazard of government having to bail out banks, saving the tax payers billions in revenue. With the the inflation cycle ended, savings will grow in value over time, rather than diminish in value as the dollar loses purchasing power. Poorer families will not have to worry about complicated investment plans to move up the social ladder.

Banks would also likely lend out some of their profits to create an even larger supply of savings. This When you think about it, it is a much more logical, safe, and desirable system. Banks would also likely lend out some of their profits to create an even larger supply of savings. This larger supply will allow them to charge lower interest rates. Shareholders investing in the banks also contribute to that banks loanable funds. When you think about it, it is a much more logical, safe, and desirable system.

Here is a better explanation I found on google"

Hope that clears up confusion. When I first lost my faith in fractional-reserve banking, I asked the same questions. People have savings accounts and checking accounts already. The difference is that only savings could be loaned out, tying credit to savings. In the view of Austrians, it is the severing of the tie between savings and credit that causes over expansions and retractions in capitalism. If the currency you use to do business with is unstable and constantly changing in quantity, business itself will be unstable.

Live and learn, Kevin.

If the Fed is privately owned, why does the government get much much more of the Fed's earnings than the shareholders?

What profits does the Government get from the FED?

Can you give me the 2010 contribution the FED paid either in US corporate taxes or as profits?

Far as I know the FED RESERVE BANKS pay the Federal government and state governments NOTHING at all in the form of taxes or profits.

If you know that they do please lead me to the data that supports that claim, Kevin.

The ONLY organizations that I KNOW make money on the FED are the banks which own it.

They're, incidently, getting 6.0% per annum.

I have bank account in one of the banks that owns the FED and they pay me a current annual return of 0.1% on my deposits.

Live and learn, editec. The Fed turned over about $78.4 billion to the Treasury, based on 2010 earnings. The "private owners", on the other hand, received dividends on $1.6 billion.

FRB: Press Release--Reserve Bank income and expense data and transfers to the Treasury for 2010--January 10, 2011

 

[expat_panama]

...What profits does the Government get from the FED? Can you give me the 2010 contribution the FED paid either in US corporate taxes or as profits? Far as I know the FED RESERVE BANKS pay the Federal government and state governments NOTHING at all in the form of taxes or profits....

Congress has the Fed charge banks interest on loans and fees for services that Congress says they have to buy. The Fed has to turn all that money over to the US Treasury.

The exact amounts are in the Fed's annual report --it's 9.6MB and 453 pages long. The Balance Sheet on page 27 shows the Fed's total capital (assets - liabilities) went up $5B in 2020 and dropped $4B in 2011. That means the Fed poured a billion into the treasury over the past two years.

 

[expat_panama]

...the Fed poured a billion into the treasury over the past two years.

--and from Todd's link:

...The Federal Reserve Board on Monday announced preliminary unaudited results indicating that the Reserve Banks provided for payments of approximately $78.4 billion of their estimated 2010 net income of $80.9 billion to the U.S. Treasury...

I stand corrected.

 

[ShackledNation]

Your claim is incorrect. Go back to my example. You deposit 50 $20s in the bank. The only deposit the bank has received. I claim they can loan less than $1000 because they hold 10% in reserve as vault cash.
Please run thru the scenario which allows them to loan out more than that deposit amount of $1000. Please show all your steps. Thanks.

With the $1000 deposit, the bank loans out $900. Often banks loan to their own customers, and the bank electronically adds the money to the customer's own deposit account with the bank. This means the bank has an additional $900 all of a sudden that it can loan out. It will loan out $810 in the same fashion. (It may loan it to non customers of the bank, but that doesn't change anything for all banks do the same thing). So the bank loaned out $900 and then $810, totaling $1710 (and the process continues so the final number is much higher). The only real money deposited is the original $1000. It is harder to see what is going on with a fiat currency.

You said banks loan out more than their deposits. In your example, you have 2 loans totalling $1710 based on 2 deposits totalling $1900. The only "real money" is the original $1000? LOL!
I just deposited $1000 in the bank, is my deposit real? If my employer paid me the $1000 from a loan, is my deposit now fake?

Well, yes. The other money has been created out of thin air. Welcome to modern banking. The economy will treat than newly created money just like all other money. But because the money supply has increased, prices will increase. We allow the banks to counterfeit money so they can have larger profits. But those profits are ultimately paid for by a devalued dollar. Again, it is easier to understand when you look at a fixed currency example. When the currency is the receipt, it becomes much harder to understand, but money is still created that exceeds the initial deposit.

 

[ShackledNation]

No I'm not. You seem to think loans strictly from time deposits (0% reserve requirement) are somehow safer for the banks or safer for the economy. So explain how a 0% reserve is safer than a 10% reserve.

You say you are following me and you understand the difference between time deposits and demand deposits, and then you say that. When did I ever say 0% reserves were better than 10% reserves? I am saying loans from time deposits in a full-reserve banking system (again, that means demand deposits cannot be loaned) will not create money whereas loans from demand deposits in a fractional reserve banking system will.

I already told you, the time deposit doesn't increase the money supply, the loan from the deposit does.

In a full reserve banking system? How? Go through the numbers and follow each dollar. If I loan you $100 I am not creating $100, I am transferring my ownership of the $100 temporarily to you, and in exchange you will pay me interest. Time deposits are just simple loans in which ownership is transferred. I have detailed why time deposits under full reserve banking do not create money. You have replied with yes they do. Give me your reason behind your repeated assertions.

That is a liquidity issue for the bank, doesn't change the fact that loans, whether based on 0% reserves or 10% reserves, increase the money supply. Under your 100% reserve banking, time deposits still have a 0% requirement. If you make a time deposit and I get a loan and spend the money, the new money holder can make a time deposit and a new borrower can take the money and spend it, etc. etc.
More new money can be created from time deposits than from demand deposits. 0% requirement, remember?

Really? Can you tell me where the new money is? Because if you put your loan in another time deposit, you can no longer use that loan. There will never be more money in existence than was originally deposited. Say you are using gold as money. Bob deposits 100 ounces of gold in a time deposit. Sue is loaned the 100 ounces of gold from the time deposit. She then puts it in another time deposit. Are there now 200 ounces of gold?

Stop, get out your calculator. Bob has an account with $100 (that's M2) , Jill has an account with $100 (that's M2) , Moses has a hand full of cash (that's M1 and M2) , the money supply is $300.

No need for a calculator when you are simply transferring the same value to another person. Time deposits should not be counted in the money supply. It makes absolutely no logical sense to do so. I would love to see your argument as to why time deposits should be counted as money other than the Fed says so. Bob transferred his money to Jill, and then Jill transferred it to Moses. Where is the creation? If I donate a book to the library, and the library then loans that book out to a patron, and that patron then loans that book out to a friend, there is still just 1 book.

 

[ShackledNation]

...since the early 1600's, both the depositor and creditor have had claims on collateral too. Given how banks habitually make loans for a fraction of the property being mortgaged, we end up with recourse way over face value of deposits.

...bank runs have shown how the system is inherently unstable...

There are very silly people that say car crashes have shown that auto transportation is inherently unsafe. The last wave of bank runs in the US was in 1933. From here: "Since the start of FDIC insurance on January 1, 1934, no depositor has lost a single cent of insured funds as a result of a failure. " We use cars and we use banks that are more stable than cars and saying banks are unstable is crazy.

Well yes, cars are unsafe...those people are not silly, they are right. Automobile accidents are one of the leading causes of death in the United States.

Of course no depositor has lost any funds. The Federal Reserve can just create more money to patch up the wholes, or taxpayers will bail out the banks (have you heard of TARP?) The fact that we have to keep propping up this system does not make it stable. That is like saying that cars are safer because we can keep people on life support after a major accident.

...Some economist even like the idea that money is created, saying it is necessary. My view is that when money is created, it is not good.

America decided with its founding to create money. America is good and the fact that you and I both use money is good.

STRAWMAN, and quote out of context. I am not saying using money is bad. I even repeatedly said throughout this thread that money is good so we don't have to barter. But creating more money is not good. You want a stable, unchanging supply of money. You also need to restudy American history. Gold was used as money before the Constitution, and it was used as money after it. Even foreign minted coins were legal tender in circulation. The reason gold was used as money was because it couldn't be easily created. Here is a Jefferson quote from Time Magazine:

"On the topic of money creation, Jefferson wrote, "If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks...will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
Back then, inflation meant the expansion of the money supply and deflation meant the contraction of the money supply. Today we misuse the terms, just like we misuse liberal and conservative in America.

 

[ShackledNation]

... So the bank loaned out $900 and then $810, totaling $1710 (and the process continues so the final number is much higher). The only real money deposited is the original $1000...

Some call it the 'multiplier effect', but it's nonsense to say the original $1,000, is the only 'real money' when it was created the same way and is no different than virtually all money created in the US.

You have proven how difficult it is to see this reality under fiat money. Read my reply below.

...It is harder to see what is going on with a fiat currency. Let me use a gold backed currency as an example. You deposit 1000 ounces of gold in the bank in a checking account. The bank gives you $1,000. Because the economy uses the bank receipts as money, actual gold is not lent out. The bank simply issues more receipts to gold. The bank will loan out, say, $900, then $810, even though it is not loaning out any gold. Clearly, there are more receipts than real currency deposited. The reason it is more complicated today is because currency and paper receipts are now the same thing, so it is harder to see. Much of it is also done electronically...

It's the same process with or without the gold standard and the receipts are the same.

You are absolutely right. It is the same process. Under the gold standard, you deposit 1000 ounces of gold, which functions as money. Receipts function as money only because they are supposed to represent a fixed amount of gold. When banks create more receipts, they are not creating more gold. Gold represents the real money, and no matter how many receipts to it you print it can never magically duplicate itself.

Words mean things.

Is this a new revelation of yours?

We can only communicate if we use the same standard definitions. From here:

fraud [frɔːd]
n

1. deliberate deception, trickery, or cheating intended to gain an advantage
2. an act or instance of such deception​

You have a demand deposit, and banks say you can withdraw most of the money out whenever you want. Yet only 10% of the money will ever really be there. Banks are at the same time using your money and everyone else's money to make profit in the hopes you wont realize your money is not all there. That is not deception intended to gain an advantage? Counterfeiting is fraud. If people cannot create their own money by adding numbers to their electronic accounts, why can banks? Because our laws say so? Come on. The banks create money and expect us to believe each unit of money has the same value as it did when we lent it in. Banks are devaluing our money, not saving it for us.

You use banks because you know what's happening and there is no deception and you loose no advantage. It is not fraudulent by a standard definition.

If a company is selling horse droppings but calls it chocolate, they are fraudulent. If I realize what is happening, and they are still selling horse droppings as chocolate, they are still committing fraud. You say I use banks because there is no deception, I lose no advantage, and I know what is happening. I already gave you reasons suggesting the opposite. You have given me no reason to believe it isn't fraudulent. In fact, all you have done is repeated ad nauseum the believe that fractional reserve banking is not fraudulent. Then, instead of explaining why, you said I must just not know what fraudulent means. Right...

I am disappointed that your best argument is citing the definition of fraud instead of arguing why fractional reserve banking is not fraudulent.

 

[editec]

If the Fed is privately owned, why does the government get much much more of the Fed's earnings than the shareholders?

What profits does the Government get from the FED?

Can you give me the 2010 contribution the FED paid either in US corporate taxes or as profits?

Far as I know the FED RESERVE BANKS pay the Federal government and state governments NOTHING at all in the form of taxes or profits.

If you know that they do please lead me to the data that supports that claim, Kevin.

The ONLY organizations that I KNOW make money on the FED are the banks which own it.

They're, incidently, getting 6.0% per annum.

I have bank account in one of the banks that owns the FED and they pay me a current annual return of 0.1% on my deposits.

Live and learn, editec. The Fed turned over about $78.4 billion to the Treasury, based on 2010 earnings. The "private owners", on the other hand, received dividends on $1.6 billion.

FRB: Press Release--Reserve Bank income and expense data and transfers to the Treasury for 2010--January 10, 2011

Ah, thanks, Kevin. Always nice to learn something new.

So for the paltry sum of $78.4 billion dollars the member banks of the FED get first shot at the new money.

Plus they get some small divident on their original investment, too.

Good deal for them, a crappy deal for the rest of us.

 

[expat_panama]

We can only communicate if we use the same standard definitions. From here:

fraud [frɔːd]
n

1. deliberate deception, trickery, or cheating intended to gain an advantage
2. an act or instance of such deception​

...Banks are at the same time using your money and everyone else's money to make profit in the hopes you wont realize your money is not all there. That is not deception intended to gain an advantage?...

It's not believable that people at the banks conspire to delude their customers into believing all of the deposits are in the bank always and never is one penny loaned out. I know that's not true and you must know that this is not true and you're not thinking about what you're stating. Everyone's heard James Stewart tell the mob in the Bailey Savings and Loan that the deposits were loaned out to the neighbors. Kids learn this in school.

Counterfeiting is fraud...

Please agree that our words should conform to standard definitions such as this one from here:

coun·ter·feit (kountr-ft)

v. coun·ter·feit·ed, coun·ter·feit·ing, coun·ter·feits
v.tr.
1. To make a copy of, usually with the intent to defraud; forge: counterfeits money.
2. To make a pretense of; feign: counterfeited interest in the story​

​

The money created by banks and backed by collateral in accordance with law is the chosen legal tender in most countries including the US. Gold is not. A man was recently arrested for counterfeiting because he said the gold coins he made could be used as actual dollars and he attempted to use and convince others to use them as US dollars. That's what counterfeiting is.

 

[Toddsterpatriot]

What profits does the Government get from the FED?

Can you give me the 2010 contribution the FED paid either in US corporate taxes or as profits?

Far as I know the FED RESERVE BANKS pay the Federal government and state governments NOTHING at all in the form of taxes or profits.

If you know that they do please lead me to the data that supports that claim, Kevin.

The ONLY organizations that I KNOW make money on the FED are the banks which own it.

They're, incidently, getting 6.0% per annum.

I have bank account in one of the banks that owns the FED and they pay me a current annual return of 0.1% on my deposits.

Live and learn, editec. The Fed turned over about $78.4 billion to the Treasury, based on 2010 earnings. The "private owners", on the other hand, received dividends on $1.6 billion.

FRB: Press Release--Reserve Bank income and expense data and transfers to the Treasury for 2010--January 10, 2011

Ah, thanks, Kevin. Always nice to learn something new.

So for the paltry sum of $78.4 billion dollars the member banks of the FED get first shot at the new money.

Plus they get some small divident on their original investment, too.

Good deal for them, a crappy deal for the rest of us.

The name is Todd, not Kevin. Paltry sum? LOL!

Please explain how they get "first shot at the new money" and why you feel it matters.

 

[Toddsterpatriot]

With the $1000 deposit, the bank loans out $900. Often banks loan to their own customers, and the bank electronically adds the money to the customer's own deposit account with the bank. This means the bank has an additional $900 all of a sudden that it can loan out. It will loan out $810 in the same fashion. (It may loan it to non customers of the bank, but that doesn't change anything for all banks do the same thing). So the bank loaned out $900 and then $810, totaling $1710 (and the process continues so the final number is much higher). The only real money deposited is the original $1000. It is harder to see what is going on with a fiat currency.

You said banks loan out more than their deposits. In your example, you have 2 loans totalling $1710 based on 2 deposits totalling $1900. The only "real money" is the original $1000? LOL!
I just deposited $1000 in the bank, is my deposit real? If my employer paid me the $1000 from a loan, is my deposit now fake?

Well, yes. The other money has been created out of thin air. Welcome to modern banking. The economy will treat than newly created money just like all other money. But because the money supply has increased, prices will increase. We allow the banks to counterfeit money so they can have larger profits. But those profits are ultimately paid for by a devalued dollar. Again, it is easier to understand when you look at a fixed currency example. When the currency is the receipt, it becomes much harder to understand, but money is still created that exceeds the initial deposit.

Banks don't create money out of thin air. Banks lend out a portion of their deposits.
No deposits, no loans, no money creation.
What's a fixed currency and why do you think it's better?

 

[Toddsterpatriot]

You say you are following me and you understand the difference between time deposits and demand deposits, and then you say that. When did I ever say 0% reserves were better than 10% reserves? I am saying loans from time deposits in a full-reserve banking system (again, that means demand deposits cannot be loaned) will not create money whereas loans from demand deposits in a fractional reserve banking system will.

When you say time deposits which have a 0% requirement are better than demand deposits which have a 10% requirement. As I have shown, time deposits are included in M2 so loans from time deposits do increase the money supply.

I already told you, the time deposit doesn't increase the money supply, the loan from the deposit does.

In a full reserve banking system? How? Go through the numbers and follow each dollar. If I loan you $100 I am not creating $100, I am transferring my ownership of the $100 temporarily to you, and in exchange you will pay me interest. Time deposits are just simple loans in which ownership is transferred. I have detailed why time deposits under full reserve banking do not create money. You have replied with yes they do. Give me your reason behind your repeated assertions.

When you deposit $100 in the bank, you get your 1 year CD statement. That is included in M2. When the bank loans me the 5 $20s you deposited, those $20s are now included in M1 (and therefore M2). The money supply has increased by $100. You should probably stop using the term "full reserve system", when time deposits have a 0% requirement. It would be less confusing.

That is a liquidity issue for the bank, doesn't change the fact that loans, whether based on 0% reserves or 10% reserves, increase the money supply. Under your 100% reserve banking, time deposits still have a 0% requirement. If you make a time deposit and I get a loan and spend the money, the new money holder can make a time deposit and a new borrower can take the money and spend it, etc. etc.
More new money can be created from time deposits than from demand deposits. 0% requirement, remember?

Really? Can you tell me where the new money is? Because if you put your loan in another time deposit, you can no longer use that loan. There will never be more money in existence than was originally deposited. Say you are using gold as money. Bob deposits 100 ounces of gold in a time deposit. Sue is loaned the 100 ounces of gold from the time deposit. She then puts it in another time deposit. Are there now 200 ounces of gold?

Yes, Bob has an account with 100 ounces of gold and Sue has 100 ounces in her hand. It's true, there was fractional reserve banking, even under the gold standard.

Stop, get out your calculator. Bob has an account with $100 (that's M2) , Jill has an account with $100 (that's M2) , Moses has a hand full of cash (that's M1 and M2) , the money supply is $300.

No need for a calculator when you are simply transferring the same value to another person. Time deposits should not be counted in the money supply. It makes absolutely no logical sense to do so. I would love to see your argument as to why time deposits should be counted as money other than the Fed says so. Bob transferred his money to Jill, and then Jill transferred it to Moses. Where is the creation? If I donate a book to the library, and the library then loans that book out to a patron, and that patron then loans that book out to a friend, there is still just 1 book.

Your money stops being money when you deposit it in the bank? Sounds like your argument makes less sense than the Fed's argument. The creation in your example is based on the IOUs being treated as money. If you in your example don't want to do that, feel free. In the real world, people (and the Fed) treat the money in your bank account as money. Sorry if that is so difficult to grasp.

 

[FiscalSanity]

I think a little history of how banking developed in the first place might be in order. According to Neil Ferguson's "The Ascent of Money" (2008), the first bankers were actualy gold and silver smiths. Because they had to have a lot of security to protect their goods and raw materials people started to ask them to hold gold and silver on deposit for them rather then keeping it in their homes or own their person, and there was no interest involved. In fact, the depositor paid the smith a small portion of the metals value in exchange for "renting" a secured space to store it.

Eventually the gold and silver smiths accumulated so much gold that they were having trouble being able to secure it. Around this same time some bright smith figured out that as long as they kept enough gold/silver on hand to cover whatever withdrawals their customers were going to be making that there wasn't any reason not to lend the rest of the gold out and make a profit by charging interest. And thus the moneylender (banker) was born.

Todays banks aren't any different from the moneylenders of ancient Babylon. It's still the same old game of fractional reserves that has been getting the world into financial trouble ever since we invented money. You deposit $1. The bank puts $1 on it's books and loan out $.80. The person who gets that .80 puts it in the bank until the pay a bill with it, and now the bank shows $1.80 on the books. They lend out .60 to someone else, get it back as a deposit, and now have $2.40 on the books. That keeps going on until that $1 has been stretched out to more then $8 on the books(yes, I oversimplified, so sue me ).

Is that money real? Well, only sort of. It's money that may be real some day, but it has nothing to do with the amount of money the bank actually has to pay it depositors and debts with today. In accounting terms it's nothing more then the book value of potential future revenue, which may or may not be realized. And guess what? Our entire economy is based on those same kind of semi-real numbers.

 

[boedicca]

I think it should be abolished Wie. We shouldn't have an entity that can simply print endless amounts of money to our detriment. All of these supposed fail safes are now failing.

All those "fail safes" are being used exactly according to the original purpose of the Federal Reserve: to derisk banks by pushing risks onto taxpayers.

 

[william the wie]

I think it should be abolished Wie. We shouldn't have an entity that can simply print endless amounts of money to our detriment. All of these supposed fail safes are now failing.

All those "fail safes" are being used exactly according to the original purpose of the Federal Reserve: to derisk banks by pushing risks onto taxpayers.

Not to mention the lion's share of profits from this stunt normally go to the shareholders who own the Fed.

 

[Toddsterpatriot]

I think it should be abolished Wie. We shouldn't have an entity that can simply print endless amounts of money to our detriment. All of these supposed fail safes are now failing.

All those "fail safes" are being used exactly according to the original purpose of the Federal Reserve: to derisk banks by pushing risks onto taxpayers.

Not to mention the lion's share of profits from this stunt normally go to the shareholders who own the Fed.

The "shareholders" received $1.6 billion last year, the Treasury received $78.4 billion.
2% is hardly the lion's share.

 

[expat_panama]

...Banks don't create money out of thin air. Banks lend out a portion of their deposits. No deposits, no loans, no money creation. What's a fixed currency and why do you think it's better?

On top of that the new money is backed by hard assets because the bank acquires title to the collateral pending loan repayment.