What if both the ecological overshoot of the planet's carrying capacity and the ever growing gap between rich and poor is the inevitable structural outcome
of the fractional reserve financial system?
Finally, following Hoppe, who demonstrated in Democracy: The God That Failed (Transaction Books, 2002) that private property (i.e., individual ownership and rule) and democracy (i.e., collective ownership and majority rule) are incompatible, it outlines the invidious moral and ethical consequences (which it calls the «monetary roots of democratic pathologies»)
of fractional reserve and central banking.
Following Herta de Soto, it demonstrates that deposits are not (and can never legitimately be) loans, that the history
of fractional reserve banking is the history of bank crises and failures.
There is much more capital to invest, and because
of fractional reserve banking, there's just so much money to loan out.
Critics will say that the nation had recurring booms and busts while on the classical gold standard, but they may be confusing the chaos
of fractional reserve banking (being able to pyramid loans on top of deposits with fiduciary media) with the classical gold standard (the citizenry is able to convert currency into a fixed amount of gold).
Central Banking 101 In the normal functioning
of a fractional reserve banking system (McLeay et al., 2014), commercial banks create money when they take deposits and make loans.
That's the downside
of fractional reserve lending.
The main benefit
of fractional reserve banking to an economy as a whole, is the velocity of money.
Central banking is perhaps history's best example of government attempting to fix a problem — in this case, the instability resulting from the practice
of fractional reserve banking — and making things much worse in the process.
Here is John Carney arguing that «There's nothing about Bitcoin that means you can't have fractional reserve banking,» which is entirely correct but bear in mind that he's arguing against libertarian bitcoin supporters who view the absence
of fractional reserve banking as a desirable feature of bitcoin.
Not exact matches
Similarly, in a
fractional reserve requirement environment, when the depository institution system adds loans and securities to its assets, it «pays» for these asset acquisitions with funds created figuratively out
of thin air.
Concurrent with this orgy
of public debt, the State encourages massive expansion
of private credit via
fractional lending, low bank
reserves, and other forms
of leverage, in a vain attempt to stimulate demand in an economy burdened with overcapacity, declining employment, marginal return on capital and saturated markets.
While most
of his proposals — «to abandon the gold standard, let international exchange rates float, use federal surpluses and deficits as macroeconomic policy tools that could counter cyclical trends, and establish bureaus
of economic statistics (including a consumer price index) in order to facilitate this effort» — are now conventional practice, his critique
of fractional -
reserve banking still «remains outside the bounds
of conventional wisdom» although a recent paper by the IMF reinvigorated his proposals.
That led me to the complete scam
of central banking, fiat currency, and the
fractional reserve system.
It is true the monetary base spiked during these initial rounds
of QE, but the second reason QE didn't lead to hyperinflation is we live under a
fractional reserve baking system whereby the money supply is more than just the amount
of physical coins, paper money and bank deposits in the system.
One
of his views that always stuck with me on that subject, at least as a starting point for thinking about it, was that it was somewhat nonsensical to talk about what «equilibrium exchange rates» should be in a world
of fiat currencies and
fractional reserve banking.
(As an aside, equilibrium means «no tendency to change,» fiat means deriving its value from law rather than some underlying commodity backing, and
fractional reserve means that banks hold only a fraction
of deposits on
reserve, loaning the rest out.).
Fractional reserve banking is possible without a lender
of last resort who can print money.
«The consortium
of 40 + banks (known as R3cev) which aims to do just that will inevitably develop something which: is permissioned (for users and developers like the apple app store), privatized, has fees, will not be entirely transparent to everyone, will not be open - source, it will definitely be inflationary to accommodate monetary policy
of debasement and
fractional reserve schemes, it will facilitate negative interest rates, central control
of accounts for suspension / freezing
of funds, bail - ins, bail outs, capital controls and transactions will include the identity
of both sender and receiver and store that information in a centralized location for the convenience
of hackers.»
But while daydreaming about these, we shouldn't forget to be in awe
of the invention
of fractional -
reserve banking.
So there's a conflict between the «owed or obligated» language in the press release, which would prohibit basically any bitcoin leverage, and the «custody or control
of Virtual Currency on behalf
of another Person,» which would allow leverage — but still not
fractional -
reserve deposit banking, etc..
Jamie Dimon is a Wall Street insider, JP Morgan has made billions off
of centralized fiat currency and
fractional reserve banking.
The fact that
fractional reserve banking leads to periodic crises suggests the following solution: banks should not be allowed to create new money out
of nothing, that is, banks should be subject to the same laws as everyone else.
So,
fractional reserve banking caused financial panics and boom - bust economic cycles in the US prior to the creation
of the Fed, but crises and recessions in the pre-Fed era were relatively short and the economy tended to recover far more quickly.
In other words, the root
of the problem is — and has always been — the legal ability
of banks to create credit «out
of thin air», commonly referred to as
fractional reserve banking.
With banks holding
fractional reserves of Federal Reserve dollars (notes and deposit claims on the books
of the Fed, whose sum is called «the monetary base»), when the Fed increases the quantity
of Federal Reserve dollars by $ 1 billion, the banking system ordinarily creates a multiple amount
of deposit dollars.
With or without a central bank,
fractional reserve banking will tend to bring about a boom / bust cycle and thus reduce the long - term rate
of economic progress.
But an expert in that market, Jeffrey Christian
of the CPM Group, acknowledged at the March 25 hearing
of the U.S. Commodity Futures Trading Commission, as he had acknowledged in an explanatory report published in 2000, that the London bullion market is actually a
fractional -
reserve gold banking system built on the presumption that most gold buyers will never take delivery
of their metal but rather leave it on deposit with the LBMA members from whom they bought it.
I mean given that the
fractional reserve banking system is so over-levered, globally, but just thinking about the U.S. for a minute if everybody put 5 % -10 %
of their money in Bitcoin or some other cryptocurrencies, the whole banking system implodes on itself.
As stated it betrays a lack
of understanding how
fractional reserve banks (whether under free or central banking) actually work.
Under
fractional reserve banking, commercial banks only hold a limited amount
of their total funds in a liquid form at any given time.
The bottom line is that it is not
fractional reserve banking per se that is the cause
of inflationary increases to the money supply due to the money multiplier process but rather the ability
of central banks to override market signals, thanks to their monopoly status, and add
reserves to the banking system at their discretion and independently
of the public's preferences.
Once a bank has built up a reputation
of solidity, it will be fairly easy for it to just keep a
fractional reserve at hand — this is to say, instead
of actually warehousing the entire amount on deposit, it will only keep a certain percentage at hand that it estimates will suffice to satisfy withdrawal demands in the «normal course
of business».
In terms
of its philosophy, it is a similar prospect to a Europe - based proposal, Saga, which we reported on recently — though that intended to induce stability by tying itself to a
fractional reserve of fiat currency.
The name «religion» should be
reserved for the fully organized system
of feeling, thought, and institution, for the Church, in short,
of which this personal religion, so called, is but a
fractional element.»
The early termination was due to slow enrollment, thought to be a consequence
of the rapid spread and increased appeal
of a new angioplasty technique called
fractional flow
reserve during the later part
of the study enrollment period.
«PROMISE establishes CTA as a viable alternative to stress testing for the evaluation
of patients with suspected coronary disease,» said Udo Hoffmann, M.D., principal investigator
of the PROMISE Imaging Core and Professor
of Radiology at Harvard Medical School and Director
of Cardiovascular Imaging at Massachusetts General Hospital «With the addition
of high - risk plaque assessment and CT
fractional flow
reserve technology on the horizon, we may have yet to see the full potential
of CTA.»
You can borrow against the equity in your life insurance policy without any
of the hassles associated with getting a loan through a
fractional reserve bank.
According to Dr. Joseph T. Salerno a professor at Pace University, an editor
of the Quarterly Journal
of Austrian Economics, and Academic Vice President
of the Mises Institute —
fractional reserve banking is unstable because the assets and deposits mature at drastically different rates.
For those unfamiliar with
fractional reserve banking it just means that the bank isn't required to keep 100 %
of the amount on deposit in the bank at all times.
That said, I love... just love... how you are going to increase liberty by * preventing * humans from engaging in
fractional reserve banking through the establishment
of a collective government to judge and imprison the purveyors.
If I deposited 100 newly minted coins into a bank and that bank proceeded to loan out 80
of my coins where 80 are deposited into another bank who then proceeds to loan out 60
of the coins, and so on... the production
of coins only changed by the initial 100 that I minted - not by the
fractional reserve multiple.
Under a system
of fractional -
reserve banking, interest rates and inflation tend to be inversely correlated.
The
fractional reserve banking system rate dictates that for every $ 1 that is deposited, you get to loan out an amount
of around $ 10, and this continues in perpetuity.
Now instead
of the bank making all the money, you as the borrower, the lender, and the bank, get to make all the money once
reserved for banks utilizing the
fractional reserve system.
In the
fractional reserve system, a bank can have loans
of $ 100 for every $ 50 they have on deposit.
So now that you understand full
reserve banking, you should have a better idea
of how
Fractional Reserve banking works.
Opposing
fractional reserve banking is as ideologically flawed as opposing the existence
of the Federal
Reserve.
John's post was not about
fractional reserve banking — it was about the a book discussing the history
of the Federal
Reserve, and was interesting and insightful.
But hopefully you have a better idea
of the idea behind
fractional reserve banking.