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[Reelya]

The problem is that every cent loaned out by a bank is one less dollar in profits the bank is making. It's not "coming out of nowhere" when you get a loan then the bank gives you money from the ATM. They've pledge to give you a certain amount of money, and they do exactly that by crediting your account. The account is merely an IOU from the bank to you. When you take that money out, it costs the bank real resources to cover the loss, and they then cover that loss in the future by you paying it back. Interest rates mainly cover the fact that not everyone will be able to pay back their bank loans.

So banks can't "print money" the way conspiracy types want you to think they can.

[PTTG??]

There will come a day when it is possible to produce all the goods a wealthy person needs to be happy entirely automated. All the food, all the material stuff.

When that day comes, it will be too late for the poor. The wealthy will be able to manufacture enough drones to put down any revolt. Those without access to the machines will not have the means to attain them.

We must start now to develop the societal structure that will function when full automation becomes possible (in 50 years? 30 years? 20 years? 10?). It must be firmly in place to ensure the coming bounty will be shared with all. The alternative is the slow starvation of the majority of the human race.

[smjjames]

should have been .9$ out, but that .9$ is most frequently deposited in another bank, which can lend out 90% again....

the usual calculus is that for every 1bn printed by the fed, 10bn is created by the banking industry.

out of nothing.

Shouldn't that be 900 million for every 1 billion? Because 90%.

[wierd]

no. it compounds with every bank involved.

https://mises.org/library/money-multiplier-myth-or-reality

[Reelya]

The problem with the scare tactics is that bank accounts represent money that the banks owe to it's customers, not money the banks have. Basically bank accounts are an IOU, the same as bank debts are an IOU, they just mirror each other. And the amount customers owe back to the bank always exceeds the amount that banks owe to the customers, so the entire fractional reserve system is anti-inflationary despite "making money".

In fact, fractional reserve systems allow a nation to regulate inflation, because by altering interest rates, the fed can change the balance between money owed to banks and money owed to customers, thereby being able to control the size of the money supply. It's the primary mechanism that allows some sort of control over inflation, which is why almost every country does this.

[wierd]

fdic insurance baby.

the federal reserve promises to reimburse any bank using its fractional reserve methods for any deposit up to 1mil dollars. if there is not enough cash on hand, the fed will supply the physical currency to cover the deposit.

the wealth owned by the banks is best used as holdings to make more loans. the bank only loses money when a debtor cannot pay, and goes bankrupt.

that what was toxic about the debts in the 2008 crash.

[Reelya]

What is your proposed alternative to imposing the 90% system?

After all, any "you can only lend $1 out once" rule has the same problem, in that the $1 lent out ends up in another bank, and can be therefore lent out again, for infinity. They set the 90% rule because it's impossible to police it any other way.

[smjjames]

The problem with the scare tactics is that bank accounts represent money that the banks owe to it's customers, not money the banks have. Basically bank accounts are an IOU, the same as bank debts are an IOU, they just mirror each other. And the amount customers owe back to the bank always exceeds the amount that banks owe to the customers, so the entire fractional reserve system is anti-inflationary despite "making money".

In fact, fractional reserve systems allow a nation to regulate inflation, because by altering interest rates, the fed can change the balance between money owed to banks and money owed to customers, thereby being able to control the size of the money supply. It's the primary mechanism that allows some sort of control over inflation, which is why almost every country does this.

I was going to ask if there were any (real world) economies that use the free banking as mentioned in the article.

[smjjames]

But that doesn't allow inflation to be controlled, which is the entire point of having a federal reserve. Also, without interest rates being linked to the money supply, the money supply itself can't be regulated.

Sounds like an argument against bailing out failing banks. I think......

[wierd]

the us federal reserve uses that system.

[smjjames]

But the federal reserve isn't a bank in the conventional sense. I mean not in the sense of it being an entity like Wells Fargo or wherever you go to get cash.

Though I did say economy rather than bank.

[wierd]

the federal reserve bank is not a government agency. it is a private bank, that the government uses to give itself loans.

and yes, you CAN make deposits there, but only if you are a bank.

[Reelya]

Well the problem is that without the fed. and the 90% rule, you'd actually have banks lending out 100% (or more) of their deposits, and just inflating the currency to near infinity, through constantly re-loaning money, without much central control over how that works.

After all the 90% rule is a limit on what banks are allowed to do, so if you don't like it, you need to propose are more stringent set of rules, not blast the fed. for banks doing what banks do. Without the rule, there would be nothing stopping a bank loaning its own directors $1 trillion dollars if they want, without even needing any deposits. After all, it's just a number in a computer.

If you want to limit it, you need to e.g. make a "50% rule" where banks can only lend out half their deposits, then the banks will only be able to have total deposits of twice the 'printed' money supply at most.

Or, you'd have to specify some commodity that's not money, and have banks be required to hold a supply of that, and they're not allowed to lend out more than the value of that commodity: e.g. loans against gold.

[smjjames]

Except that gold doesn't stay at the same value, it changes with supply and demand, which is why nobody uses the gold standard anymore.

[TheBiggerFish]

And moving back to the gold standard would pretty much tank our everything anyway because I'm pretty sure there's not enough gold.