Posted on 08/10/2010 11:49:47 AM PDT by John W
When we were kids we used to call this: "Accidently, on purpose..."
” but the best example and the main question I was interested in originally was the case of Nazi Germany. The Adolf Hitler story ended badly for all parties involved for reasons other than banking, nonetheless, the very first thing the German Nazis did upon seizing power and the one thing they did completely right was to pull Germany straight out of the English/International banking system.”
Interesting that you should pick Nazi Germany. But that example doesn’t help your argument. For one thing they employed a huge number of ‘MEFO’ bills in the 1930s to finance their rearmament. MEFO bills were nothing other than pure credit, bills of exchange, written against the account of a fictitious firm. MEFO bills took fractional reserve banking one step further- they simply ignored the idea of reserves entirely. You’ll have a hard time complaining about FRB being “counterfeiting” when you try to use Nazi finance schemes as your model.
You exaggerate when you claim that the Nazis “pulled Germany straight out of the English/International banking system.” What happened is that the Nazis came to power around the time that the Allies and Germany were meeting at the Lausanne Conference to try to figure out how to deal with the reparations problem. The Dawes Plan and the Young Plan were unworkable. At Lausanne the Europeans proposed that there would be a permanent elimination of Germany’s reparations if America would forgive the its allies war debts. Congress rejected the idea, but the old reparations system had collapsed with nothing to replace it and Germany made no further payments.
“Numerous analysts have proposed a 100% reserve requirement (i.e. the abolition of fractional reserve banking) both here and in England.”
And some, even coming from your own citations, don’t:
“Pascal Salin, former professor at the Université Paris-Dauphine and former Mont Pelerin Society president, opposes such regulation of banking and disputes Murray Rothbard’s characterization of fractional-reserve banking as a simple form of recursive embezzlement. He argues that a situation of perfect certainty doesn’t exist even in a full-reserve banking system. He also argues that in a perfectly free banking system any customer must be free to choose the kind of notes and the system of payments for services he prefers since optimality cannot be defined independent of the wants of the individual.[31]”
“Austrian monetary theorist George Selgin disputes the Rothbardian account, arguing: “Those self-styled Austrian economists, mostly followers of Murray Rothbard, who insist on its fraudulent nature or inherent instability are, frankly, making poor arguments. I don’t think the evidence supports their view, and that they overlook overwhelming proof of the benefits that fractional reserve banking has brought in the way of economic development by fostering investment.”[33]”
http://en.wikipedia.org/wiki/Full-reserve_banking
Not really. Once written they weren't counterfeited/expanded at a 9-1 rate for the purpose of allowing banks to collect interest; they were being spent into existence rather than lent into existence at interest. That of course is what the American colonists were doing as well. In fact George II's banning the practice caused economic ruin and havoc in the colonies and led directly to the American revolution.
“Once written they weren’t counterfeited/expanded at a 9-1 rate for the purpose of allowing banks to collect interest;”
Banks issue their credit money against real bills. They are monetizing production. This is the Real Bills doctrine expounded by economists including Adam Smith. It is the basis of the Federal Reserve Act.
What you appear to be arguing for is simply having the government issue money, with no loans against production necessary and therefore no interest being collected.
Both systems have been tried throughout history. Real bills serve as a brake against pure inflation. There has to be something produced, some real good presented to a bank that they feel is worthy of a loan in order for them to monetize it.
There is no such brake in free currency issue by a government. When Lincoln issued greenbacks to pay for the Civil War it set off an inflation that lasted a decade. The colonial money you reference had a mixed result. The middle colonies had some success with it but in New England and the South it resulted in inflation and the paper currency depreciated. The Continental Dollar is classic case of government issued money that ignited inflation and became essentially worthless. A more modern experience was Weimar. A current example is Zimbabwe.
There is no perfect system. Ours worked better prior to 1971 when there was still a gold anchor of sorts. But there is nothing wrong with fractional reserve banking. It allows production to be monetized in a growing economy. This was already being done before there were banks in America by the proliferation of tobacco money when there was no other way to monetize production.
If by monetizing, you mean they can sell your receivable, you're right.
If you think the credit card company somehow conjures money out of thin air to pay the store you just bought from, you are mistaken.
Whether there is or isn't any money creation with credit cards is more for debating fests than for policy development, but this thread seems to have ground to a halt with the market haters fleeing to prevent further wear and tear on their cherished belief systems.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.