Posted on 09/18/2008 2:27:45 PM PDT by BGHater
“Now counterfeiting is okay?”
I’m not a raving moralist. Counterfeiting is not altogether okay, but its customary. It can be mariginally okay when banks are reigned in by a few checks, such as individual banks having a limited customer base, banks as an industry having a limited customer base, and a bank’s ability to inflate being dependent upon the trust of its clientele. When money is made of paper and banks can be bailed out whenever the slightest trouble meets them, these checks disappear.
“Maybe it was that comment about banks essentially participating in counterfeiting. Why would that make me think you were an enemy of fractional-reserve banking?”
I was only being honest. I also have a aversion to precipitously dismantling the entire economic system because it’s based on legalized counterfeiting. Call me amoral!
“WaMu and Wachovia don’t compete with Bank of America and JP Morgan?”
Not really. The banking industry conspires with itself, through the Federal Reserve System. Plus, they all use the same “bank notes” instead of using their own. True competition amongst banks would involve the public choosing their favorite bank notes, based on the perceived solvency of each individual bank.
“Before we lose track of your previous claims, could you show how “all banks lend out more money than they have on the books”?
Or are you going to back away from that claim as well?”
I can’t prove that every single bank exceeds its reserves. i don’t have the evidence at the tip of my fingers. But you know as well as I do that fractional-reserves are standard in the industry. If you use fractional reserves, the money you put out exceeds the money other people have put in.
Since you admit that banks inflate the money supply, please tell me why, in theory, this is a good thing.
ping
“Yeah, the Fed bought those assets from Primary Dealers. They could have bought bonds issued by GE or IBM instead of Treasury securities. Would you want GE bonds to be canceled too?...Any other Treasury bonds held by anyone else that you want to welsh on?”
I heard you argue about this on another thread, but I don’t buy it. The Treasury and the Federal Reserve are both arms of the federal government. The idea that the Federal Reserve is in any meaningful way independent—aside from the fact that its officials aren’t elected or appointed by elected officials—is a fiction. Why should the Treasury charge the taxpayers interest on bonds held by another branch of the Federal government? It’s lunacy. I would cancel them to relieve the taxpayers of liability for PUBLIC debt.
Feel free to disagree with my analysis. This is really the least important part of the discussion.
Stop it, you're killing me! LOL!
When money is made of paper and banks can be bailed out whenever the slightest trouble meets them, these checks disappear.
Banks are being bailed out? Where? Who?
The banking industry conspires with itself, through the Federal Reserve System.
How?
Plus, they all use the same “bank notes” instead of using their own. True competition amongst banks would involve the public choosing their favorite bank notes, based on the perceived solvency of each individual bank.
We used to have privately issued bank notes. A bank note issued in Georgia would often be discounted the further away it was spent from the issuing bank. And what happened when you held notes in a bank that suddenly collapsed? Hard to buy groceries when that happens.
I can’t prove that every single bank exceeds its reserves.
Show me how 1 bank can "lend out more money than they have on the books".
If you use fractional reserves, the money you put out exceeds the money other people have put in.
How? A new bank with a single $1000 deposit. 10% reserve requirement. How much can they loan?
Based on your confusion about the simplest issues, I'd be a little worried if you agreed with me at this point.
Maybe you could explain how the Federal Reserve increases the money supply?
Why should the Treasury charge the taxpayers interest on bonds held by another branch of the Federal government?
Fine, now the Fed will buy GE bonds instead. Now what will you complain about?
I would cancel them to relieve the taxpayers of liability for PUBLIC debt.
What does the Fed do with the interest that they receive?
Feel free to disagree with my analysis.
Analysis? More like a long list of errors.
Um, 6.5% debt ot GDP ratio? Our nation debt is $9.5 Trillion. Our GDP is $13.8 Trillion. Seems the math is 69%, not 6.5%, debt ratio.
“They could have bought bonds issued by GE or IBM instead of Treasury securities. Would you want GE bonds to be canceled too?”
Is this a serious question? Do you truly not understand why the Fed buys Treasury securities? The Fed buys securities in order to monetize government debt. In other words, when the U.S. government needs more money than it has, it taxes the people via inflation, using the Federal Reserve System.
The Fed could monetize GE’s debt, if it wanted to. It’s not as interested in GE’s debt as it is the federal government’s debt. It’ll bail out banks if GE defaults on loans, if that’s good enough for you.
I have nothing against the Gold Standard. I’m not sure why we discontinued it in the first place. I just don’t know how it could help, so I’ll have to do some research.
Yes.
Do you truly not understand why the Fed buys Treasury securities?
Yes, but you don't.
Before you dig any deeper, back to the counterfeiting claim, how do banks loan out more than the money they have on the books?
Be specific, run it thru step by step. Then I'll deal with the rest of your faulty claims.
“Stop it, you’re killing me! LOL!”
What, do you think counterfeiting is never okay? Does that mean you’re now opposed to fractional-reserves and fiat money?
“Banks are being bailed out? Where? Who?”
The Federal Reserve System exists in order to bail out troubled banks. It is the “lender of last resort.” That’s what it does.
“The banking industry conspires with itself, through the Federal Reserve System.
How?”
Oh boy. If each bank knows that bigger banks are there to help them, they won’t be as afraid of failing. The Federal Reserve System shields them from competition. In a free market, especially inflationary banks would be afraid that at any moment, a responsible bank could rise up and steal their customers. In the current banking market, this fear has slipped away, since everyone is more or less encouraged to inflate.
“We used to have privately issued bank notes. A bank note issued in Georgia would often be discounted the further away it was spent from the issuing bank. And what happened when you held notes in a bank that suddenly collapsed? Hard to buy groceries when that happens”
Inflation steals money just as surely as failing banks did. At least in the old days the banks policed eachother (my currency’s better than yours). Nowadays, there is no competition in bank notes, and as such, there is no check on the banking industry outside of the FDIC and runnaway inflation.
Remember what happened when we introduced our first paper currency? My feeling is that greenbacks probably destroyed more savings than any number of bank closings combined.
“Before you dig any deeper, back to the counterfeiting claim, how do banks loan out more than the money they have on the books?”
It suffices to say that banks do not keep enough cash on hand to cover all of their liabilities. That, in itself, means that they are inflating the money supply. I’d love for you to explain to me otherwise.
“Now what will you complain about?”
You seem to think I complain about the Fed for its own sake. I complain because I don’t appreciate the U.S. government taxing us by using the Fed to monetize debt. If they stopped doing that, I be happy to stop complaining about it.
“Maybe you could explain how the Federal Reserve increases the money supply?”
By issuing federal reserve notes. Are we really going to argue over whether the Fed inflates our money supply? I was not aware that people exist who do not realize this. Central banks primarily inject money into the economy by increasing the reserves of banks under its jurisdiction. They increase these reserves by buying assets with money that didn’t exist before.
“I have nothing against the Gold Standard. I’m not sure why we discontinued it in the first place. I just don’t know how it could help”
Simply put, one of the most desired qualities in a good currency is scarcity. Or, rather, we value money that cannot arbitrarily be made less scarce. Gold can become less scarce, for instance through the efforts of the mining industry. But mining has proven to be no more profitable an industry than any other, and discoveries of new sources of gold do not harm the economy as a whole so terribly.
The stock of fiat money, on the other hand, can be increased at will. If there is any value in using gold as currency, it is that the stock of gold cannot be increased at will. Gold can be debased and coins can be shaved or cut, but people tend to notice those things.
Counterfeiting is never okay.
Does that mean you’re now opposed to fractional-reserves and fiat money?
No. You seem to be confusing those with counterfeiting.
The Federal Reserve System exists in order to bail out troubled banks.
No it doesn't.
If each bank knows that bigger banks are there to help them, they won’t be as afraid of failing.
Bigger banks help smaller ones? In what universe?
So, if a bank gets a deposit of $1000 and puts aside a reserve of $100, they can loan $900. If they loan $900, you're right, they don't have enough cash on hand to cover all of their liabilities.
But you said they loan out "more than the money they have on the books".
You keep jumping back and forth. Was your original claim wrong? Or are you still confused?
“No. You seem to be confusing those with counterfeiting”
I conflate fractional-reserves, fiat money, and counterfeiting. That’s because they are the same thing.
“No it doesn’t.”
Why does the Federal Reserve System exist, then?
“Bigger banks help smaller ones? In what universe?”
In our universe, small banks take out loans from bigger banks.
You complain because you don't understand how the Fed (or banks) works.
By issuing federal reserve notes.
FRNs are a very small part of what the Fed does. You should look up the FOMC.
Are we really going to argue over whether the Fed inflates our money supply?
No, we're going to argue about your faulty understanding.
They increase these reserves by buying assets with money that didn’t exist before.
Exactly! So if they buy GE bonds, they increase the money supply. No tax dollars involved. Happy now?
You might be a gold bug if.....
In our universe, small banks take out loans from bigger banks.
LOL!
“You keep jumping back and forth. Was your original claim wrong? Or are you still confused?”
I might be a bit confused. Perhaps I should have said, simply, that if a bank has fractional reserves, it cannot cover its liabilities with the cash it has in its vaults. If there is more money in the economy than there is in all the bank vaults combined, then banks have loaned out more money than there is in existence.
Excellent! There may be hope for you yet.
No more counterfeiting claims?
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