Like my other post, this is merely an attempt to gain more knowledge and insight into the mechanisms of money and monetary policy...at heart I'm an Ausrian through and through and thoroughly believe in a gold currency and 100% full reserve banking.
That said, I had a few questions (and ones that I've seen as support for fractional reserve banking).
When a loan is made for an item it's always for the amount of the item (in most cases), it's often, then argued that it's not inflationary since the item being purchased with a loan can be sold to cover the cost of that loan, and thus, in essence, the loan is a type of commodity-backed currency.
It's also been argued that gold, silver, or copper would not be the free market monetary choice, and that we'd end up with a paper currency that was backed by various items in the economy...this is basically just an ultra-expanded view of the fractional-reserve bank scenario I just posted above, only expanded to any/all sectors in the economy.
Just wanted thoughts and objections to this.
Resident Christian Anarcho-Capitalist.
In a full reserve banking system, someone has to save in order for you to borrow. Several people might have to save a couple thousand each for you to be able to borrow $100,000 for a house. That means that several people are collectively not consuming $100,000 of products, lowering prices, thereby enabling you to borrow $100,000 and purchase a product without inflation. However, when $100,000 is created out of thin air and then lent out, since nobody saved a corresponding $100,000, there is bound to be price inflation, all else being equal.
Political Atheists Blog
Fox McCloud:of course, I just wanted your personal opinions/thoughts on the matter. It would be interesting, though, if the market would pick gold and silver again, or something else? Naturally, as you've stated multiple times, there's no way of knowing, but, at the same time, history seems to be on the side of gold and silver.
Bi-metallism poses its own problems, namely both currencies (gold and silver) would have to exchange on floating rates, which would cause daily pricing fluctuations between the two methods of payment.
If I am a vendor, I don't see a lot of value taking a currency that could lose 5% of it's exchange value by the end of the week. This is why here on the CDN/US border, we take American currency, but punish it with lousy exchange rates, so the vendor is unlikely to lose value in exchange short of a dollar collapse. When we ask non-specialists (shoe stores for example) to perform currency exchange, we will not get good rates as consumers, and this will discourage us from using foreign monies in local exchange.
Thats my 2 cents.
krazy kaju: In a full reserve banking system, someone has to save in order for you to borrow. Several people might have to save a couple thousand each for you to be able to borrow $100,000 for a house. That means that several people are collectively not consuming $100,000 of products, lowering prices, thereby enabling you to borrow $100,000 and purchase a product without inflation. However, when $100,000 is created out of thin air and then lent out, since nobody saved a corresponding $100,000, there is bound to be price inflation, all else being equal.
correct me if I'm wrong, but assuming a Full Reserve banking system and only gold is used as money, wouldn't bankers have little to no incentive to give out consumption based loans? Not that I have a problem with that, just a question.
Gold doesn't need to be money for full reserve banking.
Anyway, consumer loans would still exist. Why wouldn't they? As long as they commanded a respectable return similar or greater to producer loans.
krazy kaju: Gold doesn't need to be money for full reserve banking. Anyway, consumer loans would still exist. Why wouldn't they? As long as they commanded a respectable return similar or greater to producer loans.
I never said it did; I merely said under a situation where gold is money and we simultaneously have fractional reserve banking...
Anyway, I'm sure they would exist, but would not they be considerably lessened? After all, they'd be inherently riskier than loans for industry/capital.
exactly
any bank which loans out causes inflation because it loans what it does not own. Thus there are 2 notes representing the same comodity
1st - bank ows saves
2nd - debtor ows bank
fundamently all banks cause inflation. This wont change even in gold standard.
How won't it change under a gold standard?
A true gold standard would mandate full reserve banking. Full reserve banking would mandate that some need to save so that others can borrow. Since some save, thereby refraining from consumption, there is no inflationary effect from lending, since the borrowers are simply spending what the creditors didn't spend.
because the ownership of the goods is claimed by two parties (depositor and bank acting as loan giver). in fully backed reserve system depositors would have a bank statement instead of notes representing money craeted out of thin air whereas the notes (backed by gold) would stay with debtor.
*pls correct me if wrong*
krazy kaju:Full reserve banking would mandate that some need to save so that others can borrow.
Is that not tautology?
krazy kaju:Since some save, thereby refraining from consumption, there is no inflationary effect from lending, since the borrowers are simply spending what the creditors didn't spend.
They could still spend the credit.
scineram: krazy kaju: Full reserve banking would mandate that some need to save so that others can borrow. Is that not tautology?
krazy kaju: Full reserve banking would mandate that some need to save so that others can borrow.
February 17 - 1600 - Giordano Bruno is burnt alive by the catholic church. Aquinas : "much more reason is there for heretics, as soon as they are convicted of heresy, to be not only excommunicated but even put to death."
Hmm, I'd venture to guess that the usage of credit cards would be considerably lower under fractional reserve banking, as well...either that, or interest rates would be particularly high.
Not that I have a problem with that.
The interest rate would then totaly depend upon savings. Yes Credit cards would be used less, but remember, under a gold standard, its the purchasing power that makes all the difference. So, under a gold standard, and 100% reserve banking, we would swipe less, and at the same time being able to purchace the same, if not more.
Manny Mars