Economics Questions

Re: Lawrence H. White says Fractional Reserve Banking can be productive?

Maxliberty — Fri, 13 Mar 2009 19:37:53 GMT

GilesStratton:

Why don't you educate yourself about the legal nature of the contract in question? Once you've done that you'd know that the monetary irregular deposit contract is nothing more than a contract in which one individual and the bank made a deal to store the goods (money) of the person in question, meanwhile keeping the goods (or same amount of, in the case of a tangible good: money) available to the depositor.

Why is the bank required to make this contract? The banks are not making this contract now. Why are they required in a free society to make this contract? If you want a demand contract then make one but that should not restrict the bank from having other types of contracts.

GilesStratton:

It simply is not enough to have goods of the same "value" in reserve, since value is subjective.

Why is the bank prohibited from making a contract that does exactly this?

GilesStratton:

Then you clearly do not see the point of the contract in question, do you? The entire point of the contract in question is that the depositor does not intend to make a loan, he wants to retain full availability of the goods that he is depositing. If the bank creates loans and as such is unable to fulfill its obligations it turns the depositor in a forced creditor, and such the bank is liable to paid restitution for the fraud it has commited or the contract was void from the go and the bank owes him at the very least compensation.

The problem is your contract is a fiction. I have never said that a 100% demand deposit account could have fractional reserves. What I have said is that the bank can make non demand accounts that allow for some immediate redemption. What you have consistently said is that in your dictatorship that this would be prohibited. Why don't you stop lying and address your failed cult ideology.

Re: Lawrence H. White says Fractional Reserve Banking can be productive?

meambobbo — Fri, 13 Mar 2009 17:31:09 GMT

Maxliberty:
This is not the defintion most Austrians use.

a) I don't think you are correct. An options clause pretty much allows a bank to treat notes/deposits as a debt, rather than a title. "Most Austrians" never claimed that CD's or other forms of credit to banks must be covered by reserves before their maturity date, nor would they constitute them as an increase in the money supply.

b) Even if you were right about "most Austrians" (perhaps you could drop some names...), I really don't care. I agree with Hulsmann. If you'd like to discuss that viewpoint, that's fine. If you simply want to disregard the argument so that you can continue to suggest "Austrians are fixated on a fiction," then there's no point in any discussion with you.

Re: Lawrence H. White says Fractional Reserve Banking can be productive?

hayekianxyz — Fri, 13 Mar 2009 16:37:16 GMT

Maxliberty:
Well, can you at least agree that you could be paid for putting your money in a 100% demand reserve account? And you can call it whatever you like, in the free market the bank will most likely call it interest.

No, we can't call it whatever me like and to do so would be obfuscating the truth, it would not be interest. But yes, you could do it. I'd like to see you make a profit from it though.

Re: Lawrence H. White says Fractional Reserve Banking can be productive?

hayekianxyz — Fri, 13 Mar 2009 16:35:49 GMT

Maxliberty:
So the question is reserves of what?

Whatever has been agreed upon beforehand, presumably.

Maxliberty:
Once we realize this to be true then the issue from any person holding a note on the bank is if they so desire how do they redeem the note for something other than the note

Why don't you educate yourself about the legal nature of the contract in question? Once you've done that you'd know that the monetary irregular deposit contract is nothing more than a contract in which one individual and the bank made a deal to store the goods (money) of the person in question, meanwhile keeping the goods (or same amount of, in the case of a tangible good: money) available to the depositor.

It simply is not enough to have goods of the same "value" in reserve, since value is subjective.

Maxliberty:
I see no reason why there can not be restrictions on the redemption including the time frame the bank has to fulfill the redemption.

Then you clearly do not see the point of the contract in question, do you? The entire point of the contract in question is that the depositor does not intend to make a loan, he wants to retain full availability of the goods that he is depositing. If the bank creates loans and as such is unable to fulfill its obligations it turns the depositor in a forced creditor, and such the bank is liable to paid restitution for the fraud it has commited or the contract was void from the go and the bank owes him at the very least compensation.

Re: Lawrence H. White says Fractional Reserve Banking can be productive?

Maxliberty — Fri, 13 Mar 2009 16:33:58 GMT

GilesStratton:

You just don't have the slightest idea what interest is, until you do. So any time you'd wish to stop lying, I'd greatly appreciate it.

Well, can you at least agree that you could be paid for putting your money in a 100% demand reserve account? And you can call it whatever you like, in the free market the bank will most likely call it interest.

Re: Lawrence H. White says Fractional Reserve Banking can be productive?

Maxliberty — Fri, 13 Mar 2009 16:30:05 GMT

meambobbo:

As I mentioned from Hulsmann, using option clauses (allowing exactly what you describe) is not fractional reserve banking. FRB is when the bank holds more present claims to ___ (via demand deposits) than the bank presently holds in ____. The "reserve" asset does not matter.

This is not the defintion most Austrians use. Most banks currently don't offer demand deposits for this very reason and in a free market this would continue to be the norm. Austrians are fixated on a fiction.

Re: Lawrence H. White says Fractional Reserve Banking can be productive?

hayekianxyz — Fri, 13 Mar 2009 16:27:10 GMT

Maxliberty:
For example, you and Giles said it was impossible to offer interest on 100% gold reserve accounts, I demonstrated you are incorrect.

You just don't have the slightest idea what interest is, until you do. So any time you'd wish to stop lying, I'd greatly appreciate it.

Re: Lawrence H. White says Fractional Reserve Banking can be productive?

meambobbo — Fri, 13 Mar 2009 16:27:06 GMT

scineram:
Option clauses were not used for a long time even when they existed. But even without them fiduciary media are still future claims. The important thing is the claims are money.

From what I understand, the difference between a demand deposit and a CD is that the demand deposit functions as a title to money, while a CD functions as a debt for money.

In a free market economy, I do not believe that debt ("demand" deposits issued with an options clause, CD's) would functional as regularly or at par value with a commodity money (or a present title to such).

Re: Lawrence H. White says Fractional Reserve Banking can be productive?

scineram — Fri, 13 Mar 2009 16:26:44 GMT

I fail to see what makes it inflationary. There are severe limits on how low the reserve ratios can be.

Re: Lawrence H. White says Fractional Reserve Banking can be productive?

meambobbo — Fri, 13 Mar 2009 16:17:15 GMT

billott1:
First, even Rothbard allowed fractional reserve banking for deposits that were not for immediate demand. These include CDs, equity investments, bonds, etc. So with fractional reserve banking even with under the restriction of contract, there would be some inflation and some banks would have runs.

But do CD's, equity investments, and bonds trade directly against all forms of goods and services in the marketplace? Not generally. So they should not cause price inflation. Also, no one can run on a bank with CD's, investments, or bonds, because the bank has no obligation to redeem them for money before maturity. Of course, if their holders thought the bank was insolvent and unlikely to pay up in the future, they could dump them on the open market, declining their price.

billott1:
As a depositor I would allow them to fraction my deposit if it saved me a laundry list of fees. In fact White notes that the most free banking system known in Scotland was based on silver and gold and had fractions of about 2%.

I dispute the argument that FRB is preferable because it saves fees. It cannot save fees as such, because FRB is inherently inflationary. In other words, in real terms, you are paying the fees whether the bank practices FRB or not.

As far as the "free banking" system of Scotland, please read:

Rothbard's critique of "free banking" in Scotland

Re: Lawrence H. White says Fractional Reserve Banking can be productive?

scineram — Fri, 13 Mar 2009 16:08:50 GMT

meambobbo:
Well...I don't think such would technically qualify as fiduciary media. Yes, there would be more claims to money than actual money, but these claims are future claims, not present claims.

Option clauses were not used for a long time even when they existed. But even without them fiduciary media are still future claims. The important thing is the claims are money .

Re: Lawrence H. White says Fractional Reserve Banking can be productive?

meambobbo — Fri, 13 Mar 2009 16:06:14 GMT

Maxliberty:
In the classic example they redeem the note for gold but I can see no reason that this redemption has to be only for gold and I see no reason why there can not be restrictions on the redemption including the time frame the bank has to fulfill the redemption.

As I mentioned from Hulsmann, using option clauses (allowing exactly what you describe) is not fractional reserve banking. FRB is when the bank holds more present claims to ___ (via demand deposits) than the bank presently holds in ____. The "reserve" asset does not matter.

Re: Lawrence H. White says Fractional Reserve Banking can be productive?

meambobbo — Fri, 13 Mar 2009 15:59:17 GMT

scineram:
maturity times are not necessarily mismatched.

i guess i meant potentially mismatched, from a balance sheet perspective.

scineram:
But there would be still more fiduciary media than reserves, no?

Well...I don't think such would technically qualify as fiduciary media. Yes, there would be more claims to money than actual money, but these claims are future claims, not present claims. We cannot make a certain assumption that the bank will be unable to produce the required reserves at that date in the future. Without legal tender law, such instruments may fail to operate at the same purchasing power when used in indirect exchange as actual money or actual demand deposits.

Even with option clauses there can still be a potential asset-liability maturity mismatch. ...But even in this case, the bank can sell some of their loan contracts, or borrow from other banks, to cover their needs.

Re: Lawrence H. White says Fractional Reserve Banking can be productive?

Maxliberty — Fri, 13 Mar 2009 15:53:45 GMT

Juan:
Tpical Austrian FRB cult, unable to defend your position in the face of reality you result to name calling. Victorious again, you FRB cultists sure know how to take a beating.
I don't think it was name calling. I'm saying that the kind of things (fallacies) you believe are just what the banking mafia wants to hear.

Also, advocacy of sound money is older than what you call "the austrian cult", so even your name calling is off.

You appear only capable of repeating the mantra without any critical thinking. In my posts I am very specific with my critique of your mantra and I offer specific examples that refute your position. For example, you and Giles said it was impossible to offer interest on 100% gold reserve accounts, I demonstrated you are incorrect.

Re: Lawrence H. White says Fractional Reserve Banking can be productive?

Maxliberty — Fri, 13 Mar 2009 15:50:16 GMT

ProudCapitalist:

Maxliberty:
GilesStratton:
FRB is the result of the the blurring of the line between a deposit contract and a loan contract.

It would be great if just one member of the Austrian FRB cult could demonstrate that for once instead of just a blind assertion. Anyone?

What? Do you claim that FRB wasn't created by the governments' step by step "blurring" of the property rights of depositors??? Didn't the original depositors contract say that he could have his gold back at any time, but then the government issued laws and suddenly that contractual right was abolished. If you ask for a "demonstration", I think that there's a huge reading list waiting for you...

The whole arguement that the Austrian Cult makes is that banks need 100% reserves equal to the amount on deposit. So the question is reserves of what? I can see no reason why a bank could not have reserves of gold, silver, oil, wheat, or any other asset class, including financial assets. Financial assets such as loans which to the bank are assets. Once we realize this to be true then the issue from any person holding a note on the bank is if they so desire how do they redeem the note for something other than the note. In the classic example they redeem the note for gold but I can see no reason that this redemption has to be only for gold and I see no reason why there can not be restrictions on the redemption including the time frame the bank has to fulfill the redemption.

So please demonstrate how financial assets or any other asset should be prohibited from being used by a bank as all of or part of the 100% reserves? Also, demonstrate the inherent fraud of a bank placing time limits on redemption of its notes for the underlying asset class?

Please don't make the arguement why one might be superior than the other, we are only discussing what should be prohibited.