Economics Questions

Re: Fractional Reserve Banking and Maximizing Liberty

nirgrahamUK — Fri, 10 Aug 2012 19:16:09 GMT

Note: There may be multiple competing currencies in a market, but only one of those currencies can be money in any given market..

Mises:

Money is a medium of exchange. It is the most marketable good which people acquire because they want to offer it in later acts of interpersonal exchange. Money is the thing which serves as the generally accepted and commonly used medium of exchange.

Just sayin'

Re: Fractional Reserve Banking and Maximizing Liberty

dude6935 — Fri, 10 Aug 2012 18:42:37 GMT

I think computers can handle that. And a lot of currecies will be local. So while there may be 100's of currecies in the US. Maybe only 20 would be relevant in a given city.

Even if that weren't true. Smartphones and computers can handle thousands of currencies.

Re: Fractional Reserve Banking and Maximizing Liberty

grant.w.underwood — Fri, 10 Aug 2012 17:27:15 GMT

CL - Im swamped with work right now so ill reply when i get some time as your post needs some thought, but you are also still on the lines of z's posts. I'm obviously not that articulate because to me its plain as day so i will try and make it more clear.

dude - yes there is, but there professional traders out there that study those rates all day everyday.

How do you expect a grocery store to keep up with that? All while they still have no real clue what business practice the banks are taking with their notes. Yes in the long run the better notes will rise to the top, but in the short run anything can happen to any note. How plausible do you really think it is to have 100 different prices for a bottle of coke?

Re: Fractional Reserve Banking and Maximizing Liberty

dude6935 — Fri, 10 Aug 2012 16:52:35 GMT

z1235's last post is correct.

There already are lots of exchange rates for money and comodities. US Dollar vs Yen vs British Pounds vs gold vs oil yada yada yada.

"Since JPMorgan isnt in breach of contract[...]"

Either they are in breach and are liable, or they are not in breach and no one will use their notes. Either way, the free market will prefer banks that serve thier needs. A bank that is unable to redeam its notes won't serve my needs. I will move to a bank that can.

Re: Fractional Reserve Banking and Maximizing Liberty

Conservative-Libertarian — Fri, 10 Aug 2012 02:03:02 GMT

@grantunderwood

Fractional reserve banking isn't theft any more than market speculation, such as land speculation and price fluctuations.

Let's use your micro example of investing money in a fractional reserve bank. Their money is going to be devalued if reserves are lowered.

Let's say you buy a house. Other houses surrounding it foreclose, dropping property values and in turn your wealth. Similar scenario.

Now for macro scenarios, both do expand the dollar and thus devalue everybodies dollar.

So the solution is not to ban FRB, or we might as well fix prices altogether.

The solution is competing currencies, and I would prefer a gold-based debit card as Peter Schiff just set up with his new bank. That way, you control you're wealth fluctuations better.

Re: Fractional Reserve Banking and Maximizing Liberty

grant.w.underwood — Thu, 09 Aug 2012 17:18:23 GMT

chy3nius - thanks for the heads up. had no clue that demand can actually change.

price change due to couterfeiting is the problem. im not talking about natural demand changes.

Re: Fractional Reserve Banking and Maximizing Liberty

Chyd3nius — Thu, 09 Aug 2012 17:13:45 GMT

In free market prices of goods are free to change, including price of gold.

Re: Fractional Reserve Banking and Maximizing Liberty

grant.w.underwood — Thu, 09 Aug 2012 16:53:14 GMT

z1235 -

1. We both already know that answer. NO ONE will stop them from doing it.

2. So what? You seem to be only looking after the expropriators welfare. Your fractional reserve world will be a mob rule that can take from the minority by the will of the majority. Where will most people bank? The 100% reserve bank that cant POSSIBLY offer the same returns to depositors or give out near the amount of loans and at higher rates than at that fractional reserves banks do? or will the FRBs win because they have 10x more money to give? THATS where most people will bank. They will inflate and steal value from the minority 100% reserve customers.

You seem to have a hard time letting go of the monopoly privilege of theft that FRB have.

3. No it doesnt happen now because it doesnt happen in the real world. YOU, with over 2,000 post on a free market Austrian Economics forum, suggested there could be thousands of different currencies in a single economy. You, with probably 10x more knowledge about the economy than the average citizens, are defending fractional reserve banking, but some how the uneducated population will get more educated than yourself are today?

You talk about freedom and slavery like its a punch line. What you are really saying in anarchy the majority will screw you and you need to suck it up. Thats NOT freedom. Freedom is not having your rights infringed upon. That includes your personal property. No one has the right to counterfeit gold for their own benefit at someone else expense.

4. You just agreed with me. Yes they will claim it is backed by 1 oz gold and if you would like you could trade in that note for a gold coin. Until the scheme goes burst of course. When there is 10 trillion in notes out there and only 1 trillion in gold your 'free market' wont be so free anymore.

5. Now you are just being obtuse. THERE CANT BE A 1000 DIFFERENT EXCHANGE RATES. It just wont happen, EVER.

6. Since JPMorgan isnt in breach of contract, since the customers were aware of FRB, since there will be a single currency that all banks will use, it isnt JPMorgan's fault. Its YOUR 'free market'. Time to get a central bank to regulate those greedy bastards.

_____________

You are centering your ENTIRE argument that the expropriators (FRBs and their customers) are the ONLY people in the market. If 100% of the population WANTS and AGREES to fractional reserve banking there isnt a problem other than it is a terrible business policy that is doomed to fail.

My stance is we have to defend the property and rights of those that are unwilling to take part in your little ponzi scheme. They work, they take in their gold backed by the exact same amount of physical gold, but they have to compete in a market that has prices 10 higher than gold reserves. How is it justifiable to take in x amount of gold because demand for gold is y. Then your fool's gold floods the market driving up prices to 1/10y and the people that it doesnt affect are those on the receiving end because they now have 10x gold. All while you still just have your x amount. Please explain how counterfeiting gold isnt theft to people who have gold? Why should the sound money person just suck it up because 'HEY thats the free market. You dont HAVE to be a part of society.'

Re: Fractional Reserve Banking and Maximizing Liberty

z1235 — Thu, 09 Aug 2012 14:46:13 GMT

grant.w.underwood:

z1235 -

'allowed by whom'

-better question NOT allowed by whom?

OK, answer the better question then.

umm there will NOT be many different kinds of currencies. Do you REALLY expect citizens to know the exchanges rates of thousands of different notes? 100? a dozen? There WILL be 1 maybe 2.

So what? If the market preferred one or two note issuers vs. 100 then so be it. You seem to have a hard time taking yourself out of the monopoly privilege paradigm. Without legal tender laws, capital gains taxes, or taxes of any kind people will be free to accept whatever they think works best for them. If you think that JPMorgan 1oz Notes are likely not worth 1oz then don't value them as such. So would everyone else. There would be no gun pointed at your head making you accept hundred JPMorgan 1oz Notes in exchange for 100 1oz gold coins.

independent reviewers? why would 310 million people spend so much time reading about currency? it WONT happen.

It does not happen now because everyone trusts the nanny state to take care of such things for them. To think that you should spend more time picking a refridgerator or a car vs. picking a reliable and honest note issuer is preposterous. Freedom is not easy as it comes with responsibility for your own actions and decisions. It's just too much work sometimes. That's why most people seem to prefer slavery.

There WILL be a standard, and lets be honest it will probably be a gold standard.

You are mixing apples with monkeys here. Gold is likely to be the most prevalent money in the market, but that wouldn't prevent thousands of entities (firms, banks, persons) to issue certificates (notes, i.e. currencies) claiming to be backed by it. Most people would prefer not to carry gold coins in their pockets and use paper notes, checks, or electronic debit/credit cards (all backed by gold) instead.

If banks are allowed to keep fractional reserves on their gold then THAT is inflationary. then THAT is theft.

If JPMorgan is inflating their JPMorgan 1oz Notes that would NOT affect the value of your Grant 1oz Notes or z1235 1oz Notes. How has JPMorgan stolen from you? If you do own JPMorgan 1oz Notes and your local grocer starts valuing them as 0.6oz then you better run to JPMorgan with the notes and ask them to be redeemed at full face value (1oz) then store your money (gold) in the vault of someone more reputable (say z1235 Firm). Then use your z1235 1oz Notes or z1235 gold debit card to buy your groceries.

There is no need to regulate FRB because THEFT is illegal so it shouldnt be allowed.

Fine. If JPMorgan renegs on their obligation to redeem their 1oz Notes for 1oz of gold to you then they are in breach of contract and may be liable for fraud and/damages. Take your case to a third party arbitrator and seek damages, or perhaps your defense/insurance agency would take that process over after it pays you for your loss claim.

Re: Fractional Reserve Banking and Maximizing Liberty

Prescience500 — Thu, 09 Aug 2012 06:07:20 GMT

I'm not 100% sure how you figure it out how it affects each person to the penny, but it could be estimated. I imagine that if banks were deregulated and taxes simplified and cental planing ended, then the world's best financial and ecomomic minds could turn their attention to issues like that, instead of finding and exploiting tax loopholes, working around regulations, planning the economy, etc. Even if it can't be determined down to the penny, I imagine that it could be calculated fairly close via local and geographical CPI's and PPI's. I suspect that one day in the future, even if this is decades away, people will prefer electronic currency over paper currency, even if it has a commodity backing. If this happens, then it would be fairly easy to figure out. The only issue would be privacy concerns. I suppose people could always have to option to opt out of the reimbursment or to choose a different bank entirely. If you're tring to minimize invasiveness, you could use an electronic watermark in the metadata of the container of the file storing the currency. The software would simply read the file ananamously add the money for compensation. How do you prevent abuse? By ensuring that the software involved is open source so that everyone can look at the code to make sure that it is completely benign.

Re: Fractional Reserve Banking and Maximizing Liberty

grant.w.underwood — Thu, 09 Aug 2012 05:29:10 GMT

1st - i agree, but that is an impossible task to figure out. How would you in a million years figure out who got hit with the inflation. then how would you figure out a monetary value amount that they suffered when there are 1000 banks doing it.

2nd - are you saying that they have 100% reserves, but its offsite? i wouldnt call that fraction reserve banking. id say thats still 100% reserves just not 'on demand' reserves. im cool with that. They could even bury it under the bank for all i care. Just as long as its there and they have ownership of it.

Re: Fractional Reserve Banking and Maximizing Liberty

Prescience500 — Thu, 09 Aug 2012 05:20:34 GMT

First of all, fractional reserve banking is only theft if they don't somehow compensate people who are stolen from via inflation. Second, fractional reserve banks could exist with a full reserve currency. They woulndn't have all of the gold, silver, platinum, etc. on hand. They would hire a larger "reserves" who would store vast quantities at full reserve. If people wanted to make small withdrawls, then they could without a problem, but you could either pay a fee or wait for the commodity to be trucked in. Larger banks could have their own reserves, much like Walmart has it's own warehouses that act as hubs for their merchandise before it's trucked off to various stores.

Re: Fractional Reserve Banking and Maximizing Liberty

grant.w.underwood — Thu, 09 Aug 2012 04:59:42 GMT

serpentis - UGHH!!! NO i dont, but they WILL practice under the same principles. They will create money just like the FED they just probably wont be able to do it to the same extent as the fed. Just because it isnt as big doesnt mean it isnt still bad.

Re: Fractional Reserve Banking and Maximizing Liberty

grant.w.underwood — Thu, 09 Aug 2012 04:55:21 GMT

z1235 -

'allowed by whom'

-better question NOT allowed by whom?

2nd part -

umm there will NOT be many different kinds of currencies. Do you REALLY expect citizens to know the exchanges rates of thousands of different notes? 100? a dozen? There WILL be 1 maybe 2.

independent reviewers? why would 310 million people spend so much time reading about currency? it WONT happen. There WILL be a standard, and lets be honest it will probably be a gold standard. If banks are allowed to keep fractional reserves on their gold then THAT is inflationary. then THAT is theft. There is no need to regulate FRB because THEFT is illegal so it shouldnt be allowed.

Re: Fractional Reserve Banking and Maximizing Liberty

Serpentis-Lucis — Thu, 09 Aug 2012 04:27:42 GMT

Grant, you seem to think that FRB in a truly free market, will be just like the Federal Reserve, not only that but you seem to think a FRB that has its currency backed by gold will be like the Federal Reserve. It's simply not the case. The Federal Reserve gets away with what it does because the government essentially allows it to operate outside the law. Not only that but the Federal Reserve notes aren't backed by gold. A free market FRB where currency is backed by gold just isn't anywhere close to the Federal Reserve.