http://market-ticker.org/archives/1490-Mish-Hard-Money-Goes-Off-The-Rails.html
I have class, so I may be reading it hastily, but what it seems he's saying is, "Fractional reserve is not fraud. There is a difference between a loan and expanding credit. Not all loans are fractional."
His conclusions don't follow his thesis. He seems to, ultimately, agree with "Mish".
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Building the house is not money creation, it is value creation. Big difference.
This guy is completely missing the point that loans are supposed to be made on time deposits, not demand deposits, which technically can not be loaned out. Loaning out demand deposits is fraud, loaning out time deposits that have been given over with the intent of investing them to earn a return is not fraud. Collateral is not money, too. Credit is the advancement of real resources to fund a productive process with an expected return and an understood risk going in, not the creation of money out of thin air to do the same by taking funds not meant for investment and loaning them out. He misses the real resources aspect by confusing money with a house. The whole point of saying fractional reserve banking is fraud is specifically because there is no house backing the money lent out as credit.
xahrx:This guy is completely missing the point that loans are supposed to be made on time deposits, not demand deposits, which technically can not be loaned out. Loaning out demand deposits is fraud, loaning out time deposits that have been given over with the intent of investing them to earn a return is not fraud.
Supposed to? Who cares? If we (the bank and the depositor) agree then there isn't any fraud.
"Mish" also fails hard at addressing this:
'Mish':This is where the Libertarian argument "it's OK if two people agree" falls flat. It is not OK because it cheapens the dollar, thereby robbing everyone saving dollars via theft of inflation (making those dollars worth less over time).
Not a single libertarian could believe you own value.
Laissez faire et laissez passer, le monde va de lui même
Angurse:Supposed to? Who cares? If we (the bank and the depositor) agree then there isn't any fraud.
If the bank and the customer agree to it then it really isn't really a demand deposit now is it?
I didn't say they owned value, I said they created it. Learn to read. Creating a house is not the same thing as creating money as the article's author says. Creating house out of raw materials is creating value, a valuable thing which may back credit, or for which someone may pay money. It isn't money creation unless of course people are using houses as the general medium of exchange. If that's the case where you are, then not only do I suggest reading classes once more, but I want to see your pants. You must have huge pockets.
At base the disconnect between real resources available in the economy the amount of money in circulation and its value relative to those resources is the issue this author, and you apparently, miss. Fractional reserve banking is part of the reason for that disconnect.
xahrx:If the bank and the customer agree to it then it really isn't really a demand deposit now is it?
I don't see why not. Its been commonly accepted for quite a while and they may call it whatever they want.
xahrx:I didn't say they owned value, I said they created it. Learn to read. Creating a house is not the same thing as creating money as the article's author says. Creating house out of raw materials is creating value, a valuable thing which may back credit, or for which someone may pay money. It isn't money creation unless of course people are using houses as the general medium of exchange. If that's the case where you are, then not only do I suggest reading classes once more, but I want to see your pants. You must have huge pockets.
That was "Mish" who I was correcting... so relax.
xahrx:At base the disconnect between real resources available in the economy the amount of money in circulation and its value relative to those resources is the issue this author, and you apparently, miss. Fractional reserve banking is part of the reason for that disconnect.
This author was correcting an article by "Mish," who also made a completely false claim. Which I corrected. The point you made, that loans aren't supposed to be made on demand deposits, was a non-sequitar. If there is an agreement its doing exactly what its supposed to, which means it isn't fraud.
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."
Your first sentence renders any point about any specific banking system moot, as the merits of all banking systems have never really been tested absent the state.
Your first sentence renders any point about any specific banking system moot,
Juan:No it doesn't. It just shows that 'arguments' based on empirical evidence can't prove what you want them to prove. OTOH arguments based on theoretical considerations (such as "a thing can't be both lent out and available on demand") and empirical data regarding government intervention on behalf of bankers do greatly undermine the case for fractional reserves.
So the entire comment was a non-sequitar, as I didn't make an "argument" for FRB based on empirical evidence. What I did say was that what is/can be and isn't/cannot be a demand deposit is irrelevant to the question of whether FRB actually is fraud.
And ideas such as "option clauses" really make such theoretical considerations pointless and you should certainly should know that government has also intervened for full-reservists as well.
So the entire comment was a non-sequitar,
Are you joking?
Your comment about "fraudulent reserve banking" never succeeding in a free market clarified the issue of how it not really being a demand deposit and thereby constituting fraud? Really?
Angurse:I don't see why not. Its been commonly accepted for quite a while and they may call it whatever they want.
Well you can call it a zebra for all I care, what's relevant is the nature of the thing, not its label.
Angurse: This author was correcting an article by "Mish," who also made a completely false claim. Which I corrected. The point you made, that loans aren't supposed to be made on demand deposits, was a non-sequitar. If there is an agreement its doing exactly what its supposed to, which means it isn't fraud.
If there is an agreement, yes, it's not fraud, so long as all possibilities are stipulated, such as not being able to produce money on demand because it's been loaned out. It's also not a demand deposit even though it may be called that, and even though the bank may produce another slip of paper to give to the customer if he demands it, that's called a pnzy scheme because they're using other people's property to pay out to you and just hoping not everyone comes in all at once. As for your contention that you were correcting Mish, I call bullshit. The article says this:
That house (and all the products that I used to make it) are in fact money. They were the product of mining, growing, and/or manufacturing. Each of these acts is in fact the creation of money.
That was not quoted from Mish's article in any way that I can see, it was the author's wording. If that's you, then you screwed up, because building a house is not creating money, it is creating a valuable thing for which money may be given, or which may be used as collateral for a loan of existing money. No money has been created. To create money you either have to produce more of the money commodity or trick someone into thinking you've done so with fraudulent receipts to nonexistant money property. The creation of money not backed by real property is fraudulent regardless of agreement because there's more people involved at that point than just the depositor and the bank. There's the people who receive the loans and this hinders the bank's ability to pay out actual demand deposits it has outstanding. By engaging in fractional reserve banking that's what they're doing, and unless their agreements with existing customers stipulate that they may not be able to pay out on demand, they are committing fraud.
xahrx:Well you can call it a zebra for all I care, what's relevant is the nature of the thing, not its label.
Exactly, not fraud, Sorry "Mish"
xahrx:If there is an agreement, yes, it's not fraud, so long as all possibilities are stipulated, such as not being able to produce money on demand because it's been loaned out. It's also not a demand deposit even though it may be called that, and even though the bank may produce another slip of paper to give to the customer if he demands it, that's called a pnzy scheme because they're using other people's property to pay out to you and just hoping not everyone comes in all at once.
If the contract stipulates that the bank can produce money on demand even if Its not a Ponzi scheme either. A Ponzi scheme is a form of fraudulent investing while FRB generates actual legitimate profits by providing a demanded service through purely voluntary agreements.
xahrx:As for your contention that you were correcting Mish, I call bullshit.
xahrx:The article says this: That house (and all the products that I used to make it) are in fact money. They were the product of mining, growing, and/or manufacturing. Each of these acts is in fact the creation of money. That was not quoted from Mish's article in any way that I can see, it was the author's wording. If that's you, then you screwed up, because building a house is not creating money, it is creating a valuable thing for which money may be given....
That was not quoted from Mish's article in any way that I can see, it was the author's wording. If that's you, then you screwed up, because building a house is not creating money, it is creating a valuable thing for which money may be given....
You can stop right there.
I corrected "Mish's" claim that it was unlibertarian, and therefore fraudulent, because it robbed people of value. You are critiquing the author, Karl Denniger, who made no attempt to refute 'Mish"s very false claim. So what you have written isn't pertinent to my specific correction.
I took some issues with Mish's article, but this "rebuttal" is fundamentally flawed. In fact, it borders insanity.
A fractional reserve bank obviously balances its assets and liabilities. There is no such thing as fractional asset banking -> this is simply a different way of saying insolvent bank banking. FRB is holding a fraction of RESERVES against DEMAND DEPOSITS.
Unchecked FRB can easily lead to asset-liability mismatch and insolvency. Look at the housing bust. Assets and liabilities were matched when houses and their mortgages were worth historically high prices. Yet the banks' assets collapsed IN TERMS OF DOLLARS, while their liabilities remained fixed IN TERMS OF DOLLARS.
Banks operating on FRB must refrain from issuing credit (creating money) that is not matched to savings rates. Otherwise, it triggers a business cycle. At first the bank appears quite profitable. Its assets are gaining value relative to liabilities. Yet soon things reverse.
FRB can technically work, so long as credit issue remains bound by real savings. However, a much better (IMO) way to issue credit would be through time deposits or other methods that guarantee real savings are available.
Mish and others like him are wrong because they have their premise incorrect. This incorrect base premise leads to shrill calls for that which will not work (hard currency) and in fact has a thousand-year plus history of not working to stop depressions and other serious economic imbalances. Yet despite over a thousand years of history none of these people ever examine their premise to discover why these so-called "fixes" never, ever work. They instead wave their arms and try to come up with all sorts of other "explanations" for things like the Panic of 1873 and the Depression beginning in 1929 instead of examining the foundation of their premise and recognizing it's infirmity.
Yet despite over a thousand years of history none of these people ever examine their premise to discover why these so-called "fixes" never, ever work. They instead wave their arms and try to come up with all sorts of other "explanations" for things like the Panic of 1873 and the Depression beginning in 1929 instead of examining the foundation of their premise and recognizing it's infirmity.
This is some of the stupidest bullcrap I ever heard.
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