http://market-ticker.org/archives/1490-Mish-Hard-Money-Goes-Off-The-Rails.html
Angurse: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.
Not the issue. The issue is fraudulance. And unless the contract has a "We can tell you to go screw yourself" clause for so called 'demand deposits', at some point the bank is lying to someone. But if eveyrone signs that contract then so be it. So here we have You and ... <--- A Million or so Miles ---> ... and here we have The Point; The Point being that if people agree the money is at risk and they might not get it back, then it isn't a demand deposit and the 'bank' doesn't need reserves to cover it, and we're no longer talking about fractional reserve banking which is really a function of fraudulent warehousing of money property, but about investments which come with risk and which you explicitly state is disclosed prior to the act of investing in a contract.
Angurse:I corrected "Mish's" claim that it was unlibertarian,
And incorrectly so by playing with labels and ignoring reality. Fractional reserve banking is fraudulent. Relabeling investing as fractional reserve banking and then claiming it isn't fraudulent isn't an argument, it's bullshit.
Are you even trying to make sense? I make a point about fraudulence and you reply "Not the issue. The issue is fraudulence." Honestly?
xahrx: Not the issue. The issue is fraudulance. And unless the contract has a "We can tell you to go screw yourself" clause for so called 'demand deposits', at some point the bank is lying to someone. But if eveyrone signs that contract then so be it.
Not the issue. The issue is fraudulance. And unless the contract has a "We can tell you to go screw yourself" clause for so called 'demand deposits', at some point the bank is lying to someone. But if eveyrone signs that contract then so be it.
There is no point where the bank has to be lying to someone, people who agree to the contract and put there money in the bank certainly aren't being defrauded. And people who accept the bank notes as a form of payment aren't being defrauded as they are under no obligation to accept them.
xahrx:So here we have You and ... <--- A Million or so Miles ---> ... and here we have The Point; The Point being that if people agree the money is at risk and they might not get it back, then it isn't a demand deposit and the 'bank' doesn't need reserves to cover it, and we're no longer talking about fractional reserve banking which is really a function of fraudulent warehousing of money property, but about investments which come with risk and which you explicitly state is disclosed prior to the act of investing in a contract.
And again that isn't the point at all. As we've already agreed, what its called is irrelevant, they could call it a zebra. The point is whether FRB is inherently fraudulent and whether you have the right to value, which it clearly isn't and you clearly don't. Sorry "Mish"
xahrx:And incorrectly so by playing with labels and ignoring reality. Fractional reserve banking is fraudulent. Relabeling investing as fractional reserve banking and then claiming it isn't fraudulent isn't an argument, it's bullshit.
Right "incorrectly playing with labels" as opposed to "correctly playing with labels." Fractional reserve banking obviously isn't fraudulent due to the fact that both parties agree and the risk is clearly accepted. Only unlibertarian people like "Mish" who don't understand the nature of value think otherwise.
Laissez faire et laissez passer, le monde va de lui même
Angurse: people who agree to the contract and
do you agree with the promise theory of contract or the title transfer theory of contract?
Angurse:And people who accept the bank notes as a form of payment aren't being defrauded as they are under no obligation to accept them.
are people who have accepted green shiny apples from the grocer not being defrauded as they were not obliged to accept them; even if when they get home they realise they have been sold poisoned apples?
just some questions to prompt debate on points of contention...
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Good questions.
I agree with the Title transfer theory of contract.
If the grocer represented the green shiny apples as being apples, (as in being fit for their commonly accepted purpose of being food) and the people buy them while the grocer knows that they are in fact poison, then they are being defrauded. The grocer knowingly obtained the customers money without their full consent and is a thief.
If the customers are aware that they are poisonous then no.
Angurse:Are you even trying to make sense? I make a point about fraudulence and you reply "Not the issue. The issue is fraudulence." Honestly?
I was refering to your aside on ponzi schemes. Either way I've already made all the points I want or need to. You are not talking about fractional reserve banking if people stipulate the money is to be invested and will not be available on demand. A bank need not cover such a 'deposit' with reserves.
xahrx:I was refering to your aside on ponzi schemes. Either way I've already made all the points I want or need to. You are not talking about fractional reserve banking if people stipulate the money is to be invested and will not be available on demand. A bank need not cover such a 'deposit' with reserves.
I don't know what you are talking about, you were the one who brought up Ponzi schemes. which are definitely a form of fraud. It certainly was related at any rate. And unless you are defining fractional reserve banking as something else, then no, I was definitely talking about FRB.
Angurse:I don't know what you are talking about, you were the one who brought up Ponzi schemes. which are definitely a form of fraud. It certainly was related at any rate. And unless you are defining fractional reserve banking as something else, then no, I was definitely talking about FRB.
No, you weren't. If I was talking about an African mammal with an unusually long nose that weighed a few tons and ate a lot of grass and leaves and made trumpeting sounds and called it a giraffe, that doesn't change the fact that I am in fact talking about an elephant. It can't be Fractional Reserve Banking if you're preceeding the deposit with an explicit agreement that there will be no reserves held to cover the deposit. If it is stipulated that there need be no reserves held to back a deposit then what the hell are the words Frational and Reserve refering to in the term Fractional Reserve Banking?
xahrx:It can't be Fractional Reserve Banking if you're preceeding the deposit with an explicit agreement that there will be no reserves held to cover the deposit. If it is stipulated that there need be no reserves held to back a deposit then what the hell are the words Frational and Reserve refering to in the term Fractional Reserve Banking?
And again, it doesn't matter what its called, if people come to use the term "fractional-reserve banking" to describe no-reserve banking who cares? As long as it comes through voluntary agreements, similar to the case with demand deposits, it wouldn't constitute any sort of fraud. Again, it isn't the label that matters at all.
Angurse: it doesn't matter what its called,
it doesnt matter what what is called?
Unless there is only one bank in existence, and ALL individuals prefer the bank's money substitutes over commodity money, holding no reserves is a quick recipe for bankruptcy and serves no useful purpose in debate.
in practice FRBs experience constant redemption demand. They keep enough reserves to cover normal demand plus a buffer amount. If redemption demand increases so that reserves start to approach 0% and there is a fear of bankruptcy, the bank sells its credit-based assets into the open market to increase them.
If a FRB has issued more credit via fiduciary media than savings rates permit, it will find itself selling its credit-based assets at lower values than it needs to stay solvent. Eventually, it holds no assets, but still has liabilities to its "depositors" (actually lenders). It is insolvent. Even if the situation never gets that far, it may make less than expected on such assets, and fails to cover its administrative costs.
The question of fraud has to do with the involved parties. Is the bank de-frauding the customer? Are the customers defauding the public in using the money substitutes as payment? So long as the notes or account credit is not described as a demand deposit but a risk-bearing loan, there is no fraud.
I do not advocate FRB - I think it is a confused doctrine, economically inefficient. However, I do not think its very nature is necessary fraudulent or non-economic.
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nirgrahamUK:it doesnt matter what what is called?
With regards to fraud, it doesn't matter that the term "demand deposit" is used to refer to money in a chequing account that is really just a loan to the bank.
it matters, in the sense that it obfuscates, and makes impossible rational discussion on the topic of 'what are acceptable banking pracitices over such forms of accounts as 'demand deposits' 'time deposits' 'lottery deposits' 'bizarre arrangement deposits' etc. ?'
nirgrahamUK:it matters, in the sense that it obfuscates, and makes impossible rational discussion on the topic of 'what are acceptable banking pracitices over such forms of accounts as 'demand deposits' 'time deposits' 'lottery deposits' 'bizarre arrangement deposits' etc. ?'
Sure. However, as Rothbard has pointed out, as long as the commonly accepted definition is being used, there isn't any misrepresentation. And demand deposit isn't commonly accepted as meaning a 100% reserve bailment. Even Rothbard has stated that it is well known that banks have rarely held 100% reserves.
meambobbo:However, I do not think its very nature is necessary fraudulent or non-economic.
I follow the point but don't agree overall because the process involves more than one exchange. Fractional Reserve Banking doesn't just involve the bank and depositor, but also the receiver of unbacked claims to real property. Point being it's a process in which, at some point, someone is getting a line of BS handed to them. If everything is stipulated in the begining via contract with all customers, then anything lacking a reserve is by definition not a demand deposit and you're basically dealing with an investment banking situation where the company keeps some cash on hand for it's customers demand for such, nothing more. More to the point it's just not fractional reserve banking, because to engage in fractional reserve banking you need to hold a reserve that is a fraction of what's required to cover demand deposits. Which means you have to have agreed to pay on demand to depositors whose property you do not necessarily have on hand to deliver on demand, and you have to have loaned out claims to property which are not actually backed by such property. Which is, by nature, fraud.
Now I'm not saying you can't do that, but if you do it with everyone's agreement that no reserves are guaranteed, where is the fractional reserve part come in? Of what amount are your reserves a fraction of if you're not required to have any reserves to begin with? A fraction of... what? If you're not required to have reserves, any you keep on are just a judgement call of what might be demanded at any given time. A bank can certainly operate along those lines, i'm not saying otherwise. I'm just saying if there's an agreement no reserves need be held, you can't implement a fractional reserve system.
I would again like to preface this by saying I'm against FRB. I would not accept a FRB note as money. I wouldn't expect FRB to be widely practiced in a true free market, and if it did, it would likely be due to consumer myths and a persistence towards error. FRB has survived history not due to market merits but government subsidization.
xahrx:Fractional Reserve Banking doesn't just involve the bank and depositor, but also the receiver of unbacked claims to real property.
X Bank practices FRB. If I use X Bank's notes to purchase a toaster, and the recipient of the notes takes them with no questions asked, that's not fraud. I made no attempt to convince him he was receiving anything other than a piece of paper. Now, if on the other hand, he asked, "Is that note a title or a debt?" and I replied, "A title," I am the one committing fraud, not the bank. If the note itself said, "This is a title to ___ held at X Bank, redeemable on demand," then the bank would be committing fraud. If it instead said, "This is an obligation on X Bank for ___, securable on demand," then the bank would only be acting fraudulently if it purposefully failed to honor that claim.
xahrx: Which means you have to have agreed to pay on demand to depositors whose property you do not necessarily have on hand to deliver on demand
If I borrow $10 from you today and agree to repay you $20 tomorrow, simply because I don't have enough money to repay you today doesn't mean I'm doing something illegal or fraudulent. Now, I might be. If I blow the $10 on candy and make no effort to earn your $20, that could be considered fraud. But if I invest the $10 in what I can demonstrably show I believed would result in a 100% return overnight, it doesn't matter if I end up with the $20 the next day or not. There is no fraud - no purposeful misrepresentation. Now, if I don't deliver the $20, I have breached the contract and I face legal mandates to resolve the dispute; however, these risks are acceptable and necessary for any form of credit to be legally permissible.
There is certainly risk that a FRB may face more redemption than it can handle in a short period of time. Yet, it owns assets which it believes are actually more valuable than its obligations. And when necessary it sells these assets to keep enough reserves on hand to satisfy expected redemption. Thus, it demonstrates a purposeful attempt to fulfill its contract.
The terms make things confusing. Normally, loans have a fixed term. The FRB contract is that the term is whenever you decide to redeem it. Thus, so long as the bank acts in a manner to keep enough reserves on hand to fulfill its logically expected redemption rate, it is not acting fraudulently, even if it fails to fulfill its contracts due to demonstrably unexpected rises in redemption rate or loan losses. Of course, it is NOT in the bank's best interest to fail.
xahrx:and you have to have loaned out claims to property which are not actually backed by such property
Same example as above. Simply because my investments are different from my obligations does not mean I am purposefully avoiding or incapable of fulfilling my obligations. I must simply sell or use my investments to generate what I am obligated to hand over, before such is due. The bank only needs reserves on hand when its notes/account credit are redeemed. This does not mean they must keep 100% reserves, otherwise, they are essentially obligated to keep repayment on hand before it falls due.
xahrx:If you're not required to have reserves
The only time you aren't required to have reserves is if no one redeems any notes or credit for commodity money. Otherwise, the bank is demonstrating that it has no intention of honoring its contracts, as there is a historical and logical expectation for it to require some amount of reserves. This is more like wildcat banking, not FRB in general. In my above example, this is my using your $10 to buy candy rather than to bet on black.
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