Hey folks I have some questions, I hope you'll be able to help me out.
I had a discussion last night with a Finance Major at the University of Oklahoma who is taking a "macro" economics class, we had an interesting conversation but he mentioned a few things that either I haven't heard much of or never heard.
1. I mentioned the fractional reserve banking system and he corrected me calling it the fractional reserve bond system... he said that the banks had to keep 10% of their money deposited at the federal reserve itself... did I miss this? is this something different or the same thing as fractional reserve banking, or what?
2. We were talking about the recession and I blamed it on the fractional reserve banking system (when he corrected me as mentioned above) and the federal reserve printing more money... and he blamed it on us borrowing money from China.... I have heard this before that the U.S. gov't is borrowing from China, but I've never heard it mentioned here... why not?
3. We talked about the gold standard and he said his professor explained why the gold standard didn't work, but that he didn't remember exactly why... My hypothesis is that the gold standard "didn't work" because it didn't allow for the inflation and increase of the money supply due to the fractional reserve system... Are there any other ideas why an economist would claim that the gold standard didn't work?
4. A question I wonder about myself is what would happen if the United States returns to the gold standard, but all the other countries remained on fiat currency? I think the answer would depend if the central bank remained intact or not..? maybe, not sure? One Idea Is that the rest of the world would begin using American currency, and that the exchange rate would be the market value of Gold in Euros, Yen, and so fourth, compared to the dollar.... But I'm really not certain, and very tired.
5. Does an Austrian Economist have a problem with credit cards? Do credit cards in effect increase the money supply? I ask this because I'm not sure exactly how the credit card industry works. If you know the answer I would be very glad to hear it, I've been wondering about this quite a bit but just haven't made the time to look into it deeper.
Thanks Guys.
Everything you needed to know to be a libertarian you learned in Kindergarten. Keep your hands to yourself, and don't play with other people's toys without their consent.
On 1, that is how I learnt it too - fractional reserve banking.
On 2,There have been numerous Austrian articles on China, including this one and this one.
On 3, I would guess he means there isn't enough gold in the world or something stupid like that.
On 5, they're fine, so long as the credit comes from the bank's reserves, i.e. whatever gold (or other commodity) it holds.
This is a good compilation of links on monetary econ in general.
To darkness I condemn you...
2. So to clarify, it isn't the chinesse gov't that has ben lending, but private citizens, Investing?
5. but as I understand it, (and I haven't yet read the theory of money and credit) credit is just faith that you'll pay it back, for example, I have a credit account at a few stores I trade at in my town. I can go in get something off the shelf, the store owner makes a note of it, and I walk out with whatever I wanted, and he trusts me to come back in later and pay him.
My guess is that credit cards become the middle men in a much larger and more complex economy. so that visa or master card pays the store, but the consumer is obliged to pay the credit card company at a later time.. So the credit is extended to the consumer. but the credit company pays the store. And so I guess now that I've written out my idea on the matter, that we are talking about the same thing. Is this how credit cards work? do they have cash on hand to pay the store, or does the store also extend credit to the credit card company?
I guess I'm just gonna have to do some research because the crux of the question seems to be how exactly do credit card companies operate?
and btw you missed #4
2. Saving, but that isn't really the issue. The problem is that the fractional reserve system which places the savings at the bottom of an inverted pyramid. The articles I linked to explain it better than I can.
5. Basically eventually money will have to change hands. So long as the institution issuing the credit card can insure that that money will be forthcoming, e.g. out of its own reserves, credit cards are fine.
And I left 4 out because it'd take more painstaking analysis than I currently have the wherewithal for, though I'm sure someone else will respond to it.
"My guess is that credit cards become the middle men in a much larger and more complex economy. so that visa or master card pays the store, but the consumer is obliged to pay the credit card company at a later time.. So the credit is extended to the consumer. but the credit company pays the store. And so I guess now that I've written out my idea on the matter, that we are talking about the same thing. Is this how credit cards work? do they have cash on hand to pay the store, or does the store also extend credit to the credit card company? "
Well my friend in a way you are indeed correct, they are middle men, but they actually do not help the economy. They as a matter of fact HURT the economy due to the debt they end up causing, ideally the system would work to promote economic stimulus just as loans would, but the truth of the matter theres always variables. One, people falsifying their income level then they end up not being able to afford to repay the ccc (credit card company). Bank loans are the same way except for the income falsifying, the difference here being maybe someone gets hurt and a hospital bill gets added into the stack, then they cant pay their loan etc, etc, etc.. Its issuing an amount of money to a person by making them pay back more than they originally had to, paying for the earlier payment with "gratitude". The problem however, is most credit cards ie visa and mastercard and such that aren't debit cards are their own seperate account. The money you pay them in interest is a SELFISH gain on the owners of the visa company and such, seeing as they started as, and technichally ARE STILL, privateer companies. So the people end up spending MORE money on a singular purchase in which theyd have more money to be able to spend on more things if they DIDNT have to pay the interest that disappears into the pockets of the ccc's. The credit card company''s issue this money because they have money they pay, and just make profit off the money they pay. The stroes dont credit the ccc's. So, in retrospect, in the end, it ends up hurting more than it helps. but the owners of visa and such appreciate you lining their pockets with gold! :D
Sharingan_Nightmare:The money you pay them in interest is a SELFISH gain on the owners of the visa company
All voluntary trades are for selfish purposes. If you don't want to pay interest, don't carry a balance on your credit cards.
If you find something evil that wobbles, push it. - Gary North
liberty student: All voluntary trades are for selfish purposes. If you don't want to pay interest, don't carry a balance on your credit cards.
its not about what i want. im saying the gain isnt going into direct stimulus into the economy. i mean in a way it rotates, but it also stagnates within the company at some point or another.
Sharingan_Nightmare:im saying the gain isnt going into direct stimulus into the economy.
What is direct stimulus?
Sharingan_Nightmare: i mean in a way it rotates, but it also stagnates within the company at some point or another.
I don't believe I understood this point. How so?
liberty student: Sharingan_Nightmare:im saying the gain isnt going into direct stimulus into the economy. What is direct stimulus? Sharingan_Nightmare: i mean in a way it rotates, but it also stagnates within the company at some point or another. I don't believe I understood this point. How so?
okay, what im referring to when i say a direct stimulus is something that is immediately redistributed throughout the economy, like when banks and credit card companies make their income, some of it goes right back out into peoples paychecks and stuff like other companies, but they also pool additional gain which is not spent, usually for backups incase of some sort of loss or increasing their output. This money becomes STAGNANT and either doesnt flow around or is "seeming" to flow around yet what it is its applied to a different avccount which starts the process over and increases the pool.
Sharingan_Nightmare:This money becomes STAGNANT and either doesnt flow around or is "seeming" to flow around yet what it is its applied to a different avccount which starts the process over and increases the pool.
Velocity can increase the volume of trade, which theoretically better orders scarce resources with each trade, and marginal increases aggregate prosperity, however, money does not become stagnant. This is a mainstream economic myth.
let me rephrase. it doesnt become stagnant, but it becomes part of a never ending false growth. because even though the growth would SEEM to benefit the economy as a whole it just creates more instances of debt and loss for customers. it really doesnt help anything.
Sharingan_Nightmare:let me rephrase. it doesnt become stagnant, but it becomes part of a never ending false growth. because even though the growth would SEEM to benefit the economy as a whole it just creates more instances of debt and loss for customers. it really doesnt help anything.
Can you provide an example? It's really hard to follow this.
I think a big problem is that economics is generally a value free science. So when you say "benefit" or "doesnt help" that's hard for me to understand.
As a businessman, I always want to do things that benefit and help, because that is how I make a profit.
sounds like he's got a hang up about consumer borrowing...
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
Sharingan_Nightmare:okay, what im referring to when i say a direct stimulus is something that is immediately redistributed throughout the economy, like when banks and credit card companies make their income, some of it goes right back out into peoples paychecks and stuff like other companies, but they also pool additional gain which is not spent, usually for backups incase of some sort of loss or increasing their output. This money becomes STAGNANT and either doesnt flow around or is "seeming" to flow around yet what it is its applied to a different avccount which starts the process over and increases the pool.
Hmm. Let me see If I understand correctly. Are you saying that when lending institutions make a profit, that profit isn't being immediately invested into the economy, but is being saved for when they need to compensate a loss or to be invested for future production?
If that's the case, the fact that those companies aren't immediately demanding resources in return for their profits means that demand for goods hasn't been effected by them. The cost of purchasing the goods that the company would have otherwise purchased (had it not saved it's profits) is not made greater by them increasing the demand for that good. In other words, people don't have to spend as much while the company saves for the future.
banned has got the idea. what im saying is the interest would seem to accelerate the growth seeing as people would buy even when they dont have the money at the time but in the long run they end up spending more and buying less not increasing demand.
Ludwig von Mises Institute | 518 West Magnolia Avenue | Auburn, Alabama 36832-4528
Phone: 334.321.2100 · Fax: 334.321.2119
contact@Mises.org | webmaster | AOL-IM MainMises
Mises.org sitemap