Economics Questions

Re: 100% Reserve Gold Standard Banking and Loans

ProudCapitalist — Sun, 15 Mar 2009 23:11:57 GMT

Maxliberty:
This gives this type of bank enormous advantages over your 100% on demand reserve bank. These other illiquid assets may be in fact be financial assets that are earning a profit for the bank thus allowing the bank to subsidize things like free checking or interest on its own 100% demand deposit part of the bank.

Is it actually a competitive advantage? Does the interest rate paid to depositors (or rather, FRB-speculators) really cover the obviously very high risk of loosing all money deposited/invested in the bank account? It seems like such a total loss can happen any day, and simply because of a rumor. An FRB deposit account seems to me to be of much higher risk than owning a stock portfolio. And it seems to give much lower return. Obviously, an FRB account couldn't be an attractive way to keep liquidity which are needed in order to pay the rent or suppliers on time, if a 100% deposit alternative is available. Even if the FRB alternative would pay a 2% or so real interest rate a year (as compensation for resulting in a sudden 100% loss of all money deposited about once every 25 year on average, following which you are evicted from your home and your company's is bankrupted).

FRB is not a serious alternative for payments or savings. It could only be attractive to gamblers who speculate in earning a small yearly return by trying to predict the timing of the next bank run.

Re: 100% Reserve Gold Standard Banking and Loans

sthomper — Sun, 15 Mar 2009 05:17:49 GMT

i guess it was stated how loans would be made with a 100% reserve banking/warehouse system.

most likely it would be time deposits. where hopefully the loaned-out money (most likely unavailable to the time-depositor) from time-deposits gets repaid with interest - making the bank/warehouse and the time-depositor a return.

storage-deposits, for lack of a better term, would simply be the storage, management and transfers of specific amounts of money.

as for the fraud issue...i am not completely sure.

if i have a demand deposit....and the bank truly only holds a portion of the money i deposited, but my account balance indicates that all the money i deposited exists in a 'balance' -its just that the money the money is 'around'.

i guess that means the bank might just have to quickly grab someone elses 'potentially-demanded' money to satisfy my demand and hope they dont demand their money.

or try to sell a quick asset (a repoed car??) to satisfy my or others money demands.

or go to a printer to have them quickly print up some 'money' to satisfy mine or others money demands.

is this how the 'fractional reserve' system works?

if what i have just described above is correct...it would seem more accurate to show only the specificamount money one has 'in the bank' after a deposit....to claim what i have read as being called 'fiduciary media' .... well it would seem that would need to be a different type of account or indicated where how the fiduciary claims were satisfied.

for instance....fungible pile of money is reduced by 10 cents for all depositors because of a demand of 100 units of my deposited money...or a repoed car was sold this afternoon to satisfy some depositors cash demands -- so here is your money.

am i incorrect in my understanding of this issue?

Re: 100% Reserve Gold Standard Banking and Loans

James Greene — Fri, 13 Mar 2009 20:24:59 GMT

Maxliberty:

James Greene:

1. Paying the bank a fee to securely hold your savings, virtually risk free. These demand banking accounts would never be loaned from and the bank could literally never experience a bank run.

This is where you are wrong and why your Austrian cult theory is mistaken. There is no requirement that the bank offer demand deposits. Instead what is most likely is that the bank will have a mix of assets backing 100% of its deposits. Some of these might be long term illiquid assets and some be very liquid assets in order to satisfy physical redemption. This gives this type of bank enormous advantages over your 100% on demand reserve bank. These other illiquid assets may be in fact be financial assets that are earning a profit for the bank thus allowing the bank to subsidize things like free checking or interest on its own 100% demand deposit part of the bank.

This is why the Austrian about what is most likely or what most of you say, the only permissable forms of banking, is completely wrong. What I have described above is not inherently fraudulent and allows for a variety of different banks based on a variety of possible risk preferences of the depositors.

For the record, I call the Austrians cultists on this issue because they never argue the facts only repeat the mantra. Secondly, I refer to them as dictators because if you accuse me of practicing fraud with the presumtion of incarceration or punishment when in fact I am not committing fraud then you are acting as they very thing you claim to be against.

The only that can be delcared fraud is maintaining a fractional reserve of something you claim is 100% on demand. I can have a fractional demand reserve and the other portion of the deposits backed by non demand assets as long as the depositor knows the arrangement. This is essentially nothing more than limiting redemptions based on agreed upon terms. This is far more likely than a bank that has 100% on demand reserves. In fact this bank will drive the exclusive 100% on demand reserve banks out of business.

I run into people with similar attitudes to yours often. You know, the type who think of themselves as "debunkers" and who aggressively try to prove others wrong while unfortunately having very poor listening skills. These peoples minds always seem already made up and setteled upon a conclusion that they came to in the past that won't budge or be changed. I always wonder why these people act in such a way and why they don't, instead, have an open mind and engage in rigourous friendly debate and speak with a less hostile tone. It's obviously natural to believe that you are correct, but I think that you would learn a lot more if your approach was different. You don't seem to be here to learn though - and thats the odd part. I think it's great that you're here and supplying a conterpoint for debate, but all I see comming from you is ego and a one sided closed mind that will ignore any and all points and make whatever arguments you can to try and prove that the Austrians are a dictatorship worshiping cult who are entirely wrong in their theories. lol I just don't get your motives. So, what do you hope to accomplish by engaging in this thread? Are you here to learn and test the waters with your own free market theories? Are you here to change the mind's of the entire Mises Institute because you know for a fact that they are wrong and wasting their time? If you have such conclusive proof (which it certainly doesn't appear so to me) that the Austrians are wrong in their theories, it would seem that writing a peer reviewed economics paper or even a book would be a better and more scholarly way to go. You wouldn't want to waste such a brilliant mind here on these forums with us who just don't get it, right? If you are so profoundly correct, it would seem that a scholarly work would certainly be a better outlet for you.

Re: 100% Reserve Gold Standard Banking and Loans

Juan — Fri, 13 Mar 2009 19:39:22 GMT

MaxLiberty:
The issue is that you claim what I propose is inherent fraud.

What you propose is nonsense though apparentely it's not the same kind of nonsense other advocates of frb propose. Your version of frb seems to be less fraudulent, but it doesn't make economic sense anyway.

At the same time you seem to believe that your system is no different than the current state-privileged, bankrupt system we suffer today, so maybe you are advocating outright fraud - or you don't understand the current system. Given your redefinition of terms and overall confused position, it's hard to tell.

Anyway, the thing is, in a free society, your system wouldn't last a month, so I don't see what's the point of outlawing it.

Presumably fraud would be a criminal offense even in a free society.

Perhaps - perhaps not. Do you think for instance that mediums, mentalists, astrologers and the like should be banned ? Aren't they fraudsters after all ?

I have...made a convincing case that this banking would in fact be the majority of banking conducted.

In your mind.

Re: 100% Reserve Gold Standard Banking and Loans

banned — Fri, 13 Mar 2009 19:33:41 GMT

Maxliberty:
If I have a bank that maintains 100% reserve of its deposits but some of the assets are not instantly redeemable then any notes the bank issues may not be redeemable on demand for a particular asset that the bank is using as assets to back its deposits.

100% reserve means 100% of redeemable assets are in reserve. The fraction loaned out from a time deposit has a precondition that it is not redeemable. That's the definition of a time deposit. So loans can very well happen in a 100% reserve bank.

Re: 100% Reserve Gold Standard Banking and Loans

bbnet — Fri, 13 Mar 2009 18:53:18 GMT

Maxliberty:

... I have no idea what you are saying with the rest of your post.

What I was trying to say, albeit in a roundabout and humorous fashion, is that the system you are proposing would be generally uncompetitive under a sound money system. Because of the vast variety of monies and ever changing price relationships between them, you would not be able to guarantee 100% reserve upon demand withdrawals for what was deposited.

Re: 100% Reserve Gold Standard Banking and Loans

hayekianxyz — Fri, 13 Mar 2009 18:43:14 GMT

Maxliberty:
Why don' t you read your post and then show me where I said that the government needed to intervene in "my" system?

Good thing I never claimed anything of the sort then, because then I would have been wrong.

Re: 100% Reserve Gold Standard Banking and Loans

Maxliberty — Fri, 13 Mar 2009 18:30:39 GMT

Juan:
I personally have no problem with you being allowed to put your crackpot theories at work in a free market. Just like I wouldn't stop quacks from trying to cheat gullible people.

The issue is that you claim what I propose is inherent fraud. Presumably fraud would be a criminal offense even in a free society. I have consistently demonstrated your claim of fraud is inaccurate as well as made a convincing case that this banking would in fact be the majority of banking conducted.

Re: 100% Reserve Gold Standard Banking and Loans

Maxliberty — Fri, 13 Mar 2009 18:28:04 GMT

GilesStratton:

Maxliberty:
Typical Austrian cult nonsense. Nowhere have I mentioned government intervention, I have only discussed what would and should be allowed to occur in a free market.

Read what I said again and realise why you missed the point.

Why don' t you read your post and then show me where I said that the government needed to intervene in "my" system?

Re: 100% Reserve Gold Standard Banking and Loans

Maxliberty — Fri, 13 Mar 2009 18:26:46 GMT

bbnet:
what is most likely is that banks would offer a choice to their customers.

That is the entire point. I have no idea what you are saying with the rest of your post.

Re: 100% Reserve Gold Standard Banking and Loans

bbnet — Fri, 13 Mar 2009 17:59:11 GMT

Maxliberty:

... what is most likely is that the bank will have a mix of assets backing 100% of its deposits ... this bank will drive the exclusive 100% on demand reserve banks out of business.

In a sound money system, it matters not where the money is stored because an ounce of plutonium today is worth an ounce of plutonium ten or twenty years later. I don't like to keep my plutonium under my mattress since I live in a bad neighborhood and can't guard it properly 24/7 (am also tired of concieving four legged children) so I pay a bank to use their highly secure and lead lined vault for safe storage.

When I was younger I'd invest about 50% of my sound money in schemes that while risky, ussually paid decent returns (except for that one at three mile island ... grrr) Now since I only have perhaps less than twenty years to live, I am much more conservative and keep about 80% in the vault. My father, while a happy and radiant old man, is ravaged with cancer and could pass at any time, he keeps all of what money he has left under his mattress.

Max L - what is most likely is that banks would offer a choice to their customers. I doubt many customers would be anxious to see their prized kilo of plutonium converted into ten tons of silicon upon redemption.

Re: 100% Reserve Gold Standard Banking and Loans

hayekianxyz — Fri, 13 Mar 2009 16:33:55 GMT

Maxliberty:
Typical Austrian cult nonsense. Nowhere have I mentioned government intervention, I have only discussed what would and should be allowed to occur in a free market.

Read what I said again and realise why you missed the point.

Re: 100% Reserve Gold Standard Banking and Loans

Juan — Fri, 13 Mar 2009 16:23:20 GMT

I personally have no problem with you being allowed to put your crackpot theories at work in a free market. Just like I wouldn't stop quacks from trying to cheat gullible people.

Re: 100% Reserve Gold Standard Banking and Loans

Maxliberty — Fri, 13 Mar 2009 15:23:55 GMT

GilesStratton:

James Greene:
For the same reason a fractional reserve bank would not be allowed to come about on the free market - because it is fraudulent, inflationary and plays a very large roll in creating the business cycle.

Absolutely, the free market is predicated upon property rights, every infringement upon those rights is an instance of an individual acting in a state like manner. So in this regard MaxLiberty is standing in his glass house and throwing stones at a good deal many people, especially so when you consider that historically there has always been associated with supporting the infringement of property rights in the form of FRB. In fact, so much so that it decided to create a lender of last resort. I wonder, if MaxLiberty's system is so solvent, why is it that it needed government intervention?

Typical Austrian cult nonsense. Nowhere have I mentioned government intervention, I have only discussed what would and should be allowed to occur in a free market.

Re: 100% Reserve Gold Standard Banking and Loans

Maxliberty — Fri, 13 Mar 2009 15:20:46 GMT

banned:

Maxliberty:
In a 100% reserve bank there are no loans. If your money is being loaned it is not in reserve.

It's only fractionally reserved if you can still access it after it has been loaned out. Time Deposits are considered in 100% reserve if you cannot acces money beyond what is stored in your account at the bank.

The issue is really only redemption. In a 100% demand reserve bank, there are no loans. If I have a bank that maintains 100% reserve of its deposits but some of the assets are not instantly redeemable then any notes the bank issues may not be redeemable on demand for a particular asset that the bank is using as assets to back its deposits. There is no logical reason a bank should be required to offer on demand redemption of it' s notes.