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What do you think of fractional reserve banking?
It needs to be abolished in its entirety. 55%  55%  [ 6 ]
The reserve requirement needs to be raised, but FRB doesn't need to be abolished. 27%  27%  [ 3 ]
It's fine the way it is. 18%  18%  [ 2 ]
The reserve requirement should be lowered! 0%  0%  [ 0 ]
Other/I just want to see the results 0%  0%  [ 0 ]
Total votes : 11

Cyanide
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18 Apr 2009, 1:33 am

Orwell wrote:
Fractional reserve banking is a great system- basically, the bank acts as an intermediary between the saver (investor) and borrower, enabling all of society's existing resources to be put to use rather than merely idling in a vault. Fluidity helps growth. Otherwise, we would have massive amounts of wealth sitting idle in bank vaults, doing nothing useful.


Yeah, when the banks gamble wisely, it fosters economic growth. But when their gambling fails (like right now, actually), then it has terrible, terrible consequences. Banks runs and failures have happened more than once in history.
The question is: are the benefits worth the risks? Personally, I don't think so. I'd much rather have stable growth even if it is less. I think if growth were more stable, it may actually give more incentive for individuals to invest some of their own money by their own free will. That would be good, because I think individuals would be more prudent with their money than banks...



Dussel
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18 Apr 2009, 3:06 am

Glencannon wrote:
Interesting note about Fractional Reserve Banking, in 12th century England,FRB was punishable by death.


Source - To be honest I do doubt this. I 12th century England you have hardly any monetary system at all. There was at this some revitalisation of a banking system in the Kingdom of Both Sicilies under the Norman and Staufen Kings and in North Italy, but not in England.



Dussel
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18 Apr 2009, 3:09 am

Cyanide wrote:
Orwell wrote:
Fractional reserve banking is a great system- basically, the bank acts as an intermediary between the saver (investor) and borrower, enabling all of society's existing resources to be put to use rather than merely idling in a vault. Fluidity helps growth. Otherwise, we would have massive amounts of wealth sitting idle in bank vaults, doing nothing useful.


Yeah, when the banks gamble wisely, it fosters economic growth. But when their gambling fails (like right now, actually), then it has terrible, terrible consequences. Banks runs and failures have happened more than once in history.
The question is: are the benefits worth the risks? Personally, I don't think so. I'd much rather have stable growth even if it is less.


You will have no grow at all. Grow is also based on risk taking. If the sum of lending is always caped by the amount of liquid assets money can't be produced to create liquidity for investments.



ascan
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18 Apr 2009, 3:24 am

Orwell wrote:
Yes, conditions will continue to improve. That is the wonder of development and growth that a market economy allows.

Um... is there any conceivable system that is *not* constrained by the availability of necessary resources? I mean, to avoid that you would basically need a system with no connection to reality.

Firstly, I don't see anything wondrous about it Orwell. As for the second bit, you miss the point. Your position seems to be that economic growth will continue ad infinitum, and will not be limited by those obvious constraints. So, I'd suggest that it's the system you're describing that lacks a connection to reality.

You know, you seem to have an unrealistic optimism in much of your view of the world.



Last edited by ascan on 18 Apr 2009, 12:33 pm, edited 1 time in total.

Dussel
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18 Apr 2009, 3:25 am

Orwell wrote:
Glencannon wrote:
Interesting note about Fractional Reserve Banking, in 12th century England,FRB was punishable by death.

And 12th century England pretty much sucked. And there was essentially no economic growth that century. 1200 and 1300 in England looked fairly similar. From 1900 to 2000, using fractional reserve banking, observe the extent to which economic conditions have improved.


You have in the oposite an economic growth in Northern Italy in 13th till 16th century which was quite substantial based on fractional banking system. The first public bank how used such a system, the Monte Paschi in Siena (founded 1471 and still in business) used this system to promote economic growth. The Medici did similar business in Florence and shortly later the Welser and Fugger in Germany (leaving us with terms like "credito di avallo" in the banker's language).

The fractional reserve banking to borrow money was essential for this growth of wealth.



Dussel
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18 Apr 2009, 3:29 am

Cyanide wrote:
Orwell wrote:
Fractional reserve banking is a great system- basically, the bank acts as an intermediary between the saver (investor) and borrower, enabling all of society's existing resources to be put to use rather than merely idling in a vault. Fluidity helps growth. Otherwise, we would have massive amounts of wealth sitting idle in bank vaults, doing nothing useful.


Yeah, when the banks gamble wisely, it fosters economic growth. But when their gambling fails (like right now, actually), then it has terrible, terrible consequences.


No - it doesn't - if the government stays of the game. The banks will go bankrupt (also an Italian word; "Banca rotta" - broken/rotten bank) and the assets of the bank will be sold on the open marked and therefore bad assets will disappear. Some people will loose money, but this is the game; shall they be more careful in future investments.



Cyanide
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18 Apr 2009, 4:08 am

Dussel wrote:
Cyanide wrote:
Orwell wrote:
Fractional reserve banking is a great system- basically, the bank acts as an intermediary between the saver (investor) and borrower, enabling all of society's existing resources to be put to use rather than merely idling in a vault. Fluidity helps growth. Otherwise, we would have massive amounts of wealth sitting idle in bank vaults, doing nothing useful.


Yeah, when the banks gamble wisely, it fosters economic growth. But when their gambling fails (like right now, actually), then it has terrible, terrible consequences. Banks runs and failures have happened more than once in history.
The question is: are the benefits worth the risks? Personally, I don't think so. I'd much rather have stable growth even if it is less.


You will have no grow at all. Grow is also based on risk taking. If the sum of lending is always caped by the amount of liquid assets money can't be produced to create liquidity for investments.

I disagree. There would still be loans and the stock market. Those are both risks. Loan institutions could still exist to loan out money. Banks could even possibly make agreements with depositors to loan out their money. It would be a contract that depositors would enter into by their own volition (and face any bad consequences). Otherwise, banks could charge you a fee to keep your money there (and possibly even loan that out!).

Also, like I said earlier, a more stable economy would probably inspire people to invest in the stock market. Having all these inflationary recessions isn't going to put confidence in anything. I mean, THIS decade we're in our 3rd recession. Our current unstable financial system (thanks to FRB and the independently-operating Federal Reserve) doesn't give me any confidence to invest anything in stocks. People need to be given more choice over their money. The banks should butt out.

With the lower risk of banks collapsing, we wouldn't need this government guarantee of printing out up to $100,000 for your defunct bank account. All that causes is inflation. And also, Dussel, how does failed bank gambling NOT have a bad effect? I mean right now, we're having a worse recession than 1981 (it hasn't reached that level yet, but it will). The government's running around doing all these slap-happy things to help the "short-run" economy with future inflation, which is just bad for the long-run. The way we fix FRB's failures is to steal peoples' money with the inflation tax. What appeal do you see in this?



Dussel
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18 Apr 2009, 5:04 am

Cyanide wrote:
Dussel wrote:
Cyanide wrote:
Orwell wrote:
Fractional reserve banking is a great system- basically, the bank acts as an intermediary between the saver (investor) and borrower, enabling all of society's existing resources to be put to use rather than merely idling in a vault. Fluidity helps growth. Otherwise, we would have massive amounts of wealth sitting idle in bank vaults, doing nothing useful.


Yeah, when the banks gamble wisely, it fosters economic growth. But when their gambling fails (like right now, actually), then it has terrible, terrible consequences. Banks runs and failures have happened more than once in history.
The question is: are the benefits worth the risks? Personally, I don't think so. I'd much rather have stable growth even if it is less.


You will have no grow at all. Grow is also based on risk taking. If the sum of lending is always caped by the amount of liquid assets money can't be produced to create liquidity for investments.

I disagree. There would still be loans and the stock market. Those are both risks. Loan institutions could still exist to loan out money. Banks could even possibly make agreements with depositors to loan out their money. It would be a contract that depositors would enter into by their own volition (and face any bad consequences). Otherwise, banks could charge you a fee to keep your money there (and possibly even loan that out!).


If anyone wants to invest his money safe (and with low profits) he already can: Government bond. Anyone how brings his money to the bank shall be aware about the risk.

Cyanide wrote:
Also, like I said earlier, a more stable economy would probably inspire people to invest in the stock market. Having all these inflationary recessions isn't going to put confidence in anything. I mean, THIS decade we're in our 3rd recession. Our current unstable financial system (thanks to FRB and the independently-operating Federal Reserve) doesn't give me any confidence to invest anything in stocks. People need to be given more choice over their money. The banks should butt out.


You need crises for growth - otherwise unfit institutions would not go that easily out of the market. The current problem is not the financial crisis, but the government intervention. The best think the government (I mean also the governments in Europe) is nothing. Raising taxes to keep the budget balanced and let happen what happens.

Cyanide wrote:
With the lower risk of banks collapsing, we wouldn't need this government guarantee of printing out up to $100,000 for your defunct bank account.


Why the government should do so in the first place? If a private bank goes bust, what has this to do with the government?

---

May a system like in Amsterdam prior 1792 would be not that bad: There was the state-privileged Amsterdamsche Wisselbank, which paid extreme low interest, but was by its structure absolute safe - and there were private banks. Anyone could choose to deposit his money with a private bank or with this state bank. More risk - more profit, but if this private bank would went bust, the problem of the investor.