Is fractional reserve banking a form of fraud?

[Borek]

Isn't this your first post in this thread?

He posted earlier in his own post.

 

[thephysicsman]

Putting your money in a safe does not add to or take away from the problem in anyway whatsoever. Unless of course everyone put their money in a safe.

Exactly. If you try to store cash, its value will still diminish. What you can (and in my opinion should) do is to store a significant amount of your valuables in gold and silver. Remember, in an FRB system, everyone's money doesn't exist.

Because of this new supply of money the demand for the dollar drops along with the prices of goods available.

You mean the prices rise?

WhoWee: I'm sure your links can support all your claims, but it's a little OT

 

[BilPrestonEsq]

Exactly. If you try to store cash, its value will still diminish. What you can (and in my opinion should) do is to store a significant amount of your valuables in gold and silver. Remember, in an FRB system, everyone's money doesn't exist.



You mean the prices rise?

WhoWee: I'm sure your links can support all your claims, but it's a little OT

Yes, that's what I meant (geez..) The prices rise. Sorry about that, way to confuse my own post! Thanks for pointing that out!
That is what creates the lower income for businesses, because people are less likely to spend when prices go up
This also raises the costs to run the business

 

[WhoWee]

WhoWee: I'm sure your links can support all your claims, but it's a little OT

I am prepared to support any "claims" posted. Please note - I mostly asked questions.

 

[turbo]

Since the banks are allowed to print new money (that is, in most cases digital money) from their reserves, they are eager to get new depositors, and they tempt them with high interest rates. The borrowers are also winners, because they pay a lower interest (since the bank has less to lose). Everyone seems to be winners. So where does the fraud come in? Who are the losers?

Can you direct me to this fictional bank? My wife and I have several accounts with our credit union and with a large investment bank and none of them pay more than 1% on savings or money-market accounts.

 

[BilPrestonEsq]

Logic is meaningless if you're applying it to a concept that may or may not even exist. You have to actually give an example as to what the situation is in the first place before attempting to give any discussion on it. And please read the forum rules instead of constantly referring back to some 5th grade level economics terminology.

It is not a concept it is the law. I posted a link to the reserve requirement page on wikipedia in a previous post.

 

[Ronnin]

Just for FYI here, if a bank has 100 dollars in cash deposits it simply cannot lend 1000 dollars out. It's not that simple. Banks are required to meet very strict capitalization requirements set by the FED. Riskier investments (bank assets) do not hold the value as a pecentage when calculating the tier I and tier II capital requirements. Check out the BASEL II accords and you'll find that banking regulation is a lot more complicated than just the reserve requirements.

 

[thephysicsman]

That is what creates the lower income for businesses, because people are less likely to spend when prices go up

Inflation punishes saving, so that people are stimulated to spend their money. Today's politicians hold the ridiculous Keynesian view that the economy will come to a halt unless the government stimulates customers to spend their money.

The truth is that this policy punishes savings, which is important for accumulation of capital and long term planning. The result is less productive businesses, which is bad for everyone in the long term. Even powerhungry politicians.

 

[BilPrestonEsq]

Just for FYI here, if a bank has 100 dollars in cash deposits it simply cannot lend 1000 dollars out. It's not that simple. Banks are required to meet very strict capitalization requirements set by the FED. Riskier investments (bank assets) do not hold the value as a pecentage when calculating the tier I and tier II capital requirements. Check out the BASEL II accords and you'll find that banking regulation is a lot more complicated than just the reserve requirements.

It hasn't even been impemented yet!

Taken from wikipedia:

Implementation progress
Regulators in most jurisdictions around the world plan to implement the new Accord, but with widely varying timelines and use of the varying methodologies being restricted. The United States of America's various regulators have agreed on a final approach.[9] They have required the Internal Ratings-Based approach for the largest banks, and the standardized approach will not be available to anyone.(See http://www.federalreserve.gov/newsevents/press/bcreg/20080626b.htm for an update on proposed Standardized Approach)

In India, RBI has implemented the Basel II standardized norms on 31 March 2009 and is moving to internal ratings in credit and AMA norms for operational risks in banks.

In response to a questionnaire released by the Financial Stability Institute (FSI), 95 national regulators indicated they were to implement Basel II, in some form or another, by 2015.[10]

The European Union has already implemented the Accord via the EU Capital Requirements Directives and many European banks already report their capital adequacy ratios according to the new system. All the credit institutions adopted it by 2008.

Australia, through its Australian Prudential Regulation Authority, implemented the Basel II Framework on 1 January 2008.[11]

From the Federal Reserve website:http://www.federalreserve.gov/newsevents/press/bcreg/20080626b.htm"

 

[thephysicsman]

Can you direct me to this fictional bank? My wife and I have several accounts with our credit union and with a large investment bank and none of them pay more than 1% on savings or money-market accounts.

The banks are not free to set interest policy. Today the interest rates are artificially low, thanks to Bernanke.

 

[BilPrestonEsq]

Inflation punishes saving, so that people are stimulated to spend their money. Today's politicians hold the ridiculous Keynesian view that the economy will come to a halt unless the government stimulates customers to spend their money.
The truth is that this policy punishes savings, which is important for accumulation of capital and long term planning. The result is less productive businesses, which is bad for everyone in the long term. Even powerhungry politicians.

That is true, that's the problem with fractional reserve banking. And it does punish savings.
Going back to my simplified version, if the loans aren't payed off then they default and the only way to stop from defaulting is to make more money, that's where the consumer comes in. If the loans are defaulted then the bank will have to be rescued or total collapse will be the result. So they are bailed out, and the cycle repeats. Ever heard the phrase: to big to fail? That is what they are referring too.

 

[turbo]

The banks are not free to set interest policy. Today the interest rates are artificially low, thanks to Bernanke.

You said that banks tempt depositors with high interest rates. They are certainly free to do so, if they wish, but they don't because they can get hold of our tax money more cheaply. Your initial premise is badly flawed.

 

[WhoWee]

The banks are not free to set interest policy. Today the interest rates are artificially low, thanks to Bernanke.

The banks compete with credit rates - every bank controls it's own savings/lending rates.
http://www.datatrac.net/Products_Services.aspx

 

[BilPrestonEsq]

The banks compete with credit rates - every bank controls it's own savings/lending rates.
http://www.datatrac.net/Products_Services.aspx

That's true. Banks luring people in with high interest rates is not the problem. The problem is the reserve requirement

 

[thephysicsman]

That is true, that's the problem with fractional reserve banking. And it does punish savings.
Going back to my simplified version, if the loans aren't payed off then they default and the only way to stop from defaulting is to make more money, that's where the consumer comes in. If the loans are defaulted then the bank will have to be rescued or total collapse will be the result. So they are bailed out, and the cycle repeats. Ever heard the phrase: to big to fail? That is what they are referring too.

True.

Many experts predicted a period of deflation due to defaults (which would be horrible in a debt economy), but that obviously has failed to appear. The central banks are printing more money than loans being defaulted, and severe inflation is on its way.

http://www.independent.ie/business/irish/central-bank-steps-up-its-cash-support-to-irish-banks-financed-by-institution-printing-own-money-2497212.html

You said that banks tempt depositors with high interest rates.

High compared to interest rates in a free market.

Government involvement distroys the stable framework conditions that are necessary for production and trade, which is what creates prosperity. A stable money supply is more important than anything. If you are going to sell something today and receive your money in one year, you willl want to know what the value of the money will be in one year.

When the government prints new money, they increase the money supply, they make you receive less for what you sold. In addition the injection of new money into the economy is a de facto taxation of your savings.

If the money were backed up by gold and silver, this wouldn't have happened. Then you would be able to go to your bank and cash out your bank notes in physical gold and silver. The banks can't print gold and silver. These metals must be digged out of the mines, which requires a lot of work. The politicians, however, don't want this, because that will render them less powerful and more responsible and accountable for their commitments with the taxpayers' money. They would not be able to spend more than they took from us. That would put an end to empty election promises.

A lot of countries are in deep trouble these days. The public spending has skyrocketed over the last decades, and now the governments are printing money to cover the massive national debts. When this is done by governments in the Euro zone, it will effect all the other EU countries, including those with more healthy economies, like Germany.

Buy gold and silver!

 

[BilPrestonEsq]

I found this here:
http://www.chartingstocks.net/2009/03/chart-of-the-us-money-supply-1917-2009/"

Compare that with this

That is money supply in billions of dollars vs. purchasing power of the dollar

 

[WhoWee]

View attachment 31599





I found this here:
http://www.chartingstocks.net/2009/03/chart-of-the-us-money-supply-1917-2009/"

Compare that with this

View attachment 31600

That is money supply in billions of dollars vs. purchasing power of the dollar

Were some posts deleted? - had a response prepared to something else(?).

In any event - perhaps this link will be helpful - in framing the discussion of the buying power of the US Dollar?
http://www.bls.gov/cpi/