RE: Fractional Reserve Lending
October 20, 2016 at 9:36 am
(This post was last modified: October 20, 2016 at 9:55 am by The Grand Nudger.)
Actually, the 77 million will exist as real assets as well..because people borrow money - to spend it. That's -why- we use the system. Cash sitting in a vault is dead money, it's still just a pile of iou's sitting in a vault, and fundamentally no different than the reserve backed iou's of a fractional system. FRB is a tool used to stimulate the growth of real assets...like say, a small business loan, a house loan, or a car loan. That's why banks go after those things when we default. They need to recover the value of those things, because if they don't, they can't "create" any more money and they;ve already lost whatever the difference is between what we owe and what the asset will sell for. Some portion of their fractional provision is tied up in whatever you bought with their loan.
Your summary above isn;t accurate. Fractional reserves don;t "create money", they extend credit, and whether or not that credit is worth anything is tied to the value of whatever it is that it underwrites. Labor "creates money", frb systems extend credit for the purpose of purchasing labor. The iou's you're discussing, whether they come in the form of diminishing credit from a fractional reserve or little green pieces of paper are just an agreement over what we'll accept as compensation. They're easier to carry in our pockets than a manufacturing plant, a townhouse, or a bmw.... but they have no actual value beyond that agreement, and whatever it is we use them to purchase. A 100% reserve doesn;t do anything to change that (unless it is something like gold or opiods, lol), it just makes it more difficult for an economy to purchase labor, and in so doing makes it more difficult for an economy to grow.
Your summary above isn;t accurate. Fractional reserves don;t "create money", they extend credit, and whether or not that credit is worth anything is tied to the value of whatever it is that it underwrites. Labor "creates money", frb systems extend credit for the purpose of purchasing labor. The iou's you're discussing, whether they come in the form of diminishing credit from a fractional reserve or little green pieces of paper are just an agreement over what we'll accept as compensation. They're easier to carry in our pockets than a manufacturing plant, a townhouse, or a bmw.... but they have no actual value beyond that agreement, and whatever it is we use them to purchase. A 100% reserve doesn;t do anything to change that (unless it is something like gold or opiods, lol), it just makes it more difficult for an economy to purchase labor, and in so doing makes it more difficult for an economy to grow.
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