RE: Fractional Reserve Lending
October 20, 2016 at 11:13 pm
(This post was last modified: October 20, 2016 at 11:24 pm by The Grand Nudger.)
Step 1 is such a gross oversimplification that it's less than wrong. The banks can only "create" what money the government allows in setting the thresholds and by their willingness to back it..limited by the amount of currency in little green pieces of paper in their possession and, collectively, limited by whatever amount of the same is in circulation. The great thing about that...from the point of view of government, is that when people default - as they often do- the gov doesn't have to eat the loss.
Step 2 is also wrong, banks extend credit which is limited and defined by step 1, it's not as if they've got their own little printing press in the back...hammering out 20s. Every time a bank -does- hand out some amount of the 20's they're required to keep in reserve, it reduces their ability to lend and they have to counter that by either not lending, or calling in notes in real assets.
Step 3 is redundant and out of place, it's just part of step 1.
Step 4 is true, it's called a commitment to fiscal responsibility. If they don;t have the money...instead of printing it out, they ask for credit, and agree to pay interest on the loan. Depending on the terms and how long they can defer payment, the dollar value of the loan could be far less than the end value of the asset they purchase with it. You can see why this is a good deal for the government, I assume? It;s the same principle involve in deferring student loans until such a time inflation makes the cost marginal and the asset purchased of far greater relative value than the sum of the payments.
Now, your version of how things -should- work doesn't seem to contain a reference to full reserve banking..for starters...it relies on governments printing money as they see fit whenever they need it (generally seen as a bad thing), and leaves out anyone who isn't a government employee or working on a government project.
I thought we were discussing the merits of frb relative to full reserves...not frbs to fiscally irresponsible nanny states? If -that's- what we're actually discussing, it's a no brainer. FRB all day every day.
Step 2 is also wrong, banks extend credit which is limited and defined by step 1, it's not as if they've got their own little printing press in the back...hammering out 20s. Every time a bank -does- hand out some amount of the 20's they're required to keep in reserve, it reduces their ability to lend and they have to counter that by either not lending, or calling in notes in real assets.
Step 3 is redundant and out of place, it's just part of step 1.
Step 4 is true, it's called a commitment to fiscal responsibility. If they don;t have the money...instead of printing it out, they ask for credit, and agree to pay interest on the loan. Depending on the terms and how long they can defer payment, the dollar value of the loan could be far less than the end value of the asset they purchase with it. You can see why this is a good deal for the government, I assume? It;s the same principle involve in deferring student loans until such a time inflation makes the cost marginal and the asset purchased of far greater relative value than the sum of the payments.
Now, your version of how things -should- work doesn't seem to contain a reference to full reserve banking..for starters...it relies on governments printing money as they see fit whenever they need it (generally seen as a bad thing), and leaves out anyone who isn't a government employee or working on a government project.
I thought we were discussing the merits of frb relative to full reserves...not frbs to fiscally irresponsible nanny states? If -that's- what we're actually discussing, it's a no brainer. FRB all day every day.
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