LewRockwell.com Podcast #17 - Austrian Theory of the Business Cycle

[jpcl21]

Hayek thought you could have competing fractional reserve systems, didn't he?

[fluff125]

I can see why arbitrary increases in the money supply are bad because they distort the economy, but what is wrong with fractional reserve banking?

If banks had to keep 100% demand deposits at all times, how could they loan out money to businesses for capital? Wouldn't we have much less investment and therefore less development? Wouldn't this mean that people with a bank account would actually get negative interest on deposits? (fee for storage)

I will copy and paste this till someone answers

[Nielsio]

Fractional reserve banking = arbitrary increases in the money supply and distort the economy.

There are two types of bank accounts. One is checking account, on which you shouldn't get interest because like you said, they can't loan it out and is available to you at any time.

The other is a savings account. That they can loan out in return for interest. And this is how investments can be made.

Youtube search for "how an economy grows and why it doesn't'".

[321lawc]

HAHAHAHAH that is not how fractional reserve banking works. Fractional reserve banking is the system in which they make loans out of nothing. When you get a loan for your house they don't give you any real credit that they have, they make it out of thin air. The fractional percentage is how much money they can make out of nothing. If it is 10% and they have $1000 they can make $9000 out of nothing. Look up modern money mechanics if you don't believe me.

[Boozbazz]

Very educational.

[vshagoyan]

good stuff!