Banking 3: Fractional Reserve Banking

Fractional reserve banking and the multiplier effect. Introduction to the money supply.

Category:

Education

Tags:

• fractional
• reserve
• banking
• multiplier
• effect
• money
• supply

[andrewldexter]

@BillWilliamsonSr That's untrue. Until Nixon abolished our tenuous link to gold in '71, dollars were still convertible to gold. If you're curious in further reading, I suggest Murray Rothbard's "What has government done to our money", available freely online (just google). There's a fair amount of basic explanation of "what is money", and it progresses to explain how inflation is theft.

[ndcomix]

@nalcow The reserve ratio is determined by the Federal Reserve, and is completely subject to their whims. They can change it with or without approval from Congress. Not good...

[cannotbebothered100]

part 5) thus FRB or bond certificates would be different from money notes proper

[cannotbebothered100]

so that loans themselves would no longer increase the money (proper) supply only for money taken out of circulation until its note of deposit is cashed in and extinguished. If a bank were to conflate notes for specie lent out be it called fractional reserve or a time delayed bond or whatever, those notes would find deficit of reserve behind them and thus cumulative lack of trust in them since they aren't for actually deposited specie

[cannotbebothered100]

(cont part 3) would on free markets be differentiated from banknotes for 100% deposits else trust in that notes likelihood to maintain its value would fall, its expansion of banknotes of unconditional redeemability would cause insolvency and acceptance of it would fall compared to the notes of banks that differentiate between money substitutes and certificates for redeemability of loans or fractional reserve loans

[cannotbebothered100]

@andrewldexter

(cont) so the charges from the rentier are desirable in raising interest to impose costs of capital when there is consumption and to induce good allocations to raise dividends as of course the basis of social economisation for others is being influenced to consume less of what others need and to reduce strain on care systems for lower insurance premiums/prices etc. If hoarding arises then costs will fall to offset rates that might not & notes for loan receipt would on free markets

[cannotbebothered100]

@andrewldexter

Inflation is not theft! But of course we don't want our earned money to devalue. These Keynesian fools claim that we need inflation to beget higher demand when the absence of demand for product simply reduces costs in reducing the proximity of capital to serving some human end, thereby enabling production for a future, as-yet absent consumption. Begetting such investment over time prior to finalising product distracts from producing 4 present consumption so the rentier charges

[nnava5]

my son needs a haircut

[MegaTress1]

seems to work ok to me, as long as they don't lend money to people who can't pay it back. which they did. i was on the dole and the bank phoned me up asking me if i wanted a £1000 credit card. when i was younger i couldn't even get one when i was working. they also gave people on the dole mortgages. so who is to blame here? the fed? who decided to lend money to people who can pay it back, did the fed allow this to happen or just the banks?

[097112]

i always thought i brought the banker 100 gold, and the bank lends out 12.000 gold... Like the top 3 French banks with 3 times France Gdp (6 trillion gold) and 200 billion gold in assets. Looks fine to me..

[baydood510]

End Fractional Reserve Banking! Debt Slaves...!

[goauld88]

superb explanation