Could this be the beginning of the end of Fractional Reserve Lending??? A major .....

[trefoil]

Quote from Traden4Alpha:

And the problem is worse than that because its not just the reserve ratios of banks, but the reserve ratios of all financial service companies and the range of choices available for companies and consumers.

One of the rationale for loosening regulations on the banks (e.g. repeal of Glass Steagall) was because the banks were losing market share in the financial world -- it was becoming too easy for consumers to put their money in brokerage accounts and too easy for companies to raise capital without borrowing from a tradition FDIC-chartered bank. Some even wondered if the trend would reduce the effectiveness of monetary policy if banks became marginalized elements of the financial system and the Fed's "overnight rate" became nothing more than a suggestion. If banks aren't central to the economy, what power does a central bank have?

Although we can end fractional reserve banking, we can't end fractional reserve behavior by consumers and companies. To the extent that consumers and companies are free to direct money away from risk-conservative banks and into higher return assets, the economy will still have financial crises. That is, we could make the banking system safe but it would consign banking to a marginal role in the economy.

Precisely.
No one will take you seriously, of course.
But the whole reason money market funds became so popular is that they offered higher yields for what most people perceived as only slightly higher, if that, risk than a bank deposit at an FDIC insured bank.
Now that money markets have proven to be in fact riskier than bank deposits, people are beginning to learn that every basis point of higher reward is earned through higher risk.
But no one is going to go to a model that never existed anyway: full reserve banking. It's not a question of going back to this. It's that it never existed in any economy in the modern age - since the Renaissance, that is.
I still have no idea where this moronic stupidity about the eeevuuls of fractional reserve banking came from. You can't have a modern economy without it.
I suppose we could go back to the Middle Ages, let the Catholic Church have control, and outlaw interest on money because time belongs to God.
Actually, we can: in Islamic countries, it's still prohibited to earn interest on deposits. We can live like sheepherders!
That's the ticket.

 

[neutrino]

Quote from achilles28:

What we need to do is leverage humanities collective intellect to arrive at the best solution polled from MILLIONS of the brightest minds. Not a handful.

This is a very powerful idea. It is definitely the next step in the evolution of society. I only hope we can get there safely.

 

[gnome]

Quote from neutrino:

This is a very powerful idea. It is definitely the next step in the evolution of society. I only hope we can get there safely.

Fat chance. Few are interested in "the best solution"... nearly all are interested in "the best solution for HIMSELF"..

History has shown.... when the government gets too large, its only course is then to get even larger. Ultimately, government will consume nearly everything.... all except the small amount they "allow" the citizens to delay the revolution. RE: Former Soviet Union before its collapse.

 

[blackjack007]

holy shit the people who say to abolish fractional reserve banking are either on drugs or incredibly naive about its importance to the modern economy. if we went to full-reserve banking, the global economy as we know it would instantly collapse. the great depression would seem like a walk in the park.

how does 80% interest rates on loans sound to you? the reason lending rates are so low is because fractional reserve banking provides the bank enough leverage to turn a profit off the tiny 4% spread between deposit rates and lending rates. take that leverage away and they would have to raise rates 10 fold to make their profit. and what would happen if m3 declined by 85%? hello 40% unemployment and a 80% decline in GDP. hello stone ages!

i can't believe some of the crap i hear on ET! do you also propose we place car tires with trapezoids too?

 

[jueco2005]

you are right about one thing.................the market is used, addicted to fractional reserve lending.

However, true banking is without FRL.

Quote from neutrino:

Exactly! In fact, no one force the banks to keep only a fraction of their assets as reserves. The reason there are no 100% or even 20% reserve banks is because the marketplace won't sustain them for long - there are not enough customers willing to forgo the interest they can earn in their fractional reserve account in exchange for greater safety. Probably everyone thinks they can get off the boat before the party is over...

 

[jueco2005]

I do not see how you can’t end fractional reserve behavior by consumers and companies once it is illegal to engage in such practices.

I wonder if many here know what it really means to have no FRL.

Quote from Traden4Alpha:

And the problem is worse than that because its not just the reserve ratios of banks, but the reserve ratios of all financial service companies and the range of choices available for companies and consumers.

Although we can end fractional reserve banking, we can't end fractional reserve behavior by consumers and companies. To the extent that consumers and companies are free to direct money away from risk-conservative banks and into higher return assets, the economy will still have financial crises. That is, we could make the banking system safe but it would consign banking to a marginal role in the economy.

 

[jueco2005]

With all your respect my friend........................I would call people like you the ones too dependent on the system, that you cant see a new order of things.

FRL= The banks lend the people their own money. You owe them..........they own you. They have the gold.........they make the rules. AND YOU CALL THAT MODERN ECONOMY. Good lord.

Quote from blackjack007:

holy shit the people who say to abolish fractional reserve banking are either on drugs or incredibly naive about its importance to the modern economy. if we went to full-reserve banking, the global economy as we know it would instantly collapse. the great depression would seem like a walk in the park.

how does 80% interest rates on loans sound to you? the reason lending rates are so low is because fractional reserve banking provides the bank enough leverage to turn a profit off the tiny 4% spread between deposit rates and lending rates. take that leverage away and they would have to raise rates 10 fold to make their profit. and what would happen if m3 declined by 85%? hello 40% unemployment and a 80% decline in GDP. hello stone ages!

i can't believe some of the crap i hear on ET! do you also propose we place car tires with trapezoids too?

 

[achilles28]

Quote from neutrino:

This is a very powerful idea. It is definitely the next step in the evolution of society. I only hope we can get there safely.

It is. The idea is to "X-Prize" everything.

The 'wikinomics' approach to collaborative problem solving leverages exponential brain power, instead of two or three tenured egg heads.

Free markets perform the same function - competition weeds out only the most innovative, or the best problem solvers.

The problem with free markets is they don't always exist, in the case of Government monopoly. And in the case of markets, often trend towards oligopolies where limited participation and high entry barriers arrest innovation and keep prices artificially high.

Energy, pharmaceuticals, health care, currency, NA Auto, are notably fields where Government and enterprise have become more of a cancerous tumor that perpetuate problems instead of solve them. This is done to preserve revenue streams that would otherwise vanish if any one problem is fixed or eradicated.

Cure for cancer? A hundred-billion-dollar-a-year industry in pills evaporates.

Free energy? The multi-trillion dollar oil industry goes bankrupt overnight.

Currency issuance is such a monopoly and only serves to enrich a small cabel of large FED banks, while destabilizing and defrauding the masses of their hard-earned wealth.

We've got the kool-aid FED lovers who insist there's "no other way". That fractional reserve banking is the only answer to facilitate modern commerce.

Yet, when faced with the historical record - two Depressions and 5 recessions in the past 80 years of FED rule, the business cycle tells a different tale.

Monopolies on credit issuance are too seductive for the money changers to ignore. So they ramp up and restrict credit to extreme levels, often times destroying a huge amount of private wealth and savings in the process. Just for shits and giggles.

Whats the answer? Hard money is better than fiat money. A deflationary system is no more a "threat" to this economy than a moderately inflationary one. The plus side is we become a nation of savers and investors, instead of consumers. Loan costs appreciate relative to wages, over time, so sizable down payments are required for anything. The "no-money-down" era for big ticket items, like cars and homes, is gone forever. Austerity, shrewdness and personal accountability over finances becomes the new standard. People look for ways to save, invest and squirrel away responsibly, so in 10 years, they can buy a home on the cheap.

Is that really so bad???

Hard money would just be an interim solution until the market innovates something better.

Ideally, the best currency is one that retains its value over time. Is neither inflationary or deflationary, but whose value stays constant with the economic output of the nation who prints it. It is a debt-free currency, so that Bankers cannot parasitically feed off the labor of the people, for doing NOTHING. It is a secure currency, that cannot be counterfeited and whose issuance is transparent.

I don't know what system that could be, but much better solutions already exist than handing every bank 100 to 1 leverage, and letting the chips fall where they may.

That road leads to economic peril, staggering losses and social upheaval.

Yet many cheerleaders still ardently defend the Titanic, even as the water rushes in around them.

 

[achilles28]

Quote from blackjack007:

holy shit the people who say to abolish fractional reserve banking are either on drugs or incredibly naive about its importance to the modern economy. if we went to full-reserve banking, the global economy as we know it would instantly collapse. the great depression would seem like a walk in the park.

Fractional reserve banking doesn't need any help from hard money to tank the global economy!

Its already done that on its own Read the papers much??

Quote from blackjack007:

how does 80% interest rates on loans sound to you? the reason lending rates are so low is because fractional reserve banking provides the bank enough leverage to turn a profit off the tiny 4% spread between deposit rates and lending rates. take that leverage away and they would have to raise rates 10 fold to make their profit. and what would happen if m3 declined by 85%? hello 40% unemployment and a 80% decline in GDP. hello stone ages!

i can't believe some of the crap i hear on ET! do you also propose we place car tires with trapezoids too?

Your certain obituary of the global economy, is actually quite funny.

Most of the fear mongering you FED lovers push is sheer ignorance.

The money supply does not have to decrease by 80% under a hard money system.

M3 can stay exactly where it is, tie each dollar to whatever fraction of gold or silver thats appropriate to our reserves and global production, and leave it at that.

Deflation is no more a curse on economic growth than inflation is.

We've just become accustomed to an inflationary system, people assume theres "no other way".

No money down for a 400K purchase, is not normal.

Neither is banks earning juice off credit created from nothing. You FED lovers never seem to address that little fact when exalting the benefits of this imploding masterpiece.

You need to think outside the box.

Banks are not the cornerstone to ANY Economy.

The productive capacity and ingenuity of its citizens ARE!

Banks merely provide the conduit through which savers, investors and enterprise meet and negotiate terms of finance and return.

Banks DO NOT NEED to have ANY LEVERAGE, PERIOD.

Banks DO NOT NEED to make 4% across 10,000$ on a 100$ deposit!!

Thats only for the benefit of the banks, Dipshit!

Banks can return to full reserve banking. Consumers can return to their rightful role as capital contributors, rates can go up (5-7%), economic growth can moderate, and things will be just fine.

The FED and Banks have a vested interest in defending their counterfeiting power.

Or haven't you figured that out yet?

 

[jueco2005]

EXCELLENT

Quote from achilles28:

Fractional reserve banking doesn't need any help from hard money to tank the global economy!

Its already done that on its own Read the papers much??





Your certain obituary of the global economy, is actually quite funny.

Most of the fear mongering you FED lovers push is sheer ignorance.

The money supply does not have to decrease by 80% under a hard money system.

M3 can stay exactly where it is, tie each dollar to whatever fraction of gold or silver thats appropriate to our reserves and global production, and leave it at that.

Deflation is no more a curse on economic growth than inflation is.

We've just become accustomed to an inflationary system, people assume theres "no other way".

No money down for a 400K purchase, is not normal.

Neither is banks earning juice off credit created from nothing. You FED lovers never seem to address that little fact when exalting the benefits of this imploding masterpiece.

You need to think outside the box.

Banks are not the cornerstone to ANY Economy.

The productive capacity and ingenuity of its citizens ARE!

Banks merely provide the conduit through which savers, investors and enterprise meet and negotiate terms of finance and return.

Banks DO NOT NEED to have ANY LEVERAGE, PERIOD.

Banks DO NOT NEED to make 4% across 10,000$ on a 100$ deposit!!

Thats only for the benefit of the banks, Dipshit!

Banks can return to full reserve banking. Consumers can return to their rightful role as capital contributors, rates can go up (5-7%), economic growth can moderate, and things will be just fine.

The FED and Banks have a vested interest in defending their counterfeiting power.

Or haven't you figured that out yet?