Erm, so what? You could have made a similar list about the gold standard hundreds of years ago, or slavery.
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The Creature from Jekyll Island
- Thread starter DrPepper
- Start date
Erm, so what? You could have made a similar list about the gold standard hundreds of years ago, or slavery.
Quote from buzzy2:
The fact that most countries have a central bank does not mean it's the best system. Just 300 years ago democracy was a rarity, most countries were either monarchies or colonies.
The best alternative to the current system is the so-called Free Banking system. In this system there is no monopoly of money nor monetary central planning, they're both remnants from socialist ideas prevalent a hundred years ago.
Here's a brief introduction.
http://en.wikipedia.org/wiki/Free_banking
Full reserve banking is another alternative, and would certainly nix banking crises for good. Whereas free banking is infamous for the frequency of its banking collapses, that is where the whole idea of a central bank came from in the first place. Free banking would not eliminate credit creation, it would make it even more rampant and unstable.
Quote from fullblotter:
I don't think anyone has actually mentioned the root of the problem which is FRACTIONAL RESERVE BANKING. before the fed existed in the US there were always massive bank runs whenever a crisis hit. one of the purposes of the fed was to put a stop to the bank runs. and in that sense they are absolutely right: if you are gonna have fractional reserve banking then you have to have an institution that backstops the banks.
the solution to all this garbage is EXCEEDINGLY SIMPLE! abolish all legal tender laws! let the free market decide what will be the currency. if some morons accept paper notes of their own volition as payment then more power to them. what will happen though is that the market will ultimately determine a currency. and, if people want to bank with a fractional reserve bank then they can. I imagine most sane people would ONLY bank with a 100% reserve bank. even 99% reserve would rightfully be considered FRAUD!
indeed, did you guys know that in around 12th century spain fracional reserve banking was PUNISHABLE BY DEATH?!
FRACTIONAL RESERVE BANKING is the root of all the world's problems. the federal reserve is a tiny insignifcant kunt compared to this core problem.
Legal tender laws and fractional reserve banking effectively make it almost mandatory to be defrauded by banking institutions. However, arguably this is no worse than tax evasion laws or conscription. If it's legal to take your money and your life, then taking your deposits and lending them out at insane 10:1 leverage is no worse a crime.
There are some exceptions though. For example, the UK has a government bank which simply lends the capital to the government via t-bills. It pays competitive interest, and clearly has zero chance of failure unless the government itself defaults. However, the customer service is (surprise surprise) appalling, so few use it for day to day banking.
Still, there is nothing wrong with keeping your cash savings there, and maintaining a day to day reserve of a few thousand in retail banks. During 2008 I had zero credit risk even if the entire banking system went under, because 99% of my cash deposits were at this government bank.
Quote from Pekelo:
I tell you what. Persuade a country to go without central banking for 100+ years, and we shall see how they do. If they do well, I change my mind....
That's hypocritical double standards. If you had used that logic, you would never have introduced a central bank in the first place, since the first central bank had ZERO years of evidence to rely on before it was introduced.
Also, what about the long evidence *against* central banking? We have had 100+ years of central banking around the world, with numerous banking crises and collapsing economies. How many more centuries do you want before accepting that the system is flawed?
Another piece of evidence to consider:
A full-reserve banking system effectively makes credit creation impossible beyond the level of voluntary savings in the system. So leverage is zero. Obviously with no leverage, you cannot go bust.
A heavily regulated fractional reserve central banking system, with strict credit controls, is part way between free and full-reserve banking. The leverage ratios are limited, which - from 100+ years of evidence - has reduced the frequency of banking crises compared to free banking.
Thus, by simple extrapolation, the closer you get to full-reserve banking, the lower the chance of banking collapse. At 100% full reserve banking, the risk is basically zero (short of a huge meteorite hitting earth, WWIII etc).
So, if credit limits, central bank lenders of last resort, deposit insurance, and ultimately fiscal taxpayer backing of 100% of bank losses are mandated (as is the case today), and improve stability relative to them not being there, then *necessarily* moving even further to stability and full reserve banking would be even safer. It is impossible for centrally-banked fractional reserve banking to be the safest system. If some stability is better than little, then more stability is better than some, and maximum stability is best of all. It is therefore logically impossible to defend central banking and fractional reserve systems without collapsing into an even stronger support for full-reserve banking.
A full-reserve banking system effectively makes credit creation impossible beyond the level of voluntary savings in the system. So leverage is zero. Obviously with no leverage, you cannot go bust.
A heavily regulated fractional reserve central banking system, with strict credit controls, is part way between free and full-reserve banking. The leverage ratios are limited, which - from 100+ years of evidence - has reduced the frequency of banking crises compared to free banking.
Thus, by simple extrapolation, the closer you get to full-reserve banking, the lower the chance of banking collapse. At 100% full reserve banking, the risk is basically zero (short of a huge meteorite hitting earth, WWIII etc).
So, if credit limits, central bank lenders of last resort, deposit insurance, and ultimately fiscal taxpayer backing of 100% of bank losses are mandated (as is the case today), and improve stability relative to them not being there, then *necessarily* moving even further to stability and full reserve banking would be even safer. It is impossible for centrally-banked fractional reserve banking to be the safest system. If some stability is better than little, then more stability is better than some, and maximum stability is best of all. It is therefore logically impossible to defend central banking and fractional reserve systems without collapsing into an even stronger support for full-reserve banking.
Quote from 5yrtrader:
This is exactly the point of a central bank, to control hyperinflation/deflation.
No it isn't - a central bank makes hyperinflation *possible*. You cannot have hyperinflation, or even high inflation, under a gold-standard, for example (unless someone discovers a truly gigantic gold supply somewhere - even then it would be a temporary and self-correcting phenomenon).
Central banking was not proposed to cure hyperinflation resulting under the gold standard (as there was none, for obvious reasons). It was proposed to cure banking panics. The panic of 1907 in the USA - a deflationary, credit-contracting event, not an inflationary one - was the reason the Fed was proposed and introduced. Central banks are there to prevent banking collapses & deflation, and they do it by printing money or allowing the commercial banking sector to do so i.e. creating inflation. That is why the value of the fiat currencies are down 90-99%+ since they went off the gold standard.
Quote from Ghost of Cutten:
No it isn't - a central bank makes hyperinflation *possible*. You cannot have hyperinflation, or even high inflation, under a gold-standard, for example (unless someone discovers a truly gigantic gold supply somewhere - even then it would be a temporary and self-correcting phenomenon).
Central banking was not proposed to cure hyperinflation resulting under the gold standard (as there was none, for obvious reasons). It was proposed to cure banking panics. The panic of 1907 in the USA - a deflationary, credit-contracting event, not an inflationary one - was the reason the Fed was proposed and introduced. Central banks are there to prevent banking collapses & deflation, and they do it by printing money or allowing the commercial banking sector to do so i.e. creating inflation. That is why the value of the fiat currencies are down 90-99%+ since they went off the gold standard.
I have to disagree slightly. If the treasury were to print dollars itself it most certainly could inflate or even hyperinflate if it were to print too much. I like the suggestion of Karl Denninger and Bill Still which is to have the treasury print an amount of dollars linked to the population. Everyone gets to fight over a finite amount of dollars. This would not require a gold standard as new dollars can only be printed to match a growing population. In addition this requires outlawing Fractional Reserve Banking. The banks can charge their interest on loans, however they must have the full reserve before they can lend. This pretty much solves the majority of problems being faced in America (and most other countries these days).
Quote from MKTrader:
I don't know if the Fed will be gone in 5 years, but the article is definitely right about their activities in recent years. They have been in panic mode, completely clueless re: how to apply their useless academic theories in the real world.
Maybe that is why they are surveying PD's about the size of QE2 and asking them "Yo! How much do youse guys want?"
Though maybe that means the Federal Reserve is redundant and we should just let the big banks decide how much money to print (since they do anyway).
Good thing Congress voted the TBTF banks the responsibility for that, otherwise it would be like completely privatizing that decision.
Quote from Ghost of Cutten:
Another piece of evidence to consider:
A full-reserve banking system effectively makes credit creation impossible beyond the level of voluntary savings in the system. So leverage is zero. Obviously with no leverage, you cannot go bust.
A heavily regulated fractional reserve central banking system,
Thus, by simple extrapolation, the closer you get to full-reserve banking, the lower the chance of banking collapse. At 100% full reserve banking, the risk is basically zero (short of a huge meteorite hitting earth, WWIII etc). ..........................................................................
if we decided to do this as of nov 1,what would you do with the current debt,ie ..every country cashes in thier bonds and gets paid,wouldnt the u .s.and several other countries be pennyless,since they would have no reserve,what's more important the people or the currency they use...so they have a huge mess and to clean it up they would have to settle the debt and start over ...i don't think anyone has a solution that wouldn't include billions of people homeless and starving
Quote from DrEvil:
I have to disagree slightly. If the treasury were to print dollars itself it most certainly could inflate or even hyperinflate if it were to print too much. I like the suggestion of Karl Denninger and Bill Still which is to have the treasury print an amount of dollars linked to the population. Everyone gets to fight over a finite amount of dollars. This would not require a gold standard as new dollars can only be printed to match a growing population. In addition this requires outlawing Fractional Reserve Banking. The banks can charge their interest on loans, however they must have the full reserve before they can lend. This pretty much solves the majority of problems being faced in America (and most other countries these days).
the treasury could print dollars and pay off the national debt with no inflation at all. Raising the reserve requirements in per portion to the amount printed would require banks to suck up the extra money. that keeps the new money out of circulation. End result would be 100% reserves, no national debt, and no inflation.
also, keep in mind that most government bonds are held as reserves for loans. Which means you could swap bonds for dollars with no inflationary consequences
I think Thomas Edison said it best
"If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good, makes the bill good also. The difference between the bond and the bill is that the bond lets the money brokers collect twice the amount of the bond and an additional 20 percent, whereas the currency pays nobody but those who contribute directly to Muscle Shoals in some useful way...
"It is absurd to say that our country can issue $30 million in bonds and not $30 million in currency. Both are promises to pay, but one fattens the usurers and the other helps the people. If the currency issued by the Government was no good, then the bonds would be no good either. It is a terrible situation when the Government, to increase the national wealth, must go into debt and submit to ruinous interest charges at the hands of men who control the fictitious value of gold."
Thomas Edison