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Alternative to Fractional Reserve Banking? Is it an inherent evil?
Posted April 18th, 2008 by BeaReady
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I'm not a wiz on this topic but am trying to educate myself and many good resources have been shared here, pretty much all of which I've read or viewed. One thing I've not seen is what alternative is there to fractional reserve type banking? Would love to hear some ideas on this.
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If you really don't like the idea of the bank using your money
then just put it in a safe deposit box. You pay a monthly fee and don't get interest but they aren't using your money so what do you expect. People just can't have it both ways.
You have to throw out the idea that your money is in the bank
deposits are essentially you loaning the bank your money for them to use. They pay you interest and act as a clearing house for your checking account in return. You don't actually have any money there. Only on a ledger showing how much they owe you.
The banks have totally screwed up the situation by mingling demand deposits (checking accounts) and time deposits (savings, CD.s) so they are all loanable. They further screw up people's thought processes by promoting that their money is there.
It actually makes perfect sense mathematically
IF.. and big if here.. you are in a society that has ~backed~ money and has what is considered a healthy savings ratio and a credit/debt ratio of around 25%
Healthy savings has been defined as 20% of income.
Backed money.. well... you know the story on that.
America's savings ratio is around 2%
Our credit/debt ratio is around -240%
We're a fiat system.
A fractional bank with a 5/1 ratio at a 10% savings ratio with a backed money would be almost impossible to take down.
We have double the fractional ratio with a 2% savings ratio on a fiat currency that has devalued past threshold with a couple hundred percent negative credit/debt ratio.
Take that as you will...lol.
Banking
Too complicated to go over in a blog. You need to go to mises.org and start buying books. Or get a paid subscription to garynorth.com and start learning. It's been a 10 year road for me and I'm still a neophyte. Fractional reserve banking is fraud pure and simple. If you loan money that you do not have, and earn interest on it, it's fraud. It's no different than selling products that you don't actually own.
What you must understand is that whomever creates the money will get full value out of it. As it filters through the economy it will lose value through inflation and thus the users of that same money later in the process are being robbed.
Ex. I print $100. There is only $1000 in circulation at the time I print it. I use it to buy things at the current price. As more money is available to more people, they start buying things and prices go up. I got full value from the money-- the last people to use it will get 10% less for the same $100 because now there's $1100 to go around for the same goods. Of course this is very simple, but if the money supply increases faster than goods and services expand, we get higher prices.
So, i am evil in this scenario. I received the fruit of others labor without toiling for it myself. I just printed it. It's even worse if I were a bank and loaned it out at interest. It's money that I didn't earn, and I make more money on it through interest and I do it on someone else's back. I make money from "fiat money" that I spent almost no effort or expense to create. Simple fraud. Just ask Andrew Jackson.
Pro 20:10 Divers weights,
Pro 20:10 Divers weights, [and] divers measures, both of them [are] alike abomination to the LORD.
who are strangers, who are my brothers, who are my neighbors?
Deuteronomy 23:19 Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of any thing that is lent upon usury:
Deu 23:20 Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury: that the LORD thy God may bless thee in all that thou settest thine hand to in the land whither thou goest to possess it.
Luke 10:27 And he answering said, Thou shalt love the Lord thy God with all thy heart, and with all thy soul, and with all thy strength, and with all thy mind; and thy neighbour as thyself.
Luk 10:28 And he said unto him, Thou hast answered right: this do, and thou shalt live.
Luk 10:29 But he, willing to justify himself, said unto Jesus, And who is my neighbour? ...........
Luk 10:36 Which now of these three, thinkest thou, was neighbour unto him that fell among the thieves?
Luk 10:37 And he said, He that shewed mercy on him. Then said Jesus unto him, Go, and do thou likewise.
Matthew 5:42 Give to him that asketh thee, and from him that would borrow of thee turn not thou away.
Mat 5:43 Ye have heard that it hath been said, Thou shalt love thy neighbour, and hate thine enemy.
Mat 5:44 But I say unto you, Love your enemies, bless them that curse you, do good to them that hate you, and pray for them which despitefully use you, and persecute you;
Mat 5:45 That ye may be the children of your Father which is in heaven: for he maketh his sun to rise on the evil and on the good, and sendeth rain on the just and on the unjust.
Mat 5:46 For if ye love them which love you, what reward have ye? do not even the publicans the same?
Mat 5:47 And if ye salute your brethren only, what do ye more than others? do not even the publicans so?
Mat 5:48 Be ye therefore perfect, even as your Father which is in heaven is perfect.
anyone else?
anyone else?
According to the philosophy of libertarianism...
as long as the contract between the depositor and the bank (that is only holding a fraction of it in reserve) is voluntary, then there is no problem.
Rothbard's book is the best one I've come across for understanding monetary theory...
http://mises.org/money.as...
Isn't there just something
Isn't there just something wrong about loaning out more than what you truly have in the vault?
I'm no expert either
But I don't think fractional reserve banking is all that bad as long as it is out in the open what they are doing. For instance, it probably isn't a good idea to allow money in demand type deposits, like checking accounts, to be loaned out. However, if a bank is open about how the deposits will be used, in exchange for interest paid to the depositor, then I don't think there should be a problem. In essence a savings account is basically an investment that the depositor gets a return on his investment (interest) from the banks use of the money (loan).
I do think banks should have accounts available that depositors can elect to not have their money loaned out. But I believe a depositor would have to expect to pay fees to have such an account at the bank since it is no longer an investment but using the bank as a holding agent.
It's not inherently evil.
As long as banks are allowed to fail when they screw it up. The problem we have here in the USA, is that not only is the currency inflated, there are laws that compel us to use it, instead of transacting our daily business with any alternative currency.
-jcr