Bitcoin Forum

http://youtu.be/Bx5Sc3vWefE (http://youtu.be/Bx5Sc3vWefE)

"...the government gave the banks the ability to loan out money that doesn't exist."
"...they don't actually give you money.  They click a key on a computer and generate the fake money out of thin-air."

Seen on ZeroHedge - http://www.zerohedge.com/news/12-year-old-girl-crushes-canadian-and-american-dream (http://www.zerohedge.com/news/12-year-old-girl-crushes-canadian-and-american-dream)

No matter the circumstance, fractional reserve banking is fraud in it's purest form.


facts:

• when a bank loans more than the amount of it's deposits, it creates money(currency, promissory notes, certificates) out of thin air
• when anyone in an economy creates money out of thin air they effectively steal goods and services from everyone else holding the same money
• not only does a bank steal by charging interest on money created out of thin air, they also steal goods or services pledged as collateral after an increased number of people default when an inevitable bubble fueled by their money creation pops
  

These facts do not magically go away if there is no state mandated fractional reserve banking. They hold true even in free market fractional reserve banking. It's nothing but a scam and if people ever want to live in peace and be truly free and prosperous you better wake up to these facts.

Adam Kokesh:
No, no, no, no and no.

Even if they can't actually loan money they are still stealing from those holding their certificates or promissory notes. Granted under such circumstances the inevitable problems that would arise as a consequences of this fraud would play out on a much smaller scale but the facts would nevertheless remain the same: The bank is committing fraud.

I mean where is the difference if a bank is stealing from holders of dollars or holders of a private certificates or promissory notes? Stealing is stealing, period. If I'm wrong, please show me how placing fractional reserve banking somehow removes the above stated facts.


Example:

Someone who agreed to a bank fractionally lending it's certificates or promissory notes payed me with the notes for my goods. I now own the financial instrument for which I know I can go to the bank and the bank will redeem it for the underlying asset. I also know I can trade this promissory note to someone else willing to accept it.

Just where exactly in the above example did I give my consent for the bank to rob me of my purchasing power if I instead decide to save or trade this financial instrument instead of redeeming it? No where.

Someone came to me, gave a note that was a promise to pay and all I need to accept is the trust that the bank will pay or the trust that someone else will accept this note.

But not only that, the bank is also without consent robbing people who hold the underlying asset because they are creating representations of this asset making it appear there is a greater supply of it than there actually is. A good example is what LBMA banks do to gold with allegedly issuing paper gold and manipulating the price of the underlying asset physical gold.

Did I give them my consent as a physical gold owner for them to do so?




One more time, the facts of fractional reserve banking are inescapable and it's, dare I claim this, impossible to get consent to these facts by everyone involved.




It's pure fraud, period.

What if someone said "Hey, I'm making up numbers and writing them in this book". Fraud?

Funny how it takes a 12 year old to actually get some attention on this subject.   

This is probably the 10th video I have seen where someone explains how banks create money out of thin air.  I just had a conversation with my mom and it went a little like this:

"When you buy a house for, say $200,000, the bank doesn't go into their vault and pull out $200,000 worth of gold or bills and give it to you.  They just type $200,000 and press ENTER on the computer and *POOF* it is magically created in the system."....  "If I have a bunch of credit card debt, why can't I just go *POOF* here I created all the money to pay off my debt, take it."..."How come the banks can do that and we can't?"

Legitimized(legalized) fraud forced upon us by the monopoly on violence that is the state. Rest assured in a society with a few consistent and mandatory rules (some call it anarchy) this kind of practice would not be tolerated.

hazek, yes you are exactly right.  Legalized fraud with violence to back it up.  I know exactly what you are talking about.  The first time I heard someone explain how we have to follow laws because of the fear of violence thrust upon them by government I had no idea what they were talking about.  Now I understand exactly what they mean.

I'm glad I can broaden people's horizons ;)

+1 

I'm opposed to fractional reserve banking, but I don't think it's fraud if it's disclosed as such. A bank should be free to act however it wishes, so long as it doesn't lie about what it's doing. If you don't like fractional reserve banks, don't use them. It's a shame that under the current regimes globally, we've all been forced to.

Thank goodness for Bitcoin.

You are very close to the truth so let me help you get all the way there.. If I counterfeit money is it not fraud if I tell everyone what I'm doing (if my counterfeited notes indistinguishable from real notes)?

FRB robs savers by lending money to borrowers that doesn't exists effectively transferring purchasing power from savers to borrowers without their consent but not only that the bank also artificially increase the supply of loans which lowers the available interest rates on loans even further punishing savers. It's fraud, disclosed in a free market or not.

Can you see that now?

You make an interesting point, and I'm actually rethinking my stance on free-market fractional reserve banking because of it.

Even if a counterfeiter tells everyone that his notes are counterfeit, what about the people who then hand his notes to others? In a world where non-FRB was the norm, this would definitely seem to be fraudulent. About the only way I could see it NOT being so would be if (1) every bank issued their own notes (for gold, bitcoins, dollars, etc.) and (2) the FR banks clearly indicated on the notes (and on the checks, etc.) that they used fractional reserve banking.

Food for thought....

I'm with evoorhees.  As long as it's disclosed, it's fine.

For those calling depositors "savers"?  I assume you mean that they savers in the hope of earning a return.  Please explain to me then how, other than by some degree of FRB, you expect banks to pay interest on savers' deposits?

When the bank goes "poof, here's $200,000" you are ignoring the other side of the accounting equation.  For every asset there is a liability.  When they create $200,000 of asset (e.g. a loan to let you buy your house) they also create $200,000 of liability (which is what an account in credit is).  It's nonsense to argue that the bank gets all of that asset.  It's also nonsense to suggest that it is magic that creates it, it is the willingness of someone to sign away their future earning power to servicing that loan that makes the asset an asset -- banks can only create up to what people are willing to borrow.  What the bank gets to keep is the spread between the interest they charge and the interest they pay.

FRB isn't evil; it's what banks are for.  You might disagree with the level at which it is done, but pretty much no one thinks they should pay the bank a fee to hold their money for them.  Therefore they do want FRB.

The failure was not FRB.  The failure was the government creating or allowing to be created an environment were the risk of failure were transferred to the taxpayer.  The banks should be careful about who they lend to (but were ordered not to be by the governments of the world), to minimise defaults.  The cost of defaulting individually should be uncomfortably high so that people aren't "willing to borrow" infinite amounts.  The spread that the banks earn is intended to be in exchange for vetting lenders, chasing defaulters, insuring against defaulters, and buying the big vaults to keep some liquidity on hand for when the savers want to buy groceries.  When there are more defaulters than the spread can absorb, then we get a financial crash (oh look, that's exactly what happened).

I really don't want a world were people can't buy a house because there is no FRB system to let the previous generation lend to the next generation at a profit.

Yes, but who would take a note that has on it the disclaimer that hey: "This private promissory note is redeemable for 10BTC oh and btw we might print way more than we actually have reserves of, hold it at your own peril!"

I can't imagine people willing to receive payment with such a financial instrument if it can be called that at all.

Based on the Austrian approaches to property rights and the title transfer theory of contract (Rothbard, Evers, Hoppe, Kinsella):

It is not fraud similarly as copying is not fraud if the buyer knows it's a copy and the seller does not misrepresent it. If the concept of IP is invalid, as Kinsella argues in Against Intellectual Property, then creating "counterfeit" money is also not fraud. Manufacturing of "counterfeit" money does not violate anyone's property rights, unless the material used in the process was stolen. Passing the result while misrepresenting it's context, however, can be fraudulent, similarly as trying to sell a photocopy of Mona Lisa while claiming it was painted by Leonardo (except noone would fall for this one).

In the Austrian School, there are no property rights in values (see Block, Hoppe, Kinsella) or purchasing power, even though some of the Austrians use the redistributive element of FRB to argue it's illegitimate. I maintain that in the absence of legal restrictions, the redistributive effects of manipulations of the money supply are an externality, since the act of A creating more money, or even the act of B and C using this money in trade has no effect on the physical integrity of the property of another guy, D. Similarly as if I figure out how to create oranges out of nothing, the other producers would take a huge loss even though their property rights were not violated. The only exception is in case of legal restrictions, for example, if A has a monopoly on production, or if he can force D to use the money in some context.

This can be disproved empirically by showing substitute money which is not a legal claim. For example, mutual credit, which is pegged yet there is often no direct convertibility. Even Mises argued that there is no requirement that money substitutes have a foundation in legal obligation, it is sufficient that they are functionally exchangeable.

The reason why people accept all kinds of instruments in payment is that they provide something which the original does not. deSoto mentions, for example, ledger keeping. Gold does not have a ledger, and if someone wants a ledger, this can shift his order of preference so that even riskier instruments (e.g. fractional reserve current account) rank above gold.

Edit: furthermore, since substitutes which have reserves are associated with costs (e.g. storage), the issuer of them needs to compensate for this somehow. He can charge the users (e.g. demurrage, transaction fees), or he can use the reserves for some other purpose (e.g. loans or financial markets). All other things being equal, a user would choose the one where he does not have to pay. This makes a full-reserve unlikely on a free market. If there is a demand for substitutes, the market forces will lead to fractional reserves.

Please consider that you might be wrong. I believe last night when I went to bed and while trying to fall asleep mulled this weird situation over where we have so many market regulated by consumers(a free market) proponents confused defending FRB if there is no monopoly on violence forcing people to accept it and I believe I figured it out why it's so hard to see and accept that it is fraud.

Frederic Bastiat - That Which is Seen, and That Which is Not Seen (http://bastiat.org/en/twisatwins.html) !!

The fraud does not happen with what is seen in FRB it happens with what is unseen:

• Savers lose purchasing power because of inevitable higher prices due to an artificially higher supply of money (and this happens precisely because money is fungible)
• Savers lose purchasing power because of artificially increased supply of loans artificially decrease the available interest rates on loans

You see it's the unseen purchasing power of savers that gets robbed through FRB and this fact is inescapable. Please please, stop supporting this evil which is the cause of so much destruction and suffering in the world.

If Austrians really argue this then that's simply retarded. If this is true, why shouldn't I be able to counterfeit money?

Example:

I have 10BTC and one day it takes me 0.1BTC to buy a loaf of bread, one week later because of someone doing FRB it suddenly costs me 0.2BTC, was I not robbed of 0.1BTC in this example?! It's 0.1BTC that I could have kept if no one did FRB.. how is that not theft?!

Good luck getting consumers to pay the ~2-3% banks pay annually on deposits for customer services (+ a generous service charge so the bank can profit).

Though, in Bitcoin, we've simply dropped the idea of demand deposit schemes entirely (with Pirate being a partial exception). Interest-bearing demand-deposit schemes don't work without huge deposit volume spread among many people (that is, your local bank is probably multitudes more likely to run into a liquidity problem if someone makes a large deposit, which is probably a contributing factor to why banks have become so consolidated and perhaps why central banks are popular). CDs work well, but they're not popular for fiat currency (becoming difficult to even find a bank offering them), at least in the US -- banks generally give unreasonably low rates on them (~1% annually with multi-year commitments -- extremely favorable rate for the bank considering the costs and risks of demand deposit money), though, which don't often justify keeping the money locked away like that. I'd guess if FRB & free savings accounts were done away with, though, CDs would make a comeback, and banks would probably be scrambling for funds, creating competition and more reasonable rates of ~2-3% annually.


Which reminds me... Why do libertarians always call money creation fractional-reserve banking? Forcing banks to keep full reserves would stop the beneficial effects of central banks creating money to lend to commercial banks, but why not just be against money creation instead of FRB???

Maybe you can start by rereading my post. For further information, maybe you can start with Against Intellectual Property by Stephan Kinsella (http://mises.org/document/3582/Against-Intellectual-Property).

Oh I see, sorry I skimmed through your posts.. So you're saying the mere act of creating counterfeits is not fraud but spending them as if they were real money is. Ok, I agree with that. But how is spending counterfeits any different from spending a loan created out of thin air?!

Trading "counterfeits" may be fraudulent, but there is no necessity. If I put a sticker on a piece of rock saying "orange", and sell it, it also may or may not be fraud, depending on the context.

Bad analogy. Possibility of creating oranges out of nothing != possibility of creating money out of nothing. The former is impossible the later not at all.

Oh come on, you aren't being serious. How is putting a sticker on a rock labeling it an orange in any way similar to a counterfeit money note? The former clearly isn't what the label says it is while the later might be indistinguishable from the real thing.

A customer choosing a more convenient service only able to be provided by committing fraud does not undo the fact that fraud is being committed.


Is that why we don't have full-reserve banking in Bitcoin? Oh wait.

The reason the quote is wrong is because you mistakenly claim that 100% reserve deposit for investment purposes would carry a cost instead of the reality where it would pay an interest which is what is happening in Bitcoin. I think you might be confusing a savings account which would carry a cost for safekeeping of your money with an investment account which would pay a yield but make the deposit unavailable for a certain period of time that was needed for the investments made by the bank to be repaid.

Let's put it differently then. Technically, the money is not created out of nothing, there is always some non-zero cost associated with it. If not for any other reason, at least for opportunity cost of the resources (e.g. bank's computer) involved for the duration of the creation. Let's say I would find out a way to produce oranges more cheaply (for example, by using Star Trek replicators). Or by inventing a car I would put the horse-pulled carriage operators out of business.

A more deep reason why this is happening is that the newly printed money acts a substitute for the old money, similarly as a car acts as a substitute for a carriage. But absent legal restrictions, it is not the producer who determines whether the new money acts as a substitute or not. So the producer's act of creating new money, per se, cannot violate anyone's rights. Similarly, B and C trading this new money as if it was old does not violate the rights of D. The only way the new money can be used to violated D's rights is if someone trading with D misrepresents their characterstics, or forces D to accept it.

This assessment belongs to the buyer, not you or me. If you try to interfere with this process against the wishes of the buyer, you are violating his rights.

Right, and I thought you were trying to actually remain open and honest and perhaps learn something but in fact you are simply trolling me.

More bad analogies. Again Star Trek replicators do not exist, money printing machines do, and if they did exist there would be no one on this planet who would still be producing any oranges. Inventing a car is no way similar to printing money.


Bullshit.

Example:

D has 10BTC and one day it takes D 0.1BTC to buy a loaf of bread, one week later because of A doing FRB and B and C spending the newly created money it suddenly costs me 0.2BTC, was D not robbed of 0.1BTC in this example?! It's 0.1BTC that D could have kept if no one did FRB.. how is that not theft?! How is that not D being robbed?! Did A ask D for permission to potentially diminish his purchasing power through counterfeiting when D first decided that 10BTC is a good store of value i.e. a good money to hold?! Of course not.

I have already disproved that fraud is a necessary attribute of FRB. I am merely adding that irrespective of this, demand for substitutes leads to fractional reserves.

I explain the situation about Bitcoin and FRB on the Bitcoin wiki page (https://en.bitcoin.it/wiki/Fractional_Reserve_Banking_and_Bitcoin#Austrian_Viewpoint)

The payment of interest is a proof that the reserves are not 100%. Unless of course the operator is running at a loss.

You have yet to provide a coherent argument and instead divert attention into ad hominems.

If A and B agree on trading their own properties, on their premises, why is C's opinion relevant in any way whatsoever relevant for the legality of this transaction?

IMO, FRB is a normal process. Most people don't want their money just sitting there otherwise they would get safety deposit boxes and not  bank accounts.

What we are really arguing about is the amount of Leverage that is applied to FRB. I think 30-40 is a good amount, apparently banks thought 400 was good. I guess they know better NOW.

Non sequitur. The question is whether or not the operator has to relinquish ownership over 100% of the deposits in order to charge interest on a loan. And the answer is a clear yes, which is why he needs 100% reserves in order to make a loan or more accurately an investment. 100% reserve does not mean that the operator has 100% of the serves after he makes his investment but instead that he has to have 100% reserve before he can make it.

In other words, you assert that money is a special type of good, and normal property rights do not apply to it. It's a sort of collective ownership, where a change of price thereof constitutes an illegal act. The problem is, almost any act whatsoever changes the prices, so almost any act whatsoever therefore should be illegal.

Ad hominem, non-sequitur and an appeal to emotion.

Appeal to emotion and circular reasoning.

Is that why we have FRB in Bitcoin? Oh wait we don't have it.

So then people holding bitcoins have them just sit there? Oh wait we don't, they are investing or depositing them with operators who invest for them.


No, we are arguing about whether or not stealing purchasing power from some third person without their consent is fraud or not.

We don't? Hmm.. Ok, I missed something.

Wrong. Money is a special good, because it has to have special properties that make it attractive to be used as money in the first place (fungible, divisible, recognizable, STORE OF VALUE) none of which apply to most goods hence why so few are ever chosen as money and even fewer are a good money. Denying this is being completely oblivious to history of money.


Yeah I bet you just love pointing out my frustration with your irrationality which is the only perhaps error in my arguments.


Riiiiiiight, someone being robbed is circular reasoning, care to elaborate how?

Oh we do? Then I missed something and should sell my BTC asap since apparently someone figured out how to counterfeit bitcoins. When, where and who did it?

For some reason, the concepts of money creation and FRB are being blurred together in this thread. I sure as Hell don't keep 100% FV of deposits or bonds in my wallet.

A deposit contract means that the depositor retains ownership. So your argument makes no sense. What you are describing is a loan contract, where the ownership is transferred.

An operator cannot invest more than 100% of his reserves, that's logically impossible. However, he can issue instruments whose price exceeds that of the reserves. If these instruments are usable in some way (for example, they can be used for payment, or at least speculation like on Bitcoinica), he can make additional profit on that, and he is operating at fractional reserves.

As I said above; money is under FRB is not created out of thin air.  It is created by pulling apart a zero into an asset and a matching liability.

The money created by FRB is indeed an increase in money supply; it is increased by the amount savers are willing to lend and borrowers are willing to borrow.  In that sense, it is the moving of a portion of the borrowers future wealth creation into the present.

If you want to argue about what the correct reserve ratio is; then I'll agree, the current (in the UK) 3% is appalling and results in 32 pounds being lent for every 1 printed.  I would argue though that the fact we've reached that reserve ratio is not a function of the law setting that reserve ratio, but the central bank making borrowing too cheap (and hence demand for credit is too high, resulting in too many willing borrowers).  The reserve ratio is the buffer at the end of the track, not the speed of the train.

Fractional-reserve banking is a form of banking where banks maintain reserves (of cash and coin or deposits at the central bank) that are only a fraction of the customer's deposits.

This has nothing to do with 'counterfeiting".

I guess that's a problem then, I always thought FRB means a bank lends more than it's deposits, meaning they create money out of thin air, something which we know is damn near impossible with bitcoin. Lending out a % of deposits != FRB to me.

Non-sequitur. Merely because money is special economically does not imply that different property rights rules apply to it.

You argue that because the market price of BTC has decreased through FRB, this is a violation of property rights. However, this is what you have to prove, not assert. You are assuming your conclusion.

As I said already, almost any act whatsoever can decrease the market price of BTC. A creation of a new currency, say Bitcoin2, which has superior features than Bitcoin, for example, could cause this. Is that illegal too?

The fundamental economics is the same. Some goods S act as substitutes of another good M. If the production costs of S are lower than M, this leads to an increase of supply and a decrease in price. This happens everywhere and is not particular to money. Should it be illegal in those other cases too? Or should it be different with money?

That simply isn't true with Bitcoin. A depositor retains a claim on ownership but relinquishes the actual ownership to the operator. Once the depositors makes a deposit, the operator is in control of the deposit and the owner which in effect equals to a loan contract. The operator borrows from the depositor, and then lends to someone else who borrows from the operator.


Yes he can create representations of the original deposits and lend them out, committing the fraud of charging interest on purchasing power no one consented for him to able to access  while his borrowers steal through this purchasing power accessed out of thin air from all the other savers holding the underlying deposit. Sort of kinda what LBMAs allegedly do with paper gold.

This is a bit imprecise. FRB creates more instruments than they have reserves. But this only leads to an increase in the money supply if these instruments act as a substitute of money itself, i.e. if they are used as a method of payment.

FULL STOP, that is fraud, stealing from savers holding this same money.

Your understanding is wrong.  A bank cannot lend out more than its deposits.  In fact, the reserve ratio is what specifies how much they can lend out.  They are allowed to lend (in the UK) 97% of deposits.

Let me explain where the money "creation" comes from though: imagine there is only one bank in the universe.  Imagine also that we have no such thing as cash, that it is all numbers on a screen.  The bank starts with $100,000 of its own.  Alice wants to borrow $100,000 to buy Bob's house.  The bank agrees, and creates a $100,000 asset in the form of the loan to Alice; and a $100,000 liability in the form of a liability to Bob's current account.  That is to say that Bob has $100,000 on deposit, the bank has $100,000 in equity and has loaned $100,000 to Alice.  That is a reserve ratio of 100,000/200,000 = 50%.

Go again.  Charlie buys Daves house.  Charlie owes the bank $100,000; Dave is owed $100,000 by the bank (and hence has $100,000) on deposit.

Total deposits and equity = $300,000
Total loaned = $200,000
Reserve ratio = 66%

At no time does the bank lend more than it has on deposit.  Money is "created" by the act of borrowing.  If no one was willing to borrow then no money "creation" would take place.

FRB is when someone lends more than what their deposits are. Where they keep a fraction of their deposits is irrelevant to FRB.

And this is where the 'Leveraging' comes in to grow wealth. Unfortunately these 'unpaid' for assets get added to the formula. I'm saying leveraging isn't bad but one must be very careful and expect defaults and prepare for them so the whole house of cards don't come down. 30-40 is a safe number, 400:1 is INSANE.

The concept of "retaining a claim on ownership but relinquishing the actual ownership" makes no sense. It's just an obfuscation. Furthermore, again based upon TTTC and Kinsella's work, there is no ownership of Bitcoins. There is only ownership of the media and computers involved in the functioning of Bitcoin. Bitcoins are already an abstract concept, so derivative instruments issued by Bitcoin "banks" are even more abstract and there is even less reason why their issuance should be in any way legally related to each other.

Assuming your conclusion again. The fraudulence needs to be the conclusion, not the assumption.

Fractional-reserve -- a fraction of reserves are kept as cash-on-hand for deposits. Full-reserve -- a full reserve of deposits is kept as cash-on-hand. Banks can't loan out more than what the have deposited with them unless they have equity (more assets than liabilities). The Fed can create money and loan it to commercial banks for free or near-free, but this isn't related to FRB - that's money creation as it usually happens in the current world.

I'm not sure if Austrians are using some obsolete definition or if we're confused.

If I increase a supply of a good and this decreases its price, is it fraud? If not, is money covered by different property rights than other goods? If not, then your argument is erroneous.

Absolutely right.  As I said above, the problem is not FRB, it is the level of FRB going on.  The profit from spreads was not enough to cover the huge numbers of defaults that started happening from 2008 so the banks had to go crawling to governments to bail them out.

I also believe that the legal reserve ratio is not the correct tool for managing FRB; the interest rates on loans is (interest being effectively the "cost" of money).  The fact that banks have been lending right up to what they are legally allowed to is evidence that demand for credit was too high.  Therefore it needs lowering by making credit more expensive.

Of course it does, it's what makes a money a good money. I mean just have to look at the real world example of gold to see you're wrong and I'm right.



It's easily provable. For any other act that could affect the price of BTC someone needs to create a good or a service of value, they have to apply labor to produce something, something that would affect the goods and service bucket which then gets matched with the money bucket. Merely adding to the money bucket(of course when I say money I mean 1 instances of it, 1 currency if you like, Bitcoin2 would be a separate bucket of money) does not add any value but in fact robs value form those already holding a piece of the money in this bucket.

I think the reason I have such a hard time is people around here have severely distorted beliefs about what money really is, how it originally came about and what was it's purpose in the market and especially what a good money is.

And you say I'm the one obfuscating? Stop trolling me, please. Of course bitcoins are abstract as is the ownership of them, but abstract concepts do not invalidate the concrete concepts of ownership. If you claim otherwise you wont mind sharing the private keys to your bitcoins, since you have no ownership, right?

Wait, what? You can't be serious. What specific other property rights apply to money that do not apply to other goods? What property rights apply to gold that do not apply to other goods?

Ahh, so you're a proponent of the labour theory of value? If some guy X does not "work", and this is somehow causally related to a decrease in the price of Bitcoins, he's violating your rights?

You're having a hard time because you cannot formulate coherent arguments. You randomly jump between all kinds of assumptions.

Once again, you are still to provide a coherent argument. Since all media and all computers involved in the functioning of Bitcoin are private property of the owners of these objects, it is logically impossible to also have "rights in Bitcoin". Such rights would be either redundant or contradict the rights in the media / computers. For a more detailed elaboration, see aforementioned Against Intellectual Property.

3 questions:
- Do depositors in such a bank have access to their deposits whenever they please?
- If no, do the depositors think they have access to their deposits whenever they please?
- If yes, how can that be if the bank lent 97% of their deposits to someone else?

All I see is these facts:

A is saving 10BTC
B is saving 10BTC
-----------------
supply of money competing for the same goods and services is 20BTC

C is accepting deposits to loan out through FRB
B deposits 1BTC
C lends D 9BTC -> this didn't create any more goods or services, it didn't add anymore value

A is saving 10BTC
B is saving 9BTC and also lent 1BTC
but instead of D having 1 BTC to spend
D is spending 9BTC
----------------
supply of money competing for the same good and services is 29BTC


How is this not defrauding A?

1) Only if the bank allows demand deposits, and those usually have restrictions stated in contracts, such as with ATM cards' daily & per-transaction limits (though those are also to protect against fraudulent purchases being too out of control -- many banks will change the limits if you ask nicely).
2) I'd imagine most depositors think they do, but if people were stupid enough to believe the banks have full reserves of deposits, there would never be bank runs (except in cases where the bank has extremely negative equity) because depositors would "know" there should be no liquidity problems possible.
3) The problem you imply is why demand deposit schemes aren't implemented in the Bitcoin community. Successfully operating a bank with demand deposits and FRB requires a large volume of money spread across MANY different people. Meanwhile, CD programs are designed to fill the need of large depositors ($100k+). They're granted a higher interest rate but severely penalized if they withdraw early. This allows the bank to plan for when they need to have large reserves of cash on hand to pay those CD-holders. Since BTC lenders don't deal with thousands of accounts, we can really only do CDs or bonds. That's not because of anything inherent with Bitcoin, but because it would lead to disastrous bank runs.


The market is what should be finding what the proper reserve ratio is, not the government - meaning banks should not be forced by threat of state violence to hold any % of deposits in reserve, including 100%. If a bank tells a depositor that they have access to their funds via contract, then the bank needs to honor that or the depositor should be able to sue.

You can't create more out of nothing. If I own a rock of gold and own it for the purpose of saving value I KNOW you can't own the same rock of gold. You can't either own a similar rock of gold if you haven't put in a huge amount of work to dig it up or produce something other of equal value in order to trade for it. This rock of gold is a store of claims on goods and services in the economy and you creating a rock of gold out of thin air is stealing these claims on goods and services from me. That's why counterfeiting is wrong in the first place.


Absofkinglutely, otherwise what's the point of money?


Just because you aren't willing to understand my arguments or can't see the logic in them does not make them incoherent, I might go as far as say your trying a nice sneaky ad hominem there.

And I'm perfectly ok with this kind of definition of FRB.

But I defined FRB different and how it actually happens in the real world today. Where deposits are immediately used as reserves for loaning money that does not exist.

Irrelevant.  Your assertion was that they loan out more than they have deposited.  Which is what I showed wasn't true.  I also note that you've jumped to a different argument in response to that demonstration rather than admit that your understanding was flawed.

Answer 1: yes they do.  It's called demand deposit and every current account operates under that principle.

Answer 2: n/a

Answer 3: Firstly, 97% is less than 100%. To counter your obvious "ho ho ho, what about when they all want their money out at once?"; the answer is that central banks act as the "lender of last resort".

So, Hazek starts shouting in the street "it's all a lie, the banks don't have enough money to pay you", and a bank run starts.  In the past a run would kill a bank, for no bank operated 100% reserve -- if they loaned a single penny then they were less than 100%.  Nowadays, if a run looks likely the retail banks simply call the central bank and say "please lend me a gazillion dollars".  The central bank can create as much as it wants, so can do this easily.  Everyone withdraws their money and nothing happens.  The retail banks are all still standing  (albeit with massive amounts owing to the central bank).

What then does everyone do with their money?  The answer is: deposit it back in the bank.  At which point the massive debt to the central bank can be repaid and everything carries on as it was. (this is the proper function of a central bank; unfortunately they all abuse their position and print money when there is no expectation that it is a temporary run-stopping measure)

(Incidentally, bitcoins will be good for us all here too, since there will be no central bank to create money the banks will have to try much harder to maintain the trust of their depositors and will have to evaluate the risks of default much more carefully.  We might even find that they don't feel that it's sensible to bang their reserve ratio up against the legal limit).

With FRB, money is destroyed when debts are paid back. Do you consider that fraud too?
With FRB the money supply expands as the economy grows, and contracts when the economy does. Thats neither fraud nor insane.

+


=

does not compute


How is this not creating more money out of thin air which is what I actually said they do when they do FRB.

I'm still not "getting it." Banks don't get to pick a reserve amount and then are able to loan out some multiple of that, they have to keep a % of deposits on-hand as a reserve. The alternative to fractional-reserve and full-reserve is no-reserve, where banks can freely loan out as much cash as they have -- it doesn't mean they get to create an infinite amount of cash to loan out.

Let's say the reserve ratio for banks in the US is a flat 9%. That means if a bank has $100b in deposits, they must keep $9b as cash or something which can be near-immediately turned into cash or regulators will shut them down. It doesn't mean that banks can use the $100b from deposits and claim it as a reserve which multiplies their amount to lend to $1.11t. I'm pretty darn sure that doesn't happen anywhere, though if I'm wrong, my mind'd be blown.

This is only possible because of the original fraud. Without it, this second thing cannot happen and therefor is irrelevant.

Ahhh who cares if savers got the shaft in the process right?

Excellent selective quoting.

The rest of my post pointed out that in the event of a bank run it was the central bank that created money not the banks themselves; and that when the run is over, that money is destroyed again.

Cash money in people's fists at the end of the run does them no good; they instantly start spending it or depositing it.  If they spend it it goes to a merchant who puts it back in the bank, the central bank debt is repaid and the money is destroyed again.

The money that is "created" is merely so those panicing people can hold the bits of paper in their hand.  There is no more or less money in the economy than there was when the bits of paper were 0s and 1s on the banks computer screen.

Of course if they were the only bank doing this. But they are not and when the loans get deposited at some other bank that other bank can again loan out a fraction and again and again and again and the end results is what I said it was.

Nonsense.  It makes no difference whether it is one bank or one "banking system".  There are loans and there are deposits.  No bank is allowed to lend more than it has had deposited.  If anything, the fact that there are multiple banks makes it harder for them to lend right up to the theoretical maximum as determined by the reserve ratio.

ORLY?:

http://wrightlawaz.com/wp-content/uploads/2011/08/money-supply1.gif

It is not 'just' deposits. It is 'assets'.

When the bank loans 100K for a house, the house becomes an asset so the growth of the unpaid portion of the house increases that asset. But made it much worse besides the housing crash, is that the Accounts receivable became an 'asset', so instead of the 100K, they counted 300K they 'Will' be paid from the 100K loan as an asset.

You are being completely oblivious to the time factor.

UGH, maybe this cartoon will explain to you http://www.youtube.com/watch?v=Zx0vrR2BFp8 The explanation starts at 13:30 and is so clear and easy to understand a 5year old will get it.

Ok, I'm out.  You're not worth debating with.  Here's what I said as well:


The central banks print money when there is no call to.  That is completely independent of any fractional reserve banking that's going on and would go on even if you completely outlawed FRB.  The fact that they've been increasing the monetary base, M0 is nothing at all to do with FRB.

Edit.  Incidentally: see that little drop back down after the massive spike up?  That is the only part that represents the central bank doing what it should for FRB.  After the threat of a run was over, they destroyed some money, clearing the some of the debts the retail banks had incurred and bringing the monetary base down.

That still doesn't make sense. The amount doesn't multiply.

If Joe Bob loans $100m to Bank A, then Bank A deposits in Bank B, then Bank B deposits in Bank C....

Bank A is only allowed to loan $91m to Bank B and must keep $9m on-hand to pay all of their depositors. Bank A now has $9m in cash, $91m as an asset in the form of a deposit, but they still have a $100m liability to Joe Bob, so they're done -- Bank A can't loan out any more of the $100m. They have $100m assets, $100m liabilities from the transaction.

Bank B now has a $91m deposit (cash). Bank B needs to keep $8.19m as a cash reserve and deposits $82.81m in Bank C. Bank B now has $8.19m as cash, and $82.81m as an asset in the form of a deposit with Bank C, but they still have a $91m liability to Bank B. Bank B is now done, they can't loan anymore money from the transaction which started with Joe Bob's deposit.


Bank C now has $82.81m, and let's say they loan it out to Producto Corp. at an interest rate high enough to profit off the deposit they got from Bank B. Bank C needs to keep $7.4529m in reserves to pay depositors, so they loan $75.3571m to Producto Corp.



Let's looks at the totals:

Assets created on paper: $373.81m ($24.6429m held as cash by the banks, $349.1671m in assets as the form of deposits)
Liabilities created on paper: $373.81m (assuming the times match up perfectly, when Bank C is repaid by Producto Corp., they pay Bank B $82.81m + interest, Bank B pays Bank A $91m + interest, and Bank A pays back Joe Bob $100m + interest)
Amount of money created when the transaction's over: 0 (they cancel each other out)

Yeah - I guess Bank A and Bank B could keep depositing money in each other, and then they could build up their assets (AND liabilities) by quadrillions but it doesn't make sense. It doesn't create any additional money to loan, just a bunch of pointless paperwork.


ETA: The exact same thing could be done with Bitcoin, except we're not subject to reserve ratios, so we could actually lend the whole amount out infinitely to each other. I loan Patrick 100BTC, he loans me 100BTC, and we keep doing it back and forth. We could have 1 trillion BTC worth of assets, but we'd also have $1t worth of liabilities. We could even not do the BTC exchange and just pass along "IOU BTC" notes to each other. Lending/depositing with each other doesn't create money, it just creates assets and liabilities on paper.

Btw I let this slide but I shouldn't have since it's the crucial point of my argument.

Sooooo the depositors can spend their money that a loan was made based on and the borrower can naturally spend his borrowed money? How does this happen without creating money out of thin air?

Demand deposits. You would be right if banks didn't allow depositors to have access to their depoists, but they do and that's what creates money out of thin air and is the fraud that robes the savers that I'm desperately trying to point out.

Yes but Joe Bob still has access to his $100m through demand deposits while the bank lent $91m to someone else which is where the money creation happens.

Maybe FRB isn't as much fraud as are demand deposits?

Bank A's reserves are made up of waaaay more cash than what they need to keep on-hand for Joe Bob. They're not just loaning to Joe Bob, but likely tens of thousands of other people who also make up Bank A's cash reserves. Let's say Bank A has $5b total of deposits. Bank A thus needs $450m in reserves, so they'll have no problem paying Joe Bob if he needs money right away, and if four other people withdrew $100m on the same day, Bank A would simply request an intra-bank loan (often called "overnight loans"). These short-term loans by banks to other banks ensure they're able to meet the reserve ratio for cash-on-hand enforced by government regulators. In this case, Bank A has -$50m and needs a ~$525m loan from another bank. These loans usually happen within a few hours because banks have established reputations with each other. We do something similar with Bitcoins. If I need to pay a depositor but don't have enough on-hand, I ask Patrick or someone along those lines for a short-term loan I pay a minimal % on. When I'm able to liquidate my investments, or loan repayments are made to me, I pay Pat.

Now we're getting somewhere, and that's why I think more options should exist. Banks which keep full reserves are essentially payment processors providing online banking and safe storage of money, and they'll charge depositors some annual % as well as much higher fees than we're used to.

If people want to get paid for depositing, they should commit to long-term loan contracts (CDs).

And that is the fraud that FRB enables. Joe Bob and all the other depositors believe they have access to more money than they actually do and this belief reflects in prices robbing savers. If Joe Bob didn't believe he could have immediate access to his deposits he wouldn't be out there competing for goods or services and savers wouldn't get robbed. I don't care whether savers get robbed because of money actually being created out of thin air or just imagined it was created.

Joe Bob thinks he has his deposits available to spend immediately and so all the other depositors meanwhile the bank lent a fraction to someone else who again probably deposited their borrowed money with a bank and again believe they have immediate access to it while the bank loaned a fraction of it.

Even if the actual money supply hasn't increased it has increased in the minds of all the depositors which is what ultimately really matters when good and services are being competed for and how the savers get the shaft.

It's an unseen fraud hence why I'm not getting anywhere in this thread.

I just bought a house precisely because the previous generation lent to me and my fiance at a profit.... but there were no banks involved.  There is no need for FRB when you have a community.  Instead, many people choose to live in a cutthroat world without neighbors and friends.  No thanks.

Indeed. The opposite is far worse; if just the simple fact of having money results in you getting richer and richer by sitting on your money because other people grow the economy and therefore grow the demand for money, what kind of idiotic system is that? Having inflation means that you will have an incentive to invest your money, spend your money or otherwise participate in the economy, I have no problem with that.

:shaking my head: what utter ignorance of history you display...... :-[

You're completely oblivious to the 2nd industrial revolution right? Robbing people is not a path to sustainable wealth, it's a path to tyranny with a few and a life on a treadmill barely getting by paying all your bills.

Correct. But I can own another good, S, which economically acts as a substitute of the rock of gold. If the production costs of S are below those of the rock of gold, the supply in that market will increase and the price will decrease. Again, this is not particular to money.

In order for a rock of gold to be some sort of claim, there needs to be a counterparty to that claim, with which you have a contract. People other than this counterparty cannot be held accountable if this claim is reneged upon. Who is this counterparty and when did they agree to a contract?

Non-sequitur.

There is no "point of money". Furthermore, it's a non-sequitur. You did not address why particular economic differences result in legal differences. It's like saying that it's ok to steal from the rich because rich are richer than the poor.

Every market participant willing to accept a particular good as payment which makes a good money in the first place. Money wouldn't be money if it weren't a claim on good and services it would just be a good.


Ad hominem.


Ad hominem. Money wouldn't be money if it didn't fulfill the roll of money. Money without the roll of money would just be a good like anything else.

Calling it robbing doesnt make it so. Do you feel robbed because bitcoins (or for that matter, gold) is constantly being mined?

It becomes robbery when people are forced to participate in said inflationary system.

Of course not, it takes work to mine gold. It takes no work to convince people they have access to their money that they don't really.

I'm glad for you.  You are very lucky to have access to a previous generation to do so.

I also would like the world you describe where we borrow directly from people we know; bitcoin will help us get there.

Until then... FRB and banking is filling that gap.  Unless you seriously think that every current FTB has parents/friends/neighbours with enough saved cash to purchase a house?

It's worth remembering that bank lending should have the advantage that they can spread the loss.  If 1000 people deposit $1000 each, and 10 people borrow $100,000 then with your friends/neighbours scenario 10 people lose $1000 if someone defaults.  With a bank, 1000 people lose $100 (of course I've not included profit, which will cover a certain amount of default in a real system).

As if there is no way to crowd loan ..

Please point me at this magical place that will crowd-source a 30 year mortgage for £250,000 (a fairly typical house price in the UK) at lower rates than I can get at a bank.

Please then point me at the people who have held other crowd-loans for 30 years and had no defaulters.

Edit: there is a thread going on right now about crowd-sourcing $125,000 to buy an island.  Care to predict whether they'll get it or not?  For comparison, UK mortgage lending is in the order of £130 billion; and you throw about facetious little "as if there were no crowd-loans"? Ha.

http://www.kiva.org/

http://www.kickstarter.com/

Of course the loans and investments made just on these two sites I happen to know about naturally do not reach the billion dollar large loans banks make nowadays but I'm sure it's only because they can't compete with them due laws and regulations and other costs imposed by them and due to the fact that they are not allowed to do FRB.

Also you miss a crucial piece of fact: $125,000 is just a number. Who knows how much lower the number representing the same value would be in a non FRB system.

Yea, you see that is the problem. The banks interest rates shouldn't be that low. They are, but they shouldn't be.

They won't be for long. So get it whilst you can.

Crowd funding has really entered the Individual Market to any extent. Lloyd's comes close, Kickstarter, Venture Capitalists, etc.. are others.

We do have a Lending Forum here, with the appropriate collateral something might be arranged but you would need to lock up that collateral for 30 years also. So it's not perfect for long term loans.

Personally, I think 30 Year loans are absurd anyways. They don't benefit the individual. You pay the bank way more than the value of the asset, especially now. 10 Year should be max and a nice compromise. If you have money, 5-7 years would be perfect for the individual.

I wonder why that is huh? Could it be because of an artificially higher supply of loans then there is actual savings provided by FRB? Hmm...

Why am I getting sucked back in?


Oh yes; I'm sure too.  I'm sure it's nothing to do with people not being quite as generous lending money to people they don't know as you imply.


Erm.. the people lending are doing so in exactly the same devalued currency.  What does it matter what the units are?  Measure it in oz gold if you want.  Measure subscription as a percentage of total value if you like.  It doesn't change the fact that it's "one island's" worth of money that's being crowd-sourced.

You claim it's trivial to do so... great, I shall be happy to have my scepticism proved wrong, but you've not convinced me that my scepticism is unwarranted.

Maybe one day; bitcoin will indeed make it standard that we crowd fund our mortgages/company loans from the general public.  That day is not today though.

I agree with what you say; but "should" is different from "is".

What would your advice be to, say your daughter, who wants to buy a house, in this universe, right now?  "30 year loans are absurd", "good point Dad, but the house I want costs £120,000 and I can't afford £2,000 a month on the mortgage".

Incidentally, 30 year loans do benefit the individual -- they have somewhere to live for the 30 years.  Bastiat's "Essays on Politicial Economy" explains why lending is good for the receiver of the loan.  Anyway, if it isn't good for the individual, why are people taking them out?

So now the loans are big enough.  ::)

Look, the concept is a proven one, it will work with large loans just as it does now with smaller ones. Of course today it's impossible to compete with FRB therefor large are largely their domain. I mean FFS you yourself admit that we will get there one day, all you need to do is admit why we aren't getting there today. Remove the fraud out-competing the honest lending and BOOM, we're there.

GO TO WORK AND SAVE MONEY. It's not rocket science you know.

Of course in our current monetary system of central banks creating money out of thin air and FRB doing practically the same saving is impossible.

What?  You make no sense.  Yes, the imaginary loans that are not possible to get today are big enough to buy a house.


Of course it is possible, and I haven't said the contrary.  Deposits are already more than loans.  Numerically it is absolutely possible.  I have said repeatedly that I hope bitcoin is the enabler that lets it happen.  "Why we aren't there today" is because until the advent of the internet banks were necessary.  They are less so today; and bitcoin is making it less and less daily; but banks are still necessary.  To think otherwise is to have covered your ears, shut your eyes and be shouting "la, la, la, la".

You also seem to think that FRB won't/cannot happen with bitcoin.  Of course it will; it just won't be FRB, it'll be FR...

Bob has 1000 BTC.  Alice lends 1000 BTC from Bob to buy Charlie's house.  Charlie instantly lends that 1000 BTC to Dave to buy Emily's house.  Alice owes 1000 BTC to Bob.  Dave owes 1000 BTC to Charlie.  Emily has 1000 BTC "on deposit" in her bitcoin wallet.

OH MY GOD!  1000 BTC has created 2000 BTC worth of loans.

And where should she live while she is going to work and saving money?  Somewhere rent free I suppose?

Loans are a method by which we move our future wealth creation into the present.  Renting/mortgaging is the same process except in one case it is the landlord who's done the lending and acts as a middle man funnelling exactly the same wealth creation into the purchase of a house.

You are mixing legal and economic factors, again. If A and B exchange a good G1 for a good G2, this act is not an act of A of entering into a contract with C, who is not owner of of either G1 or G2. Now, if C owns another good S, which from economic point of view acts as a substitute of G1 or G2, there is an economic relationship between S on one side and G1 or G2 or the other. But this does not imply a legal connection. It works the same way irrespective of whether one of the goods involved is money or not.

Yet, for some inexplicable reason, you argue that it's different with money.

Ok then. Let's assume we have barter, media of exchange evolve, and gold outcompetes the other media of exchange into money. At what point does it start being a claim? At what point do the actions of A and B start violating C's rights?

Non-sequitur. You're avoiding answering questions.

The function of money is an economic one, not a legal one.

Again, the point where you explain how an economic phenomenon influences property rights is missing from your answer.

2 mistakes:

Banks in todays form aren't needed, they are simply tolerated but mainly protected and legitimized by the monopoly on violence.

2nd BTC debt cannot be possibly confused with BTC it's a whole new instrument unlike bank loans today where debt = money.

Having somewhere to live and owning somewhere to live are two different things. And yes, if you have the cash to purchase the home out right, then yes. A 30 Year loan at 3% is good for you if it is a fixed rate.


Same reason they max out their credit cards.

I am all for homeownership but I more for them keeping their homes during financial hard times.  It is a very rare occurrence when someone keeps their job for 30 years. In the past, it wasn't rare. Today, however, it is rare.


I would say: Honey, you can't currently afford that house. So, lets do this. You stay with me and mums, save 30% of your 30K salary each year for 7K savings a year, pay me and mums 300 or so each month for expenses, Then in a 7 years, you go buy that house dear.

Here is a novel concept: Families that help each other grow, rather than destroy each other over stupid crap.

One method ties up the loaned money and the other creates it out of thin air, gotcha. BTW are you really this ignorant of history to not know how people used to come to own a house? Are you really going to defend fraud in order to get a shortcut?

HOW OUTRAGEOUSLY BARBARIAN OF YOU TO SUGGEST SUCH MISERY AND WORK! Got to do some FRB fraud and skip that savings part!  ::)

I don't see why they are different.  I also don't understand your second point.


And that reason is...?  People are valuing what they purchase with the loan higher than the cost of the purchase plus the cost of the loan.  They are valuing the purchase now, more than the money later.  That is absolutely their right to do so, and it is not anybody else's place to tell them what their preferences are.  I wouldn't do it; but that just makes me different, not right.


You completely ignore that during the time they did "keep their home" they had use of it.  That has a value too.  Perhaps they get kicked out after 15 years; but during that time they owned that home and were probably paying less than they would to rent the equivalent property.


Ah yes, heard that one before.  So you're saying that the parents allow the child to stay with them at reduced or lower than market rent?  That's a gift then, and is no different economically from them paying all or part of her mortgage.

It also a diagonal comparison.  Choice A, remember, was the daughter living where she wanted to live -- a whole house.  How is that the same as living in her old bedroom at her parents house?

I'm not arguing that loving parents won't do that, and perhaps it is sensible for youngsters to do that.  We're not talking about what is the correct life choice; we're talking about how, in this real world you supply the individuals wants without fractional reserve banking (and your cheat of "change what the individual wants" doesn't count).

Except they are filling a gap that was created by convincing people that banks are the only people who should hold money.  Let's make a gap, then fill it so we can be the saviors.

With a community, you know who are are lending to and only give them what you are sure they will pay back.  With a U.S. bank, the bank makes bad loans and gets taxpayer bailouts and everyone suffers.  There is no due diligence anymore.  It's all about numbers, and numbers are easy to fudge.

The difference is if, and probably when, they have financial problems they can still have a place to live.

Second Point: Plenty of wealthy people take out 30 year fixed rate loans for 3%, because they earn 7% on the money they would have spent on the home. Add in the tax deductions for Mortgage interest and that is a little caviar for them.


Yes, I wouldn't either. It is their complete right to do so. It might not be wise in the grand scheme but it is their decision. I am sure a bank would issue a 300 Year Loan if they could assign the mortgage to their heirs. Imagine how low the house payments could be on that one.

As far as the: "And the reason is...?"  Well, because it's there to use. It's in the psychology of it more than the finances of it. Especially, when the repayments go up slightly compared to the sum used for the purchase.


No, and I agree. They did have use of the property and there was value there. But, I believe, a portion of that value should go back more towards the 'owner' rather than the 'lender'.

It is basically a Pottersville and Bailey Savings and Loan argument. Both are valid, but one serves the community better the other serves the lenders more.



LOL, yes indeed we are.

Well let me sum it up this way: You don't always get what you want, but if you try sometimes, you just might find, you get what you need.


Wants of a spoiled generation will destroy the economy. Arrogance is a close second.


Don't get me wrong though. There are abuses of Power from the powerful to keep them powerful. That is wrong and needs to be fixed.

Enslaving people fiscally, is not forced slavery but the trickery behind it is dubious. People scream about Sex Education in schools, they need to be screaming Financial Education.

There are a whole lot of now college educated graduates about to graduate that are going to say: WTF and start learning from the school of hard knox with their fresh degrees.

There is a program on Wall Street from a large financial firm that is hiring ex-soldiers over graduates from universities. Their premise is: we can teach them what they 'need' to know to work here. We 'need' responsible people that show up and don't complain.

Nice thing about Capitalism, it isn't a system of Government. It is a system of Nature. And Nature can be a bitch.

IMHO, the "outrage" is not FRB per se, but in combination with a state-enforced monopoly money. Since the monopoly money is supposed to be a public resource, the outrage is that there are private entities that have the privilege to create it basically at will.

But the solution I think is not to outlaw FRB, but to simply get rid of monopoly money and special rights to banks.

In other words, simply allow everyone to make their own money and banks.

If there still is a need for FRB then, people will provide it.

I just had a long walk outside thinking through all the arguments and scenarios and I believe I was mistaken, FRB in a market regulated by market consumers is not fraud.

Yes it's true FRB operators compete with savers about who is going to offer lower interest rates but this is not theft since savers aren't exposed to counterparty risk while FRB operators and their depositors are. As long as this risk isn't somehow removed by some monopoly on violence i.e. a state or FRB lending isn't being done based on debt but on capital reserves then there's nothing wrong with it. Savers lose out but they avoid risk, depositors and operators gain but they do so at a risk of loss.

Ownership of money carries no special entitlement of goods and services but is a good like any other subject to competition.  If my interest rate is being undercut by a FRB operator that's ok because it's being balanced out with him carrying risk that I do not. Yes that costs me a bit of my purchasing power but the trade off is no risk and so the balance is there.


I now believe I was wrong. Everyone defending FRB in a market regulated strictly by market consumers(i.e. free market) was right.

I agree. The 'regulations' start mucking up the works. Free Markets make people and businesses to 'keep working' rather than being able to sit on one's duff.  e.g. If there were no, MSB requirements, there would be an explosion of businesses. Yes some would scam people, but others would make the big boys to start earning their money rather than just lobby the Government to protect their interests.

Some regulations should be 'lightly' applied to protect people (usually from themselves).

Not really, that's just a slippery slope inevitably leading exactly to where we are now. Regulations strictly by market consumers is all that's needed.

You might be right. I was thinking along the lines of size of 'small print', legible and commonly understood procedures and policies. i.e. No legalese to confuse the customer.

More along the lines of Simple Promissory Notes with some clauses for 'we don't' do this... etc...

I believe regulations by market consumers would handle that as well  ;)

I praise you for admitting a mistake. You've got my respect http://www.desismileys.com/smileys/desismileys_3266.gif (http://www.desismileys.com/). On all the points you mentioned in this post, we seem to agree, even though we appear to be using different approaches.

Full, transparent disclosure.  As long as I can make an informed decision, the government should GTFO. 

At the same event was a talk by Libertarian presidential candidate (#2 rank in straw poll) Bill Still.

It is worth a listen regardless of whether or not you believe in his platform:
 - http://www.youtube.com/watch?v=f68sOuMkhsU