Chilling video about fractional reserve

[bitpop]

Fractional reserve
https://www.youtube.com/watch?v=6PfdQhX8_yg

[empoweoqwj]

chilling

[solex]

In a Bitcoin economy, I expect FRB to become obsolete. Not because FRB is impossible with cryptocurrency, but because governments will raise reserve ratios for Bitcoin banks to 100%.

The reason is that banks can no longer be backed by CB printed money and governments will need to run balanced budgets because the cleansing process of bankruptcy for bad banks and profligate governments will no longer be avoidable through currency debasement.

[Hawker]

In a Bitcoin economy, I expect FRB to become obsolete. Not because FRB is impossible with cryptocurrency, but because governments will raise reserve ratios for Bitcoin banks to 100%.

The reason is that banks can no longer be backed by CB printed money and governments will need to run balanced budgets because the cleansing process of bankruptcy for bad banks and profligate governments will no longer be avoidable through currency debasement.

Unlikely.   A change of currency is not going to change the need for banking services.  Projects will still need to be financed and private banks will be offering Bitcoin script just like private banks offered gold script back in the days before fiat money.

[solex]

In a Bitcoin economy, I expect FRB to become obsolete. Not because FRB is impossible with cryptocurrency, but because governments will raise reserve ratios for Bitcoin banks to 100%.

The reason is that banks can no longer be backed by CB printed money and governments will need to run balanced budgets because the cleansing process of bankruptcy for bad banks and profligate governments will no longer be avoidable through currency debasement.

Unlikely.   A change of currency is not going to change the need for banking services.  Projects will still need to be financed and private banks will be offering Bitcoin script just like private banks offered gold script back in the days before fiat money.

I didn't say that banking services would stop, just that bank loans would only be made from bank reserves. i.e. loans = deposits (instead of 10x deposits like today).

[Hawker]

In a Bitcoin economy, I expect FRB to become obsolete. Not because FRB is impossible with cryptocurrency, but because governments will raise reserve ratios for Bitcoin banks to 100%.

The reason is that banks can no longer be backed by CB printed money and governments will need to run balanced budgets because the cleansing process of bankruptcy for bad banks and profligate governments will no longer be avoidable through currency debasement.

Unlikely.   A change of currency is not going to change the need for banking services.  Projects will still need to be financed and private banks will be offering Bitcoin script just like private banks offered gold script back in the days before fiat money.

I didn't say that banking services would stop, just that bank loans would only be made from bank reserves. i.e. loans = deposits (instead of 10x deposits like today).

I know.  But it will still be fractional reserve banking as they will be able to issue lots of bitcoin scripts against each bitcoin deposited just as merchants issued lots of gold scripts for each bit of gold deposited.

[bitpop]

Weren't gold scripts straight fraud and fractional reserve half fraud since dollars could be printed but not gold? Thus fractional reserve Bitcoin would be a better option.

[Hawker]

Weren't gold scripts straight fraud and fractional reserve half fraud since dollars could be printed but not gold? Thus fractional reserve Bitcoin would be a better option.

No and no.  The advantage of fractional reserve banking is that it increases the amount of working money thereby reducing the cost of capital.  If the same bitcoin deposit is used to back 2 bitcoins of loans, then the cost of the loans is half what it would be if it was only backing 1 loan.  That's why it's worked for banks.  In effect, money is made to work harder.

[bitpop]

Weren't gold scripts straight fraud and fractional reserve half fraud since dollars could be printed but not gold? Thus fractional reserve Bitcoin would be a better option.

No and no.  The advantage of fractional reserve banking is that it increases the amount of working money thereby reducing the cost of capital.  If the same bitcoin deposit is used to back 2 bitcoins of loans, then the cost of the loans is half what it would be if it was only backing 1 loan.  That's why it's worked for banks.  In effect, money is made to work harder.

Or make the banks more interest, if it collapses, simply bail them out.

[Hawker]

Weren't gold scripts straight fraud and fractional reserve half fraud since dollars could be printed but not gold? Thus fractional reserve Bitcoin would be a better option.

No and no.  The advantage of fractional reserve banking is that it increases the amount of working money thereby reducing the cost of capital.  If the same bitcoin deposit is used to back 2 bitcoins of loans, then the cost of the loans is half what it would be if it was only backing 1 loan.  That's why it's worked for banks.  In effect, money is made to work harder.

Or make the banks more interest, if it collapses, simply bail them out.

Thats 2 separate points. 

Banks compete for deposits so the chance to make more interest is to the benefit of the saver not the bank.

Bail outs happened because of the "to big to fail" problem.  That's a political problem rather than a problem with fractional reserve banking.

[Phrenico]

Weren't gold scripts straight fraud and fractional reserve half fraud since dollars could be printed but not gold? Thus fractional reserve Bitcoin would be a better option.

No and no.  The advantage of fractional reserve banking is that it increases the amount of working money thereby reducing the cost of capital.  If the same bitcoin deposit is used to back 2 bitcoins of loans, then the cost of the loans is half what it would be if it was only backing 1 loan.  That's why it's worked for banks.  In effect, money is made to work harder.

There is a lot of confusion on this issue.

The main advantage of FRB for our purposes is that it reduces the dead-weight loss of producing money. [Other advantages are that it allows price levels to resist shocks to changing supply of the underlying commodity--but this is mostly a non-issue in BTC.] If FRB multiplies the quantity of money by 5, it reduces the amount of resources wasting in producing more money by a factor of 5.

Bitcoin doesn't have a need for FRB because it can, in principle, flow with very little friction, unlike gold. Whether FRB exists will depend on politics and on the price of transaction fees through the network, waiting for confirmations, whether people desire insurance on deposits, etc.

This also means that a fractional reserve fiat system is pretty pointless, because fiat is free to print and is controlled by one issuer.

Source:
http://object.cato.org/sites/cato.org/files/pubs/pdf/pa017.pdf

[beetcoin]

hidden secrets is also a good resource that goes over similar issues.. though they do have an incentive to sell gold http://hiddensecretsofmoney.com/videos/episode-1

[Hawker]

Weren't gold scripts straight fraud and fractional reserve half fraud since dollars could be printed but not gold? Thus fractional reserve Bitcoin would be a better option.

No and no.  The advantage of fractional reserve banking is that it increases the amount of working money thereby reducing the cost of capital.  If the same bitcoin deposit is used to back 2 bitcoins of loans, then the cost of the loans is half what it would be if it was only backing 1 loan.  That's why it's worked for banks.  In effect, money is made to work harder.

There is a lot of confusion on this issue.

The main advantage of FRB for our purposes is that it reduces the dead-weight loss of producing money. [Other advantages are that it allows price levels to resist shocks to changing supply of the underlying commodity--but this is mostly a non-issue in BTC.] If FRB multiplies the quantity of money by 5, it reduces the amount of resources wasting in producing more money by a factor of 5.

Bitcoin doesn't have a need for FRB because it can, in principle, flow with very little friction, unlike gold. Whether FRB exists will depend on politics and on the price of transaction fees through the network, waiting for confirmations, whether people desire insurance on deposits, etc.

This also means that a fractional reserve fiat system is pretty pointless, because fiat is free to print and is controlled by one issuer.

Source:
http://object.cato.org/sites/cato.org/files/pubs/pdf/pa017.pdf

Sorry that assumes that the is no market for money.  If 2 banks are competing, one using FRB and one just passing on deposits, the one with FRB will have a competitive advantage and thus end up owning the market.

FRB is a free market solution to the problem that businesses and governments need working capital - its a mistake to think that a currency change will eliminate that need.

[Phrenico]

Weren't gold scripts straight fraud and fractional reserve half fraud since dollars could be printed but not gold? Thus fractional reserve Bitcoin would be a better option.

No and no.  The advantage of fractional reserve banking is that it increases the amount of working money thereby reducing the cost of capital.  If the same bitcoin deposit is used to back 2 bitcoins of loans, then the cost of the loans is half what it would be if it was only backing 1 loan.  That's why it's worked for banks.  In effect, money is made to work harder.

There is a lot of confusion on this issue.

The main advantage of FRB for our purposes is that it reduces the dead-weight loss of producing money. [Other advantages are that it allows price levels to resist shocks to changing supply of the underlying commodity--but this is mostly a non-issue in BTC.] If FRB multiplies the quantity of money by 5, it reduces the amount of resources wasting in producing more money by a factor of 5.

Bitcoin doesn't have a need for FRB because it can, in principle, flow with very little friction, unlike gold. Whether FRB exists will depend on politics and on the price of transaction fees through the network, waiting for confirmations, whether people desire insurance on deposits, etc.

This also means that a fractional reserve fiat system is pretty pointless, because fiat is free to print and is controlled by one issuer.

Source:
http://object.cato.org/sites/cato.org/files/pubs/pdf/pa017.pdf

Sorry that assumes that the is no market for money.  If 2 banks are competing, one using FRB and one just passing on deposits, the one with FRB will have a competitive advantage and thus end up owning the market.

FRB is a free market solution to the problem that businesses and governments need working capital - its a mistake to think that a currency change will eliminate that need.

The FRB bank will have a competitive advantage iff it can convince people that its notes can be trusted. As I said, Bitcoin to banknotes is not like gold to gold certificates; Bitcoin is better for transacting than banknotes in a lot of ways.

Your second paragraph is very odd. There is no reason why bitcoins aren't good enough on their own to be used as business' liquidity.

[Hawker]

...snip...

Your second paragraph is very odd. There is no reason why bitcoins aren't good enough on their own to be used as business' liquidity.

A bank that does not use FRB for Bitcoin will have to charge higher interest rates than one that does if it is to pay depositors the same interest rate.  Over time this competitive disadvantage means it will be forced out of the market.  Bitcoin is good enough to be used on its own if its inveested directly by the Bitcoin owner.  Once you add a bank to the process, the natural working of the free market will lead to people using coupons instead of actual Bitcoin just as it led to people using banknotes instead of gold bars.

[dissident]

"Money as debt" is a great video to watch, and makes some good points such as the fact that the US will never pay off the national debt, because debt is money, no debt, no money.. pay off the debt, economy implodes. Also the money created into the system is only there to pay the principal, the money to pay the interest doesn't exist, so what you have a people paying principal and interest from a money pool which contains only principal. It's only the time delay between money's creation and it's repayment with interest that keeps the whole system from imploding. Clearly the greater and greater levels of debt in the system are unsustainable, so having a place to park federal reserve notes (like platinum, palladium, or shitcoin) is paramount.