Fractional Reserve Lending IS NOT bad - its unavoidable

[NotLambchop]

...I feel it's an important distinction as only federal government can conjure currency from thin air.

Dude!  Did you hear 'bout Federal Reserve, the sneaky non-gobmint bastards?

[r34tr783tr78]

And where does that 'growth' come from? And doesn't the compounding interest on ever growing debt require exponential growth, instead of just linear growth? Is that even sustainable in a finite world with finite resources? Could it be that all our financial and even climate change problems are related to this? I think the answer is yes, but I'm sure someone here will argue it's not and everything is fine...

Real grow comes from investment that usually depends on cheap credit, new technologies, comparative advantages, new primary ressources, etc..

Of course, there are limits to grow and, in end, economies have to pass under periods of recession or/and inflation to return to a sustainable level of debt.

[r34tr783tr78]

Fiat debt based currencies are designed to fail, and they always do as they're inherently flawed.

Fiat systems as systems based on authority/trust are not necessarily based on debt. I agree the debt system has its merits as a way to let the economy decide the expansion of the M3, but has also his risks and soon or later ends with a monetization of a public deficit with liquid (non based on debt) creation of money. Japan probably won't escape the need to create money to pay out its public debt (about 240% of GDP, even if its liquid debt is much lower). And Japan won't be the only one. So a mix system of debt and liquid creation seems to be necessary.

But I don't believe either on a system based on a golden standard or a finite currency like bitcoin, even if a mix system might be viable. A fiat system is necessary to allow for public economic policies and these policies are very important. Without the expansion of the monetary policy by Bernanke the USA would be as Europe is now, with about 11% of unemployment.

[r34tr783tr78]

Human population growth is exponential.  Economic growth needs to be exponential just to keep up

Actually, the serious problems certain States are having, like Japan and Europe, are derived from a slow decrease of their active populations and expected negative grow of their general populations. That is going to bankrupt social systems and to provoke liquid creation of money/inflation or sovereign defaults.

Even China and India have the grow of their populations under control. India is having about two babies per women, China is having much less than that. China is going to have serious problems because of a decrease of their active population and huge numbers of old people.

Population is going to keep growing because of increase of life expectancy and because of Africa, that is still growing fast, but the population is going to decrease in Europe and other developed countries. Projections are pointing for about 9 or 9.5 thousand millions around 2050 and then a decrease that might be fast.

[gts476]

Just reread the OP. OP is right. If reserve ratio is high. No problems here.

If I could rid UK of the Bank of England or Fractional Reserve Lending, I pick to burn the central bank every fucking time.

Fraction reserve banking with no central bank? If the lenders cock up, they die. This is OK by me

G.

[r34tr783tr78]

So, basically there are two ways new money is created: through bank lending and through deficit spending.

So the answer to this question:

So at which point is the "money" to repay the interest on a debt created?

is "when government runs fiscal deficit".

Besides having effects on the banking multiplier that can increase the M3 (these issues, as we all know, are controversial and divide schools of economic thought), running a public deficit only resolves the problem if the deficit is monetized (supported on the liquid creation of money by the central bank that is transferred without debt to the State) and that was one of the solutions that I quoted, as one solution that usually creates inflation. If the States goes to the financial market to borrow money to pay for the new deficit, the debt just keeps growing.

[solarion]

Fiat debt based currencies are designed to fail, and they always do as they're inherently flawed.

Fiat systems as systems based on authority/trust are not necessarily based on debt.

Sure the us has had lincoln greenbacks and kennedy treasury notes. I don't have a huge problem with these instruments. Either would be an improvement over the FRN IMO. Plainly they're not good for job security at the fed.

A fiat system is necessary to allow for public economic policies and these policies are very important. Without the expansion of the monetary policy by Bernanke the USA would be as Europe is now, with about 11% of unemployment.

Disagree. Our current monetary system encourages excesses in nearly every form and at nearly every level of government. Public economic policy should meet genuine(and dire) public needs only...not the desires of life long political creatures to bribe the masses into complacency if not outright laziness with their own wealth. Government lacks the means to produce wealth and is a parasitic drag on an economy. More government spending means more looting of working people to fund these misguided ventures, which are then naturally administered ineffectively as the administrators have no reason to be efficient with other people's "money".

The problem with saying "this would have happened if this didn't happen..." is you do not know what would have happened, you're merely speculating. Anyway, almost nobody believes the made up unemployment numbers coming from the .gov, just like few believe the hocus pocus inflation numbers calculated with ever changing components, but generally less food and energy(due to volatility). Ironically there are only a few things a human being absolutely cannot survive without.

Yes we certainly wouldn't want to see a national unemployment rate of 11%.

How about 13%?:

http://www.cnbc.com/id/101398855

Pick your poison here:

http://www.shadowstats.com/alternate_data/unemployment-charts

[RoadTrain]

So, basically there are two ways new money is created: through bank lending and through deficit spending.

So the answer to this question:

So at which point is the "money" to repay the interest on a debt created?

is "when government runs fiscal deficit".

Besides having effects on the banking multiplier that can increase the M3 (these issues, as we all know, are controversial and divide schools of economic thought), running a public deficit only resolves the problem if the deficit is monetized (supported on the liquid creation of money by the central bank that is transferred without debt to the State) and that was one of the solutions that I quoted, as one solution that usually creates inflation. If the States goes to the financial market to borrow money to pay for the new deficit, the debt just keeps growing.

What debt are you talking about? I thought we were talking about debt created by FRB, not government debt.
Government debt is de facto monetary instrument. It's a way to avoid 'monetization' which you mention (which is believed to be inflationary) and allow for monetary policy to control interest rates.
Deficit spending is one of the ways to add net monetary assets to the private sector. Bank lending, as a horizontal transaction, doesn't add net assets (as every loan is backed by a liability).

[NotLambchop]

Human population growth is exponential.  Economic growth needs to be exponential just to keep up

Actually, the serious problems certain States are having, like Japan and Europe, are derived from a slow decrease of their active populations and expected negative grow of their general populations. That is going to bankrupt social systems and to provoke liquid creation of money/inflation or sovereign defaults.

Even China and India have the grow of their populations under control. India is having about two babies per women, China is having much less than that. China is going to have serious problems because of a decrease of their active population and huge numbers of old people.

Population is going to keep growing because of increase of life expectancy and because of Africa, that is still growing fast, but the population is going to decrease in Europe and other developed countries. Projections are pointing for about 9 or 9.5 thousand millions around 2050 and then a decrease that might be fast.

You're right, the rate of increase of the rate of increase is easing off, but current birth rate is still more than double current death rate.

...The human population could follow an s-curve (reaching an equilibrium), be limited by some catastrophic event and resume exponential growth (major war, natural disaster -- stay in dynamic equilibrium), or be extinguished by a catastrophic event (okthxbi).  Examples of similar scenarios abound in nature and thus are (by definition) perfectly natural...

http://www.worldometers.info/world-population/

[twiifm]

One on One lending is not possible to meet the capital demands of the market.  You can still have FRB under BTC.  A bank makes loans and then finds the BTC reserves.  But the big difference is when they can't find reserves there is no Central Bank to act as lender of last resort and the system would collapse pretty fast.

That's just nonsense. One on one lending may be unable to meet the needs of warped and distorted capital markets. In a free market system, the cost of money(interest rates), would be set by the market...not a bunch of un-elected banksters in a privately owned cartel pretending to be government officials. It'd take capital formation to start and sustain business expansion. The masses would be appropriately compensated for producing more than they consume and the costs associated with poor investment decisions would be borne by the investor, not an ignorant public. IOW capitalism, which we most certainly do not have currently.

"lender of last resort" ROFL

Don't forget the rest of the fed's charter. Full employment of the sheep is necessary if you intend to continue sheering them indefinitely.

Just think logically about what you are saying.  If a bank has $1B in reserves and they can only lend out one to one.  What happens when that $1B runs out and there are about $10B of demand still unmet.  The only thing they could do is wait for some repayment.  If they knew the repayment is gonna take a while then the interest is gonna shoot thru the roof.  If interest shoots through the roof then who can buy a house or go to college or start a business?  You gotta stop only thinking about the supply side gotta consider the demand side as well

I have thought about it logically. Have you?

What you're suggesting is a system in which people only take on debt they can repay. People that choose to not take on debt and save are compensated as interest rates rise appropriately. As a result lenders are compensated appropriately for lending. How much of that theoretical $10b in loan demand disappears instantly when interest rates rise to appropriate levels? Buying a home is SUPPOSED to be difficult, not a simple matter of filling out a few HUD forms to pop "money" into existence so anyone with a minimum wage job can experience the satisfaction of home ownership...and later the crushing disappointment of home foreclosure because they lacked the means to buy the home in the first place. Naturally in between the signing for the home they could not afford and the day the bank takes the home back they're encouraged to borrow against their equity with a HELOC. This is "good" debt after all right? How much lower do you suppose home prices would be if not for government meddling in the housing and interest rate markets? Secondary education? Health care?

The moral hazard of endless mountains of debt and a government hell bent on sustaining an unsustainable system of debt greater than previous debt, simply does not have a positive end game scenario. You look at one tiny aspect of a thoroughly rigged system and say "look this needs to be thus", but ignore the broader implications.

I agree with your sentiments about credit worthiness.  Just don't see what that has to do w fractional vs full reserve lending.  I'm arguing that FRB is necessary when demand exceeds supply.

[NotLambchop]

...Anyway, almost nobody believes the made up unemployment numbers coming from the .gov, just like few believe the hocus pocus inflation numbers calculated with ever changing components, but generally less food and energy(due to volatility). ...

When I need irrefutable facts, I rely on the guy wearing that hallmark of credibility -- teh tinfoil hat.

[r34tr783tr78]

I admit that a system where the Banks would live with a non-FR system would be viable. The banks wouldn't be allowed to lend more than what they have and if demand for money was higher than savings on their accounts, they would have to borrow from the central bank giving as collateral the money on their accounts. So the creation of money would rest on a public entity as well as the profits of that creation (so, we would pay less taxes). If the interest rates of the Central Bank were low, the banks rates could be acceptable.

But this system seems to be too tight, therefore a system of a high Fractional Reserve might be better, since still limits the ability of the banks to create money and limits the risks of a low FR.

[NotLambchop]

...
I agree with your sentiments about credit worthiness.  Just don't see what that has to do w fractional vs full reserve lending.  I'm arguing that FRB is necessary when demand exceeds supply.

I think his point is FRB does not solve every problem of finance, and I agree.  Lending money indiscriminately, to everyone who asks, is a bad thing.  Just look at bitcoin securities and this forum's lending section

[solarion]

I agree with your sentiments about credit worthiness.  Just don't see what that has to do w fractional vs full reserve lending.  I'm arguing that FRB is necessary when demand exceeds supply.

Plainly if banks actually had to have the assets to loan them then they'd be a whole lot less prone to gambling. I'm not comfortable with loan officers at banks having the authority to add to the nation's currency supply with a signature. These are just private citizens with no public accountability or transparency. If I did the same I'd be tossed in the can for counterfeiting and fraud.

We've also seen on numerous occasions that when banksters do go too far and gamble themselves into the poor house, their mistakes are forgiven and their losses are socialized by .gov authority. I'd have less of a problem with this if their nominal gains weren't privatized, but it cannot be both.

[r34tr783tr78]

So, basically there are two ways new money is created: through bank lending and through deficit spending.

So the answer to this question:

So at which point is the "money" to repay the interest on a debt created?

is "when government runs fiscal deficit".

What debt are you talking about? I thought we were talking about debt created by FRB, not government debt.

We were talking about the creation of money, including "through deficit spending". I just pointed that deficit only determines creation of money if there is monetization.

[r34tr783tr78]

Disagree. Our current monetary system encourages excesses in nearly every form and at nearly every level of government.

No doubt, even democratic systems allow for abuses. The so-called political economic cycles, where in years of election there are expansions of the economy to grab votes, are proof of that. But in other systems things are worst.

And I think macro-economic policies are essential. If you think we should just wait for hard times to pass, with no intervention from Government, well we disagree on that. I'm not american, but I would gladly had exchanged the Trichet guy, that almost killed the euro, for Barnanke.

Numbers are abstractions. It's not important the exact number for my point, we know things were harder on the USA than they are now.

If you had Trichet, you would be worst. The capacity to make predictions about what would happen if some policy wasn't adopted or what will happen if it's adopted is a precondition of every science. Economics is a weak science, with lots of incertitude, but if we reject completely that capacity, we would be recognizing that it isn't a science at all, but a collection of cook receipts.

[solarion]

No doubt, even democratic systems allow for abuses. The so-called political economic cycles, where in years of election there are expansions of the economy to grab votes, are proof of that. But in other systems things are worst.

And I think macro-economic policies are essential. If you think we should just wait for hard times to pass, with no intervention from Government, well we disagree on that. I'm not american, but I would gladly had exchanged the Trichet guy, that almost killed the euro, for Barnanke.

Numbers are abstractions. It's not important the exact number for my point, we know things were harder on the USA than they are now.

If you had Trichet, you would be worst. The capacity to make predictions about what would happen if some policy wasn't adopted or what will happen if it's adopted is a precondition of every science. Economics is a weak science, with lots of incertitude, but if we reject completely that capacity, we would be recognizing that it isn't a science at all, but a collection of cook receipts.

I favor free market solutions which is the opposite of government interventionism. Keynesian economic theory is a serial proven failure at this point. The fact that governments continue to doggedly follow these failed principles indicates that there's no scientific methodology being employed. The bernanke is the jackhole that admitted that the fed caused the great depression. That's his excuse for massive monetary expansionism...because he seems to be convinced that monetary inflation and monetary deflation will cancel...again with no scientific methodology to support such a conclusion. Surely the man has heard of monetary velocity measurements by now? You cannot just fix decades of ridiculously stupidly easy credit policy with more stupidly loose monetary policy.

Governments do not create wealth, they only re-distribute wealth. The notion that racking up massive piles of debt to "prime the pumps" during economic downturns is remarkably irresponsible, but that's the behavior you get when you're throwing around other people's "money".

[RoadTrain]

So, basically there are two ways new money is created: through bank lending and through deficit spending.

So the answer to this question:

So at which point is the "money" to repay the interest on a debt created?

is "when government runs fiscal deficit".

What debt are you talking about? I thought we were talking about debt created by FRB, not government debt.

We were talking about the creation of money, including "through deficit spending". I just pointed that deficit only determines creation of money if there is monetization.

Deficit always creates money (more precisely net financial assets). Because government debt is quasi-money and can be turned into base money. Moreover, for private sector it's not debt, it's an asset.
That's what my post content (that you removed from quote) was about.

[Ozziecoin]

...
I rebut you with David Suzuki

http://mmoffatt1.typepad.com/blog/2012/10/david-suzuki-how-economics-became-a-science-of-destruction.html
...

WTF am I reading?

Weirdass extrapolation from statements made by the guy who wrote The Population Bomb in the '60s (mostly shown wrong since), and an ex-chairwoman of some Canadian agency disbanded in the early '90s (had to look both of them up).

What are you trying to say?  Say it in your own words.

Here you go:

Economists live in a land of make-believe. They aim at steady growth in consumption, material goods, wealth and profit as if it can be sustained indefinitely. And they have faith that human ingenuity will open up new frontiers for steady expansion while providing endless solutions to problems we create.

[Ozziecoin]

...
I rebut you with David Suzuki

http://mmoffatt1.typepad.com/blog/2012/10/david-suzuki-how-economics-became-a-science-of-destruction.html
...

WTF am I reading?

Weirdass extrapolation from statements made by the guy who wrote The Population Bomb in the '60s (mostly shown wrong since), and an ex-chairwoman of some Canadian agency disbanded in the early '90s (had to look both of them up).

What are you trying to say?  Say it in your own words.

LOL this ozziecoin guy has been constantly dropping names of economists and famous traders who don't support his position about FRB.  I don't know WTF he is saying either.  I think he's just trolling but I have some sick compulsion to keep replying him

Of course you don't know what I'm saying. Otherwise you'd be smart.