One of the more pleasant aspects of all the changes I've made here at FTA is to have added the Money & Finance category. I'm a bit excited about getting into it. Of everything I've changed, this seems to be the most welcome addition in terms of feedback I'm getting.
I'm no economist, financial analyst, trading guru or theoretician. I have never read Hayek's The Road to Serfdom
So my knowledge is more practical experience than armchair theorizing. But ironically, this post is all going to be about the theory; that is, my ideas about what money is, how it works, how it's created and in later posts, how it's best managed at the scale of a common medium of exchange for everyone. Whether any of what I have to say conflicts with Nobel Prize winning economists or anyone else, I don't give a hoot. I'm talking total fundamentals and the reason I'm doing this is to establish a good foundation for reference, such that I can more effectively speak to the practicalities in terms of debt, financial risk, and so on, in the course of time.
I went back and searched for some posts I did back in 2007 that really gives the background of what I'm talking about here. For those really interested in understanding money, you probably want to read each one entirely. For the TL;DR crowd, I'll excerpt some things from each of the posts.
moneymoneymoney…MONEY! (8/23/07)
I've always thought (well, since I started thinking) the idea of a "gold standard" -- or any commodity-based backing for currency -- is wrongheaded; not primitive, per se, but certainly not advanced beyond the industrialization of the 19th century. It's for concrete-bound, barely conceptual (in a financial sense) people who lack imagination, and, really, a fundamental notion of human potential and that most human of attributes: risk taking.
Gold-backed money is for people who want essentially no risk tied to their currency. OK, and if the State didn't force a monopoly on it, they could invent a currency backed by whatever, and see if it takes off. But given the reality of the matter, the problem is the State's monopoly, not the structure or fundamental methodology of the currency itself. And, you have options. You can go buy gold (or whatever). You can do it in the form of stocks, funds, ETFs, or just call up a dealer and buy physical precious metals (the safest way). [...]
[Having tangible assets is] not a bad idea. Calculate your net worth, and then purchase 10-15% of that amount in physical gold, secure it, and don't tell anybody except a sound estate-planning law firm with a reputation going back to the American Revolution (in the event of your death, it can be distributed to heirs). In a financial collapse (accompanied by hyper-inflation), you might expect an 80-90% or more devaluation of the currency, in which case you'd pretty much be 100% hedged. If you have no real net worth, then $5,000 of gold would set you up to profit from such a collapse. You'd eventually convert your gold to [tons of] currency and buy foreclosed properties or other assets selling for pennies on the dollar and the eventual recovery would make you rich. To hedge against a tightening of the money supply (a-la the Great Depression), less dollars chasing more goods and services, the proper hedge is cash itself. Your cash actually becomes more valuable. But debt kills you, as more and more production is required to repay the same debt, so a proper deflationary hedge is some amount of cash and low debt.
Money (9/24/07)
This was Real Money in the 1800s—printed by a bank, but was "legal tender." There were hundreds of such quasi-private currencies in circulation.
I quote from my post, quoting Gordon Haave on Victor Niederhoffer's blog.
Prior to the Federal Reserve, there were private bank notes. They traded freely, such that if a bank was deemed to have too few reserves, the notes traded at a discount. In the late 1800s there was a big information problem, not only on the quality of the banks, but also authenticity of notes, because of distance. Does someone in St. Louis recognize a bank in New York?
All those problems would be gone today. Citibank and B of A would issue currencies. They would be backed with real assets (like a money market fund, sort of). Everyone would have a real interest in bank solvency, and if banks did silly things, their notes would trade at discounts and their customers would be miffed.
Now me.
To recap, I'm not a "gold bug," and never have been. It's the state monopoly, stupid. Whether the federal government backs its currency with "full faith and credit," dynamically intervening in the markets with interest rate adjustments, or with gold, seems hardly relevant to me. It's a monopoly currency, and that's the problem, assuming there is one. And given what I think I know, credit/debt offers a lot more flexibility than some commodity backing. I recently blogged about all this. Promises to repay, issued by responsible people and institutions, have value to anyone with any sense. In short, I think that a gold standard would be economically stifling. And besides all that, much of the "printing press" money libertarians lament is actually secured by real property and other assets (cars, boats, airplanes, machinery and equipment).
On the other hand, if money were created by separate banks, worldwide, at will with no external restrictions, then they themselves could determine their own proper balance of securitization with warehoused commodities, financial securities, real property, consumer goods, capital equipment, and unsecured promissory notes. Then these currencies all trade on the world market.
Debt, Finance & Money (9/26/07)
Yesterday, the dollar traded at an "all time low." Everyone drops context when they claim, as you can find in all sorts of places, that since the creation of the Fed in 1913, the dollar has "lost 90% of its purchasing power."
Oh really?
Now, the only thing that can possibly mean in practical relevant terms is that average people in 1913 had the power to purchase goods and services to sustain and improve their lives in magnitudes 10 times greater than we do today. Is that the case? Or is it rather the case, perhaps, that the dollar was inflated 1000% since 1913 and the credit from that inflation has purchased industrialization, technology, and economies of scale that give you 10,000% the purchasing power of a 1913 individual? My percentages are for illustration. Hopefully you get the point. Think about it. When you secure credit, such as to buy a house, you're inflating your own net worth. But you're also leveraging it, and when you do it with some thought and cleverness, the bounty from the leverage far outweighs the inflation. It works the same way on a macro scale.
I'm no particular fan of the Fed, for reasons I've explained. But let's keep a bit of perspective, shall we? The simple fact of the matter is that you can participate in the financial economy, such as it is, and you can become very wealthy. Having tokens (a gold standard) in place of "money out of thin air" credit is not going to help you to become wealthy, if such is in any way one of your objectives. It will help you to retain the relative value of your money if you choose to stuff it in a mattress for a rainy day and sit on your ass for the rest of your life. That's about it.
The "gold standard" is for chipmunks.
Alright, just a final thing I don't think I've blogged about: Fractional Reserve Banking—virtually what all modern banks operate with worldwide, the currency being backed by tangibles (like gold) or intangibles (like debt) is largely irrelevant. Well, if I had a nickel for every time I've seen a libertarian bemoan fractional reserve going back 20 years I'd be plenty rich. I don't think I was ever mistaken into believing that any of them truly understood what FRB was, most fundamentally.
First ask, how do you create new money, new currency? Let's think out loud in a few different scenarios.
- You live in a trinket economy, like gold (but could be anything relatively scarce). Whatever the trinket, it has to either be mined or produced in some way to create new money. Not enough trinkets because nobody can find anymore or nobody wants to produce them or can't for some reason? Deflation: fewer trinkets chasing more goods & services. Someone hits the mother load to outside proportions? Inflation: more trinkets chasing less goods & services. Same sorts of problems we face today.
- You live in a totalitarian regime where the government is the central bank and all banks. All banking is a function of government. Private lending and interest collection is outlawed. The government doesn't loan money either. New money is simply printed up and injected into the economy via the various social programs as needed for the sake of equality of results. There's not really any inflation or deflation unless by explicit government policy to change the prices of something. All production and value is labor based (see Marx's Labor Theory of Value). So, there's no interest, no investments, no capital gains, no development of land or resources for individual gain. It's labor & wages and handouts, the only way to get money.
- You live in a mixed economy like all the world's socialist democracies (including the US). You have a monopoly fiat currency, a central bank, and a network of federal and state chartered banks all tied to the central bank. The money supply (new money creation) can be done in a number of ways but let's keep it simple. First and foremost, via Fractional Reserve Banking. When a bank lends you money, they're not lending you someone else's money (entirely) from the vault or balance sheet, they are creating new money (partially) to loan to you (The horror, right? We'll see.). Secondly, the state can simply print it without any reason to, except perhaps to make interest payments on its own debts (Treasury Bonds). Both could potentially be inflationary (creating too much money chasing fewer goods and services), but in the first case of FRB, this is more self regulating if...IF...interest rates were always determined by market dynamics and not Fed edict to lower interest rates (the rates at which banks borrow) to "stimulate the economy," or whatever other manipulation they have in mind.
Of all of the above, it's fractional reserve banking that's the bee's knees and cat's meow all in one. It's ingenious from a "lifting society up" standpoint—when done conservatively...in the blue-pin-striped, traditional, humorless, hard-nosed way of a banker whose reputation and trustworthiness are his prime business assets. Pure financial genius. And why? It's because of the multiplier effect, the societal leverage. Guess what else? It's been around for centuries and was not invented by government, but by banking and lending entrepreneurs.
Here's where society in general is ignorant, but libertarians being not ignorant, go off the rails. Suppose you ask Joe Average how much a bank can lend out if it gets a $100 deposit and is subject to a 10% reserve requirement. Simple math, right? They'll tell you the bank can lend $90, assuming they understand the question which is a leap, I admit. ...The bank pays the depositor some amount of interest on $100 and/or provides services like checking, ATM, etc., and it charges the borrower of the $90 far more interest and the spread is the bank's gross margin.
Now ask Joe Libertarian the same question and he won't get it wrong...while he spins in circles of outrage. Theoretically, if every bank is subject to the same 10% reserve requirement, that $100 deposit can multiply to $1,000, $900 of it being "money created out of thin air." Of course, that theory leaves supply and demand out of the equation. I'd guess very rarely do deposits reach theoretical multiplier levels.
And now I shall leave you in suspense until the next post in this category, within a few days to a week. I'll explain to you how that $900, when created properly, is the most powerful, abundant money humans ever created and is backed by the very basis of our survival as a species.
If you'd like to subscribe to RSS or email delivery of this Money & Finance category, or any other of the menu categories, see here for all the many options. And how about some FB Likes, Tweets, etc. from some of you? Help build the audience of people helping themselves.
Now ask Joe Libertarian the same question and he won’t get it wrong…while he spins in circles of outrage. Theoretically, if every bank is subject to the same 10% reserve requirement, that $100 deposit can multiply to $1,000, $900 of it being “money created out of thin air.” Of course, that theory leaves supply and demand out of the equation. I’d guess very rarely do deposits reach theoretical multiplier levels.
You’re missing the most important part of this entire subject. The outrage is justified. It is not a theory, it is fact.
Any and every Bank that is a member of the FDIC is a Federal Reserve Member Bank. From large National Banks to your local, small time bank…if it’s got the FDIC guarantee displayed on the premises, it is a Federal Reserve System member bank.
And just what exactly does that mean in plain terms?
All members are members of an exclusive cartel. They have the power to “create money out of thin air.” This is what happens when you combine fractional reserve banking and fiat currency.
But the banks don’t actually “create” money.
They create an accounting entry in their bank computing system. This is a number the banker types under the account holders name and “voila” that person now has the amount of money “loaned” to him, that he or she now owes to the bank at usurious interest rates. THAT is how money gets “multiplied,” with a $100 cash deposit being turned into $900 DEBT that a borrower now owes interest on. This is $900 that never existed in a physical sense.
But it’s even worse than that. That $1000 account in the borrowers name, is also considered a “promissary note asset” on the banks ledger, which then allows the bank to treat that $1000 account as another deposit….so, they now have a $1,000 account for which they can then lend out another $10,000 loan to some other account, with the original promissary note for the $1000 plus interest as the reserve, we now have $9,900 “created out of thin air.” Sound crazy? It’s on the Dallas Federal Reserve Branch’s own website as a PDF file download. And I quote:
“Banks actually create money when they lend it. Here’s how it works: Most of a bank’s loans are made to its own customers and are deposited in their checking accounts. Because the loan becomes a new deposit, just like a paycheck does, the bank once again holds a small percentage of that new amount in reserve and again lends the remainder to someone else, repeating the money-creation process many times.”
This is part of the primary drivers of inflation.
It is a complete scam and a racket.
It essentially creates a new class – a Federal Reserve Fiat Usury Cartel membership. They are our 21st century debt-serf overlords.
Given the power to “create” debt like that, they now get paid usury for doing nothing more than typing numbers into a computer system to create this debt we the sheeple must all pay usury fees for.
THIS is why the establishment banking system hates the gold standard. Gold standard means anytime a currency note can be traded in for a hard asset upon demand, it severely limits the amount of Fractional Reserve lending (and usury interest charged for that lending), as the bank must always be ready to redeem at least a significant portion of outstanding notes in exchange for actual gold. When you had a real gold standard, fractional reserve lending was severely limited.
Now that we have no gold standard and all Fed Reserve Cartel members are allowed to “Create” usurious debt aka “fiat money,” the only thing keeping it all in “relative” check is the so-called 10% reserve requirement.
If you don’t see the problem with that, you are one of the human animals who only thinks he’s free because he stopped eating the sheeple feed and eschewed most conventional wisdom.
Problem is, the Federal Reserve banking system is the ROOT of all the corruption. ALL OF IT. Every last stinking facet of the corporatist, fascist State that seeks to enslave us all.
BTW Richard, you start this piece off by saying you’ve never read the works of Mises…I get it. There is a literal library’s worth of articles, books and such at the Mises website.
But if you want a good primer on this topic, let’s call this link the Austrian School of Economics History of The Federal Reserve and Fractional Reserve/Fiat Currency Banking for Dummies:
link to mises.org
See what I’ve been putting up with for 20 years? I could copy/paste. It is always the same “Bible” quotes or paraphrases.
And I still think its based in ignorance based in “principles” divorced from a true understanding, lacking a full measure of experience in actually working with debt and how human beings manage it and relate to it in social contexts. I have about 20,000 clients under my belt.
I reiterate. Governments did not invent fractional reserve. Lending entrepreneurs did and the fact that governments co-opted it has been forever ignored by libertarians as to why. They just see it as a scheme, nothing like an entrepreneur who knows his risks and opportunities and manages inventory and purchase orders accordingly.
…and I don’t need to adress any of the ledger entry technicalities all libertarians invoke to look smart.
I’ll deal with realities in the next post.
Not interested in armchair, Keoni, and glad to see we have an actual dispute, finally.
I’m happy just working with real money in the real world and seeing for myself the problems with credit/debt as a double edged sword.
But thanks. I’m about helping real people with real world problems. Millions in fees & counting (but in diet, not so much).
So Keoni, if you take away the government monopoly, what do you have? No Fed, no nothing. If a bank wants to do fractional reserve banking, they’re on their own. What’s your problem with that?
Exactly Joshua. How many times did I say in my quotes that the problem is monopoly fiat?
Lending entrepreneurs did and the fact that governments co-opted it has been forever ignored by libertarians as to why.
No, the “Entrepreneurial Bankers” co-opted the Government. This is the very essence of our “national debt.”
Fiat currency creation is the key mechanism that allows the government to spend money we don’t have on shit we don’t need…year after year after year, forever escalating the national debt. We the people are permanently in debt with no hope of ever paying it off. This is slavery of the tax paying people, hidden in plain sight.
They just see it as a scheme, nothing like an entrepreneur who knows his risks and opportunities and manages inventory and purchase orders accordingly.
Richard, if I earn $1000, and I loan it to you for your business venture, and we agree you’ll pay me back $1200 in a determined amount of time….no problem. You’re paying me an agreed upon $200 interest to use my money. In either case, that was actual money I earned and you pay me back with money + interest that you earned by “knowing your risks and opportunities and managing your inventory and purchase orders accordingly.”
That is much different than if I were to simply write on a piece of paper “$1000″ and hand it over to you and you now owe me $1200 for that service. In what way did I “earn” that $1000?
I didn’t. But you still owe me for “Creating” something that didn’t exist til I put my pen to paper.
That is the “power” of fiat currency and fractional reserve lending the Banking Class has given themselves. They co-opted our Government and entire economy through this scheme.
That is the problem with the Banking cartel as it stands.
Given your trite dismissal of the argument I present here, I’m going to guess someone has already previously referred you to the seminal work, The Creature From Jekyll Island, which I’m 100% certain you haven’t read.
You really should. It can be found for free on teh interwebz as a pdf download.
That book is the history of the Federal Reserve Act and the Bankers who lobbied and bought influence of the politicians to get it passed.
…and I don’t need to adress any of the ledger entry technicalities all libertarians invoke to look smart.
I ‘aint mentioning it to look smart. It’s pointing out the plain truth that most people — like Average Joe — don’t understand.
But thanks. I’m about helping real people with real world problems.
Inflation and dramatic business cycle fluctuations caused by inflationary credit bubbles are very real world problems for real people.
But never mind. I’m not looking for drama here…just a bit puzzled by your stance.
I’ll wait til the next article and see if I can grok your position better before commenting further.
Hey Richard
I’m siding with Keoni on this one, although I do agree with you that the primary, real, underlying problem is the violent enforcement of legal tender laws (which is to say, the violent enforcement of unenforceable, illegal laws).
I will add to the discussion that while unalienable rights are the answer (the right to use whatever money you want, create whatever money you want, and accept whatever money you want as a merchant of any kind), a precious metal standard is a superior option in the mean time.
This is meant specifically in that gold/silver keep a currency *connected to reality*. The inverse is what we have today : *money as a floating abstraction*, with no actual connection to reality.
This is expressed very clearly in daily life : in the form of over $200 trillion dollars in real debt, for the federal government alone.
This is the definition of “funny money” if there ever was one. This is a sum of money that is so far outside the realm of possibility, it teeters on incomprehensible.
My point is, this stuff is only possible when one deals in abstractions, from abstractions, from abstractions …
And it’s not a good thing, because human beings exist in physical reality, in physical space, in specific geographical areas. We do not live in a video game of unlimited zeroes.
Actually the problem is not even the monopoly fiat. The problem is govt control of it.
Look at the Euro. They have a monopoly fiat, but the govt can’t do a thing about them. Note the crisis in the periphery. People see it as a failure of the Euro, when in fact it is the strength of the Euro. The country’s debts will be defaulted, if the country does not get its act together. When substantial debts are defaulted, banks will be wary of lending to the European govts.
They have just one directive, to keep the inflation rate at 2%. They will print to achieve that if the economy slows, and they will absorb to achieve that if the economy grows too fast. They even have Gold as their primary reserve.
This is the future of currency systems.
We have to get country blocks getting together to create currencies. Maybe in the future we will have an Asian block. You could have an American block.
So instead of letting banks create their own currencies and having multiples of currencies, you would have even fewer currencies because several countries will use a single currency.
And it will be good
.
Actually having multiple legal tenders in a region creates problems in a pure fiat world.
When you join a company which currency do you get paid in?
This was not a problem when we had gold backed currencies. So you are ultimately getting your salary in gold. Which currency it is paid in is immaterial.
Not so in the future. We will never ever have gold or anything backed currencies ever again.
So how do you work with multiple currencies in a single region. Without somebody being an arbiter. There needs to be a standard against which you measure the currencies. If you have a Central Bank fiat as well along with the other banks fiat. The other banks fiat will go up in flames.
This is not a workable solution in the non-gold backed world.
Keoni,
They do not write 1000$ on a piece of paper.
They have to have somebody deposit that 1000$ before they can write it on the piece of paper.
You forgot that somebody deposited 100$ to the bank. The bank is paying some interest to the person. The bank could only lend 90$ of that, for some interest. Ofcourse that 90$ again comes back to the bank, because whoever received it puts it back in the bank. Now the bank must pay interest to whoever deposited 90$ in the bank.
So if they are getting 5% interest, they are also paying 3% interest. The margin is actually less than 2%. Let me explain the less than part below. Remember that is their operating margin. Where they pay fees and all.
So if from the initial 100$ they finally lend 900$. They receive interest on 900$ but they pay interest on 1000$, which they received in totality. So assuming they are receiving 5% on 900$, which is 45$, they are paying 3% on 1000$, which is 30$. So the profit they make is 15$. Which is less than 2%.
Do the calculations before you jump to conclusions. There is no free money for the banks.
The bigger problem was the repeal of the Glass Steagall Act, but it was already dead long back
. Look at the wikipedia. This allowed the banks to gamble with people’s money. But ultimately it was linked to the huge deficits of the country.
Actually precious metal standard is worse than an unbacked fiat. Because it infringes on my right to save in that precious metal. It makes the precious metal a controlled commodity.
“And I still think its based in ignorance based in “principles” divorced from a true understanding, lacking a full measure of experience in actually working with debt and how human beings manage it and relate to it in social contexts. I have about 20,000 clients under my belt.”
I’m not competent to discuss the money aspects; however I’m not sure this is a good basis. You are (it seems) basing your theory/understanding (at least in large part) on “I’ve worked with 20,000 clients.” How does this differ from: “we know what ‘healthy’ bp or cholesterol or thyroid readings are, because we have experience measuring (and averaging across the readings of) 20,000 *patients*”? That’s normalizing *sick* people as a basis for what’s healthy. You work with people with *money problems* and thus decide you know what health around money is? I’m not sure your epistemology is sound.
“you would have even fewer currencies because several countries will use a single currency.
And it will be good”
I don’t think the Germans, being asked to bail out Greece and Italy and and and…, would agree. A single currency means the flaming idiocy of outsiders can destroy the sound practices of your own group. And there is NO control on that!
My late husband would say (as he did many times) go watch “Money as Debt” on Youtube. (But I never did…)
What would Germans prefer bailing out Greeks or Americans. They were bailing out Americans before Euro.
The problem is with USD as a reserve currency. Once we move away from that, things will get better.
The real problem was that German banks gave loans to Greek banks. But the deeper problem is that German people saved in German Banks.
Why do you give your money to banks to misuse? Why not buy something tangible with it, that cannot be stolen by the govt.
“No, the “Entrepreneurial Bankers” co-opted the Government. This is the very essence of our “national debt.””
A distinction without a real difference. If an entrepreneur becomes government, then that’s what it is, now.
My problem with all of this, always, is the conflation of FRB with government, force backed currency systems. FRB does not require governments. FRB should be seen principally and fundamentally in the light of a financial mechanism—like mortgages, securities, derivatives, etc.
And as any business mechanism or procedure or invention or anything, it needs to stand on its own. We already had private banks issuing their own currencies, and in an FRB way (pretty necessary for a bank, otherwise it’s just a vault or warehouse that issues receipts that can be traded).
Separate FRB from the state. There’s nothing wrong with FRB so long as any bank that employs it can fail if they become less than conservative in their lending practices, putting deposits at undue risk.
“I’m siding with Keoni on this one”
I don’t know what that means. Keoni seems to think I’m defending FRB under a government force-backed control of currency. I’m not. I’m defending FRB as a valid business/banking mechanism. Let the customers decide, let banks fail when they do it wrong.
Moreover, national debt is a completely separate problem. This is government spending more than it takes in in tax revenue and it borrows money from citizens and foreign governments to make up the difference. Has nothing to do with FRB.
I’ll take a look at that. My guess is, it’s hand wringing by ignorant people without a lot of practical business, money, lending, debt management experience, overcome by an excess of armchairedness.
They do not write 1000$ on a piece of paper.
They have to have somebody deposit that 1000$ before they can write it on the piece of paper.
In which you completely missed the point. YES THEY DO. This is where the whole “create money out of thin air” meme comes from! Even Richard acknowledges it here.
Suppose you ask Joe Average how much a bank can lend out if it gets a $100 deposit and is subject to a 10% reserve requirement. Simple math, right? They’ll tell you the bank can lend $90, assuming they understand the question which is a leap, I admit. …The bank pays the depositor some amount of interest on $100 and/or provides services like checking, ATM, etc., and it charges the borrower of the $90 far more interest and the spread is the bank’s gross margin.
Now ask Joe Libertarian the same question and he won’t get it wrong…while he spins in circles of outrage. Theoretically, if every bank is subject to the same 10% reserve requirement, that $100 deposit can multiply to $1,000, $900 of it being “money created out of thin air.”
The only disagreement we got here is whether or not FRB is a good or bad thing.
> There’s nothing wrong with FRB so long as any bank that employs it can fail if they become less than conservative in their lending practices, putting deposits at undue risk.
And that’s only in the extreme case. If there are multiple free-market banks of issue, each can have its own ideas about reserves, just as each bank will have its own ideas about everything else. A bank that invests badly, with or without a fractional reserve system, will see its notes discounted in trade, relative to other bank’s notes. This is a bellweather to casual investors to mind that bank’s future performance. The risk-averse will bank elsewhere, financial thrill-seekers will bank with riskier banks, perchance to win a lot or lose it all, and everyone will have gotten what he sought.
Importantly, any prohibition of free-market fractional reserve currencies would require the tyrannical imposition of force against parties innocent of all wrong-doing — state-sanctioned crime, that is to say.
Hey Richard
I wrote that comment very late last night and I think I may have misunderstood part of your argument.
Like you said in the above comment, you’re simply defending FRB as a free market mechanism. I agree with this in that every individual has the right to open a bank, and then do this.
I suppose my only beef then is that FRB would only be appropriate in an absolutely free market. Any degree of government involvement beyond the enforcement of contracts would be a recipe for disaster.
Something like that anyway. I’m curious to see what else Keoni has to say.
I gernally can’t stand your non-paleo/health screeds, but this is outstanding. I even went back to finish it when I had to leave it for a day. Very nice explanation and a pretty objective, even handed presentation of the various “parties” in the arguments.
I look forward to the next installment.
pzo
Keoni
If the email you use to register your comments is a real one, check it now. Email out to you on an unrelated matter.
If they can write any number on the check then why is it delimited by 1000 on the 100 deposited?
It could be any number no?
People who think that banks are stealing from them because they can write any number on the check don’t understand it. And they want the bankers to provide them a free service.
FRB is required for a functional banking system. Without it you would have to pay the bank to hold your money.
Anand:
Yes, this is pet peeve for me. The conflation of banking with state. People only need Google. Banking was invented by entrepreneurs. FRB, by entrepreneurs. There is untold things the state has co-opted because such was so good for societal uplifting that they had to be the prime mover, otherwise plain folks would find it obvious that they were the pip-squeaks and clowns they are.
Libertarians in terms of banking are doing far, far, far more harm than good. I don’t tolerate moron, no matter where it comes from, and far less when it comes to libertarians who ought to be making proper distinctions but who don’t.
In banking, typical libertarians are my enemy.
And Anand:
I am going to save your previous comment for my next post.
Something else. Something along these lines will be in it: libertarians who criticize FRB because the state does it are like Paleo’s who insist we ought to eat our meat raw.
Friday’s are my hectic days, and I’m about to head out the door. I’ll check it probably tomorrow.
Sorry I’m late to the game on this one. I was travelling this week.
This topic is a HUGE interest of mine!
I used to be a dyed in the wool Austrian, gold standard supporter and all that. But I changed my way of thinking a few years ago.
Now, I understand that private banks create the vast majority of “money” in the US.
And the government mostly just redistributes this money. However, it can create money- like stuff on its own accord. And it’s not always a bad thing when it does.
And because we’re totally fiat based, the US can’t go broke like people or states or most European nations. And that’s a very good thing, when managed properly.
This is my favorite place for learning and discussing this topic. link to pragcap.com
Oops, I meant to link to the “education” section of that site, as that’s where I’d recommend a curious reader to start.
Jay Jay
Thanks for that. Poked through a few articles on both sites and was pleased to see that some of the questions and observations I’ve come up with just by thinking about things—and in particular how private banks create money—over the years appear to ring true.
that doesn’t mean I support a state anything, but I’ve never bought into this silly notion of old banking families pulling the puppet strings of the world from dark smoky rooms.