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[mjkst27]

Fractional reserve banking is what it's name implies.

 

A bank takes in deposits and can loan out part of those deposits with the goal of making a profit.

The remaining part is held in reserve.

8% in reserve for banks that operate internationally as set out by the BIS.

 

Problems arise when collateral such as stocks and land are treated as deposits.

Or other assets which are "securitized" and counted as bank reserves.

Especially when they are pyramided. If this type of leverage is allowed to grow unchecked, then historically such periods of speculation have ended badly.

 

However, it's hard to imagine another system, wherein the banks were obligated to hold 100% of their deposits. I'd be interested in hearing how such a system would work. I do recall reading such a proposal along these lines by Friedberg at www.friedberg.com (a group of traders with an Austrian view of the world) but I can't remember the details.

 

Central banking is another issue. One of the few truisms of economics is that one can't in an efficient market simultaneously set the price and amount of something. Yet the Fed attempts to do both. Set the price of money (interest rate) and the quantity (liquidity injection and drains). Why should the FOMC be able to do a better job of controlling the money than the Central Planning Comittee of the former "Supreme" Soviet. The fact is that they can't. In my view, central banks should be abolished, and the price of money should be decided by the market by open auction.

 

Then there's the  new factors in the creation of liquidity:  the GSE's.  

But my post is in danger of becoming Hyper-long.

"A bank takes in deposits"

 

right, but where did those deposits come from...answer: they are someone elses debt to the banking system, and you justhappen to be in possession of some or all of the offsetting demand deposit.

 

"However, it's hard to imagine another system, wherein the banks were obligated to hold 100% of their deposits. I'd be interested in hearing how such a system would work."

 

easy. you pay the bank a small fee to hold your demand deposit (money you wish to access at any time on demand. If you wish to invest the money at interest, you agree to forfeit your right to access your money on demand in exchange for the interest, for some period of time. If you must have your money before the term of the deposit expires, you pay a fee. The bank is then in the business of prudently matching investor capital with borrower's creditworthiness in a non-fractional manner.

[mjkst27]

My understanding is that the money supply should grow at about the same rate as the real economy.

not true. It makes no difference the relation between the two. Values placed on goods and services by people will adjust to the variable quantity of money over a period of time. If you happen to strike a few tons of gold in your backyard, good for you, you're now rich (assuming you didn't forfeit mineral rights or something )This is a reality of this thing called life - sometimes things happen that aren't fair. What is criminal, however, is when certain groups obtain an unfair privilege by having (or being close to) the ability to counterfeit, such as our government/banking complex. Again I suggest Rothbard's Mystery of Banking.

[mjkst27]

Let me also say this: to opine that a rejection of the hypertyper doom scenario is equivalent to a bullish stance is as ludicrous as saying the fractional reserve system poses the greatest threat to sound money when the $140 trillion odd derivatives market in no way impacts any measures of money supply.

The $140T pile of derivatives is nothing but the financial world's defense mechanism against unbacked (by anything of value) fractional reserve banking.

[mjkst27]

It's been done before. Who knows how it would turn out? I'm just suggesting one way to push things past the HT time window.

fair enough. I agree it would take the masses a bit of time to figure out what had been done, but soon enough the currency would be valued in use at its true value of paper+printing costs.

[Guest]

The $140T pile of derivatives is nothing but the financial world's defense mechanism against unbacked (by anything of value) fractional reserve banking.

You are full of stool.

 

Can I say that?

[mjkst27]

 

You are full of stool.

 

Can I say that?

you can say whetever

 

but please tell me, why didn't derivatives exist before 1971? Is it just purely coincidence that all of a sudden the world needed derivatives right around the same time as the world was cut free from any (even suspect) backing behind the unit of account? Or was it possibly some causative reaction by the business world? There's simply a lot less need to hedge currency and interest rate risk if the unit of account is sound.

[Guest]

but please tell me, why didn't derivatives exist before 1971?

Huh?

 

OTC style agricultural futures have almost certainly existed since neolithic times.

 

Of course the first exchange traded products weren't introduced until the early seventeenth century in Japan.

[TheDeepBlueSea]

You are full of stool.

 

Can I say that?

you can say whetever

 

but please tell me, why didn't derivatives exist before 1971? Is it just purely coincidence that all of a sudden the world needed derivatives right around the same time as the world was cut free from any (even suspect) backing behind the unit of account? Or was it possibly some causative reaction by the business world? There's simply a lot less need to hedge currency and interest rate risk if the unit of account is sound.

From what I recall, there are cuneiform tablet records of commodities hedging, ie., derivatives, in ancient Babylon.

[TheDeepBlueSea]

"As of his death in 1977 Dr. Carroll Quigley is no longer with us, yet Tragedy and Hope is a hallmark of history, a classic to be owned by those who care to know of the forces that have shaped and are shaping history."

 

Carroll Quigley's Tragedy and Hope: A History Of The World In Our Time.

 

To bad Dr. Q is dead he was so close to the finish line

Famous Quigley quote:

 

"The Council on Foreign Relations (CFR) is the American Branch of a society which originated in England... (and) ...believes national boundaries should be obliterated and one-world rule established."

 

*******

 

Quigley was wrong to think that this group should not be secretive

 

Were their membership and deliberations widely known, there would be blood in the streets (re: my previous post about extinguishing the profesional classes). The fact that Jerry Springer is running for the US Congress is evidence enough of the fervant anti-intellectualism which rules the land. Remember "effete snobbs" ? (sp) - Spiro Agnew

Quigley sounds like a complete looney.

 

If there is some secret society "running" the world, they've done a remarkably poor job of it.

 

Btw, HyperVentilator, is there any conspiracy or alternative theory that you actually don't believe in?

 

Just wondering.

 

Here's one I suggest might be of great benefit to you:

 

How to Good-Bye Depression

[mjkst27]

Huh?

 

OTC style agricultural futures have almost certainly existed since neolithic times.

 

Of course the first exchange traded products weren't introduced until the early seventeenth century in Japan.

I never said otherwise, but I'm not talking about commodity hedging/speculation, which at least has some basis in physical product. My issue is having to hedge against man made risks like floating currencies and wild swings in interest rates, neither of which would exist under a sound unit of currency. Of course it's easier to find some flaw in my semantics and attack it, rather than trying to see the broader point.

 

See Noland's and others' discussions of stabilizing vs. de-stabilizing speculation...

Doug Noland's "The way we were vs. the way we are" transcript 6/13/03

 

Question: For what practical purpose does our "society" need a pile of financial derivatives now approaching 14 times annual GDP? Shouldn't the notional derivative amounts more closely approach some real amount of physical product that will come to market this year, plus some diminished amount for each the next couple years, trailing off to zero a few years out? Since a big chunk of GDP is hot air, I'd ballpark guess that a pile of derivs = maybe 1.5 x GDP at any given time ought to be sufficient to hedge off legitimate natural risk sources (bad weather, etc.) infinitely into the future. JMHO.

[3Martinis]

(mjkst27 @ Jul 20 2003, 04:26 PM)

DBS - sometimes I wonder why you post here. If you are so skeptical on the bear case, why not hang with some bulls somewhere? ?

 

 

Do you equate Hypertiger's fantasies with the "bear case"?

 

Of course, when you buy and run CapitalStool your opinion will actually matter.

 

DBS......The owner of this website (whose opinion does matter) is in fact squarely in HyperTigers camp, from what I can tell. Doc is Pappa Bear around here, and he is more than willing to both listen to what HyperTiger has to say and give him a forum in which to do so.

[Guest]

Of course it's easier to find some flaw in my semantics and attack it, rather than trying to see the broader point.

Nonsense. You made a statement that was factually incorrect based on an assumption that is completely spurious.

 

Question: For what practical purpose does our "society" need a pile of financial derivatives now approaching 14 times annual GDP? Shouldn't the notional derivative amounts more closely approach some real amount of physical product that will come to market this year, plus some diminished amount for each the next couple years, trailing off to zero a few years out?

 

That is precisely the point; from memory the BIS which tracks global OTC and exchange traded derivatives estimates that derivatives for the purposes of genuine commercial hedging account for around 10% of the market while the balance is for speculation.

 

Frightening to be sure but nothing whatsoever to do with all this fractional reserve rubbish.

[Guest]

DBS......The owner of this website (whose opinion does matter) is in fact squarely in HyperTigers camp

 

I'd be careful describing the opinions for others in such absolute terms, if I were you.

[TheDeepBlueSea]

(mjkst27 @ Jul 20 2003, 04:26 PM)

DBS - sometimes I wonder why you post here. If you are so skeptical on the bear case, why not hang with some bulls somewhere? ?

 

 

Do you equate Hypertiger's fantasies with the "bear case"?

 

Of course, when you buy and run CapitalStool your opinion will actually matter.

 

DBS......The owner of this website (whose opinion does matter) is in fact squarely in HyperTigers camp, from what I can tell. Doc is Pappa Bear around here, and he is more than willing to both listen to what HyperTiger has to say and give him a forum in which to do so.

 

You've yet again completely missed my point.

 

mjkst27 was suggesting I go somewhere else since I don't subscribe to HyperVentilator's (and his view) of the world.

 

My point is that it's for Doc, the owner, to decide whether I stay or go, not some anonymous poster like mjkst27. Whether or not Doc believes in HyperVentilator's hypothesis is irrelevant in this context.

 

Unlike the HyperVentilator's disciples, I don't try to censor or get rid of people who happen to disagree with my point of view.

 

Well, I'll give you this much, you're remarkably consistent.

[mjkst27]

Of course it's easier to find some flaw in my semantics and attack it, rather than trying to see the broader point.

Nonsense. You made a statement that was factually incorrect based on an assumption that is completely spurious.

 

 

 

That is precisely the point; from memory the BIS which tracks global OTC and exchange traded derivatives estimates that derivatives for the purposes of genuine commercial hedging account for around 10% of the market while the balance is for speculation.

 

Frightening to be sure but nothing whatsoever to do with all this fractional reserve rubbish.

Spurious? You are in no position to judge that.