World Bank whistleblower.

[BlokBlok]

Wrong.

$100 loans out $90 to another bank that then loans out $80 to consumer. No more money was created. Bank 1 has $10, Bank 2 has $10, consumer has $80.

The problem arises when banks use their claims to borrow against:

Bank 1 has only $10 but has claims on $90 so they borrow $90 against those. Bank 2 has only $10 but they have claims of $80 so they borrow $80 and use the claim as collateral.

Now if consumer defaults on his $80, the banking system loses not only $20 but $190 if the banks can't pay back those.

That is essentially what happened with the subprime crisis.

Again, I used to think like you about the whole fractional reserve thing, but I think I may have been wrong.

 

[r3p1v]

What would you say if I told you they loan out 10x what they take in?

Is that bad?

 

[drave]

^ Lol, just lol.

Great reply. If you're so clever lets hear it. I'm quoting direct from a senior economist and regular contributor to several libertarian papers.

in fairness, i will point out that the "10x increase in the banking system" assumes the original deposit came from underneath somebody's mattress; if it was pulled out of another bank, it changes the equasion.

 

[guerilla]

I'm quoting direct from a senior economist and regular contributor to several libertarian papers.

I have as much interest in shadowboxing "senior economist" through his proxy (you) as you do in reading a book.

Is that bad?

If you have $10 and loan me $100, that's usually fraud.

 

[Wright]

guerilla is right. The bank may loan out $90 of the original $100, but the $90 ends up back in the banking system. The bank that receives that $90 will loan out $81 and keep $9 in reserve. This process would theoretically continue until the amount is ten times the original amount deposited. The only money that is real is the original $100. The rest is basically created through legalized fraud. That is how I understand it anyway.

It's actually even worse than ten times in some cases. I think there are lower thresholds in the US where a bank only needs 0% or 3% in reserve depending on the amount of their deposits.

Subject to Tier I and Tier II capital requirements.

It also depends on the weighted risk applied to the debt side of the equation.

 

[Clarkey]

They loan credit.

 

[SeoReborn]

@rusvik, the following url explains the process of fractional reserve very well:

Economics Interactive

You'll see how using reserves requirement ratio of 20% for $1000, end up as $5000.

 

[miketpowell]

Please read a book.

Any suggestions on discussions on "alternatives" to fractional reserve banking?

I understand how it's abuse can be used to manipulate the money supply for the gain of a few but what I don't understand is what an alternative would be. The only solution I can see is to some how stop the abuse - which seems pretty impossible.

Fractional reserve banking doesn't exist after all because of some special laws or unique situation - it happens from the very nature of loaning money. If I have $100 and you have $0 and I loan you the $100 in exchange for an IOU of $100 dollars - well we just increased the money supply as long as we accept the fact that your IOU to me is worth something.

I've certainly been told by some hippies that loans SHOULD be outlawed which would be the only way to "stop" fractional reserve banking as I understand it. However I doubt that's your position...

 

[JakeStratham]

Any suggestions on discussions on "alternatives" to fractional reserve banking?

A good place to start is getting rid of legal tender laws.

 

[guerilla]

Any suggestions on discussions on "alternatives" to fractional reserve banking?

Warehousing.

I understand how it's abuse can be used to manipulate the money supply for the gain of a few but what I don't understand is what an alternative would be.

Not can. Is.

The only solution I can see is to some how stop the abuse - which seems pretty impossible.

Why?

Fractional reserve banking doesn't exist after all because of some special laws or unique situation

Incorrect.

it happens from the very nature of loaning money..

No.

If I have $100 and you have $0 and I loan you the $100 in exchange for an IOU of $100 dollars - well we just increased the money supply as long as we accept the fact that your IOU to me is worth something.

You are confusing money and debt. An understandable sin considering in our society, debt has become the only money.

I've certainly been told by some hippies that loans SHOULD be outlawed which would be the only way to "stop" fractional reserve banking as I understand it. However I doubt that's your position...

It's not.

 

[guerilla]

What if I told you it is your signature that helps creates the 'money'. You see, your signature on that document is a contract of future payment which in itself has value.

I know you mean well, but this isn't correct.

No signature is required anywhere. Legal tender laws make the debt instruments money. The debt instruments were originally receipts for money held in a warehouse state by banks.

 

[lcver]

The sneakiest way to tax everyone's savings account simultaneously without taking a single dime, print more money. Hardly anyone even notices.

 

[guerilla]

Any suggestions on discussions on "alternatives" to fractional reserve banking?

Read "What has Government Done to Our Money" by Murray Rothbard.

It's fairly short.

http://mises.org/books/whathasgovernmentdone.pdf

Also, I am sorry that I hurt your feelings. That was not my intent.

Also, this

[ame="http://www.youtube.com/watch?v=-3PKHVbOet8"]The Theory of Banking (by Hans-Hermann Hoppe) - Introduction to Austrian Economics, 4of11 - YouTube[/ame]

 

[yast]

Personal attacks in tags is low life shit.

If you don't have the guts to post under your name, just stfu.
If you are not able to argue in a civil and intelligent matter, just stfu.

/rant

 

[yast]

edit: matter == manner

 

[guerilla]

Personal attacks in tags is low life shit.

It's just sad people acting passive aggressively, presumably because they lack the courage to post under their fake forum name.

Think of it like a dog barking. It's a different (dumb) language which you can't understand. At best it's a curiosity. At worst, it's pitiable.

(Some poor soul thought he'd "attack" me with a tag as well)

 

[rusvik]

I have as much interest in shadowboxing "senior economist" through his proxy (you) as you do in reading a book.

That's up to you. I do think I've read more books on economics than you have seeing as I have 4 years of econ in university. If you weren't so defensive you'd understand that I consider most of those many thousand pages as crap. Fractional reserve banking isn't easy to understand and the youtube videos that float around are full of misinformation about the practicalities.

The suggestion to read a book, without specifying which book, isn't particularly helpfull as you could go a lifetime reading econ books without ever encountering fractional reserve banking.

 

[guerilla]

I do think I've read more books on economics than you have seeing as I have 4 years of econ in university.

This was not a good statement to make. I will leave it at that.

The suggestion to read a book, without specifying which book, isn't particularly helpfull as you could go a lifetime reading econ books without ever encountering fractional reserve banking.

I linked a book upthread.

There are numerous good books on money. George Selgin is pretty decent even though I don't see eye to eye with him on everything.

LINK ==> [ame=http://www.amazon.com/s/ref=ntt_athr_dp_sr_1?_encoding=UTF8&field-author=George%20Selgin&search-alias=books&sort=relevancerank]Amazon.com: George Selgin: Books[/ame]

 

[lincolndsp]

“This is like crooks trying to figure out where they can go hide. It’s a mafia,” she said. “These culprits that have grabbed all this economic power have succeeded in infiltrating both sides of the issue, so you will find people who are supposedly trying to fight corruption who are just there to spread disinformation and as a placeholder to trip up anybody who manages to get their act together.… Those thugs think that if they can keep the world ignorant, they can bleed it longer.”

they are pros

“We’re going to have a cleaned-up financial system, that’s where it is going, but in the meantime, people who didn’t know how the system was gamed are going to find out,” she said. “We’re going to have a different kind of international financial system.... It’ll be a new kind of world where people know what’s going on — no more backroom deals; that’s not going to keep happening. We’re going to have a different kind of media if people don’t want to be dominated and controlled, which I don’t think they do.”

wishful thinking

While Hudes sounded upbeat, she recognizes that the world is facing serious danger right now — there are even plans in place to impose martial law in the United States, she said. The next steps will be critical for humanity. As such, Hudes argues, it is crucial that the people of the world find out about the lawlessness, corruption, and thievery that are going on at the highest levels — and put a stop to it once and for all. The consequences of inaction would be disastrous.

 

[pmansour_cpa]

Freaking there is corruption everywhere.
The only problem is the real ones do not come to the limelight just because of media unawareness.
They are more interested in TRP levels rather than actual news flows.
Have not come across this world bank whistle blower as yet and most probably would nit come into the limelight as well.