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| | |-+  Should banks be allowed to create money?
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Question: Note: This is the staus quo
Yes   -10 (38.5%)
No   -14 (53.8%)
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Author Topic: Should banks be allowed to create money?  (Read 854 times)
Yelnoc
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« on: July 25, 2012, 12:35:34 pm »
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Today, the vast majority of money within the economy was created not be government presses, but rather by private banks which constantly adds money to its balance sheets when people take out loans.  Do you think this process is a sound way to run a monetary system?  Feel free to discuss all the implications of the system in this thread.
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« Reply #1 on: July 25, 2012, 12:57:27 pm »
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We are talking about money multipliers, yes?  Then of course they should, basic economics
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« Reply #2 on: July 27, 2012, 05:04:46 pm »
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We are talking about money multipliers, yes?  Then of course they should, basic economics

Keep in mind your 'basic economics' is a sham and a fraud.

I am happy with this fraud, but it should be entirely State-controlled.
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« Reply #3 on: July 27, 2012, 06:50:48 pm »
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We are talking about money multipliers, yes?  Then of course they should, basic economics

Keep in mind your 'basic economics' is a sham and a fraud.

Not really; in fact I would argue your economic philosophy is, though I would argue that in the nicest possible way.

I am happy with this fraud, but it should be entirely State-controlled.

History has taught us that state-controlled economies have always performed poorly compared to even sort-of free markets.
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opebo
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« Reply #4 on: July 27, 2012, 07:14:07 pm »
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History has taught us that state-controlled economies have always performed poorly compared to even sort-of free markets.

That depends entirely upon what are your goals, Vosem. 
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Scott
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« Reply #5 on: July 27, 2012, 09:03:09 pm »
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The libertarian side of me says, "I'm not allowed to counterfeit... why should banks be?"  But I'm curious as to how this actually benefits people in the long run instead of just devalue currency.
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« Reply #6 on: July 27, 2012, 09:09:55 pm »
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History has taught us that state-controlled economies have always performed poorly compared to even sort-of free markets.

That depends entirely upon what are your goals, Vosem. 

Better products, better average style-of-life, and profit, of course.
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realisticidealist
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« Reply #7 on: July 27, 2012, 11:24:42 pm »
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The libertarian side of me says, "I'm not allowed to counterfeit... why should banks be?"  But I'm curious as to how this actually benefits people in the long run instead of just devalue currency.

Banks aren't printing currency. Furthermore, the loans can only be granted because the banks have excess reserves from either previously not lending to the maximum or because of expansionary actions by the Federal Reserve. Banks only "create" money to the extent that they let previously granted money be put into circulation.

IMO, individual banks have too much power to not "create" money.
« Last Edit: July 27, 2012, 11:26:15 pm by realisticidealist »Logged

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« Reply #8 on: July 28, 2012, 11:29:44 am »
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History has taught us that state-controlled economies have always performed poorly compared to even sort-of free markets.

That depends entirely upon what are your goals, Vosem. 

Better products, better average style-of-life, and profit, of course.

Paid for by mass poverty and exploitation, good show!
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« Reply #9 on: July 28, 2012, 12:01:34 pm »
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The libertarian side of me says, "I'm not allowed to counterfeit... why should banks be?"  But I'm curious as to how this actually benefits people in the long run instead of just devalue currency.

Banks aren't printing currency. Furthermore, the loans can only be granted because the banks have excess reserves from either previously not lending to the maximum or because of expansionary actions by the Federal Reserve. Banks only "create" money to the extent that they let previously granted money be put into circulation.

IMO, individual banks have too much power to not "create" money.

What's the difference between printing currency and "creating money?"
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realisticidealist
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« Reply #10 on: July 28, 2012, 02:38:08 pm »
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The libertarian side of me says, "I'm not allowed to counterfeit... why should banks be?"  But I'm curious as to how this actually benefits people in the long run instead of just devalue currency.

Banks aren't printing currency. Furthermore, the loans can only be granted because the banks have excess reserves from either previously not lending to the maximum or because of expansionary actions by the Federal Reserve. Banks only "create" money to the extent that they let previously granted money be put into circulation.

IMO, individual banks have too much power to not "create" money.

What's the difference between printing currency and "creating money?"

By "printing currency", I'm referring to the actual usage of a printing press to generate new, hard, real dollar bills that you can touch and hold.

As for the rest of your question, it goes to the various definitions of the money supply. Think about it this way: There exists a total universe of money in the United States that is divided between hard cash and soft (in essence, a number in an account) cash held by the public, plus bank reserves plus Federal Reserve credit and bonds plus a number of other sources. I believe this total universe is called MB, but I could be wrong about that. Any money not held by the public is held by a bank, essentially trapped in a confined area that has no impact on the rest of the economy. When a bank decides to lend from their reserves, the more common designation of the money supply M2 (and M1) is increased, essentially giving the economy access to the MB money that was previously locked away. Banks can lend their reserves until they reach the required reserve ratio, and any reserves they hold above the RRR are called excess reserves.

Now, when the Federal Reserve seeks to increase the money supply through open-market operations, they generally aren't increasing MB, but are instead in essence buying bonds held by private banks using their own reserves, transfering their reserves to the reserves of the private banks. This hypothetically gives banks more ability to lend, thus providing the ability to increase M2 to the general economy, but the banks have no obligation to actually lend and can hoard their reserves if they choose. The Fed could increase MB if it so desired (which would be "printing" soft money so to speak), but this rarely happens.

Thus, "creating" money by bank loans is only creating M2, but not MB, unlocking soft money already in existence for the general public.
« Last Edit: July 28, 2012, 02:41:58 pm by realisticidealist »Logged

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« Reply #11 on: July 28, 2012, 04:29:47 pm »
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If you vote no, this means you want to abolish loans entirely and thus intrest if not banking entirely.

Because that's how banks create money. You put money in the bank, they loan it, they put in the bank, that bank loans it, and so forth until you've hit the limit set forth by the reserve ratio so loans are not economical. If there were no reservations, thus, this could go in indefinitely.
« Last Edit: July 28, 2012, 04:34:38 pm by Gaius Antonius Messala »Logged

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« Reply #12 on: July 28, 2012, 04:46:58 pm »
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No, fractional reserve banking using demand deposits creates multiple claims to the same good, which is a legal fiction. Instead, banks should only make loans using money from time deposits to eliminate the Schrödingerian logic needed to justify fractional reserve without causing economic stagnation.
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« Reply #13 on: July 28, 2012, 04:53:24 pm »
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No, fractional reserve banking using demand deposits creates multiple claims to the same good, which is a legal fiction. Instead, banks should only make loans using money from time deposits to eliminate the Schrödingerian logic needed to justify fractional reserve without causing economic stagnation.

But in doing so you would dramatically reduce the amount of deposits one could draw from.
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« Reply #14 on: July 28, 2012, 05:02:33 pm »
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The banks aren't really creating money. It's just an economic multiplier. Only Paultards care about this. If you want 100% reserve on your deposits, you can use a safety deposit box, but you'll have to pay for that.
« Last Edit: July 28, 2012, 05:04:33 pm by ○∙◄☻¥tπ[╪AV┼cVê└ »Logged
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« Reply #15 on: July 28, 2012, 10:32:41 pm »
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The banks aren't really creating money. It's just an economic multiplier. Only Paultards care about this. If you want 100% reserve on your deposits, you can use a safety deposit box, but you'll have to pay for that.

A distinction without a difference:

The most common mechanism used to measure this increase in the money supply is typically called the money multiplier. It calculates the maximum amount of money that an initial deposit can be expanded to with a given reserve ratio – such a factor is called a multiplier. As a formula, if the reserve ratio is R, then the money multiplier m is the reciprocal,  and is the maximum amount of money commercial banks can legally create for a given quantity of reserves.
« Last Edit: July 28, 2012, 10:34:58 pm by SPC »Logged

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« Reply #16 on: July 28, 2012, 10:51:25 pm »
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Your point is?
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« Reply #17 on: July 28, 2012, 11:07:05 pm »
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Your point is?

He is incorrect in denying fractional reserve loans constitute money creation; even a introductory macroeconomics teacher could tell you that.
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« Reply #18 on: July 29, 2012, 11:31:57 pm »
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While both the act of fractional reserve banking and running a printing press can add to the money supply, only the latter can cause hyperinflation as a bank that sets its reserves too low will go bust.
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« Reply #19 on: July 30, 2012, 01:37:02 am »
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Your point is?

He is incorrect in denying fractional reserve loans constitute money creation; even a introductory macroeconomics teacher could tell you that.

But he's saying the exact opposite. No new physical money is coming into being, but it is being created.
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« Reply #20 on: July 30, 2012, 06:37:57 am »
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Your point is?

He is incorrect in denying fractional reserve loans constitute money creation; even a introductory macroeconomics teacher could tell you that.

But he's saying the exact opposite. No new physical money is coming into being, but it is being created.

How do you obtain "money is being created" from "the banks aren't really creating money"?
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