Posted on 11/19/2009 7:09:15 PM PST by rabscuttle385
Making loans from deposits is fractional reserve lending.
The fact that there is always more money owed than money in existence means
There is also more money owned. So what?
Buying government bonds is the mechanism the Fed uses to start the money creation process. Interest must be paid on those bonds.
They could buy commodities instead. Would that make you happy?
“You should read what he wrote”
I’ve read his A Monetary History of the United States and have it here for reference. If you think he supports your position then name the page.
No, it is not. Creating new money and lending it based on deposits is fractional reserve lending - at least in modern banking.
What is the difference between "if a bank wants to lend $900, it must actually take $900 from its deposits and lend it" and "Creating new money and lending it based on deposits"? Spell it out.
They could buy commodities instead. Would that make you happy?
No, the entire concept of private central banking needs done away with
But money would be created without interest. I thought that was the problem?
How is the $20 in your wallet debt? Who are you paying interest? How much do you pay? Where do you send your check?
“Not so fast. The examples you cite are examples of private central banks. The 1930’s Wiemar inflation, for example, was the result of Germany’s private central bank and other commercial banks lending massive amounts of new money into existence. “
Weimar inherited the Reichsbank which had presided over a stable currency from its inception in 1876 until WWI. The Mark had been convertible into gold. Weimar suspended gold convertibility and issued a strictly paper mark. With no gold link to act as a brake it simply printed all the currency that it needed to accommodate the unworkable reparations payments. The German hyperinflation was the result of the Weimar government substituting political convenience for sound monetary policy, it wasn’t due to the existence of the Reichsbank.
America suffered a hyperinflation during the Continental dollar episode and a near 50% inflation from the Greenback issuance. In both instances the government acted as the monetary authority, there was no American central bank either public or private.
The presence of a private central bank does not cause inflation, nor does the absence of one mean that there will not be hyperinflation. The Bank of England has been in operation since 1698 and England has yet to experience a hyperinflation.
The Fed was authorized in 1913. The dollar was stable from 1913 to 1933, at $20 per oz. In 1933 FDR, not FED, devalued the dollar to $35 per oz. The dollar remained on a $35 per oz standard until 1971 when President Nixon closed the gold window allowing the dollar to float. The inflation of the 70’s followed. Again it was an America President, not the Fed, that devalued the dollar.
“why delegate money creation to the Federal Reserve in the first place? They are just creating it with a computer or printing press. What makes that OK if done by a central bank but not the government? “
The answer is above. Politicians have an incentive to debase money when they act as the monetary authority. Central banks don’t. Politicians aren’t willing to endure the recessions that monetary discipline demands, so they will break links to gold that limit easy money. An independent central bank doesn’t have to think in terms of the next election. The trick is to keep them insulated from political pressure.
“All money is indeed debt, and all debt is indeed money. Treasury bonds are assets of the Federal Reserve and the currency or bank deposits they print or create to pay for the bonds are liabilities.”
Lincoln’s administration passed the National Bank Act creating a national banking system. National banks were able to print and issue their own currency. In order to do so they were required to hold Treasury debt as the reserve base against their own money creation. How exactly is this different from the Fed monetizing Treasury debt to create high-powered money?
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.