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Capitalism does not require fractional reserve banking. Fractional reserve banking is what causes the need for exponential growth, in general.

tw1010 9y ago
How does the fact that banks hold a fraction of their assets in a central bank put pressure on companies to grow exponentially? I'm curious, I don't understand the connection.
- deleted 9y ago
  [deleted]
- thaumasiotes 9y ago
  > How does the fact that banks hold a fraction of their assets in a central bank put pressure on companies to grow exponentially? That is not what I would understand by the term "fractional reserve banking". Rather, fractional reserve banking refers to a system where banks do not hold enough liquid assets to cover their obligations. Central banks are completely irrelevant to the concept. The location of a bank's assets are also completely irrelevant to the concept.
lamename 9y ago
Could you expand on this for someone with very limited economic intuition? (me)
- dredmorbius 9y ago
  Don't bother. It's a canard. A very popular one, but a canard all the same.
yuhong 9y ago
Fractional reserve banking is one part of it, but the really horrible things occurred when we left the gold standard so almost unlimited debt can be created. People started investing in stocks instead of bonds, which is probably part of why Glass-Steagall was repealed.
PatchMonkey 9y ago
Yes. But unfortunately? Without safety measures like the Fed enabling such, economies have a history of imploding every fifteen years or so on the basis of insufficient currency circulation. Oh wait, that's where we are today... Carry on! Commodity-backed currencies also have a problem - they implement their own fractional reserves as economies do grow. When they shrink? End-users learn to trade in the notes for the commodities, shrinking the pool of currency in circulation.
erikb 9y ago
With higher fractions of reserve the bank is also a more stable institution. So it may be just a symptom, not the source.

tw1010 9y ago

How does the fact that banks hold a fraction of their assets in a central bank put pressure on companies to grow exponentially? I'm curious, I don't understand the connection.

deleted 9y ago
[deleted]
thaumasiotes 9y ago
> How does the fact that banks hold a fraction of their assets in a central bank put pressure on companies to grow exponentially? That is not what I would understand by the term "fractional reserve banking". Rather, fractional reserve banking refers to a system where banks do not hold enough liquid assets to cover their obligations. Central banks are completely irrelevant to the concept. The location of a bank's assets are also completely irrelevant to the concept.

lamename 9y ago

Could you expand on this for someone with very limited economic intuition? (me)

dredmorbius 9y ago
Don't bother. It's a canard. A very popular one, but a canard all the same.

yuhong 9y ago

Fractional reserve banking is one part of it, but the really horrible things occurred when we left the gold standard so almost unlimited debt can be created. People started investing in stocks instead of bonds, which is probably part of why Glass-Steagall was repealed.

PatchMonkey 9y ago

Yes. But unfortunately? Without safety measures like the Fed enabling such, economies have a history of imploding every fifteen years or so on the basis of insufficient currency circulation. Oh wait, that's where we are today... Carry on! Commodity-backed currencies also have a problem - they implement their own fractional reserves as economies do grow. When they shrink? End-users learn to trade in the notes for the commodities, shrinking the pool of currency in circulation.

erikb 9y ago

With higher fractions of reserve the bank is also a more stable institution. So it may be just a symptom, not the source.