4 ms·

Does "Banks won’t be able to create money for themselves any more" mean the same as ending fractional reserve banking, or am I misunderstanding things?

digi_owl 9y ago
Perhaps, but it will be closer to banning bank lending (as it is fundamentally different from lending between individuals). "Fractional reserve" is just a convenient scapegoat, as banks, once the rules and numbers are reviewed, do not lend from reserves. Any time they approve a loan, new money is put into circulation.
- candiodari 9y ago
  Which means that banks, get to loan money they don't have in the fractional reserve bank system. So banks are levered up like you wouldn't believe, which is a huge weakness of the financial system. And what happens to all the profits from money printing ? Why, that goes to the banks, of course. This proposal seems to simply be to only allow the central bank to lever up, and force Swiss banks to become old-US-style "investment banks". The issue with that is simple: if some banks are allowed to print money (with profits going to the richest, and everyone or "the taxpayer" guaranteeing the loans, of course), and others are not, the banks that are allowed to print money are going to marketshare, profits, ... and counterintuitively, when the economy is expanding, historically even the people they lend to. It is looking more and more like the economy is reconfiguring to the way it worked in the middle ages.
  - nickik 9y ago
    There are no profits from 'printing' money. Those are simply the profits of being a bank. There are lots of regulation we should change about how banks work, but this proposal isn't one of them.
    - jabgrabdthrow 9y ago
      You are rejecting the negative connotation of the word “print” but the fact is that the bank can do a financial operation that would be illegal for a non-bank and which most humans would call printing money, and make a profit
      - nickik 9y ago
        Well. Sure, but that the government who specifically wanted it like that because that has been the traditional role of banks and everything needs to be regulated. The government went out and gave licences to do that stuff to banks. If you don't like that only some group of people is allowed to do something, then why not allow everybody to do it. Now, of course some will say, that would be bad. Fair enough, but then again, you need to select the group that you will give that privilege too. Right now that is banks. I would be perfectly happy to adopt a legal system where banks are not subject to extraordinary rules let the market decide who's debt is worth taking as 'money' but apparently most people in the world don't want that. So really that argument leads you nowhere. The question what is the goal of this initiative? For all the problems they have (or think they have) there is a pretty easy solution that one could adopt that require this essentially random solution.
hn0 9y ago
There is no such thing as “fractional reserve banking”, the textbook models on banking taught in schools across the globe are dead wrong. See: Richard A. Werner, A lost century in economics: Three theories of banking and the conclusive evidence https://www.sciencedirect.com/science/article/pii/S1057521915001477 https://www.sciencedirect.com/science/article/pii/S105752191... Richard A. Werner, Can banks individually create money out of nothing? — The theories and the empirical evidence https://www.sciencedirect.com/science/article/pii/S1057521915001477 https://www.sciencedirect.com/science/article/pii/S105752191... Zoltan Jakab and Michael Kumhof, Banks are not intermediaries of loanable funds - and why this matters https://www.bankofengland.co.uk/working-paper/2015/banks-are-not-intermediaries-of-loanable-funds-and-why-this-matters# https://www.bankofengland.co.uk/working-paper/2015/banks-are... German Bundesbank, Die Rolle von Banken, Nichtbanken und Zentralbank im Geldschöpfungsprozess https://www.bundesbank.de/Redaktion/DE/Downloads/Veroeffentlichungen/Monatsberichtsaufsaetze/2017/2017_04_geldschoepfungsprozess.pdf https://www.bundesbank.de/Redaktion/DE/Downloads/Veroeffentl... Piti Disyatat, The bank lending channel revisited https://www.bis.org/publ/work297.pdf https://www.bis.org/publ/work297.pdf Beardsley Ruml, Taxes For Revenue Are Obsolete https://m.huffpost.com/us/entry/542134 https://m.huffpost.com/us/entry/542134
- perilunar 9y ago
  Thanks for the references. I'll read them when I get time. On a side note, it seems bizarre to me (as a layman) that economists still debate the the nature of banks and the creation of money, given they are the foundation of the economy. Kind of like physicists not understanding thermodynamics, or something.
  - hn0 9y ago
    Economists generally follow the idea that all trade is barter trade and that money is just an indirection layered on top the “real” economy, which alleviates some of the issues with bartering goods. That’s all fine, but historians and anthropologists have found zero edvidence that the monetary system developed out of barter. Rather, banking seems to have co-evolved alongside interpersonal informal credit systems (contract based, not spot-trade) and religious practices in early agricultural city states. The first written records are bookkeeping documents of grain supplies and outstanding debts between citizens. In time, people started trading these documents against each other. E.g. If you need to pay Garry for fixing your plumbing, but Sally still needs to pay you for the 8 eggs she borrowed, you can just tell her to pay it to Garry instead and you’l be even. What coins are in this model are abstract tokens representing the ledgers inside the third party’s accounting table which denote the debts and credits people hold against eachother. In other words, it’s all about accounting. Economics courses do not include accounting, generally. The real issue economists fail to “get” it is that it invalidates many of the axioms on which they construct their theory. Economics is still very much a deductive science. Because there is such a large hivemind around these fundamental founding myths the field has been able to get by with simply ignoring outside criticisms, this includes a number of “own goals”. If you have some econ 101 knowledge you might want to look up the “anything goes” theorem. Many nobel prizes can be thrown out of the window. I found Steve Keen’s “Debunking Economics” and Phillip Mirowski’s “More Heat Than Light” to be very revealing.

digi_owl 9y ago

Perhaps, but it will be closer to banning bank lending (as it is fundamentally different from lending between individuals). "Fractional reserve" is just a convenient scapegoat, as banks, once the rules and numbers are reviewed, do not lend from reserves. Any time they approve a loan, new money is put into circulation.

candiodari 9y ago
Which means that banks, get to loan money they don't have in the fractional reserve bank system. So banks are levered up like you wouldn't believe, which is a huge weakness of the financial system. And what happens to all the profits from money printing ? Why, that goes to the banks, of course. This proposal seems to simply be to only allow the central bank to lever up, and force Swiss banks to become old-US-style "investment banks". The issue with that is simple: if some banks are allowed to print money (with profits going to the richest, and everyone or "the taxpayer" guaranteeing the loans, of course), and others are not, the banks that are allowed to print money are going to marketshare, profits, ... and counterintuitively, when the economy is expanding, historically even the people they lend to. It is looking more and more like the economy is reconfiguring to the way it worked in the middle ages.
- nickik 9y ago
  There are no profits from 'printing' money. Those are simply the profits of being a bank. There are lots of regulation we should change about how banks work, but this proposal isn't one of them.
  - jabgrabdthrow 9y ago
    You are rejecting the negative connotation of the word “print” but the fact is that the bank can do a financial operation that would be illegal for a non-bank and which most humans would call printing money, and make a profit
    - nickik 9y ago
      Well. Sure, but that the government who specifically wanted it like that because that has been the traditional role of banks and everything needs to be regulated. The government went out and gave licences to do that stuff to banks. If you don't like that only some group of people is allowed to do something, then why not allow everybody to do it. Now, of course some will say, that would be bad. Fair enough, but then again, you need to select the group that you will give that privilege too. Right now that is banks. I would be perfectly happy to adopt a legal system where banks are not subject to extraordinary rules let the market decide who's debt is worth taking as 'money' but apparently most people in the world don't want that. So really that argument leads you nowhere. The question what is the goal of this initiative? For all the problems they have (or think they have) there is a pretty easy solution that one could adopt that require this essentially random solution.

hn0 9y ago

There is no such thing as “fractional reserve banking”, the textbook models on banking taught in schools across the globe are dead wrong. See: Richard A. Werner, A lost century in economics: Three theories of banking and the conclusive evidence https://www.sciencedirect.com/science/article/pii/S1057521915001477 https://www.sciencedirect.com/science/article/pii/S105752191... Richard A. Werner, Can banks individually create money out of nothing? — The theories and the empirical evidence https://www.sciencedirect.com/science/article/pii/S1057521915001477 https://www.sciencedirect.com/science/article/pii/S105752191... Zoltan Jakab and Michael Kumhof, Banks are not intermediaries of loanable funds - and why this matters https://www.bankofengland.co.uk/working-paper/2015/banks-are-not-intermediaries-of-loanable-funds-and-why-this-matters# https://www.bankofengland.co.uk/working-paper/2015/banks-are... German Bundesbank, Die Rolle von Banken, Nichtbanken und Zentralbank im Geldschöpfungsprozess https://www.bundesbank.de/Redaktion/DE/Downloads/Veroeffentlichungen/Monatsberichtsaufsaetze/2017/2017_04_geldschoepfungsprozess.pdf https://www.bundesbank.de/Redaktion/DE/Downloads/Veroeffentl... Piti Disyatat, The bank lending channel revisited https://www.bis.org/publ/work297.pdf https://www.bis.org/publ/work297.pdf Beardsley Ruml, Taxes For Revenue Are Obsolete https://m.huffpost.com/us/entry/542134 https://m.huffpost.com/us/entry/542134

perilunar 9y ago
Thanks for the references. I'll read them when I get time. On a side note, it seems bizarre to me (as a layman) that economists still debate the the nature of banks and the creation of money, given they are the foundation of the economy. Kind of like physicists not understanding thermodynamics, or something.
- hn0 9y ago
  Economists generally follow the idea that all trade is barter trade and that money is just an indirection layered on top the “real” economy, which alleviates some of the issues with bartering goods. That’s all fine, but historians and anthropologists have found zero edvidence that the monetary system developed out of barter. Rather, banking seems to have co-evolved alongside interpersonal informal credit systems (contract based, not spot-trade) and religious practices in early agricultural city states. The first written records are bookkeeping documents of grain supplies and outstanding debts between citizens. In time, people started trading these documents against each other. E.g. If you need to pay Garry for fixing your plumbing, but Sally still needs to pay you for the 8 eggs she borrowed, you can just tell her to pay it to Garry instead and you’l be even. What coins are in this model are abstract tokens representing the ledgers inside the third party’s accounting table which denote the debts and credits people hold against eachother. In other words, it’s all about accounting. Economics courses do not include accounting, generally. The real issue economists fail to “get” it is that it invalidates many of the axioms on which they construct their theory. Economics is still very much a deductive science. Because there is such a large hivemind around these fundamental founding myths the field has been able to get by with simply ignoring outside criticisms, this includes a number of “own goals”. If you have some econ 101 knowledge you might want to look up the “anything goes” theorem. Many nobel prizes can be thrown out of the window. I found Steve Keen’s “Debunking Economics” and Phillip Mirowski’s “More Heat Than Light” to be very revealing.