3 ms·
I find both zhte415's comments in support of my argument that your initial contention was wrong. It's very strange that you interpret them otherwise. To quote y
by alimw 6y ago
I find both zhte415's comments in support of my argument that your initial contention was wrong. It's very strange that you interpret them otherwise. To quote you:
> What the author is describing is pure and simple fraud ... The goldsmiths were passing off paper certificates under false pretence that they correspond with real stored gold.
... At no point does fractional reserve banking involve "lending out more than what you have on deposit".
Yet that is exactly what happens in the second hypothetical course of action I described. Are we now agreed that it is fine?
I will concede that this hastily written statement of mine was ill-thought-through: "If this were true then the only money in circulation would be that created by the Central Bank." I cannot edit it now.
- derriz 6y agozhte415 comment covers two cases: lending out no gold and lending out one unit of gold. I don't see it supporting your argument that a bank can loan out more gold than it has borrowed. The reason I welcome zhte415's comment is that thinking in terms of balance sheets usually clarifies things (as noted in the comment). For example, the top 5 biggest retail banks in the US hold between 20%-40% more in deposits than they have issued loans individually as well as in aggregate. Don't you think that if retail banks worked in the way you are claiming - i.e. raising $X in deposits but issuing >$X in loans that there would be some example of this happening? For at least one bank in the US? It just doesn't happen.