3 ms·

> Note in particular this at the end of the section on fractional reserve money: > (By "this country" he means the US, although the US is not the only country

> Note in particular this at the end of the section on fractional reserve money: > (By "this country" he means the US, although the US is not the only country with such a system.) Actually the US is a country without such a system, i.e, the US (and most countries really) are not fractional reserve systems, and have not been in decades. James Tobin called this "The Old View" in 1963: * https://cowles.yale.edu/sites/default/files/files/pub/d01/d0159.pdf https://cowles.yale.edu/sites/default/files/files/pub/d01/d0... Fractional reserve banking is a nice 'Econ 101' way of thinking of the monetary system, but in no way does it match reality. It should really be stopped being taught because people hold onto the paradigm and it causes faulty analysis: * https://www.pragcap.com/r-i-p-the-money-multiplier/ https://www.pragcap.com/r-i-p-the-money-multiplier/ Most modern economies are based on credit: * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625

pdonis 5y ago
> the US is a country without such a system By the simple definition of "fractional reserve"--that a financial institution only needs to keep a fraction of its total liabilities as actual currency in its reserve pool, and must convert other assets into currency if withdrawals exceed that reserve amount--it most certainly is. That is how all financial institutions in the US work, just as in other countries. It would be interesting to see a debate between Friedman and the other economists you reference, who obviously hold very different views. I don't think we're going to resolve any such differences here; I would simply note that there are such differences, and that the views of the economists you mention are not universal, nor are they necessarily correct.

3 ms·

> Note in particular this at the end of the section on fractional reserve money: > (By "this country" he means the US, although the US is not the only country

by throw0101a 5y ago

pdonis 5y ago
> the US is a country without such a system By the simple definition of "fractional reserve"--that a financial institution only needs to keep a fraction of its total liabilities as actual currency in its reserve pool, and must convert other assets into currency if withdrawals exceed that reserve amount--it most certainly is. That is how all financial institutions in the US work, just as in other countries. It would be interesting to see a debate between Friedman and the other economists you reference, who obviously hold very different views. I don't think we're going to resolve any such differences here; I would simply note that there are such differences, and that the views of the economists you mention are not universal, nor are they necessarily correct.