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"If there's $100 in the world, and a bank "gives $100" to 10 people, who all have to pay back $100 + interest, where does that come from?" That's not how fract
by natrius 18y ago
"If there's $100 in the world, and a bank "gives $100" to 10 people, who all have to pay back $100 + interest, where does that come from?"
That's not how fractional reserve banking works. Banks don't lend more than they have in their vaults, they just have less in their vaults than the sum of their depositors' accounts.
That's tangential to your main point, which seems to be an objection to a perpetually increasing amount of money that only exists as numbers in a computer backed by nothing. That only becomes a problem in a severe recession, where the rate of wealth creation slows so much that loans can't be paid back. The system breaks, and governments have to intervene to fix it. This isn't done by just giving banks money, as you suggest. The government typically takes over the banks. The proposed bailout involves buying assets, but it's still not giving banks money.
That is only a problem if you think we'd be better off with the slower economic growth that would result from banning fractional reserve banking. We're not. A system that breaks on a regular basis sounds like a bad idea, but you still have to compare it with the alternative before you condemn it.
- jodrellblank 18y agoIf there's only one bank in the world, how can it have less in its vault than the sum of the depositor's accounts, if it isn't lending the difference out of nothing? Have people been depositing forged cheques?
- gills 18y agoBecause currency is only a quanta for trade and it's physical manifestation doesn't need to exist in equal amount to all assets and obligations. As for fractional reserve banking (the regulated version, anyway...), the bank needs only to hold enough capital to write down expected losses on loans. Much of this mess has been caused by the banks voluntarily levering out of this safety margin.
- m_eiman 18y agoOne alternative: http://en.wikipedia.org/wiki/JAK_members_bank http://en.wikipedia.org/wiki/JAK_members_bank Basically: money lent is less or equal to money deposited; no interest (only fees). Interest including fees is ~2.5%, and will "never" change.
- huherto 18y agoInteresting link. Do do you think the financial system could be replaced by that?
- m_eiman 18y agoSure, but it would be different from the one we have now. Things might be moving slower, but crashes should be less frequent. The main difference is that that system isn't built on the assumption that the economy will always expand, which the current system is. I'll leave it to someone who actually knows something about the pros and cons of each to tell you if that's good or bad.. But basic reasoning tells me that it's not likely that something that takes place in a fixed environment (Earth) can expand for ever.