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You are attacking a straw man. I never said get rid of lending Just get rid of fractional reserve banking. Have banks offer either interest via full reserve b

You are attacking a straw man. I never said get rid of lending Just get rid of fractional reserve banking. Have banks offer either interest via full reserve banking where your deposit is locked or storage for a fee. Therefore if you are a startup and just need to store money a risky bank going under won’t affect your existence.

vkou 4y ago
The rate of lending will drop by an order of magnitude without fractional reserve banking. As will the money supply (hence, defulation), because most of the world's money is created by fractional-reserve lending. > Have banks offer either interest via full reserve banking where your deposit is locked or storage for a fee. Why would you need a bank to do that, you can go buy treasuries on any brokerage that have that property right now. The problem wouldn't be on the deposit side, it would be on the lending side. No bank would offer a prime + 3% mortgage without fractional reserve lending. Housing prices would immediately collapse. No bank would offer anyone a low-APR loan - you'd only get utterly usurious terms. How well do you think the economy would react to the cost of borrowing money going up by 5, or 10%?
- maxilevi 4y ago
  Okay I can see that. So is the issue that we are so deep in a fractional reserve system that any change would cause a blow up? In other words could an economy started from scratch function with a fully backed reserve system?
  - blibble 4y ago
    > In other words could an economy started from scratch function with a fully backed reserve system? not in a world where other economies exist you'd be out-competed and completely bought up by economies operating under fractional reserve
  - vkou 4y ago
    > So is the issue that we are so deep in a fractional reserve system that any change would cause a blow up? For half of those things, yes, the issue is that it would be a dramatic change that leaves a lot of people holding the bag. But, you are correct, it doesn't have to be this way. > In other words could an economy started from scratch function with a fully backed reserve system? Unfortunately, you'll still have problems with the other half of those issues. Low velocity of money depresses the economy. This wasn't a concern back when most people were subsistence peasants, and were just toiling to physically grow and put food on the table. All very inelastic demand sort of stuff. This is a pretty big concern when the way most people put food on the table is a 'job', most of which are heavily affected by elastic demand for various goods and services. A peasant doesn't care much about the health of the 'economy', a worker does. For another problem, high cost of borrowing significantly advantages the wealthy, and incumbents. Higher spreads between prime and actual interest rates will siphon more money into the pockets of lenders. This significantly amplifies the rich-get-richer winners-win-more problem. Like, sure, you could build a society like that. Historically, a lot of societies looked like this. They were not very productive, prosperous, and all of their wealth was consolidated in the hands of a few oligarchs.

vkou 4y ago

The rate of lending will drop by an order of magnitude without fractional reserve banking. As will the money supply (hence, defulation), because most of the world's money is created by fractional-reserve lending. > Have banks offer either interest via full reserve banking where your deposit is locked or storage for a fee. Why would you need a bank to do that, you can go buy treasuries on any brokerage that have that property right now. The problem wouldn't be on the deposit side, it would be on the lending side. No bank would offer a prime + 3% mortgage without fractional reserve lending. Housing prices would immediately collapse. No bank would offer anyone a low-APR loan - you'd only get utterly usurious terms. How well do you think the economy would react to the cost of borrowing money going up by 5, or 10%?

maxilevi 4y ago
Okay I can see that. So is the issue that we are so deep in a fractional reserve system that any change would cause a blow up? In other words could an economy started from scratch function with a fully backed reserve system?
- blibble 4y ago
  > In other words could an economy started from scratch function with a fully backed reserve system? not in a world where other economies exist you'd be out-competed and completely bought up by economies operating under fractional reserve
- vkou 4y ago
  > So is the issue that we are so deep in a fractional reserve system that any change would cause a blow up? For half of those things, yes, the issue is that it would be a dramatic change that leaves a lot of people holding the bag. But, you are correct, it doesn't have to be this way. > In other words could an economy started from scratch function with a fully backed reserve system? Unfortunately, you'll still have problems with the other half of those issues. Low velocity of money depresses the economy. This wasn't a concern back when most people were subsistence peasants, and were just toiling to physically grow and put food on the table. All very inelastic demand sort of stuff. This is a pretty big concern when the way most people put food on the table is a 'job', most of which are heavily affected by elastic demand for various goods and services. A peasant doesn't care much about the health of the 'economy', a worker does. For another problem, high cost of borrowing significantly advantages the wealthy, and incumbents. Higher spreads between prime and actual interest rates will siphon more money into the pockets of lenders. This significantly amplifies the rich-get-richer winners-win-more problem. Like, sure, you could build a society like that. Historically, a lot of societies looked like this. They were not very productive, prosperous, and all of their wealth was consolidated in the hands of a few oligarchs.