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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

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.

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.