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If you put gold in wharehouse and they say that you can retrieve it at anytime, and then turn around and give it to others -- how is that not fraudulent? It onl

If you put gold in wharehouse and they say that you can retrieve it at anytime, and then turn around and give it to others -- how is that not fraudulent? It only works because they hope that not everyone will demand their gold back at the same time, so they can give you other peoples gold. My issue is only with demand deposits; if you put the money in an account like a CD where you agree to take it out in X amount of time, then they can lend it out.

philwelch 17y ago
Your argument seems to hinge on the idea that nobody knows about fractional reserve banking. The fact is, not only is it well-known and fully regulated that banks use fractional reserves, but there is even FDIC insurance and similar programs to guarantee the safety of deposits. Now, if there was a legally regulated system where you could do fractional reserve banking of gold, complete with a government insurance program, then it would be perfectly fine and not fraudulent at all. As it turns out, no countries have a gold standard anymore. Comparing some guy with a warehouse of gold who doesn't tell you what he's doing with a publicly insured and regulated system with published reserve ratios is not a particularly honest or fair argument.
- dantheman 17y ago
  I'm arguing against fractional reserve banking, and the continued bailout by the government of banks - FDIC is bankrupt and will need tax dollars or new dollars (inflation). Also, I wasn't using gold because I'm advocating a gold standard (even though I do), I used it because it can be used as substitute for dollars in the example. The problem we were discussing was one of the points from the article: "requiring higher capital ratios on larger banks to ensure the firms’ safety" I was advocating that instead of tinkering with this system, we should fix it. Just because the something is legal and "well regulated" doesn't mean that it is not fraudulent.
  - pyre 17y ago
    Just curious, do you have some sort of justification for the idea that a gold standard is somehow better than fractional reserve other than the out-dated idea that your dollar has something 'physical' to back it? Gold is just an object the only value that it gets is the value that humans give it. It's not like gold has some 'inherent' value just for being gold; a value the is constant and unquestionable. Most people that I've talked to that support bringing back the gold standard only have some vague idea of not wanting their money to be 'just paper' and needing to have something 'physical' that backs it. But their thinking never goes any deeper than that. Most of their ideas come off as lacking in thought. Much along the lines of people that keep all their money in cash in a mattress because they "don't trust the banks;" never mind that it makes it easier for any corner street thug to break your window and steal all your money.
    - dantheman 17y ago
      Oh I don't care if it's based on gold or some other physical asset, my only concern is that it can't be created out of thin air. Throughout history governments have struggled to get control of the monetary supply, separate it from anything real (give it a name deutschmark, pound, dollar), and then create more of it out of thin air. In this way they are taxing everyone who holds that currency without there direct knowledge. Eventually the money becomes worthless. In general people are against central planning when it comes to goods and services, but are in favor of it when it comes to monetary supply for some reason that I don't understand. Throughout the history of central banking in the united states we've had all of the worst financial crises and extreme loss of value (the dollar has lost 98%) of it's value since the federal reserve took over. I also have a problem with the way the new money enters the system. As it enters the market those who get the new money first are able to use it on prices that are set for the old monetary supply so they get great deals, over time prices will rise hurting those not receiving the new money. Lastly, I have no problem with banks, but I do have problems with fractional reserve banking -- as I stated above I feel it's fraudulent. I do believe that through fractional reserve and fiat currency, money is produced is such great speed that when investing one must take inflation into account and seek out riskier and riskier investments to try and make any decent return. It adds one more variable to be considered whenever making a decision, for instance Harvard just lost 500Million due to an interest rate swap agreement because they didn't predict the Fed would hold interest rates at zero for so long. Lastly, if a currency is good it doesn't have to be forced upon you; if people actually believed in fiat currencies they would allow competing systems and abolish legal tender laws. I'd be more than happy to answer any other questions/clear up any misconceptions about this issue -- It's important to me.
  - philwelch 17y ago
    It's no secret that banks use a fractional reserve. That's why it's not fraud--it can't be fraud if the way the system works is totally transparent to everyone involved.

philwelch 17y ago

Your argument seems to hinge on the idea that nobody knows about fractional reserve banking. The fact is, not only is it well-known and fully regulated that banks use fractional reserves, but there is even FDIC insurance and similar programs to guarantee the safety of deposits. Now, if there was a legally regulated system where you could do fractional reserve banking of gold, complete with a government insurance program, then it would be perfectly fine and not fraudulent at all. As it turns out, no countries have a gold standard anymore. Comparing some guy with a warehouse of gold who doesn't tell you what he's doing with a publicly insured and regulated system with published reserve ratios is not a particularly honest or fair argument.

dantheman 17y ago
I'm arguing against fractional reserve banking, and the continued bailout by the government of banks - FDIC is bankrupt and will need tax dollars or new dollars (inflation). Also, I wasn't using gold because I'm advocating a gold standard (even though I do), I used it because it can be used as substitute for dollars in the example. The problem we were discussing was one of the points from the article: "requiring higher capital ratios on larger banks to ensure the firms’ safety" I was advocating that instead of tinkering with this system, we should fix it. Just because the something is legal and "well regulated" doesn't mean that it is not fraudulent.
- pyre 17y ago
  Just curious, do you have some sort of justification for the idea that a gold standard is somehow better than fractional reserve other than the out-dated idea that your dollar has something 'physical' to back it? Gold is just an object the only value that it gets is the value that humans give it. It's not like gold has some 'inherent' value just for being gold; a value the is constant and unquestionable. Most people that I've talked to that support bringing back the gold standard only have some vague idea of not wanting their money to be 'just paper' and needing to have something 'physical' that backs it. But their thinking never goes any deeper than that. Most of their ideas come off as lacking in thought. Much along the lines of people that keep all their money in cash in a mattress because they "don't trust the banks;" never mind that it makes it easier for any corner street thug to break your window and steal all your money.
  - dantheman 17y ago
    Oh I don't care if it's based on gold or some other physical asset, my only concern is that it can't be created out of thin air. Throughout history governments have struggled to get control of the monetary supply, separate it from anything real (give it a name deutschmark, pound, dollar), and then create more of it out of thin air. In this way they are taxing everyone who holds that currency without there direct knowledge. Eventually the money becomes worthless. In general people are against central planning when it comes to goods and services, but are in favor of it when it comes to monetary supply for some reason that I don't understand. Throughout the history of central banking in the united states we've had all of the worst financial crises and extreme loss of value (the dollar has lost 98%) of it's value since the federal reserve took over. I also have a problem with the way the new money enters the system. As it enters the market those who get the new money first are able to use it on prices that are set for the old monetary supply so they get great deals, over time prices will rise hurting those not receiving the new money. Lastly, I have no problem with banks, but I do have problems with fractional reserve banking -- as I stated above I feel it's fraudulent. I do believe that through fractional reserve and fiat currency, money is produced is such great speed that when investing one must take inflation into account and seek out riskier and riskier investments to try and make any decent return. It adds one more variable to be considered whenever making a decision, for instance Harvard just lost 500Million due to an interest rate swap agreement because they didn't predict the Fed would hold interest rates at zero for so long. Lastly, if a currency is good it doesn't have to be forced upon you; if people actually believed in fiat currencies they would allow competing systems and abolish legal tender laws. I'd be more than happy to answer any other questions/clear up any misconceptions about this issue -- It's important to me.
- philwelch 17y ago
  It's no secret that banks use a fractional reserve. That's why it's not fraud--it can't be fraud if the way the system works is totally transparent to everyone involved.