It's time for a phased withdrawal from Fractional Reserve Banking
By
Chronos Tachyon
on October 04, 2008
The $700 billion bailout plan doesn't actually address the root issue: in short, Tinkerbell's lying there stone dead, we've stopped clapping for her, and Paulson's solution is to shout "I believe in fairies" that much more loudly in the hopes that she'll come back to life.
Fractional reserve banking and fiat money are increasingly looking like a Ponzi scheme, and the bailout throws more money into the Ponzi scheme. The end result will just be a more spectacular fireworks show when the next collapse comes: like any Ponzi scheme, the more money is pumped into it, the more volatile and unstable it becomes, and the more dramatically and suddenly it collapses when the money is burned through.
I've been reading up on Austrian-school economics lately. Scary stuff, especially their firm belief that there shouldn't be a fundamental divide between micro- and macro-economics, and the fact that there is a difference means that someone's committing fraud.
5
1
83.3% 16.7%This claim was inspired by
Similar claims
- 12-2 Modern economics is akin to clapping for Tinkerbell
- 2-24 There is no good reason for governments to borrow money from banks when they could just create it themelves, interest free.
- 41-165 This claim is about everything
- 52-2 I believe in social freedom and economic freedom
- 66-12 The world's problems could be dealt with intelligently if people weren't stupid.
Discussion (5)
It's the fraction, not the system.
The $700 billion plan is not real at all. But many peoploids are at ease now.
Yes, it's only pretend money.
Here's a good analogy:
You have a snowshovel, but you don't have any space left in your shed to keep it.
Your neighbor has the space, so you ask him, "Hey, any chance I could borrow your spare storage space to put my snowshovel in?"
Your neighbor says "Sure! I'll even let you do it for free!"
The first snow of winter arrives, and now you need your snowshovel. You go to your neighbor and ask, "Hey, can I get into your shed and have my snowshovel back? I need it now."
Your neighbor awkwardly fidgets and says, "Um... well... I don't have it. You weren't using it, so I loaned it out to someone else. Here, you can use this garden trowel to shovel your driveway instead."
Fractional reserve banking relies on the assumption that not everyone will need their money at the same time. However, during an economic bust, that's exactly what happens: when credit seizes up, that's when people need their cash most. It's fundamentally unsound.
FDIC insurance doesn't really change the game. The FDIC is already on the verge of being broke — even if no more banks fail and the FDIC survives as-is, it came within spitting distance of bankruptcy, and that should be deeply worrying. If it had gone under — or if it does later this year, as made more likely by the cap bump to $250k — the result would be massive inflation as the government printed money (in the form of fractional-reserve loans to itself) to fund its FDIC obligations, with the result that the dollar would plunge, commodities would spike, and the recession would turn into a long-lasting depression.
I don't see anything fundamentally wrong with fractional reserve banking, it just goes tits up when the ratio of credit given to debt on the books gets out of hand and the underlying debts all go bang at once.