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mathias

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  1. I'd tend to agree with you on that one, but wouldn't a liquidity problem (even if saved by the FED) cause like a substantial inflation (which would undermine the assets of people) - given that the FED would probably have to issue a whole lot of additional money? And if so, would the FED want to cause such inflation, even if to save a liquidity problem? By the way, thanks for the answer as far as the "money in circulation" goes. I'm just not sure wheteher to be plesased to have got it right or be puzzled still more as to what precisely the FED is trying to achieve.
  2. I couldn't agree more. Basically it just seem to me that the banking (Central banks included and indeed taking the front-row seats) system, such as it is today, is corrupted and designed from the onset to make the richer richer and the poorer poorer. I know it sounds like a cliche but that is just the impression I am getting. And they must be doing an incredibly good job at that (not of the economy though, there I think they're seriously playing with fire)! I wouldn't care probably if I was like really rich, but even if I was this whole monetary fiasco, excuse the expression, would interest me from an academic perspective just as well...
  3. First things first I would define the money in ciruculation to be the sum of all the money that people have in their pockets (etc.) and deposited at their banks (i think that there are about four (or something like that)acknowledged ways of talking about money supply, but i think this one does the trick). And now for my comment. Am I right in proclaiming the following (you said that the FED buys governmental bonds etc.): at any given time, if there is more money in circulation than at any prior time; this is a result only of people (institutions, etc.) borrowing these sums of money from the Central bank or are taking advantage of fractional reserve banking (which can make money anew in this way). Thus, if this debts are not remade ad infinituum, the amount of money in circulation should decrease over time to its intial amount. To restate it (just to make sure that i am making the smallest amount of sense): did everyone suddenly decide no longer to be indebted in any way (i am referring here only to money in circulation) - and this should include banks, governments and individuals alike; the amount of money in circulation would (probably drastically) decrease and settle at an original level.
  4. My point would be that customers don't ususally think at all about what their bank is doing with their money because they find its function to be evident enough (or so it would seem). Besides if given banks which would not be allowed to do fractional banking but would be allowed to lend money if their customers allowed them to do so, then does it not seem plausible enough that these banks would want as big a customer base as possible (since these customers are not only future borrowers but lenders as well), seeing as how banks can make profit on the interests earned. So in a competitive enviroment, banks able to make profit this way would definitely be willing to pay a small interest if that mean a bigger customer base. That's one of the things that they might consider (but again my point is that they wouldn't consider, anything, at all). I'm not sure about your country but where I come from, the state only backs the savings of any given individual to a certain fixed amount. Beyond that it's all a question of good luck. Also, fractional resereve banking should (in my opinion) not be legit under any from of money (gold standard or fiat money). Oh, I have another question. As far as I know there is today in circulation more dolllars than say 10 years ago. How is this possible (does it all come from banks lending more money than they have)?
  5. O.K. This is my contribution. As far as I understand it fractional reserve banking is and must be considered fraudelent (from a legal standpoint or not). I shall only consider the case of fiat money (that is money not redeemable for gold, etc. on demand) simply because this seems to be the type of money that we use at this time and will continue to do so for the forseeable future. Suppose now that we have a bank A, to which a depositior a entrusts a fixed sum x. As I see it, the majority of people do not by any chance understand that by the time they turn around (provided that the bank is efficient in its fractional reserve banking) 90% (or something thereabouts) of their money will have gone from the bank to the hands of borrowers of money (even if they should, but I personally think that the banks do little if nothing to make this point absolutely clear, probably one has to read about 500 pages worth of legal documents to come to the conlclusion on one's own and that is well too much for almost everyone, short of an economist or a person well nursihed in matters of the judicial). Most of them will think that the money will be doing precisely what they expect it to be doing - lying around doing absolutely nothing. Should they want to lend out the money they would have come to that decision themselves and would have signed a contract lending the money to some individual. They however do not desire that - what they want is for their money to be repayable to them at once and at a moments notice. For the bank to guarantee payability to its customers is absurd since it cannot meet this contractual obligatin at any given time (at least in certain cases). From this point of view the bank is making legal commitments for something, which it cannot necessarily meet - in this sense, as far as I am concerned its activity is thereofere fraudelent - it is pretending to have abilities, which it does not in fact possess. Another example: Suppose a firm would sign off on a check that it will deliver you say a sofa, if you pay them a thousand dollars. They don't. If you ask me : sue the bastards. The same should apply to banks. These (if they are doing fractional banking) must from the onset be inherently bankrupt. One's deposit (under fractional banking) becomes, in effect, less a gurantee of money but more a lottery ticket. of sorts. And just to be sure, I think there have in the past been numerous crises in several states deriving from the illiquidity of the banks. In any case the inflation under fractional reserve banking is most certainly gretaer than it would have been, did the latter not exist (more money, more demand, higher prices).
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