Hello y,
In a world devoid of objective, well-accepted definitions, I agree, anything can be “fraud,” even honoring a contract and grapefruit.
Regarding “credit created out of thin air,” you reveal that you are unaware that accounting takes into account both sides of any transaction. You only count one side of each transaction, and then cry “fraud,” “inflation,” etc.
When you “deposit” $100 into a bank account, the bank makes TWO balanced accounting entries: (1) That it owes you $100; (2) that it has $100 in cash assets.
When the bank loans $90 of that money to another person, it makes TWO balanced accounting entries: (1) It subtracts the loan amount of $90 from its cash; (2) it adds that it is owed $90 by the other person as an asset.
The bank then has this accounting result: a) $100 in “liability” to you, its depositor; and b ) $100 in “assets.”
Of course, the assets are: (i) $90 in money it is owed by the other person, which is expected to be paid back; and (ii) the $10 is cash reserve against demands for withdrawal.
The net change of “money supply” in every one of such transactions is always ZERO. No fiat money is created. No inflation is created.
The illustration of “Mulligan’s Bank” in Atlas Shrugged didn’t have those evils, either.
Banking (i.e., fractional reserve banking) worked before with gold standard currency and it would work again with gold standard currency.
The “safety” of the deposits and the “risk” of the loans must be managed, of course. The bank charges interest for the risk. The interest should cover the risk, actual losses, operating expenses, and profit. The bank should take much less risk with depositor’s funds than it’s manager might take with his own funds, because the depositors expectations of repayment are high–but only a child would expect 100% safety for this. In exchange for this risk, the depositor receives cheap and relatively safe “demand deposit account” services and other related transactional services (check cashing, wire transfer, etc., the like of which other non-bank entities may offer, too, such as “Western Union” or “Cash America” and the Post Office do for a fee or percentage), and for larger accounts, even interest, too. The bank is usually paid back the $90 loans, plus interest, and keeps the difference, after loan losses and operating expenses, as profit. This is where balanced accounting entries for income and expenses come in.
The bank aggregates the depositors’ accounts to spread the risk and increase overall safety. The bank aggregates the loans to others to spread the risk and increase overall chances of repayment. On balance, and in general, it is managed to be very safe. On top of this, in a free society, the banks could buy insurance or come together and make mutual insurance, too. That would cut profits, but help attract depositors.
If a depositor desires higher safety than the bank normally offers on “demand deposit accounts,” he should keep his money in a “safety-deposit box.” This generates no income, is still subject to risk of bank heist, and has a maintenance fee that is probably not covered or subsidized by the bank’s lending operations, except perhaps as a courtesy or incentive for sufficiently-large depositors in the “demand deposit accounts” and CDs, etc.
Preferably, a fractional-reserve bank is managed by someone like “Midas Mulligan.” If you don’t want to “risk” the relative “safety” and convenience of a bank “demand deposit account,” use a safety deposit box or your mattress. No one is stopping you, and that does not cause fiat currency or inflation, either.
The cry for the safety of “full-reserve banking” is the cry for the simplicity of the ox-cart instead of the complexity of the passenger jet. But which is really “safer”?
I become increasingly convinced that this discussion is at an impasse.