Silver Barron you beat me to it, was reading this from the start and wanted to mention this. Glad you did. The reason Fractional Reserve Banking IMO is practically theft is because the bank provides a service to you in that you store your dollars there short term for a REALLY crap interest rate BECAUSE you can get your funds at any one time on demand. They then can lend those dollars out LONG term to a borrower for an asset like a house. Now sure they have the house as collateral should the borrower default so they have the correct or more assets than is what they have as liabilities. BUT the only reason this survives is because they rely on no one large group of people needing those funds all at once. It is a perfect PONZI scheme in which poor Bernie Madoff is spending several life terms in jail for doing EXACTLY the same thing. Get 5% of the $worth of the Australian population to go into a bank tomorrow and attempt to withdraw all of their funds and tell me the result is and that it isn't theft.
On the currency and gold standards. Sure there were Inflations and deflations under a classic gold standard. But that is the free market working to be self correcting. The supply/demand/price relationship will naturally seek out an equilibrium over time. Under a 1for1 gold standard credit or money supply growth can not artificially manipulate this cycle or relationship. Take the Dutch tulip mania as an example. It was self correcting once they realized that they were paying too much.
Term deposits are there to help the banks mitigate their risks from maturity mismatches regarding their assets and liabilities. Deposits are liabilities whereas loans such as mortgages are assets. Bank's assets such as mortgages are usually in the form of long term liabilities, deposits are usually short term because people can go to the ATM and take money out. Term deposits help banks manage their liquidity and balance their maturities between long and short term. That is unless he has another $100 somewhere else to repay you back with, which is what our banking system does anyway. Also, you don't expect $100, you expect > $100, the surplus being the interest rate. The fractional reserve banking system utilizes a minimum cash reserve margin thingy to prevent bank runs. Basically, banks are legally required to store say 10% of their deposits as M1 to allow for withdraws whereas the rest can be lent out. Why would you lend someone $100 for a year if all you're getting back is $100 in the future? lol. It's easy to get a loan because some financial institutions want to get higher returns so they charge crazy interest rates to some people who are desperate and they price the risk in. Also, in Australia, your debt is tied to you unlike the USA where you can walk away from your property since the debt isn't tied to you. There is much better protection in place for the bank given that they can reclaim and sell any assets that you own to repay your loan thus they are less stringent in their checks.
Well put fishball, however the big four the last time I checked had less than 3% of cash on hand. THREE PERCENT! If I remember correctly CBA had 2.6% of the cash they had as liabilities. So having that $100 dollars on hand for that one guy is fine but what if several thousand wanted their life savings in one go? Another computer glitch? That is a ridiculously small amount of cash on hand in these very turbulent times wouldn't you agree?
Not sure what the rules are but there are legal guidelines on how much cash/M1 has to be stored, I'm sure CBA is following the law. It might be 3% or 10% I don't know since I don't follow it. If several thousand or million people suddenly wanted money then there would of course be a problem, hence the introduction of the federal government guarantee to prevent bank runs. Also the government (RBA) can provide the liquidity if there is a run by letting CBA borrow at the overnight cash rate. Edit: Well it apparently seems there are no rules lol. https://secure.wikimedia.org/wikipedia/en/wiki/Reserve_requirement Yep our banks are stuffed, taking excessive risk, poorly diversified investment portfolios among other things. Can't really place the blame solely on fractional banking though. Still, it's important to understand why banks have to lend out money, they have to make money some how to pay interest
When fiat collapses, and most folks are out in the cold - their savings in the bank wiped out, their real estate devalued (bubble burst), and there is a shortage of most everything in the store... What the heck makes you think anyone would accept a replacement "fake" currency backed by nothing but baloney and hot air and smoke and mirrors? There will be enough disenfranchised to demand that a real money be the replacement, whether that be actual gold and silver coin, or a certificate of deposit system (paper money backed by actual gold and silver). And if anyone is thinking that a "gold standard" means silver is excluded, don't kid yourself - there's not enough gold to act as a gold standard, silver will be included, likely at a preset GSR. I can speak to Germany's case, my mother lived through it. Yes, there was a replacement of the old paper money with a new Rentenmark (if I recall the name correctly). A very small amount of old currency could be traded in by each person (it was capped), and new money was given at a rate of 1 new to 1,000,000,000,000 old. During the actual hyperinflation, though, whilst paper money worth billions of marks was useless other than to light a fire, interestingly, actual coins could buy many things. To relate this to Australia, one could offer a 50 cent coin and buy a loaf of bread, where a billion mark note was rejected for the trade. Why? Because the coins of the era contained precious metal (gold, or more commonly, silver). There's a message in there ;-) (Edited for corrections to currency name and conversion rate)
For some reason, everyone ignores the record breaker country for hyperinflation, Hungry. After the war they had octillion and quantillion banknotes...and prices doubled every hour! :O
Hyperinflation in Hungary http://en.wikipedia.org/wiki/Hyperinflation#Hungary.2C_1945.E2.80.9346 http://www.cato.org/pub_display.php?pub_id=8232
lol - i suggest you do some research on how fractional reserve banking actually works in practice. you may then want to come back and edit your comment about the banks NOT stealing money ... Banks fraudulently lend out money all the time that they have pulled out their arses and then have the cheek to charge people interest on that phantom money... SAVVVY??
i would have thought by creating money out of nothing and charging interest increasing/inflating the money supply steals the purchasing power of that deposit money
Yep, and the whole nation's currency supply was valued less than US$1 (can't remember where I read that one).
Strictly speaking that's different to stealing deposit money, however all fractional reserve lending doesn't necessarily increase the money supply due to how bank reserves work. If I have a loan but then I pay it off, freeing up the reserves and allowing the bank to create a new loan to you, your loan didn't necessarily increase the money supply - it was increased by my initial loan and your loan keeps it constant.
It was taken off the gold standard so that governments and bankers can thieve other peoples' money with impunity... Once the thieving bankers and politicians have been hung - there WILL be a return to honest money. SAVVVY???
Maybe so, but I think it is important to be precise about these things. The original implies something quite different to people who don't understand how fractional reserve banking works.
