The consequences of Bitcoin

KyussBishop

SupaNova2 wrote: »

I don't need the spiel on money creation thanks. I thought I had made it obvious what part of your quote I was talking about, so I better put in bold this time.



You see how the phrasing automatically "creating reserves to support investment" does not gel with the above.

I've described twice now, how the actual loans banks make, create the required deposits to shore up reserves, for supporting the loans/investments; you are ignorantly discarding this as 'spiel', when it answers your question.

This seems another example of nitpicking where you are trying to engage in semantics (you're probably trying to redefine the word 'supporting' in my argument, to create a strawman), for the sake of rhetorical argument and condescension.

If you don't understand someones argument, you show pretty clear bad intent by getting increasingly snarky/demanding/condescending in your response, when they actually are making the effort to rephrase the argument and explain it better; this is a pattern many Austrian/Libertarian posters use in practically every argument, to try and get away from actual discussion, and move more towards the usual smearing that they are most familiar with, as a method of argument (which they know full well is bullshít).


'Supporting investment' i.e. supporting loans, is defined in my argument as having the bank reserves required to back that, without falling outside of reserve requirements; whatever definition you are using, is not the argument I am making, and pretending it is would be a straw-man.

SeanW

KyussBishop wrote: »

No it does not even the playing field,

Yes, it does. It gives the lower classes the same access to strong savings capabilities as the rich. Even more so if you have support from fiscal policy, such as wealth taxes.

we have to earn money in order to invest it, and most people have to go into debt in order to buy a home eventually (particularly with the rental market being so poor here);

True.

a deflationary (not 'zero inflation') currency, makes debt even more burdensome (tipping the balance in favour of creditors, at the expense of debtors), with the principal of the debt rising in real terms over time, which causes the rate of interest paid to be compounded twice-over (once for principal+interest, and once for appreciation in value of principal), and this happens alongside deflating wages as well, constantly making it more burdensome over time to keep up with repayments.

The effect of that on for example property prices is that prices stay low, so the costs remain the same.

For example: in the 1980s you could buy a good house for IR£20,000. But interest rates were sky high. Fast forward to the 2000s and the same house would cost €400,000 but was "affordable" because of "historic low interest rates."

Are you seriously suggesting that the latter was an improvement?

Saying that levels the playing field, is like saying the rich get away with fraud, therefore we should decriminalize fraud and let everyone defraud one another unrestricted.

Again, you're comparing legal activity with illegal activity.

You must be posting facetiously here, because you're not even pretending to address any of these massive massive problems that a deflationary currency brings about, you're just repeating the same unbacked assertions.

I'm not saying I want a deflationary currency as an absolute, I'm just pointing out that inflation is no better and probably worse because it hurts the poor and middle classes and anyone on a fixed income.

Investment is enabled by money creation, not by savings (as the above shows, investment leads to savings, not the other way around), and excessive saving (to an extent that it leads to a significant reduction in demand), especially combined with a deflationary currency and debt-deflation, can tank an economy; this is part of why avoiding deflation is a priority for economists and policymakers.

This is why Keynesian economics is such dangerous nonsense. The greatest economic expansion the world has ever seen (the Industrial Revolution) came at a time of gold backed currency, interest on savings meant real loanable funds were available to entrepreneurs to buy production machines, ushering in a transition from the middle ages to the modern era.

The second major flaw "savings is bad" is that it assumed that money saved is money that just disappears, never to be seen again.

This is total BS for two reasons:

1. If we encourage people to save in bank savings, then there are plenty of real (i.e. the central bank doesn't have to make funny-money) loanable funds for borrowers.
2. Savings are future consumption: if I put money aside now for a year, I can consume more (hopefully) next year. So the negative effect of excess saving is limited to the very short term. But when we have artificial money and artificially low interest rates, peoples behaviour changes for the negative. Like the boom of the 2000s.

SupaNova2

KyussBishop wrote: »

I've described twice now, how the actual loans banks make, create the required deposits to shore up reserves, for supporting the loans/investments; you are ignorantly discarding this as 'spiel', when it answers your question.

I didn't mean 'spiel' in a dismissive your wrong manner, rather a dismissive I know already. And I'm not trying to be nitpicky, just trying to get you to say what you're saying more clearly. The bolded part again is making little sense, "create deposits to shore up reserves"? Conflating of reserves/deposits/savings in another post confuses things even from your MMT viewpoint, no? Are they not different?

You are about to get across probably the only thing MMT uniquely gets right but its lost in bad writing.

KyussBishop

Ok, I will try to put it differently and more clearly again, while separating discussion of reserves from deposits (I think I see now, how me making them interchangeable, was confusing); unavoidably, this involves repeating stuff already known/mentioned, but I've tried to be thorough this time.

First off, banks extend loans first and fix up reserves later, and by extending loans they create new deposits; person A takes a €100 loan from bank X, buys a good from person B, person B deposits this €100 in bank Y, creating new deposits.

At the central bank, this also causes €100 in reserves to be taken from bank X, and allocated to bank Y instead; this might cause bank X to fall below reserve requirements, and bank Y to have excess reserves.

We know banks must keep enough reserves, in order to meet lets say 10% of their deposits; if bank X is below its reserve requirements, it can then borrow some of bank Y's excess reserves (this is 'interbank' lending), in order to meet its reserve requirements, or go to the central bank if that fails.

When bank X borrows excess reserves on the interbank market like that, this will drive up the interest rate on the interbank market; central banks usually have a set-target for this interest rate, and when it is pushed up like that, central banks will add new reserves to bring the rate back down to target; due to this, loans also indirectly lead to the creation of reserves as well as deposits.

SupaNova2

That was better.

KyussBishop wrote: »

At the central bank, this also causes €100 in reserves to be taken from bank X, and allocated to bank Y instead; this might cause bank X to fall below reserve requirements, and bank Y to have excess reserves.

Yes reserves get transferred form bank X to Bank Y, but those reserves were not created by the customer taking out a loan with bank X. Central banks are in control of reserve creation.

KyussBishop

SeanW wrote: »

Yes, it does. It gives the lower classes the same access to strong savings capabilities as the rich. Even more so if you have support from fiscal policy, such as wealth taxes.

Except the lower classes disproportionately use debt; they also have much less in savings than the rich, so the rich benefit way more than the lower classes.

You again, are ignoring all the other aspects of deflation already mentioned, which negatively affect the less well off.

SeanW wrote: »

KyussBishop wrote:

a deflationary (not 'zero inflation') currency, makes debt even more burdensome (tipping the balance in favour of creditors, at the expense of debtors), with the principal of the debt rising in real terms over time, which causes the rate of interest paid to be compounded twice-over (once for principal+interest, and once for appreciation in value of principal), and this happens alongside deflating wages as well, constantly making it more burdensome over time to keep up with repayments.

The effect of that on for example property prices is that prices stay low, so the costs remain the same.

For example: in the 1980s you could buy a good house for IR£20,000. But interest rates were sky high. Fast forward to the 2000s and the same house would cost €400,000 but was "affordable" because of "historic low interest rates."

Are you seriously suggesting that the latter was an improvement?

That's a really poorly executed straw-man, and you even totally ignore the negative creditor vs debtor dynamic I pointed out there; just totally ignored it altogether, to put forward that straw man.

You have even pointed out, that you don't need a deflationary currency to keep house prices at sensible levels, because you've already shown that in the 1980's (in a fiat currency), house prices were kept at low levels.

You must not think the regressive effects of favouring creditors is a problem at all then, which you know is reprehensible but which you aren't willing to just come out and say.

SeanW wrote: »

Again, you're comparing legal activity with illegal activity.

I'm comparing one regressive action (legalizing fraud, giving the rich massive power over the less well off), with another regressive action (adopting a deflationary currency, giving the rich massive power over the less well off).

SeanW wrote: »

I'm not saying I want a deflationary currency as an absolute, I'm just pointing out that inflation is no better and probably worse because it hurts the poor and middle classes and anyone on a fixed income.

You're pretty much defending deflationary currencies and heavily implying (even if a step away from outright saying) they are less worse than inflationary systems.

That is nonsense; only crackpot economists think that, given the depth of knowledge there is, about the negative effects of deflation.

You know deflation disproportionately benefits the rich, and you know that if its redistributing wealth upwards towards the rich, then it has to be harming the less well off.

You want the rich to be getting massive constant increases in their buying power for doing nothing, not even by investing the money into useful purposes; since deflation also kills demand by increasing real debt burdens, leading to greater unemployment, you also want many of the least well off to sit around unemployed as well, yet you pretend they can still put together usable savings so that they can benefit from deflation, even when they are going to have a reducing pool of income, and a greater reliance on debt.

You know that's a really poor argument in favour of deflation, so it's increasingly hard to take it seriously.

SeanW wrote: »

This is why Keynesian economics is such dangerous nonsense. The greatest economic expansion the world has ever seen (the Industrial Revolution) came at a time of gold backed currency, interest on savings meant real loanable funds were available to entrepreneurs to buy production machines, ushering in a transition from the middle ages to the modern era.

The second major flaw "savings is bad" is that it assumed that money saved is money that just disappears, never to be seen again.

This is total BS for two reasons:

1. If we encourage people to save in bank savings, then there are plenty of real (i.e. the central bank doesn't have to make funny-money) loanable funds for borrowers.
2. Savings are future consumption: if I put money aside now for a year, I can consume more (hopefully) next year. So the negative effect of excess saving is limited to the very short term. But when we have artificial money and artificially low interest rates, peoples behaviour changes for the negative. Like the boom of the 2000s.

Yea we're not in a gold standard. If you talk about a fiat currency system, like it were the gold standard, you are wrong on a fundamental level.

I also never said any of the above about savings. What I do say though, is that when you have excessive saving, to the point where income previously spent on demand is going into savings, causing demand and thus economic activity to decrease (causing unemployment), then that is a massive waste of resources and particularly labour potential.

That is a waste of potential consumption, as well as human effort, not a saving up of it for later; if you have 95% employment, and you reduce it by 20% today with excessive saving, and return to 95% tomorrow, then you are not 'saving' a days worth of work potential to be spent later, you have lost it forever.

KyussBishop

SupaNova2 wrote: »

That was better.



Yes reserves get transferred form bank X to Bank Y, but those reserves were not created by the customer taking out a loan with bank X. Central banks are in control of reserve creation.

Indeed, people taking out loans does not directly lead to reserve creation, though it does happen indirectly; central banks always tend to create the necessary reserves to fulfill demand for loans, utilizing the interest rates as the primary method of control.

SupaNova2

KyussBishop wrote: »

You have even pointed out, that you don't need a deflationary currency to keep house prices at sensible levels, because you've already shown that in the 1980's (in a fiat currency), house prices were kept at low levels.

His point was prices adjust. The cheaper and larger the volume of credit is expanded the higher house prices become. If deflation were the norm people wouldn't be taking out large long term loans to buy housing, thus prices would come down, there would be more of a cash price, simple supply and demand.

That is nonsense; only crackpot economists think that, given the depth of knowledge there is, about the negative effects of deflation.

Actually there have been plenty of studies on the link between price deflation and depression, and surprise surprise, no correlation.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=495773
http://www.business.unr.edu/faculty/parker/papers/guerrero-parker_el2006.pdf

Are they crackpot economists?

KyussBishop

I don't support credit going into unsustainable economic activity or asset bubbles; a fiat currency doesn't automatically mean that. In fact, I'm in favour of totally removing money creation abilities from banks altogether, with the possible exception of allowing it for a public bank.

His point, was not even related to what he was replying to, but was in fact totally ignoring the quoted part he was pretending to reply to.


Pretty much all of the negative effects I pointed out from deflation, did not mention anything regarding a depression; that seems to be a red herring, and ignores all the negative socioeconomic effects (particularly wealth-redistribution) pointed out.

When the upward-redistribution of wealth is not even addressed like that, it pretty much shows that neither of you view it as a problem, and the inability to just address that directly and come out and say it, makes the cynic in me think that (unsurprised) that is the whole point of it, and that you're making a political argument under guise of an economic one (because just flat-out stating you support regressive redistribution of wealth, is a discreditable statement you want to avoid, so you dance around it implicitly, without stating it).

Valmont

If interest rates were released from central bank control they would undoubtedly rise -- now what I think you really have to explain is why the banks would favour an environment where their product would not only cost significantly more but their customers would have very good reasons to save instead. Economics 101: If price goes up, demand goes down. Yet you would have us believe that banks want the price of their loan products to increase? Yes the loans they already have on the books would increase in value (and so would the number of people discharging them through bankruptcy) but in the absence of as many new customers, the banks would certainly be looking at less customers, less revenue, and less profit in the long run. Regarding the upward wealth redistribution, I'm not convinced; the poor could actually gain a return on their meagre savings and the cost of living would decrease.

KyussBishop

That is another red herring, entirely unrelated to anything I have posted; you can have high interest rates with a fiat currency as well, that makes absolutely no difference.

You are saying, in a gold standard the interest rates will rise; so then, not only would you have a deflationary currency where the principal is forever increasing, the interest paid is even higher, causing debt burdens to increase even faster.

What a paper-thin line of defense that is: You know it will be the poor who are most reliant on debt, and you know they will be utterly screwed over by the creditor vs debtor dynamics, yet your token-benefit for these people is that they can make greater gains on their savings, even though (being the poorest) they have far less savings than everyone else, and are even in debt (which wouldn't make it surprising, for many of them to have little-or-no savings at all).


It's such a disingenuous line of argument: It seems primarily like you don't give a toss about those who would be trapped under debt, you just try to make weak assertions that this would not happen, even though you know full well that would happen.

It also seems you don't care, that the people making the biggest gains from all of this, are going to be the rich (where their deflationary currency automatically means they can't lose if they hoard), and the creditors (where the creditor vs debtor dynamic is loaded in their favour).


This is the silly thing about supporters of such economic/political systems: It's so blindingly obvious that the entire goal for the system you want, is to push the worst-off into serfdom, and give the richest enormous power of society and politics; you don't even try to hide it either, you just give massively weak arguments to try and deflect the harm your policies would cause to the worst off, and you're just silent about the upward-redistribution of wealth, giving equally weak (usually 100% subjective "well I'm not convinced.") denials of it.

It's so plainly dishonest, in presentation and defense of it, that I don't understand how you think it could ever be viewed as respectable, outside of people who already follow it.

Valmont

This is very straightforward. If the price of credit increases, demand for credit will fall. Now tell me why any business would want to see the cost of its goods increase?

KyussBishop wrote: »

What a paper-thin line of defense that is: You know it will be the poor who are most reliant on debt, and you know they will be utterly screwed over by the creditor vs debtor dynamics, yet your token-benefit for these people is that they can make greater gains on their savings, even though (being the poorest) they have far less savings than everyone else, and are even in debt (which wouldn't make it surprising, for many of them to have little-or-no savings at all).

Has it ever occurred to you that credit-bubble loan prices are why poor people have little or no savings? Why save for a paltry amount of interest when the value of one's money will in fact fall due to inflation? With a decent interest rate I think you will find more people will want to save and avoid borrowing -- this again is basic economics which seems to have passed you by!

SeanW

KyussBishop wrote: »

Except the lower classes disproportionately use debt; they also have much less in savings than the rich, so the rich benefit way more than the lower classes.

Only because today we have a Keynesian inflationary monetary policy, which encourages borrowing and discourages saving. Yes, people have paid half a million for shoebox flats and charged Starbucks coffees and taxis to their credit cards, but thats a recent phenomenon encouraged by inflationary fiat currency.

As for borrowing, the picture is not as dire as you make it out to be: in the past, poor and average people who needed things they couldn't pay for right away could routinely get "tick" from local shops to obtain food when between payments or whatever.

You have even pointed out, that you don't need a deflationary currency to keep house prices at sensible levels, because you've already shown that in the 1980's (in a fiat currency), house prices were kept at low levels.

With sky high interest rates, everything you rail about against honest currencies was present in the fiat currency. Interest rates were so high they "favoured the creditors" and that kept property prices in check.

You must not think the regressive effects of favouring creditors is a problem at all then.

Your absolutely right: I don't see it as a problem, for two reasons:

1. It keeps demand nice and even.
2. It encourages behavior on the part of the lower classes (saving) that will strengthen and empower them.
3. It would disproportionately IMPROVE the lives of the working classes, by giving them something they have not had in a long time.

I'm comparing one regressive action (legalizing fraud, giving the rich massive power over the less well off), with another regressive action (adopting a deflationary currency, giving the rich massive power over the less well off).

This is absolute and total nonsense.

1. You are comparing illegal and immoral behaviour (fraud) with behaviour that is both legal and moral (protecting ones assets from inflation)
2. The rich are not negatively affected by monetary policy because they generally avoid inflation by diversifying into deflationary assets or taking advantage of their access to hedge funds. Consider the behaviour of some Wall Street icons like Goldman Sachs whose business depends on screwing small time unsophisticated clients like ... local charities and retirement funds. According to Max Keiser, that's only the start of it, they can also do stuff like Lookback trades, whereby an order for a long or short position is placed by the company but with no client name attached, then depending on how the position works out it's assigned to either a favoured client (for example a politician they want to butter up) or an unfavoured client (a muppet) or one of the elites who need a loss for tax purposes.
   
   Can you not understand why I would want to free the lower classes from having to get involved in this crap? And why a non-inflating currency would do so (By promoting cash and retail bank savings)?

You're pretty much defending deflationary currencies and heavily implying (even if a step away from outright saying) they are less worse than inflationary systems.

That's exactly what I am saying. Non-inflating currencies (whether because they're fiat currencies with a zero-inflation target or because they're "hard" currencies) empower the lower classes by encouraging and rewarding thrift.

You know deflation disproportionately benefits the rich, and you know that if its redistributing wealth upwards towards the rich, then it has to be harming the less well off.

I dispute very strongly. Whether deflation or simply non-inflation, such a policy would empower the working classes and restrain prices.

That is a waste of potential consumption, as well as human effort, not a saving up of it for later; if you have 95% employment, and you reduce it by 20% today with excessive saving, and return to 95% tomorrow, then you are not 'saving' a days worth of work potential to be spent later, you have lost it forever.

Again, this is why Keynsian economics is such dangerous nonsesne.

Savings are deferred consumption. If I save now instead of spending, I will have more money to spend later on, so at some time I will spend more than I would have, had I not saved.

I'll grant you that you probably don't want people saving so much that demand dries up only to be followed by a firestorm of spending later on, but with inflationary currency we have the exact opposite: a firestorm of spending (2000s) followed a collapse and years of retrenchment. Again, a happy medium might be a fiat currency with a zero-inflation, zero-deflation target.

KyussBishop

Valmont wrote: »

This is very straightforward. If the price of credit increases, demand for credit will fall. Now tell me why any business would want to see the cost of its goods increase?

Again with the same red-herring; I haven't said anything regarding demand for debt, and you are avoiding the issue that the less well off as a group will be relying more on debt vs the better off, and you know that, you are consciously avoiding addressing that, because you can't even acknowledge it without facing up to the regressive nature of the policies you are supporting.

By so unskillfully executing your attempt to dance away from that issue, you make it extraordinarily obvious that you are fully aware of it, and are unwilling even to face up to it, only to try and distract attention away from it.

Valmont wrote: »

Has it ever occurred to you that credit-bubble loan prices are why poor people have little or no savings? Why save for a paltry amount of interest when the value of one's money will in fact fall due to inflation? With a decent interest rate I think you will find more people will want to save and avoid borrowing -- this again is basic economics which seems to have passed you by!

That is total nonsense, and another red-herring; it is well known that the less well off, spend a greater percentage of their income on living expenses, and that saving up to buy a house just isn't practical for loads of people, thus many of them will need to use debt.

If you're touting the gold standard, which the vast majority of the economic community consider a bad idea, then you haven't got grounds to condescend to anyone about 'basic economics' (and dropping to condescension itself shows up your bad intent in this discussion), nevermind that it's in reply to a straw-man, an argument I never made.

KyussBishop

SeanW wrote: »

KyussBishop wrote:

Except the lower classes disproportionately use debt; they also have much less in savings than the rich, so the rich benefit way more than the lower classes.

Only because today we have a Keynesian inflationary monetary policy, which encourages borrowing and discourages saving. Yes, people have paid half a million for shoebox flats and charged Starbucks coffees and taxis to their credit cards, but thats a recent phenomenon encouraged by inflationary fiat currency.

As for borrowing, the picture is not as dire as you make it out to be: in the past, poor and average people who needed things they couldn't pay for right away could routinely get "tick" from local shops to obtain food when between payments or whatever.

What you've said doesn't apply to what you quote at all; the less well off would still be the group that disproportionately use debt (you only provide arguments to back the claim there will be less overall debt; a straw-man).

The latter is yet another half-hearted token-gesture, trying to imply such debt wouldn't occur: You know it will. You know it will go disproportionately to the less well off.

SeanW wrote: »

With sky high interest rates, everything you rail about against honest currencies was present in the fiat currency. Interest rates were so high they "favoured the creditors" and that kept property prices in check.

For someone touting an 'honest' currency, you're very dishonestly pretending my arguments boil down to the high-inflation one: You know the arguments against deflationary currencies are far wider than that, particularly constantly increasing principal on debts (compounded twice over with interest), and regressively-distributed increases in profits for the wealthy without putting any effort in (this one none of you want to touch, which I would bet is down to specifically desiring, yet just aren't honest enough to even acknowledge this as an issue),.

SeanW wrote: »

KyussBishop wrote:

You must not think the regressive effects of favouring creditors is a problem at all then.

Your absolutely right: I don't see it as a problem, for two reasons:

1. It keeps demand nice and even.
2. It encourages behavior on the part of the lower classes (saving) that will strengthen and empower them.
3. It would disproportionately IMPROVE the lives of the working classes, by giving them something they have not had in a long time.

Lol...I guess this is why most economically right-wing posters prefer to dance around issues/problems, rather than address them directly: When the actual desired political system, motives and justification for it are presented unshielded (like here), you see it really is all about giving massive disproportionate social/economic/political power to the rich/wealthy, and that they think the less well off should be somehow grateful for it, and should believe it's good for them.

What utter tripe really; the lower classes, who get hammered twice-over with debt, are supposedly strengthened and empowered, and this will improve their lives somehow, giving them something they haven't had in a long time (serfdom?).

SeanW wrote: »

This is absolute and total nonsense.

1. You are comparing illegal and immoral behaviour (fraud) with behaviour that is both legal and moral (protecting ones assets from inflation)
2. The rich are not negatively affected by monetary policy because they generally avoid inflation by diversifying into deflationary assets or taking advantage of their access to hedge funds. Consider the behaviour of some Wall Street icons like Goldman Sachs whose business depends on screwing small time unsophisticated clients like ... local charities and retirement funds. According to Max Keiser, that's only the start of it, they can also do stuff like Lookback trades, whereby an order for a long or short position is placed by the company but with no client name attached, then depending on how the position works out it's assigned to either a favoured client (for example a politician they want to butter up) or an unfavoured client (a muppet) or one of the elites who need a loss for tax purposes.
   
   Can you not understand why I would want to free the lower classes from having to get involved in this crap? And why a non-inflating currency would do so (By promoting cash and retail bank savings)?

It's not 'protecting ones assets from inflation', you're talking about enforcing a gold standard, not buying gold on the market.
A gold standard is immoral, for all the regressive socioeconomic effects it has, that you and others are dancing all over the place trying to play down and avoid addressing.

You know full well the "freeing the lower classes" stuff is total nonsense, and that what you advocate frees up the rich to get even more massive profits, for far less effort.

SeanW wrote: »

That's exactly what I am saying. Non-inflating currencies (whether because they're fiat currencies with a zero-inflation target or because they're "hard" currencies) empower the lower classes by encouraging and rewarding thrift.

Bollocks. You acknowledge yourself the way it favours creditors, and it also gives the wealthy a constant regressively-distributed built-in gain in the value of their holdings, for doing nothing, not even investing it!

If 10% have 90% of the wealth, that is 90% of the benefits of a deflationary currency going to those wealthy few. That benefits the rich, at the expense of the poor, and with many of the less well off upwardly-redistributing their earnings to the rich through debt.

SeanW wrote: »

I dispute very strongly. Whether deflation or simply non-inflation, such a policy would empower the working classes and restrain prices.

That's an assertion, not an argument. You just keep ignoring these massive massive issues pointed out above, just to spout the same unbacked assertions.

SeanW wrote: »

KyussBishop wrote:

That is a waste of potential consumption, as well as human effort, not a saving up of it for later; if you have 95% employment, and you reduce it by 20% today with excessive saving, and return to 95% tomorrow, then you are not 'saving' a days worth of work potential to be spent later, you have lost it forever.

Again, this is why Keynsian economics is such dangerous nonsesne.

Savings are deferred consumption. If I save now instead of spending, I will have more money to spend later on, so at some time I will spend more than I would have, had I not saved.

I'll grant you that you probably don't want people saving so much that demand dries up only to be followed by a firestorm of spending later on, but with inflationary currency we have the exact opposite: a firestorm of spending (2000s) followed a collapse and years of retrenchment. Again, a happy medium might be a fiat currency with a zero-inflation, zero-deflation target.

That's not a feature of an inflationary currency, that's a feature of a credit bubble, which isn't an immutable outcome of an inflationary currency.

You do know that in a gold standard, there is no way to restore an economy back to full employment in a depression, other than waiting it out through forced-austerity?
This means guaranteed unemployment, where a properly managed fiat currency (definitely not like how its done today), can provide guaranteed full employment, at all times (something a gold standard would find impossible).

Valmont

KyussBishop wrote: »

I haven't said anything regarding demand for debt

Exactly -- you haven't. One can't say that banks want a 'deflationary' environment and not consider what that environment might do to demand for their products.

One other point you have missed is that large banks themselves have borrowed colossal amounts of money. Now why would a bank want (1) the cost of their loan products to become unaffordable for many people and (2) the cost of servicing their own debt to increase? Unfortunately 'hoarding' some cash under the mattress and allowing it to appreciate won't fill the large gap left by millions of people deciding against buying their products. Until you can account for these powerful economic forces that are aligned against your theory, your assertion that banks would love a 'deflationary environment' just won't fly. You're trying to argue the economic equivalent of saying if we drop the ball gravity won't take hold.

KyussBishop wrote:

it is well known that the less well off, spend a greater percentage of their income on living expenses

Yet you actively support a position which would prevent these living expenses from falling.

KyussBishop wrote:

and that saving up to buy a house just isn't practical for loads of people, thus many of them will need to use debt.

I hope you're not trying to justify the need for low interest rates because people might want to buy a house; you do remember the property bubble we had a few years back? Saving for a house isn't practical for me either but I found a solution that involves neither saving or borrowing: renting!

KyussBishop wrote:

If you're touting the gold standard, which the vast majority of the economic community consider a bad idea, then you haven't got grounds to condescend to anyone about 'basic economics'

I prefer to ignore the vast majority and instead analyse each issue critically and as objectively as possible. I didn't mean to condescend but I think at this point I have demonstrated with perfect clarity that your theory about banks wanting deflation just doesn't make sense when we consider the basic laws of supply and demand.

KyussBishop

Valmont wrote: »

Exactly -- you haven't. One can't say that banks want a 'deflationary' environment and not consider what that environment might do to demand for their products.

Another straw-man, I never said banks want deflation; you will make up any position, and try to pin it on me, to avoid addressing what I actually have said, because you know you haven't got any direct answers to the problems I put forward, only straw-men and other nonsense you try to use as distractions (and you don't even hide that well).

Your even selectively quoting me here, in a way that shows this, by omitting the rest of my sentence criticizing you for the totally irrelevant straw-man, and pointing out repeating what I actually was talking about:
Again with the same red-herring; I haven't said anything regarding demand for debt, and you are avoiding the issue that the less well off as a group will be relying more on debt vs the better off, and you know that, you are consciously avoiding addressing that, because you can't even acknowledge it without facing up to the regressive nature of the policies you are supporting.

Valmont wrote: »

One other point you have missed is that large banks themselves have borrowed colossal amounts of money. Now why would a bank want (1) the cost of their loan products to become unaffordable for many people and (2) the cost of servicing their own debt to increase? Unfortunately 'hoarding' some cash under the mattress and allowing it to appreciate won't fill the large gap left by millions of people deciding against buying their products. Until you can account for these powerful economic forces that are aligned against your theory, your assertion that banks would love a 'deflationary environment' just won't fly. You're trying to argue the economic equivalent of saying if we drop the ball gravity won't take hold.

Oh look, another red-herring, which totally fails to address the issue I brought up in the first place; the fact that creditors gain an advantage over debtors, is a factually unavoidable part of a deflationary currency (it is not a 'theory', except to people who haven't got a clue about basic mathematics, that the rising value of a unit of currency means rising cost of debts), you can't dance around it with "well why would banks want that?" (especially as I never said banks do want it, which is another repeat of that same straw-man).

Again, you fail to address the actual core argument, that creditors gain an advantage of debtors through the principal of debt itself increasing (compounding the debts twice over, and with higher interest in a gold standard), and that the less well off will be the socioeconomic group that are forced to rely more on debt.

You also don't touch the argument, that the wealthy few who own 90% of the money in the economy, get 90% of the gain of a deflationary currency, as well as more often being the creditors who gain profits from the less well off that end up using debt.

It's a massive upward-redistribution of wealth that is plain for anyone to see, and it's a massive givaway of risk-free profit going very disproportionately to the wealthy, and this profit is constant and forever increasing under a gold standard, due to deflation.

You don't touch these issues; you make up totally fictional claims on my part, to rebut, because you have nothing to say about my real arguments; by utilizing such dishonest methods of argument, you make it clear you are fully aware of and don't give a toss about the regressive nature of the system you support.

Valmont wrote: »

Yet you actively support a position which would prevent these living expenses from falling.

You have no idea what I support; straight away my support for making banks full-reserve again, goes against this. Unless you try to claim that the gold standard is the only way to reduce living expenses, then you have nothing to back this.

Valmont wrote: »

KyussBishop wrote:

and that saving up to buy a house just isn't practical for loads of people, thus many of them will need to use debt.

I hope you're not trying to justify the need for low interest rates because people might want to buy a house; you do remember the property bubble we had a few years back? Saving for a house isn't practical for me either but I found a solution that involves neither saving or borrowing: renting!

And another straw-man; I didn't say anything about justifying low interest rates, you create another straw-man to distract from the point that the less well off will be the most reliant on debt, and thus will be most affected by the regressive creditors vs debtor dynamics.

Valmont wrote: »

I prefer to ignore the vast majority and instead analyse each issue critically and as objectively as possible. I didn't mean to condescend but I think at this point I have demonstrated with perfect clarity that your theory about banks wanting deflation just doesn't make sense when we consider the basic laws of supply and demand.

You're doing your best to avoid any objective or critical thinking here; every argument you are using is a fallacious straw-man.

Your entire premise, that you have based everything you said on, claiming I said banks want deflation, is false.

SeanW

KyussBishop wrote: »

What you've said doesn't apply to what you quote at all; the less well off would still be the group that disproportionately use debt (you only provide arguments to back the claim there will be less overall debt; a straw-man).

You do realise that it is actually possible to live without debt, or a lot of it? Especially when monetary policy supports one's decision to do so?

The latter is yet another half-hearted token-gesture, trying to imply such debt wouldn't occur: You know it will. You know it will go disproportionately to the less well off.

Bull. It is possible for most people to live within their means. A non-inflating currency would make it attractive to do this: empowering the working classes.

For someone touting an 'honest' currency, you're very dishonestly pretending my arguments boil down to the high-inflation one:

They do: in one form or another you are supporting inflationary monetary policy.

You know the arguments against deflationary currencies are far wider than that, particularly constantly increasing principal on debts (compounded twice over with interest), and regressively-distributed increases in profits for the wealthy without putting any effort in (this one none of you want to touch, which I would bet is down to specifically desiring, yet just aren't honest enough to even acknowledge this as an issue),.

Why the hell would I want a policy that disporportionately favours the rich when I'm far from rich, and my experience reflects that.

Perhaps if you would stop axe-grinding for the "idle-rich" for a few seconds you would see that I'm thinking of ways to strengthen the lower classes - and that I am speaking from personal and family experience in doing so.

Bollocks. You acknowledge yourself the way it favours creditors, and it also gives the wealthy a constant regressively-distributed built-in gain in the value of their holdings, for doing nothing, not even investing it!

But the poor and middle clasees also see a "built-in gain in the value of their holdings," which would make individual retirement planning and the like much easier. As well as saving for a home, education etc.

If 10% have 90% of the wealth, that is 90% of the benefits of a deflationary currency going to those wealthy few. That benefits the rich, at the expense of the poor, and with many of the less well off upwardly-redistributing their earnings to the rich through debt.

If that were to be the case by too large a margin, fiscal policy could be brought to bear to provide corrections (wealth taxes, interest taxes that only kick in over a certain amount, tax relief on distressed borrowers etc).

That's not a feature of an inflationary currency, that's a feature of a credit bubble, which isn't an immutable outcome of an inflationary currency.

It helps if you have a government or central bank printing money. Bubbles are more likely to form, and with artificially cheap money the bubble has more fuel to get bigger.

A properly managed fiat currency (definitely not like how its done today), can provide guaranteed full employment, at all times (something a gold standard would find impossible).

They have full employment in Cuba if I'm not mistake and they had it behind the Iron Curtin ... I seem to remember that citizens in Communist countries sent us a postcard "Help, it's not working, wish we were there"

KyussBishop wrote: »

You have no idea what I support; straight away my support for making banks full-reserve again, goes against this.

When were banks full reserve? You seem to be promoting the abolition of banking as we know it: basically: you deposit €X in the bank, they keep say 10% of that on hand and lend the rest - that's how banks have worked and always have worked, what you are suggesting would destroy the private banking system and increase costs for savers yet more as they would basically have to rent a vault to store their inflationary bits of government paper. Are you sure you've thought this through?

Unless you try to claim that the gold standard is the only way to reduce living expenses, then you have nothing to back this.

It's clear that low interest rates promote more borrowing and in a supply-and-demand scenario this will push up prices.

And another straw-man; I didn't say anything about justifying low interest rates, you create another straw-man to distract from the point that the less well off will be the most reliant on debt, and thus will be most affected by the regressive creditors vs debtor dynamics.

Seriously If you take the view that the less well off are most reliant on debt (and there's nothing that can be done via monetary, fiscal or other policy to change this, which I disagree with btw) then it would logically follow that the only way to help them is to have an inflationary currency with low interest rates.

KyussBishop

SeanW wrote: »

You do realise that it is actually possible to live without debt, or a lot of it? Especially when monetary policy supports one's decision to do so?

No, not everyone can live without debt, and it will be those from a lower socioeconomic background who will be more forced into situations where they have to use, for reasons of inadequate employment, or family troubles forcing an early exit from the home, among many other things.

You're assuming a perfect system where nobody has to rely on debt, which is simply totally unrealistic and is blind to the lower socioeconomic groups that will have a greater proportion of people relying on it.

SeanW wrote: »

KyussBishop wrote:

For someone touting an 'honest' currency, you're very dishonestly pretending my arguments boil down to the high-inflation one:

They do: in one form or another you are supporting inflationary monetary policy.

I actually meant high-interest, rather than high-inflation there.

SeanW wrote: »

Why the hell would I want a policy that disporportionately favours the rich when I'm far from rich, and my experience reflects that.

Perhaps if you would stop axe-grinding for the "idle-rich" for a few seconds you would see that I'm thinking of ways to strengthen the lower classes - and that I am speaking from personal and family experience in doing so.

You make token-gestures as to how it's supposed to help the lower classes (if nobody ever relies upon debt!), while totally ignoring how massively it favours people who are already wealthy; it's hard not to exercise a certain amount of cynicism when reading that.

SeanW wrote: »

But the poor and middle clasees also see a "built-in gain in the value of their holdings," which would make individual retirement planning and the like much easier. As well as saving for a home, education etc.

Except the wealthy, being wealthy, hold a disproportionately greater amount of money, and thus disproportionately benefit! If 10% of the population hold 80% of the money, they get 80% of the gain, and the other 90% of the population only get 20% of the gain.

That's a ridiculously regressive distribution of profits! It's like doling out welfare payments, where the poorest and most needy, get the least amount of money, and the most wealthy get the greatest amount. Welfare for the rich.

SeanW wrote: »

If that were to be the case by too large a margin, fiscal policy could be brought to bear to provide corrections (wealth taxes, interest taxes that only kick in over a certain amount, tax relief on distressed borrowers etc).

What that does, is load the entire monetary system in favour of the wealthy, and 'patch it up' later with policies that can be reverted at any time by a corrupt government (and which can't do a thing about money stuffed away in tax havens).

You can get a wealth tax built-in to the monetary system itself, that can even reach tax havens, with an inflationary currency, and 'patch it up' later, so that some of the newly created money goes the way of the poor and middle classes (depending upon need).

That achieves your wealth-redistribution towards the less well off, while making the entire monetary system stacked against the rich (requiring them to invest to make profits, and well....not giving them free profits out of nowhere), instead of stacked against the less well off, where they have to constantly fight politically to stop their political safeguards being pulled from underneath them.

SeanW wrote: »

They have full employment in Cuba if I'm not mistake and they had it behind the Iron Curtin ... I seem to remember that citizens in Communist countries sent us a postcard "Help, it's not working, wish we were there"

Yes because the only way to have full employment is dirty Communism, right? Such a lazy strawman.

Nazi Germany had full employment in the 1930's through using 'mefo bills' (i.e. by printing money); I guess if we were to use money creation to achieve full employment, we'd be dirty Nazi Communists then, right?

SeanW wrote: »

When were banks full reserve? You seem to be promoting the abolition of banking as we know it: basically: you deposit €X in the bank, they keep say 10% of that on hand and lend the rest - that's how banks have worked and always have worked, what you are suggesting would destroy the private banking system and increase costs for savers yet more as they would basically have to rent a vault to store their inflationary bits of government paper. Are you sure you've thought this through?

Are you for or against people having the ability to create money, or just against government having that ability? You support banks being allowed to undemocratically create money then? (which applies in any fractional reserve system, including a gold standard)

Why on earth should we allow them to do that? Not only would the rich be getting a socioeconomically disproportionate increase in their wealth, and creditors be loaded with a regressive advantage over debtors, but wealthy bank owners should be allowed to create money out of nothing, and loan it out to people at interest? (gaining all the creditor advantages on top of that as well)

You can very easily eliminate private money creation altogether, by setting up a public bank which does it instead (and which can 100% back deposits while at it, as they would use money creation for loans, not loaning out deposits), and by having government spend the money into the economy.

Not only do you eliminate the undemocratic nature of the private banking systems power to create money, but you give government the ability to maintain full employment during economic downturns, which boosts the private sector back up way faster; a gold standard can't achieve any of this, it enforces the opposite.

SeanW wrote: »

Seriously If you take the view that the less well off are most reliant on debt (and there's nothing that can be done via monetary, fiscal or other policy to change this, which I disagree with btw) then it would logically follow that the only way to help them is to have an inflationary currency with low interest rates.

Or, you could just not have a deflationary currency which regressively increases the real principal and interest over time, and can set the interest rates high if you like (with a public bank if you wish), or just not throw debt at people who are spending it on inflating asset bubbles (seeing as interest rates aren't the only way to affect this).

KyussBishop

I'm going to leave it at that; the posts are getting longer, ever farther away from Bitcoins, and ever more about avoiding arguments presented, than addressing them.

SupaNova2

KyussBishop wrote: »

Except the wealthy, being wealthy, hold a disproportionately greater amount of money, and thus disproportionately benefit! If 10% of the population hold 80% of the money, they get 80% of the gain, and the other 90% of the population only get 20% of the gain.

This is a bit of a brain fart, if 1 person has 99% of the wealth and the rest have 1% of the wealth, and the currency increases in value by 5% the wealth distribution remains the same. And all the ignorant masses have to do to hold their position is save. In an inflationary environment the masses after a hard days work have to learn to be a successful speculator/investor in their spare time to hold their position.

Valmont

For those of you who don't have the time to read KyussBishop's usual garbled thousand word accusations of blind dancing straw men with red herrings attached but feel logic has warped in upon itself, I present to you the following:

KyussBishop wrote: »

Almost all economists view deflation as extremely harmful to economies and society; you won't find many outside of financial/business/wealth lobbyist 'economists' promoting such a system.

KyussBishop wrote: »

Another straw-man, I never said banks want deflation; you will make up any position, and try to pin it on me.

KyussBishop composes dozens of posts arguing that a static money supply favours creditors. Then, not realising that banks are creditors, rants and raves that banks do not want this very system that is supposedly favourable to their status as creditors. These banks, in addition to 'running the financial system' also want to destroy their very own customer base by making loans expensive.

Of course, it's easy to see the real issue here for KyussBishop quite easily and it doesn't go much farther than a typical left-wing hatred of wealth. It doesn't matter how beneficial a static money supply would be to the 'needy' because if it means a rich person gains a high rate of interest it is off the table. As usual, the far-left crackpots are cutting off their noses to spite their face.

I would be interested to know if KyussBishop has an answer to the following questions that doesn't involve accusing everyone of ignoring him, making a straw-man, being a red-herring, or giving in to their evil libertarian nature:

(1) Why aren't large banks rallying support for a rise in interest rates? Considering that you have said -- repeatedly -- that a static money supply favours creditors over debtors.

(2) Could you demonstrate explicitly how saving money is more profitable to banks than selling a large quantity of cheap loans?

(3) Why is it that when rich people put money away it is 'hoarding' buy poor people 'save'?

KyussBishop

SupaNova2 wrote: »

This is a bit of a brain fart, if 1 person has 99% of the wealth and the rest have 1% of the wealth, and the currency increases in value by 5% the wealth distribution remains the same. And all the ignorant masses have to do to hold their position is save. In an inflationary environment the masses after a hard days work have to learn to be a successful speculator/investor in their spare time to hold their position.

That's not a brain fart; in that situation, 99% of the benefit, of the increase in wealth, has gone directly to the person holding 99% of the money; his increase in wealth, was 99 times greater than for everyone else, and he got that for doing nothing at all.

The dishonest presentation in your argument is incredibly extreme really:
You are trying to present a situation where the increase in wealth allows 99% of the population to buy one extra piece of a good (a single piece shared between all of the 99%), and this is supposedly fair and equal, to allowing the rich 1% to buy 99 extra pieces of that good, with their share of the increased wealth.

Come off it; you know that's an insanely regressive and unfair distribution of new wealth.

Not only that, but deflation gives the rich an automatic ability to lock-in their share of overall wealth, just by doing nothing, while they also have disproportionate power to extract wealth from the rest of society; that percentage-distribution of wealth is a zero-sum game, meaning it makes it incredibly easy for the rich to increase their share of overall wealth (and if the rich overall manage that, it must come from the less well off, due to being a zero-sum game), and stacks the cards against everyone else who has less money to spend.


When people expressly support stuff like that, how on earth can they be surprised when people view them (and their entire ideology) as supporting class-warfare, of the rich against everyone else, and of desiring a kind of feudal society?
I do not believe you (collectively) can not be fully aware of these exact problems, and they are so obvious, and the arguments concocted in denial are so fallacious, that I just can not believe they or the intent behind them are honest.

KyussBishop

Valmont wrote: »

For those of you who don't have the time to read KyussBishop's usual garbled thousand word accusations of blind dancing straw men with red herrings attached but feel logic has warped in upon itself, I present to you the following:



KyussBishop composes dozens of posts arguing that a static money supply favours creditors. Then, not realising that banks are creditors, rants and raves that banks do not want this very system that is supposedly favourable to their status as creditors. These banks, in addition to 'running the financial system' also want to destroy their very own customer base by making loans expensive.

Of course, it's easy to see the real issue here for KyussBishop quite easily and it doesn't go much farther than a typical left-wing hatred of wealth. It doesn't matter how beneficial a static money supply would be to the 'needy' because if it means a rich person gains a high rate of interest it is off the table. As usual, the far-left crackpots are cutting off their noses to spite their face.

I would be interested to know if KyussBishop has an answer to the following questions that doesn't involve accusing everyone of ignoring him, making a straw-man, being a red-herring, or giving in to their evil libertarian nature:

(1) Why aren't large banks rallying support for a rise in interest rates? Considering that you have said -- repeatedly -- that a static money supply favours creditors over debtors.

(2) Could you demonstrate explicitly how saving money is more profitable to banks than selling a large quantity of cheap loans?

(3) Why is it that when rich people put money away it is 'hoarding' buy poor people 'save'?

Actually, banks in a full-reserve gold standard, will be deposit banks who do not loan out the money, but work off of service charges.

You will only then have investment brokers (these will not be traditional banks with savings), who invest your money for you.

So yes, your claim that I said banks want deflation, is a straw man, and in your rush to pin that on me you display significant ignorance, by assuming my views and not simply asking.


If you want to try and defend a fractional-reserve gold-standard (which I do not place on you, but can see that being the next step here), be aware you will have to defend banks being able to endogenously - create money, much as they do now.

SeanW

SupaNova2 wrote: »

In an inflationary environment the masses after a hard days work have to learn to be a successful speculator/investor in their spare time to hold their position.

And this is the point that Kyuss refuses to acknowledge, in fact may even favour! The working classes that choose to save and need a stable cost of living are harmed by inflationary monetary policy.

KyussBishop refuses to address this point because it goes against his desire for massive government micromanaging everything - at the expense of the working & middle classes.

I at least am capable of admitting that my desired policy might, in an extreme case, require additional fiscal measures of which I offered some ideas.
Your policy is much more deeply flawed and there are no counter-measures that can deal with them. None. Squat. Zip.

KyussBishop wrote: »

Actually, banks in a full-reserve gold standard, will be deposit banks who do not loan out the money, but work off of service charges.

Seriously
So now the banks have to live off service charges ... again that's more to hurt the lower class savers; so let's see:

1. Inflation
2. Tax on interest
3. Artifically low interest rates
   Actually forget both of the above, in your scenario savings wouldn't pay interest at all!
4. Increased service fees as the customer has to pay the full cost of a shared rental of vaults

And then you would pretend to be surprised that people in the lower classes splurge instead of saving!!


It's really hard to take you serioulsy when you come out with such extremist, damaging nonsense and claim that it would help the lower classes.

KyussBishop

SeanW wrote: »

And this is the point that Kyuss refuses to acknowledge, in fact may even favour! The working classes that choose to save and need a stable cost of living are harmed by inflationary monetary policy.

KyussBishop refuses to address this point because it goes against his desire for massive government micromanaging everything - at the expense of the working & middle classes.

I at least am capable of admitting that my desired policy might, in an extreme case, require additional fiscal measures of which I offered some ideas.
Your policy is much more deeply flawed and there are no counter-measures that can deal with them. None. Squat. Zip.

Seriously
So now the banks have to live off service charges ... again that's more to hurt the lower class savers; so let's see:

1. Inflation
2. Tax on interest
3. Artifically low interest rates
   Actually forget both of the above, in your scenario savings wouldn't pay interest at all!
4. Increased service fees as the customer has to pay the full cost of a shared rental of vaults

And then you would pretend to be surprised that people in the lower classes splurge instead of saving!!


It's really hard to take you serioulsy when you come out with such extremist, damaging nonsense and claim that it would help the lower classes.

Oh right, so you defend private banks having the exclusive ability to create money then, and to seek profits on it? (literally money created from nothing, that's what fractional reserve in all its forms allows, since it allows for endogenous money creation)

That is both severely undemocratic and regressive, basically giving the banking elite, exclusive and extraordinary profit-making powers.


That makes a joke of your entire support for the gold standard, where the whole idea is supposed to be backing the currency with something real; but no, for all your hypocritical complaints about government-created 'funny money', you just want banks to have the ability to exclusively create money apparently. Private money creation good, public money creation bad, in your world.

It shows up your total hypocrisy, or just ignorance of how monetary systems function.
It's yet another example, of promoting a system, where the rich are exclusively given ridiculous powers over the rest of society (and this is what everything you all advocate here, reduces to, and it is ridiculously plain to see, when a bit of critical thought is applied).

SeanW

Seriously

As a depositor, you lend money to the bank. They then use your deposits that you've loaned to them for that purpose, to issue credit to those entrepreneurs, prospective home buyers etc that need to borrow. In exchange you get something for lending your money to the bank, a share in the profits (interest) or reduced service fees. I.E. it's not just the bank that benefits.

The bank doesn't care about inflation because it's not their money that's being wasted - as you correctly point out, the banks make their money on other peoples money.

If you don't want to give a big bank power with your money, don't lend it to them - or lend it to the local Credit Union or a smaller bank. If you don't want your money multiplied, take it out and hold cash or metals somewhere.
(BTW would your "100% reserve" policy apply to credit unions as well?)

Whether that is right or wrong may be debated, but one thing is clear:
Your solution involves forcing working and middle classes to do the equivalent of renting vaults to store worthless bits of government paper.

You cannot possibly pretend that this is in the interest of the non-wealthy classes and its crystal clear that not only do you not have a policy to ameliorate the problems your policy would cause, but your "stick it under the bed until you need it" claim earlier suggests that you actually think punishing lower class savers is a good idea. I don't.

KyussBishop

You haven't addressed anything in my last post, you have tried to sidestep it entirely.

I'll repeat it again: You want banks to have the exclusive power to create money; something you lambast governments for, and which you tout as one of the primary benefits of a gold standard, for removing that power (but you just want to have it exclusively in the hands of private banking interests instead).

This is both an undemocratic power, and an enormously regressive situation, where banks (and the banking elite) are able to seek interest/profits, on money created out of nothing; why on earth should they be allowed to seek profits on money created from nothing? (it's not simply an equal amount lent-out, there is actual money - creation)

You also make a mockery of the gold standard by supporting such a system, because a very large proportion of the money supply will not be backed by anything, it will be 'paper' (even if stored electronically - much of it would not be backed), just like a fiat currency. The only difference with your system, is you ensure private control over money creation.

It also makes a joke of the idea, that you remove the ability to expand the money supply as a policy option (one of the big goals of a gold standard), because you just have to adjust the reserve ratio to do that, and your are just one-step away from a full-on fiat currency, because all you have to do is suspend convertibility between paper money and gold.

SeanW

I'm not denying that the fractional reserve banking system creates money. It is a rather complicated issue and it even divides Austrian economists as to whether or not allowing it is a good idea. So I could be all for abolishing FRBing if there's something better, I just question whether forcing everyone to use rented vaults is really a better idea.

Especially when combined with inflationary monetary policy: the net effect would be that it would be totally counter-productive for individuals to save becuase they would be paying considerable sums of money basically for vault rental, getting no interest at all, and then being hammered by inflation. You cannot deny this. And you cannot deny the corrosive impact it would have on the lower classes.

Finally, it doesn't make a mockery of the gold standard because the individual is still in charge: if it existed you could always keep your money in gold-currency coins or claim-check notes printed by the Treasury. You could also choose, of course, to lend your money to a financial institution like a Credit Union (so that it could be lent onwards to people needing to borrow). You wouldn't be pressured by inflation to gamble your savings on the stock market. And (unlike current options only available to people with money today) it wouldn't matter whether you had €100 to save or €10,000.

because all you have to do is suspend convertibility between paper money and gold.

Which is something that would have to be avoided under any circumstance.

KyussBishop

There is something better: Government created money, and government provided deposits.

A public bank, that can exclusively utilize money creation, means no private interests profit from the ability to create money (that would be undemocratic); the public bank satisfies the demand for credit, and it can restrict the issuance of credit irrespective of deposits, but based upon economic performance in general (based upon avoiding inflation).

Deposits placed at the public bank, are 100% guaranteed and are not used for reinvestment (there is no need, when the bank has the power to create money); either the deposits can be given zero interest, or interest can be paid through money creation, if that's what is desired (I don't advocate that last part being one way or the other).

If there is a zero-interest policy, or if people want to have even greater interest, there would be private investment brokers who can take and invest peoples money, which are strictly regulated.


The system I propose is democratically controlled, the system you propose is inherently undemocratic and regressive, benefiting primarily the wealthy.


You are also wrong, in your attempted rebuttal of how fractional reserve makes a mockery of the gold standard, because you don't even address the actual criticisms I put forward there; much of the money is not backed by anything, which is contrary to the entire point of a gold standard.

Suspending convertibility under your system, will happen immediately upon there ever being a bank-run, because when the reserves run out, there goes convertibility.