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Originally Posted by The_Dunedan
You mean like the U.S. Gov't is doing right now, attempting to pay off our astronomical debts to the Chinese and various Euro-American banking and industrial combines?
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Could you provide some information regarding this claim? I've looked at the historical US inflation levels, but don't see a large increase in the past years. If the US gov't is "printing money" to pay off those debts, I'd expect an increase in inflation (more money). I'd also expect an increase in interest rates on those loans (to compensate for potential inflation). Although the US interest rates have gone up over the past years (now some 4.5%), IMO the levels are not enough to compensate for a large amount of excess money printing.
Thus, even if the claim is correct, it doesn't appear to be working very well. Printing money to get rid of loans is only going to work if inflation levels are higher than the interest levels on those loans. Otherwise your extra money is only paying for a part of the interest rates, and not for the loans themselves.
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Originally Posted by The_Dunedan
This was a situation which would never have occurred if fractional-reserve banking hadn't permitted the drastic overprinting of the Mark. If the Mark had been held to a standard, it could not have been inflated by overprinting. That's the whole point behind actually backing your money with something finite, like precious metals: if the money is required to actually be redeemable in something, it cannot exceed the supply of that "something" and inflation is prevented or at very least radically slowed.
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True, the hyper-inflation would never have occured if the Mark had been held to a finite standard. However, given the political and military reality of the time, *not* printing money was simply not an option. Hence my claim that the cause of the recession wasn't the printing of money, but ultimately the external debt.
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Originally Posted by Host
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If psychology of the expectations as to the value of the future purchasing power of the most liquid mediums of exchange, i.e., "money" are not influenced by central bank schemes like selling and leasing their gold stores, raising and lowering interest rates, or by issuance and printing in excess, fiat paper currency, sentiment would be much more constant, and malinvestment would have little incentive to occur.
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Please correct my if I'm wrong: you're basically saying that people started using money because (amongst other benefits) it's easier to use than other trade goods. Then you say (in the quote) that if the money supply is properly managed, there wouldn't be a lot of inflation.
If that is indeed what you're saying, I don't see what we're arguing about. I've already explained how a central bank (private or government controlled) can control the money supply, even if private banks give out more money than they have. The problem isn't fractional reserve banking, it's some schemes of a (private) central bank that cause inflation. To counter that, you could make it a not-for-profit organisation, like we have in Europe.
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Originally Posted by pai mei
Fractional reserve is bad , banks can make profits just from the interests
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Yes, banks can make profits just from interests. They also run risks, and have large expenses. And they can make *more* money by giving out more loans, especially if only a fraction of the savings they have is ever going to be taken out in cash. Why waste the remainder when it's not necessary to do so?
Suppose for a moment that we make fractional reserve banking illegal. IMO, that would send the US economy into a massive depression. I think you'd see the following results:
- It'd be bloody hard getting a loan, given the current levels of loans vs. cash in the banks. From, say, a 10:1 ratio it needs to go down to 1:1.
- Because of this, interest rates would skyrocket.
- Capital investment (with US loans) would pretty much stop.
- House prices would plummet, because nobody can pay for them anymore.
- Banks would have waaaay less income, which will result in at least some going bankrupt.
- Lots of people would lose their life savings.
- Many people would lose their job and property.
- Savings would go down (to pay for those people's food), so the banks would be able to have even less outstanding loans.
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-And to top it all off, tax income would go down, welfare spending would go up. The US government would need to borrow *more* money than ever before. And with no other options, foreign loans would be the only way to move forward. Hence, the US would have even more foreign debt.
In short, it's not going to happen, because it's NOT good for the economy.
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Originally Posted by pai mei
I did not say that a fixed volume of money is good, I said that volume needs to be controlled by the government
Fiat money are just as good as money backed by gold if their volume is controlled as I said above
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IMO, governments directly controlling the money supply is a bad thing. Experience has shown that governments are notoriously bad at keeping the economy working, and are very good at using the money supply to compensate for their lack of knowledge. I'd rather have a central bank control the money supply, because they at least are impartial. As for the Federal reserve, if you don't trust a private bank, that's fine. Turn it into a proper not-for-profit and *independent* government agency, but please don't let the government control it directly!
And as shown before, a central bank, federal reserve or government *can* control the money volume, even with fractional reserve banking.