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Thread: Fractional banking questions??

  1. #1

    Default Fractional banking questions??

    I'm an idiot, that's why I'm here, to learn.

    As I understand it we have a fractional banking system here in the USA. So supposedly banks can lend out ten times the amount they have on deposit. (Or whatever the multiplier is, is not my point or question!) And that also the Federal Reserve is a fractional banking system. (Please correct me when I'm wrong!)

    And given that this happened in June...

    http://www.businessinsider.com/regul...1-asset-2012-6

    Where regulators proposed that gold become a tier 1 asset, same as cash, which supposedly will become fact by the end of year according to the aforementioned article.

    Does this mean suddenly the FED "NOW" only has to keep 10% of the gold deposits on hand?

    And were they deliberately 'PRE' white washing the 'presumed' missing gold problem?

    http://mortgagedfuture.com/where-is-...old-purchases/

    What does this mean if all of a sudden many countries want their gold back?

    http://www.businessinsider.com/germa...d-back-2012-10

    http://www.zerohedge.com/news/switze...k-new-york-fed

    http://www.silverdoctors.com/netherl...gold-reserves/

    http://www.zerohedge.com/news/2012-1...-gold-holdings

    http://www.silverbearcafe.com/private/08.11/chavez.html

    Could we have an international run on physical gold on the Fed Reserve?
    Last edited by jaxxas; 11-02-2012 at 01:06 AM. Reason: clarity!
    JaXXas
    __________________________________

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  2. #2
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    Quote Originally Posted by jaxxas View Post
    I'm an idiot, that's why I'm here, to learn.
    Could we have an international run on physical gold on the Fed Reserve?
    No one that is here to LEARN could ever be called an idiot.

    I believe you already have a firm grasp on the situation.

  3. #3

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    "And that also the Federal Reserve is a fractional banking system. (Please correct me when I'm wrong!)"

    I don't think the Federal Reserve is a 'lending' bank in any way...the Fed acts only as a Central Bank.

    The Federal Reserve is an independent corporation (independent of the government too).

    But the Fed is not a 'lending' bank...so the Fed does not have any lending laws applied to it.

    The fractional reserve lending laws are established to ensure the banks do not have 'runs' and go bankrupt...but the fractional banking rules do not apply to the Fed. The Fed prints money so they are fully liquid under all circumstances.

    That is why...when and if there are global bank runs...the Fed will start printing money at 'faster than lightspeed' to ensure the liquidity of the banking system.

    The Fed is the ruler and master of all banks in that sense, and the Fed has no lending laws...none.

    The Fed 'acts as' the government's "Central Bank" and is also called the "Banker's Bank".

    http://en.wikipedia.org/wiki/Federal_Reserve_System


    I have never read about the Fed having fractional rules applied...but if you or anyone else does...that would be very important and significant.

    As far as I know, the Fed bails out all the other banks and the Fed (as Central Bank) does not 'lend' like any other bank does.
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  4. #4

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    Fractional reserve isnt like you describe it.

    It's not a money multiplier as a fixed value, but a cascade that starts from deposited money.
    Suppose a bank, the first one at the moment, comes into existence. A certain amount dollars is circulating.
    The first customer of the bank deposits 1000 dollar.
    The governments laws requires (if that earns the term lol) the bank to hold 10% or 100 dollar. The rest, in this example 900 dollar, can the bank lend out, if it wants, and if it finds someone willing to borrow it. This is where the cascade starts. It's the first stage.

    Now imagine the bank lends out that 900 dollars to a second customer. That second customer buys something with it, the producing people are then temporarly confronted with more money for the same amount products. This is what either forces them to produce more at the same cost, either increase their prices, either both.
    Now, this / should be temporary. The purpose is that the second customer that got in debt, now produces in the economy, earns, and deposits chunk after chunk of the 900 dollars, until its all paid back to the bank.
    And right there, the next stage of the cascade starts. By manipulating the interest rates on the first customers deposit account, and on the debt, the bank can bring about a difference as big as it wants.
    The first customer/depositor gets less than he should (his produced and earnt repurchasing power waters because of harder working for the same and/or price risings).
    The second customer/debtor can be granted a 'friends' interest rate, lower than the rate of working harder for the same and/or price risings. This 'friends' interest rate is something that a central bank can cause, by bringing in new dollars to purchase bonds, artificially cranking up demand and thus lower the interest rate. Average Joe ofcourse doesnt receive a friends interest rate. Nevertheless, for certain types of debt, alike for a house, can be subtracted from tax, which comes down to the very same. This friends interest rate aside, it's not relevant in this story yet.

    This interest rate difference, and the prolongation of the pay back period, are the origins of money creation and subsequent spendings increases, by common banks and the borrowing clubs behind them. This is the second stage of the cascade, and one of the feedback links towards the next stage of the cascade. It is the story of fractional reserve banking and it is what allows the piling up of debt until major crises break out, when the first customer/depositor of above analogy, finally fails to keep on working harder for the same and/or price risings bring him in financial problems.

    Parallel on above, even without a crisis breaking out, central banks pump new dollars in the system all the time, using the same mechanism, but instead of between common bank and customers, interbank. It has it's own friends' interest rate, remember that LIBOR scandal a couple months ago? Well, that's it. The same applies there, a special even lower interest rate on the debt for the friends. That LIBOR scandal isnt a scandal, it's embed in the very coredesign of the fractional reserve banking system. And it's another feedback link towards the next stage of the cascade.

    So, seen as a flowchart, we see two parallel mechanisms, one starting from people that deposit dollars (that first customer / depositor of above analogy) and one starting from a national and/or central bank. The two together, lead to the third stage of the cascade, being the cooperation of multiple banks and the banking system as a whole. It allows quick shifting of money to wherever need arrives (this is in central banks terminology the 'Overnight' operations). This way the central planning, when reacting fast enough, can hide (suppress) a single/couple local bank(s) failure(s) due to bankrun(s) on it. This third stage allows again further postponing of corrections, and brings about the so-called supercrisis, where not a single or a few or a group banks get into trouble, but the banking system as a whole. What is named as 'Financial Meltdown'.

    A special case scenario is a situation where people have no alternatives left, which can be due to closed borders or any other form of blocking, or due to a world wide scenario. That allows the longest prolongation and that was the real reason for the political globalisation of the past 30 years.

    So a central bank does no different than any bank, it does the exact same as a common bank, only that it has the common banks as customers while the common bank has... well.. us as customers.
    That's also why a fractional reserve requirement on a central bank is meaningless. In the end, they don't have deposits from people that produce/earn/save. In economical terms, the word 'reserve' applies to nothing. Consequentially, the same is true for those 'excess reserves'. A central bank creates dollars, and places it as excess reserves on the accounts of its customers (common banks). But those 'reserves' represent nothing. There are not more products to buy for it. There are as bogus as the dollars that counterfeiters print from their lazy chair.

    Regarding gold as a Tier 1 (thus part of the fractional reserve) asset. What does it matter? They already HAD the gold in possession; only that they didnt label it as Tier 1. It means nothing. Whether the gold is considered as a Tier 1 asset or another asset declaration, will not increase the amount/value of the products that can be purchased with it. It's nothing more than a brainwash attempt to make you think that gold is a better choice than any other things to store wealth in. Because they don't want you to chose those other things. See, they lack the stocks/possession of those other things, while for gold they have plenty. They rather prefer you to chose something they have best control of, and if you shake 'no' to their dollars/fiatcrap, their next logical preference is... gold. For the same reason as their dollars.
    the void

  5. #5

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    The Federal Reserve dollar is a legal fiction. The Fed creates the so-called currency from nothing, then tenders it into favored portions of the economy. It controls the use thru tax reporting and "loopholes". And it keeps this fiat from inflating by removing excess amounts from the disfavored portion of the economy--the taxpayers.

    That's right. You tax "money" goes 100% into the dumper, to support the "value" of the FRN.

    This system worked fine, until the Fed started spreading into the world economy as a "reserve currency" whatever that means. It has no way to tax other nationalities, so it has to steal back the fiat in other ways to keep the worthless crap from wildly inflating.

    I see no connection here with gold at all.

    .
    Last edited by AnotherDave; 11-02-2012 at 05:41 PM.

  6. #6

    Default

    I highly recommend the following books:

    The Mystery of Banking, by Murray Rothbard

    Money, Bank Credit, and Economic Cycles, by Jesus Huerta de Soto

    Here are some lectures:

    Banking and the Business Cycle, by Joseph T. Salerno

    Banking, by Robert P. Murphy

    There are many more free books and lectures to be found browsing the literature and audio/video sections at www.mises.org
    "You better take care of me Lord, if you don't you're gonna have me on your hands." - Hunter S. Thompson

  7. #7

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    Quote Originally Posted by Lorian View Post
    Fractional reserve isnt like you describe it.

    It's not a money multiplier as a fixed value, but a cascade that starts from deposited money.

    Your first statement is wrong.

    Fractional reserve does not start from deposited money.

    Professor Steven Keen has pointed out that banks create money in anticipation of deposits i.e. they start printing up and multiplying the money even before deposits have come in. A trend emerges where banks can't start off without ever even needing deposits!

    Of course if the loans go sour and there's a run on the bank, the bill can always be sent to the taxpayer & money printed up to rob the saver & wage earner.

    Hence the reason banking goons need to get their boys to the president's seat to keep the bailouts flowing. That's why they want a hoard of fools voting one of either obama-romney and no other.

  8. #8

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    Quote Originally Posted by Silvercoin View Post
    Your first statement is wrong.

    Fractional reserve does not start from deposited money.

    Professor Steven Keen has pointed out that banks create money in anticipation of deposits i.e. they start printing up and multiplying the money even before deposits have come in. A trend emerges where banks can't start off without ever even needing deposits!

    Of course if the loans go sour and there's a run on the bank, the bill can always be sent to the taxpayer & money printed up to rob the saver & wage earner.

    Hence the reason banking goons need to get their boys to the president's seat to keep the bailouts flowing. That's why they want a hoard of fools voting one of either obama-romney and no other.
    My first statement is correct. Fractional reserve does start from deposited money. Of course. If people would spend instead of save, the banks and their debt club would buy the already adjusted prices instead of the old prices, effectively losing their frontrun position, defeating the entire idea of inflation and intrest rate manipulation.
    My story was also a sketch of a historical begin to an end A first cause to a last result. It doesnt start today or so.
    And common banks are not allowed to create money, only a central bank (in some past, national with own currency) has that privilege, so you shouldnt talk about 'banks' but specify. If you ment central banks, thats correct, and I said that, but central banks only enter the picture after savers deposits are lend out to the max (aka the fraction reached in downwards direction).

    About your bill to the taxpayer, that is actually a scam. Because the population isnt divided in 'taxpayers', 'savers', 'people with debt' groups. There is plenty overlapping, upto the degree that makes any usage of such group names a scam. If the central planning bails out one of its banks, it means that the money of the savers was... lost? NO. It wasn't lost. It was SPENT by other people, people with debt. And people can be both saver and have debt. Because govt makes debt attractive, causing people to rather borrow money than using their bank savings to buy something. It actually doesnt matter where government performs the theft. Wage, bank savings, tax, employer, inheritance, and so on. What DOES matter is that in the end, someone that produces, earns, saves, ends up to produce another time to give his savings again purchasing power. Because the goodies he produced were bought up by the debt club, with his own money, at the older, not yet adjusted prices.
    That's what "Professor Lorian" pointed out haha.
    the void

  9. #9

    Default

    Quote Originally Posted by Lorian View Post
    My first statement is correct. Fractional reserve does start from deposited money. Of course. If people would spend instead of save, the banks and their debt club would buy the already adjusted prices instead of the old prices, effectively losing their frontrun position, defeating the entire idea of inflation and intrest rate manipulation.
    My story was also a sketch of a historical begin to an end A first cause to a last result. It doesnt start today or so.
    And common banks are not allowed to create money, only a central bank (in some past, national with own currency) has that privilege, so you shouldnt talk about 'banks' but specify. If you ment central banks, thats correct, and I said that, but central banks only enter the picture after savers deposits are lend out to the max (aka the fraction reached in downwards direction).

    About your bill to the taxpayer, that is actually a scam. Because the population isnt divided in 'taxpayers', 'savers', 'people with debt' groups. There is plenty overlapping, upto the degree that makes any usage of such group names a scam. If the central planning bails out one of its banks, it means that the money of the savers was... lost? NO. It wasn't lost. It was SPENT by other people, people with debt. And people can be both saver and have debt. Because govt makes debt attractive, causing people to rather borrow money than using their bank savings to buy something. It actually doesnt matter where government performs the theft. Wage, bank savings, tax, employer, inheritance, and so on. What DOES matter is that in the end, someone that produces, earns, saves, ends up to produce another time to give his savings again purchasing power. Because the goodies he produced were bought up by the debt club, with his own money, at the older, not yet adjusted prices.
    That's what "Professor Lorian" pointed out haha.
    You got it all wrong.

    Fractional reserve starts with "borrowed" money from the Fed.

    And since the Fed creates money with the stroke of a pen... or a keyboard, whatever, it can just as easily un-create

    No need for a jubilee...

    "I met a European trader in a bar this week, who brought up the possibility that at some point, the Bank of England might just rip up the UK government debt it has acquired through quantitative easing -- just straight up throw it on the fire, and tell the government it no longer owes the money."

    Read more: http://www.businessinsider.com/bank-...#ixzz2BSa114Ua
    Last edited by chinewalker; 11-06-2012 at 11:19 AM. Reason: add link
    A skeptic's work is never done.

  10. #10

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    Quote Originally Posted by chinewalker View Post
    You got it all wrong.

    Fractional reserve starts with "borrowed" money from the Fed.

    And since the Fed creates money with the stroke of a pen... or a keyboard, whatever, it can just as easily un-create

    No need for a jubilee...

    "I met a European trader in a bar this week, who brought up the possibility that at some point, the Bank of England might just rip up the UK government debt it has acquired through quantitative easing -- just straight up throw it on the fire, and tell the government it no longer owes the money."

    Read more: http://www.businessinsider.com/bank-...#ixzz2BSa114Ua
    Fractional reserve started and starts with depository runners (banks) that lend out the valuable goodies that people brought them for storage purposes. Not with a central bank.
    http://en.wikipedia.org/wiki/Fractional_reserve_banking
    Read the first lines.
    the void

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