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What happened to all of the doom and gloom economic threads?

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What's your reason for doing nothing but attacking everyone and everything?

Except liberal economics...
 
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[This is a revised version of written testimony submitted to the the Subcommittee on Domestic Monetary Policy and Technology of the Committee on Financial Services, US House of Representatives "Fractional Reserve Banking and Central Banking as Sources of Economic Instability: The Sound Money Alternative," June 28, 2012.]

First, fractional-reserve banking is inherently inflationary. When a bank lends out its clients' deposits, it inevitably expands the money supply. For example, when people deposit an additional $100,000 of cash in the bank, depositors now have an additional $100,000 in their checking accounts while the bank accumulates an additional $100,000 of cash (dollar bills) in its vaults. The total money supply, which includes both dollar bills in circulation among the public and dollar balances in bank deposits, has not changed. The depositors have reduced the amount of cash in circulation by $100,000, which is now stored in the bank's vaults, but they have increased the total deposit balance that they may draw on by check or debit card by the exact same amount. Suppose now the loan officers of the bank lend out $90,000 of this added cash to businesses and consumers and maintain the remaining $10,000 on reserve against the $100,000 of new deposits. These loans increase the money supply by $90,000 because, while the original depositors have the extra $100,000 still available on deposit, the borrowers now have an extra $90,000 of the cash they did not have before.

The expansion of the money supply does not stop here however, for when the borrowers spend the borrowed cash to buy goods or to pay wages, the recipients of these dollars redeposit some or all of these dollars in their own banks, which in turn lend out a proportion of these new deposits. Through this process, bank-deposit dollars are created and multiplied far beyond the amount of the initial cash deposits. (Given the institutional conditions in the United States today, each dollar of currency deposited in a bank can increase the US money supply by a maximum of $10.00.) As the additional deposit dollars are spent, prices in the economy progressively rise, and the inevitable result is inflation, with all its associated deleterious effects on the economy.

Fractional-reserve banking inflicts another great harm on the economy. In order to induce businesses and consumers to borrow the additional dollars created, banks must reduce interest rates below the market-equilibrium level determined by the amount of voluntary savings in the economy. Businesses are misled by the artificially low interest rates into borrowing to expand their facilities or undertake new long-term investment projects of various kinds. But the prospective profitability of these undertakings depends on expectations that bank credit will remain cheap more or less indefinitely. Consumers, too, are deceived by the lower interest rates and rush to purchase larger residences or vacation homes. They take out second mortgages on their homes to buy big-ticket luxury items. A false economic boom begins that is doomed to turn into a bust as soon as interest rates begin to rise again.

As the inflationary boom progresses and prices rise, the demand for credit becomes more intense at the same time that more cash is withdrawn from bank deposits to finance the purchase of everyday goods. The banks react to these developments by sharply raising interest rates and contracting loans and deposits, causing a decline in the money supply. Indeed the money supply may very well collapse, as it did in the early 1930s, because the public loses confidence in the banks and demands it deposits back in cash. In this case, a series of bank runs ensue that pushes many fractional-reserve banks into insolvency and instantly extinguishes their money substitutes, which had previously circulated as part of the money supply. Recession and deflation results and the binge of bad investments and overconsumption is starkly revealed in the abandoned construction projects, empty commercial buildings, and foreclosed homes that litter the economic landscape. At the end of the recession it turns out that almost all households and business firms are made poorer by fractional-reserve bank-credit expansion, even those who may have initially gained from the inflation.

Inflation and the boom-bust cycles generated by fractional-reserve banking are enormously intensified by Federal Reserve and US-government interference with the banking industry. Indeed, this interference is justified by economists and policymaker precisely because of the instability of the fractional-reserve system. The most dangerous forms of such interference are the power of the Federal Reserve to create bank reserves out of thin air via open market operations, its use of these phony reserves to bail out failing banks in its role as a lender of last resort, and federal insurance of bank deposits. In the presence of such polices, the deposits of all banks are perceived and trusted by the public as one homogeneous brand of money substitute fully guaranteed by the Federal government and backed up by the Fed's power to print up bank reserves at will and bail out insolvent banks. Under the current monetary regime, there is thus absolutely no check on the natural propensity of fractional-reserve banks to mismatch the maturity profiles of their assets and liabilities, to expand credit and deposits, and to artificially depress interest rates. Without fundamental change in the US monetary system, the growth of bubbles in various sectors of the economy and subsequent financial crises will continue unabated.

The solution is to treat banking as any other business and permit it to operate on the free market — a market completely free of government guarantees of bank deposits and of the possibility of Fed bailouts. In order to achieve the latter, federal deposit insurance must be phased out and the Fed would have to be permanently and credibly deprived of its legal power to create bank reserves out of nothing. The best way to do this is to establish a genuine gold standard in which gold coins would circulate as cash and serve as bank reserves; at the same time the Fed must be stripped of its authority to issue notes and conduct open-market operations. Also, banks would once again be legally enabled to issue their own brands of notes, as they were in the 19th and early 20th century.

Once this mighty rollback of government intervention in banking is accomplished, each fractional-reserve bank would be rigidly constrained by public confidence when issuing money substitutes. One false step — one questionable loan, one imprudent emission of unbacked notes and deposits — would cause instant brand extinction of its money substitutes, a bank run, and insolvency.
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http://mises.org/daily/6104/Let-Unsound-Money-Wither-Away
 
vetteman said:
I think it just may be a little hard to incorporate a horse laugh into a post.:rolleyes:
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I get the impression that it bothers him greatly when we treat him like he treats us.

He comes here every day and puts words in people's mouths and uses debate by the fallacy of taking the most ridiculous extreme and ascribing it to others and then he chides for taking his well-worn stock sophism as if he has never employed such a system in his argument as "putting words into his mouth..."

Is he typing with his tongue?

;) ;)
 
4est_4est_Gump said:
I get the impression that it bothers him greatly when we treat him like he treats us.

He comes here every day and puts words in people's mouths and uses debate by the fallacy of taking the most ridiculous extreme and ascribing it to others and then he chides for taking his well-worn stock sophism as if he has never employed such a system in his argument as "putting words into his mouth..."

Is he typing with his tongue?

;) ;)
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Awww, AJ is lashin' out in all directions this morning...his beloved ox got gored once again.

He's a victim....A VICTIM, DAMMIT!
 
4est_4est_Gump said:
I refuse to hold myself accountable for my straw man arguments or any other fallacy I make over and over. But when it comes to other people, well they need to be held to a set of rules!
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I don't need to straw man you. Your posts are so absurd and illogical it's hard to imagine exaggerating them.

Tell us again how the stock market is a lagging indicator of the economy. Or maybe Vette can tell us again how stock is the same thing as a loan. There's no way I could make that shit up. :rolleyes:
 
That's right AJ, keep lashing out. Teach mean old Mercury a lesson.

You're a victim....a VICTIM, DAMMIT!
 
Oh nooooooooooo!!!!!!!!!!!!!


Not crying dashboard Jeebus!!!


It's a travesty, it's an injustice . . .


it's nothing short of a motherfucking outrage!!! :mad::mad::mad:
 
Wat_Tyler said:
Oh nooooooooooo!!!!!!!!!!!!!


Not crying dashboard Jeebus!!!


It's a travesty, it's an injustice . . .


it's nothing short of a motherfucking outrage!!! :mad::mad::mad:
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He turns dashboard Buddha's smile upside down...

~~~~~~~~~~~

merc, do we HAVE to quote you again to shut you up?
 
4est_4est_Gump said:
What's your reason for acting like I've never addressed that serious charge?


Attack, attack, attack...

Quack.
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Answerin' questions with questions to avoid being responsible for your actions? Just another boring morning of AJ drivel. How long until you throw up your arms and unleash your usual C&P tsunami?

You didn't address the question, at least not that I can see. BTW, not everything is an attack, bro. Chillax.
 
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