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Post by echnaton on Jul 11, 2005 11:47:25 GMT -4
I have a limited economics background but I do manage investments for a living so I am familiar with the monetary system, because the Fed greatly affects the prices for financial assets.
Banks don't even have the fraudulent paper money they say you have in your account.
You are confusing money with currency. Currency is only one means of holding and transferring money. Most money is held in a book keeping form, like deposits at you bank, and comparatively little in currency. Between my wife and I we normally have between $50 and $200 in currency at any one time but we have many times more as deposits in our checking account and our emergency savings account. It all counts as money. I know that it is not paper money and I prefer it that way. The bank pays me to hold my money. If I wanted paper, I would have to pay them to store it for me by renting a safe deposit box.
Turbo, have you studied the history of the American Financial system. Are you familiar with the near total financial collapses in the U.S. before the Fed. The banking system would rally around money center banks that had liquidity crises to keep them afloat and keep a panic from spreading. In the 19th century this activity was centered around the banking house of JP Morgan, which acted as the de facto central bank. But it also meant the banking system was more like a cartel because banks needed good knowledge of each others standing and extra reserves that were not possible under a more competitive system. However for regional banks particularly, there was occasionally insufficient liquidity or unwillingness to support a competitor and customers suffered with liquidity crises or insolvency.
Before the Fed, there were bank notes issued by private banks with only regional acceptance. This could required exchanging regional notes for U.S. currency or notes from other banks before traveling a distance from the area. Sometimes this transaction was at a discount because of the scarcity of the more widely accepted currency or notes. Compare that with having to drive to a central office of your bank to get a large amount of currency on the same day.
Whether you like our system or not it provides us with numerous advantages. Such as universally accepted currency. Nearly unlimited liquidity for banks, which translated into sound liquidity for customers. When was the last time there was a run on your bank? When was the last time anyone was even concerned about a run on the bank? You see, in any banking system there is a need for a non competitive entity that can provide reserves and liquidity. Whether the government or a cartel provide this service is the only question. Financial insolvency is unpredictable, happens quickly and can be devastating. Ask the employees, creditors, and investors in Enron, which failed like a bank, because of a liquidity crisis.
Not that this system is without its costs and concerns, as others have mentioned, and it is certainly in need of reform. It is a great deal better than the system it replaced. However simply objecting to a straw man is not very helpful or informative. Do you have any real proposals on how to reform the system or do you want to call people names? Get away from that propaganda you are reading and find some good history books.
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Post by Joe Durnavich on Jul 11, 2005 12:10:15 GMT -4
What's fractional reserve banking?
Let's say you were a goldsmith who owned a secure vault. You let people store their gold in your vault. As they deposit gold with you, you hand them certificates for the amount of gold that they deposit with the understanding that they can convert the paper certificates back into gold by handing the certificates back to you.
After a while, the people of the community develop enough trust in your certificates that merchants are willing to trade their goods for your certificates. They have built confidence in your certificates because they were able to redeem them for gold whenever they have presented them to you.
You, in effect, are a bank, and your paper certificates are money.
You notice that your depositors never redeem at the same time all the certificates of yours that are in circulation. Seeing an opportunity, you print up some extra certificates--without having them backed by corresponding gold deposits-- and lend them out to businesses and people in the community that want to borrow money and pay it back later with interest in gold. Your "money supply", then, your paper certificates in circulation, are now not fully backed by gold deposits, but only fractionally backed by them. You can get away with this because odds are, all the people holding your certificates are not going to show up at your door at the same time to convert them to gold. You need only enough gold in reserve at any time to meet the day-to-day requests for gold.
This is the concept behind fractional reserve banking.
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Post by echnaton on Jul 11, 2005 14:00:57 GMT -4
To use Joe’s excellent example to illustrate some terms used in me prior post.
Having more of a combination of gold reserves on hand and credit worthy promises to repay the all outstanding notes, makes a bank solvent. In modern terms the solvency of a bank is measured in Tier One Capital. Having enough gold reserves to repay a given level of demand for gold is a measure of a bank’s liquidity. As you can imagine, the level of liquidity reserves required is relative to the expected level of demand for gold.
If investors loose confidence in the bank and withdrawal an large amount of gold you have a run on the bank. If the bank has an insufficient amount of gold in its vaults it will be illiquid and unable to meet its promises to repay on demand.
This is a crisis even for a solvent bank. However if other banks are willing and able to meet the demand for gold by paying out gold from their own reserves in exchange for the troubled bank’s notes, the crisis can be averted. Banks will do this to prevent a panic from spreading if they have knowledge that the troubled banks is solvent.
This situation illustrates an informational disparity between customers and industry insiders. Our current system of bank regulation replaces the other banks with a central bank and a insurer that together have practically unlimited funds to make good on deposits and each can obtain exceptionally good inside knowledge about a troubled bank without putting that bank at a competitive disadvantage. Thus we greatly lower the odds of repeating widespread financial panics that have happened in the past. In fact to day, insolvent banks continue to operate under tight regulatory scrutiny with no loss in confidence by consumers.
It is a classic trade off of stability versus competitiveness and there is no one best method to measure the different costs so politics seem to rule the issue. There is nothing politicians and bankers like more than financial stability.
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Post by Joe Durnavich on Jul 11, 2005 21:11:37 GMT -4
Are you familiar with the near total financial collapses in the U.S. before the Fed. The banking system would rally around money center banks that had liquidity crises to keep them afloat and keep a panic from spreading.
Many of these types of banking problems were the cause of state and federal intervention in the banking system. Banks were forced to purchase state bonds as collateral for the currency they issued, even when those bonds were of low quality, creating the way for "wildcat banking". The National Banking Act of 1963 forced a pyramid scheme for reserves on banks that made them illiquid and not as able to meet demands for gold redemption. (Reserve ratios fell from 42.4% to 21.6% in the 20 years after the Act.) Also, banks were not allowed open charter banks across state lines.
There are some interesting numbers in the book, "Breaking the Banks" by Richard M. Salsman. During the period of the panics, but before the Federal Reserve, 1870 to 1914, bank failure rates were under 1%. By comparison, under central banking, in the early 1930s 35.6% of banks failed in a 4-year period. During the decade of the 1980s, bank failures were 6.2%.
Liquidity ratios were 41.3% in 1863. During the national banking era, after the National Banking Act was introduced in 1863, those fell to 22.9% by 1914, and under the Federal Reserve, they fell to 10.7% by 1990.
In the 75 years before the Federal Reserve money retained it purchasing power well. In the 75 years after the Federal Reserve, money lost 90 percent of its value. To quote the book, "Bank failures occurred under free banking, but the magnitude of the loss experienced by depositors and noteholders does not appear to have been significant. Whatever its magnitude, it certainly did not approach the 90 percent loss suffered under central banking.
Before the Fed, there were bank notes issued by private banks with only regional acceptance. This could required exchanging regional notes for U.S. currency or notes from other banks before traveling a distance from the area.
People often point to privately issued currency as a major burden, but I would point out that today, as I remember, more money circulates in the form of checks drawn on different banks than does currency in the system. Clearinghouses are well able to deal with this volume of checks spent all over the country and drawn on a great number of different banks.
There is nothing politicians and bankers like more than financial stability.
There is nothing politicians and bankers like more than being able to force taxpayers to bail them out when they mismanage!
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Post by turbonium on Jul 11, 2005 23:53:12 GMT -4
The Fed is NOT listed in the Blue Pages as a Government Agency. It is listed right alongside Federal Express in the White Pages, as a PRIVATE corporation. That alone should clue you in as to the fact the Fed is private, not Gov't.
The debt is not due to spending more than taxes received! The debt is clearly owed to the Fed as loans with interest. You are ignoring my question about why the Gov't would charge ITSELF interest on money it supposedly borrows FROM itself!!
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Post by turbonium on Jul 12, 2005 0:07:33 GMT -4
There's the rub, isn't it.? Not to mention that the interest charged is USURY!
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Post by LunarOrbit on Jul 12, 2005 0:29:59 GMT -4
Ooops... I accidently clicked the "Modify" button instead of the "Quote" button. I'm very sorry about that, turbonium. I blame the heat wave.
I think I got your post back more or less the way it was, except the parts you quoted. I don't think I cut anything you said.
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Post by LunarOrbit on Jul 12, 2005 0:33:15 GMT -4
That's your proof? Well, in that case I will point out that the Federal Reserve website has a .gov domain. That's at least as convincing as your phonebook evidence.
More important, though, is the fact that the seven members of the Federal Reserves board of Governors are appointed by the President and confirmed by the Senate. It was created by an act of Congress.
So I think saying the Reserve isn't a part of the government is sort of like saying the CIA or FBI aren't either.
If they didn't charge interest there would be no incentive to ever pay back the money they borrowed. It would create a lot of reckless spending.
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Post by PeterB on Jul 12, 2005 0:52:05 GMT -4
What's fractional reserve banking?Let's say you were a goldsmith who owned a secure vault. You let people store their gold in your vault. As they... Okay, thanks Joe. I understand that concept well. I just didn't know its name.
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Post by PeterB on Jul 12, 2005 0:53:07 GMT -4
There's the rub, isn't it.? Not to mention that the interest charged is USURY! Do you have a problem with lenders charging interest for the use of their money?
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Post by martin on Jul 12, 2005 8:10:58 GMT -4
The Fed is NOT listed in the Blue Pages as a Government Agency. It is listed right alongside Federal Express in the White Pages, as a PRIVATE corporation. That alone should clue you in as to the fact the Fed is private, not Gov't. See post of Lunar Orbit. Also, look at a business card from the last person from the federal reserve you met. It has the great seal of the US, a .gov web site, and a .gov email address. Or do you not have any? The debt is not due to spending more than taxes received! Yes it is. Why is this so hard to understand for you? When you hear politicians talking on a budget deficit, what do you think they are talking on? Your country has spent more than it receives in taxes every year since 1969. It has had debt since the 1830s, about 80 years before creation of the US federal reserve system. Your country had a recession a few years ago which reduced tax revenues. At the same time, your government introduced large tax cuts and large spending increases. Did you think that when there is a gold standard, pieces of gold fall from the sky to finance unlimited government spending? The debt is clearly owed to the Fed as loans with interest. Part of it is, yes. All of it occurs because the US government spends more than it receives in taxes. You are ignoring my question about why the Gov't would charge ITSELF interest on money it supposedly borrows FROM itself!! I have already said several times that internal transactions are common for governements and corporations. So I did not ignore your question, you ignored my question. Why does the US social security administration lend money to the general budget, which is owed with interest? Why does the US government (there is more than one government) charge ITSELF interest on money it supposedly borrows FROM itself? Martin
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Post by martin on Jul 12, 2005 9:15:05 GMT -4
If they didn't charge interest there would be no incentive to ever pay back the money they borrowed. It would create a lot of reckless spending. Meybe it does this any way, because each year the federal reserve returns to the general budget all interest earned, which is not used by federal reserve expenses. This is what turbonium does not want you to know... The other part of this cartoon conspiracy which I do not understand is when the federal reserve comes from shadows and says that it owns every thing in the world. (When will this happen? It is 92 years already.) Will people of US say only, "OK, we are slaves now"? Or does federal reserve have a secret army to force them? If they do, then there is no need for other part of the conspiracy... Martin
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Post by echnaton on Jul 12, 2005 9:36:29 GMT -4
The Fed is NOT listed in the Blue Pages as a Government Agency. It is listed right alongside Federal Express in the White Pages, as a PRIVATE corporation. That alone should clue you in as to the fact the Fed is private, not Gov't. The debt is not due to spending more than taxes received! The debt is clearly owed to the Fed as loans with interest. You are ignoring my question about why the Gov't would charge ITSELF interest on money it supposedly borrows FROM itself!! In addition to the fact that its board of directors is appointed by the President, all profits are returned to the U.S Treasury. Appointing management and a claim on residual cash flow are hallmarks of ownership. Also, the tasks that the Fed is assigned to do come to it by way of government authorization. The government can reassign these tasks at will depriving the Fed of its legal status as a monetary and regulatory authority. Weather the Fed is Part of the government or a government owned corporation is really irrelevant, because the Government has the ultimate control over its activities. This is not to argue that the Fed functions perfectly or is or is not a benefit to society, which is entirely debatable. But the government does have the ability to manage its currency and in exercising that right may appoint whoever it prefers to act on its behalf. Whether, that is a private corporation, a government corporation or the U.S. Treasury does not make our currency a fraud.
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Post by sts60 on Jul 12, 2005 9:44:24 GMT -4
The other part of this cartoon conspiracy which I do not understand is when the federal reserve comes from shadows and says that it owns every thing in the world. (When will this happen? It is 92 years already.) Will people of US say only, "OK, we are slaves now"? Or does federal reserve have a secret army to force them?
Of course. The secret Chinese army under NYC.
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Post by martin on Jul 12, 2005 10:11:35 GMT -4
The other part of this cartoon conspiracy which I do not understand is when the federal reserve comes from shadows and says that it owns every thing in the world. (When will this happen? It is 92 years already.) Will people of US say only, "OK, we are slaves now"? Or does federal reserve have a secret army to force them?Of course. The secret Chinese army under NYC. Yes, it is a long time, I forgot about this army... I was in China last week, and I saw many military planes flying. I thought maybe the are flying to Taiwan, but now I know they are for New York ;D ;D ;D Martin
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