Quote:
Originally Posted by insidemanpoker
The reality is bubbles are caused because of banking, not some sinister motive of banking. You deposit money in a bank. To you are just putting your money somewhere safe, to be used later at atms or to spend. To the banker they use the deposits to loan out money to other people. They have the moral hazard of loaning out money that is not theirs. This loaned money hits another bank, to that bank the deposits is as real as the first depositor because they are. The next bank loans out this money creating a massive daisy chain of loans and deposits.
As one loans fails, and a combination of bank runs, the bank fails and all banks will fail. Except banks that kept massive reserves. The Federal Reserve was created for this purpose. The problem is the solution involves a fraud. A fraud that they must print money stealing from savers in an inflation tax to fix the system. You don't need this fraud, you need full reserve banking.
Full reserve banking is when you deposit money in a bank, the bank has no legal right to loan your money out. So your money sits at a bank, you have to option to invest in a reit or a shadow bank like a credit card company. However, unlike a bank it is your money. You invest in a shadow bank and your shadow bank mutual fund, might make a lot of bad investments. Your shadow bank may rise 10% a year and then drop 30% a year in a bubble. However, the shareholders of the shadow bank take the loss and not the public. Definitely not the elderly and savers that keep their money in a bank.
So does the economy grow slower without the banks making loans? The reality it is the opposite the economy grows at double or even triple the rate of a fractional reserve system. The reason is simple there is no moral hazard, the money is loaned by people that actually want to loan it. They get the rewards and the losses. The people with money at the banks get to spend their money as if they earned it yesterday.
Ron Paul makes the mistake that he blames the business cycle on the interest rate banks charge. Banks can only loan the money out at which depositors are willing to lend it. Yes, the federal reserve can pump a ton of money in and did, but that is the cause of the congress, the federal government, and specially presidents Ford, Reagan, Bush II, and Obama that had no desire to balance the budget, and not necessarily the Federal Reserve bank.
Last edited by steelhouse; 04-23-2012 at 04:23 AM.