Sunday, July 3, 2011

For those who advocate shifting to a full reserve system

Our current system already has the structures and insitutions for you. If you absolutely abhor the possibility of the bank losing your money in a bad loan, it has an option for you. It's called a safety deposit box. You can be certain that the bank NEVER lends your money out. You are assured that the money you put in is also the money you put out. You never have to endure sleepless nights wondering whether the bank will still have your money when the time comes for you take it out, because it never lends your money in any 'inflationary' debt ponzi schemes.

And to those discerning full reservers who want to earn a rate of return on their money, the current system also has an option for them. They're called Money Market Funds. These institutuions are GUARANTEED to have no ability to 'counterfeit' your money by creating it out of thin air. They can only lend the money that people put in them. They have no magical reserve accounts with the central bank, and are never never constrained by its heavy hand of regulation. They have no need for the Fed, and never have to bow down to its dictatorial wishes.

You have doubts that they may be counterfeiting your money? Case in point, when people move their money out of these funds, these funds have to liquidate their asset holdings in order to pay them out. Even more telling, if more people move their money out, the more they have to liquidate, even if they have to sell long term debt at a loss. The fact that the net asset value of your share in these funds goes down when this happens is proof positive that no counterfeiting ever happens at these funds. Another case in point, if too many people move their money out, these funds will gate your money in so you can't get it out. This proves that your 'bank' never blemishes its reputation by involving itself in the crass activity of 'Fractional Reserve Banking'. The good news is that, in the last run-up to a credit bubble, most lending in the system was already being done by these 'non-inflationary, non-fractional' substitutes.

If you're the type who has to make sure his money is safe and is never lent out in ANY debt ponzi scheme, our current system also has the option for you. It's called hiding your money under your mattress. You see, capitalism is a wonderful system that allows all sorts of institutions to flourish, that serve to enable everyone to have the liberty to choose their method of safeguarding their money. The free market system has always made sure that every consumer gets what he wants, and always attains the outcome that he deserves.

Why change the system?

11 comments:

Anonymous said...

The problem is with constant even low-grade inflation, the value of the currency in your safe deposit box or under your mattress is always being degraded. The result is that over a long span of time these alternatives aren't really viable so they are not really options. You are essentially forced to attempt to earn some sort of return of your savings simply to maintain your purchasing power which forces you into Ponzi land.

As for hedge funds, ummm where do they get the money to lever up? True, they can't print the money out of thin air, but the bank they borrow from does.

Rogue Economist said...

A, it's true about never being completely unaffected by the central bank, even if you were to choose an institution not within its purview. Everybody who uses the currency will be affected by its decisions, and I acknowledge that many people recently forced into riskier investments were forced to by Fed policy. It needs to stop monkeying with ther currency to solve a problem not appropriately solved by currency.

As for hedge funds, yes it borrows from banks who print from thin air. But that means it's the banks who 'lend more than they have', not the funds. Also, that paragraph is tonge in cheek. Hedge funds are not meant to be shown to embody an ideal by the article.

Detroit Dan said...

Good tongue in check post!

The money markets were rescued by the Feds in the fall of 2008, I believe. A true believer would have been glad to lose his life savings invested in safe money market funds at that time...

james moylan said...

I have a web site where I give advise on penny stocks and stocks under five dollars. I have many years of experience with these type of stocks . If their is anyone that is interested in these type of stocks you can check out my web site by just clicking my name. I would like to comment about double digit inflation. I am very disturbed by the lack of progress on cutting the budget deficit. It will require large tax increases and budget cuts to bring the deficit under control. When nobody will buy the debt obligations of the united states than the buyer of last resort will emerge and who might be that buyer of last resort’ the government itself. in other words the massive money printing will have begun welcome weimar republic two thousand ?

Rogue Economist said...

Thanks Dan. A true believer would have been furious that the fed had the gall to intervene and bail out their fund, derpriving them of their right to lose their money the Darwinian way.

Rogue Economist said...

James, have your tried leveraging your penny stocks with derivatives? They're guaranteed to multiply the returns of all your investments, no risk. You can find out more about getting more involved at goldmansachs.com

Hans said...

Mr Rogue, I apologize about going off subject, however, your three running questions off to the side, the affirmed answer is NO!!

This is certainly one the of the main defects of the MTTers, to subscribe anything to the government which requires efficiency, especially employment...

There should not even be a debate on this subject, as it has been answered time and time again, yet there remains the Karl Marks believers who think the government has a vital role..

The latest dubious application has come from the current Kenyan administration, which admitted that their "jobe" saving plan cost $278,000 per placement...

Even the mob is more cost efficient...

Hans said...

If one is NO then two is also NO...If one and two are NO, then question three likewise suffers a similar fate...

Public employment (job creations), is central planning; which has been extensively demonstrated as a red failure...

The MMTers continue to incorporate the significances of government in their economic model, which of course lead to unwanted problems...

Rogue Economist said...

Hans, forgive me if I will be blunt. We are only having this discussion of public spending's role now because the private sector is in balance sheet recession. I am not advocating for central planning, only a momentary increase in public spending to compensate as the private sector deleverages. You can be sure that when the private economy has picked up and government waste and inefficiency is becoming the problem I would be on the other side being branded a lobbyist for privateers (You're always branded by those who don't understand). But not right now. Those questions on the side are to address objections to public spending when it is the only option available, not to justify permanent central planning. There is a reason why keynes is considered a separate economic thinker from Marx. They weren't talking about the same diagnosis, the same end objectives, and (though it looks that way to the undiscerning mind) definitely not the same solutions.

Hans said...

Mr Rogue, thank you for your response! I eagerly await the day, when you have a thread on this topic...

I do thank you for your thoughts on the matter..

risioja said...

I really like your post you done great jobs. Thanks for valuable information.
Risioja