Re: A 100 Percent Reserve Banking System

From: Rue The Day (ruetheday_at_outgun.com)
Date: 06/04/04 

Date: 4 Jun 2004 15:05:43 -0700

William F Hummel <wfhummel@comcast.net> wrote in message news:<h30vb0to5tnmh2jvglv5paikhln11jhgoe@4ax.com>...
> On 3 Jun 2004 12:24:48 -0700, ruetheday@outgun.com (Rue The Day)
> wrote:
>
> >William F Hummel <wfhummel@comcast.net> wrote in message news:<daaub0hpkvpiuagl67kba4923soda2ang5@4ax.com>...
>
> >> On 3 Jun 2004 05:29:02 -0700, ruetheday@outgun.com (Rue The Day)
> >> wrote:
> >>
> >> >Why wouldn't banks be allowed to lend money under a 100% reserve
> >> >system?
> >>
> >> Banks as we know them would not exist in a 100% reserve system. They
> >> could only lend their own money on deposit at the Fed, rather than
> >> creating new liabilities of their own through deposit creation as in a
> >> fractional reserve system.
> >>
> >> >Under such a system, if I were to deposit $100 with the bank,
> >> >there's nothing stopping the bank from taking $10 of it and lending it
> >> >to someone. The loan would involve transferring $10 to the recipient
> >> >of the loan. The bank would still have $90 in liabilities (deposits)
> >> >and $90 in reserves to back them up.
> >>
> >> No, that is a fractional reserve system. Banks could provide checking
> >> service for a fee in a 100% reserve system, but any lending would
> >> simply transfer funds it has on deposit at the Fed to the borrower.
> >> In that sense they would operate exactly as a non-bank does today.
> >
> >What I described is _not_ a fractional reserve system. Read my second
> >sentence and then read your second sentence. We're saying the exact
> >same thing.
>
> Your accounting is wrong. The deposit of $100 remains as a liability
> of the bank. If the bank then issues a loan of $10, it has created an
> additional liability of $10, which will be removed if and when the
> borrower cashes it, in which case the bank ends up with a liability of
> $100 and reserves of only $90. That is obviously not a 100% reserve
> system.
>
> In a 100% reserve system, a bank cannot create a deposit to fund a
> loan. The only use it would have for a deposit is in acting as a
> storage for base money, i.e. money that is created by the central
> bank. See my original article.

Yep, I botched that one. Remind me not to post when I'm in a hurry to
get out of here.

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