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Can you actually come up with a banking system that allows a flow of credit (That is absolutely necessary, you cannot have an economy without credit) and yet does not have "fractional reserves" at any level, or at any percectage?

Zero-reserve banking combined with the abolition of physical currency. After all, most transactions don't use physical FRNs, and are merely transferring bank credit from one account to another.

No - the demand for goods and services will always exist. I simply stated that demand for goods and services is unlimited. Given scarce resources, people choose how to consume and on what. Profit for the producer is based on those costs leading up to the finished good being available to the consumer. Reducing the unit price of a good or service may cause an entrepreneur to be unable to reap a profit. This will of course remove them from the market.

With zero reserve banking you will literally have an infinite inflationary effect. The number of dollars will be unlimited which will be chasing after a finite number of good consumed. The hyperinflation that would ensue as soon as banks unleashed reserves would be pretty bad.

Thrust vectoring ...:

Zero is a percentage.....

Pw: No it won't. Credit demand for SOUND LOANS is limited by earnings capacity.

Banks that cannot write other than SOUND LOANS off anything other than EXCESS CAPITAL cannot blow bubbles.

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Zero is a percentage.....

Yeah, but there's no reserve, so it doesn't have "fractional reserves at any level"

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With zero reserve banking you will literally have an infinite inflationary effect.

No, since while banks can create credit money via lending, they do not have seigniorage. And the people banks lend to are legally obligated to pay back the loan, so they won't be able to make unlimited bids. No unlimited bids, no instant infinite inflation.

Given the emphasis on SOUND LOANS, your meaning is made clear. I dont know enough of the details regarding this - that is, the details regarding the implementation of a sound lending policy by a bank - to really comment.

However, I can state that when the reserve requirements approach zero, the cost of not lending out every bit of deposits that are available will be hard to swallow. In terms of opportunity cost, the banks will suffer with any reserves since it not earning any interest. In fact, given competition, the most profitable banks will be those who have the least reserves. Of course, those with unsound lending will collapse, but the impetus or catalyst for the collapse is because of profit motive.

Interesting issue though, I will definitely need to think more upon how to determine the soundness of a lender and how it would translate in a market....

Read the Ticker itself.

I vote Karl for "dictator of FRB". You want it, you got it.

Well **** if I can buy the banks' stock before I help 'em, that sounds like a great ****ing job!

Sorry, you'll have to be dicator first, then you can cut the check.

Assuming that the value of the asset on the loan stays fixed or increases during the lifetime of the loan means that the bank has an asset to its corresponding liability of the lent money. However, if the price decreases on that asset, then the bank will take a loss if the loan defaults. Thats the current problem we are facing - a group of assets has declined in price and the defaults are crushing the banks. Now, given the nature of FRB, these losses cannot be paid off, since the banks have as little reserves as possible in normal times.

I am not stating that FRB is fraudulent, but it is wrought in peril and it is risky. The assumption that prices will always increase cannot be foretold, and no one can predict the future as far as I know. So is the risk of bank collapse worth the investment multiplier? Better minds than mine can debate that question I guess.

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Assuming that the value of the asset on the loan stays fixed or increases during the lifetime of the loan means that the bank has an asset to its corresponding liability of the lent money. However, if the price decreases on that asset, then the bank will take a loss if the loan defaults.

If the bank is required to sell assets any time they invade their tier cap with unsecured loans (the value of the loan over the asset value being unsecured) this problem disappears.

This requires REGULATION that is ACTUALLY ENFORCED.

Addressing Mtgspy from a couple pages back.

Here's Hedgie's take on whether there are losses out there:

http://www.fieldcheckgroup.com/2009/04/2....

http://www.fieldcheckgroup.com/2009/05/0....

Girl, :D PM me - I couldn't tell u here.

Physical banks are obsolete.

Technology has advanced to the point where every individual can be a bank.
Your money is stored on a hard drive on some server at BAC or C, why not just keep it on your own portable, encrypted hard drive and gut the middle-man?

We can sell our own bonds into the market (i.e. the Karl D bond) and eliminate the need for banks.

Private equity is going to take over and usurp the current banking system. As someone mentioned in this thread, private equity was what caused the banks to enter panic mode and loan like crazy.

"Private equity is going to take over and usurp the current banking system. "

It's a nifty idea and people have been talking about it for a couple of months now, I am skeptical but prepared to be surprised. Yes, that could happen. But the bulk of the heavy lifting outta the selling spiral would still be done by the traditional banks buying the loans with near unlimited money and no margin call at this point in time and foreseeable months.

Piranha:you really want to be your own bank? If you live in New York State be prepared to put in $7 million in start up capital (only $6m outside NYC). have fun!

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Technology has advanced to the point where every individual can be a bank.
Your money is stored on a hard drive on some server at BAC or C, why not just keep it on your own portable, encrypted hard drive and gut the middle-man?

Still need the bank for a trusted third party in three party transactions (buyer bob tells his bank to credit seller sue's account)

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However, I can state that when the reserve requirements approach zero, the cost of not lending out every bit of deposits that are available will be hard to swallow.

Its already that way - banks will already make any loan that it thinks will be profitable, and essentially are limited not by reserves, but by the appearance of solvency and to a lesser extent, liquidity. With interbank loans and whatnot, solvent banks have near unlimited ability to grant credit. Banks are, by and large, quantity takers and price makers in the lending market.

"Still need the bank for a trusted third party in three party transactions (buyer bob tells his bank to credit seller sue's account)"

Not really. P2P banking is already in development, trust is distributed throughout the network.

https://ripplepay.com/

http://ripple.sourceforge.net/

Have you analyzed this analysis that looks like a rebuttal to your rebuttal? I didn't have time to read cuz I was all over the place today. Check it out.

http://slcruiser.blogspot.com/2009/05/mo....

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Monkeys "might" fly outta my A$$
Oh God, the naïvete borders on DELUDED.

http://market-ticker.org/archives/1019-R....

Quote: (That credit has "moneyness", that is, it is fungible with and spends like money, doesn't make it money.)

UH, can you say COUNTERFEIT? Looks like "dog ****, smells like dog ****, SPENDS like dog ****, must be dog ****". Nay, COUNTERFEITING TRILLIONS in FIAT DEBT has "nothing" to do with FRL. It's all "we the people's fault" that were born into BONDAGE by the USURY system bestowed upon us by countless prior generations of working class RETARDS edumacated in gubmint schools CONTROLLED by the COUNTERFEIT MONEY MACHINE.

Quote: The sooner we the people understand that this crisis is the result of massive fraud commited by our banking class and covered for and bailed out by our government, the sooner we can force prudent regulation, clear the bad debt out of the system and return to having a stable, productive economy.

It took 16 years from 1913 to 1929 for the BANKSTERS to blow up the system the first time (1913 Federal Reserve Act) with their COUNTERFEIT MONEY MACHINE. It took 8 years, 1/2 as long, the second time to self destruct the whole thing (1999 Glass-Steagall Act). Good thing we have the 16th Amendment to guarantee BANKSTERS can******and PILLAGE the taxpayer by STEALING what they can't COUNTERFEIT.

Any FOOL can see our government is a sham and a rouse, run strictly by the MONEY MACHINE and we the people don't have a snowball's chance in hell fighting billions and trillions of dollars flying around the earth buying influence and votes while "we the sheeple" are buying into the BULLL**** fed to us nightly on BOOB TUBE. We the sheeple counldn't understand FRL and it's regulation if you shove it right up their A$$ and called them honey. To think different is the epitome of naivete. Sheesh.

And you wonder why he's banned on Tickerforum.

The math is never wrong, and a guy who claims to (and appears actually does) understand it should get that.

Being blinded by hatred gets you nowhere.

If the bank is required to sell assets any time they invade their tier cap with unsecured loans (the value of the loan over the asset value being unsecured) this problem disappears.

This requires REGULATION that is ACTUALLY ENFORCED.

That is a bit beyond my understanding. I need a little help wrapping my head around this, if you dont mind indulging me for a minute. I presume you mean that the loss from the decreased price in the asset is unsecured, since no actual value is behind it. I had assumed in my example that the banks would simply sell any asset they could as soon as possible if the loan defaults, especially if the price is decreasing. If the loan is underwater then it would have to effect the tier cap, correct? You can try to paper it over using accounting trickery (bad thing, the BEZZLE, as you speak of).

Either way though the loss will exist, which is what was being discussed, correct? If the bank hits their tier cap, they may go bankrupt taking their bondholders with em or petition the government with hat in hand for cash. Either way the bank is hosed, and in the latter case we get hosed as well.

An example will suffice:

Bank loans you $90,000 to buy a $100,000 house (your sales price)
Coverage is 94% (if you were to default immediately the bank would have to eat a 6% commission on the resale, leaving $94,000 in actual value)

This is a SECURED loan - no excess capital coverage required.

Now the value of the house begins to decline. We know this because the Case-Schiller index declines in that MSA. Let's say it declines 10%.

Now the house is worth $90,000. There is $90,000 outstanding on the loan (you've paid nothing in principal for the same of argument) but the same 6% commission expense must be deducted if you default. Coverage is now in excess of 100%; the house has a value of $84,600 (ex commission on resale) but the loan is for $90,000. The bank therefore must have reserved $5,400 in excess capital against this loan. If it does not wish to do so (or can't) it must sell the note immediately into the marketplace.

If that sale brings in less than $90,000, the bank now has an actual capital loss. This, if it occurs, depletes excess capital. Excess capital must always be greater than the 6% Tier Capital requirement.

If, at any time, it is not, then the bank is immediately seized. Because there is a significant difference between 6% and 0%, there is sufficient time for the regulators to seize the bank and dispose of its assets before the excess capital is entirely depleted. For this reason all creditors of the bank (including depositors) will get their money.

If there are losses in this situation they will be borne by the bondholders, but with prudent regulation that should never happen. For the FDIC to take an actual loss the excess capital must all be gone AND the bondholders stake must ALSO be gone.

The reason the FDIC has been taking losses is because THEY ARE NOT DOING THIER JOB. If we did not permit banks to hold paper against which there is no actual asset (including excess capital) then this sort of thing - including 'systemic risk' - CANNOT HAPPEN.

KD, the underlying premise is that FRL pulls money from the future into the present inflating asset prices. If they were to adequately reserve for the crash we would have what amounts to a Full Reserve System as productive capacity growth is bounded in nature (the Sun etc). Thermodynamics is conserved in a closed system.

Edit: Nature supports growth but not compounded into perpetuity. The only way not to get compounding is not to have fractional reserves.

Edit Edit: It's late and I'm rambling a bit but your system necessitates a debt default or jubilee to correct itself. I'm saying FRL mis-alocates and mis-prices capital.

Edit Edit Edit: Whatever, I'm tired and going to sleep.