Is fractional reserve banking inflationary?

No, it does not. It simply writes a higher number in the borrower's demand deposit account, a new liability that balances the new loan asset. This can be confirmed by consulting any good accounting textbook that describes banks' ledger entries. It only uses existing money (reserves) when the borrower uses some the newly created money in the account to make a payment. As private banks are all doing this all the time, their swapping around of reserves enables them in effect to add new bank loan principal to the money supply. Normally this newly issued money is used to buy existing assets, increasing prices of real estate and/or stocks. However, nowadays commercial banks are issuing more and more debt money to pay for consumption (car and credit card loans), and especially in the USA, college costs.

Unlike a private commercial bank, the central bank can create new reserves without anyone having to borrow them, as we have seen with the Fed's creation of new money to purchase stocks at peak bubble prices in order to prevent the market from finding lower equilibrium prices for shares, rescue the super-duper uber-rich from their own greed and folly, and shovel trillions of dollars into their pockets in return for nothing.

Private commercial banks can't create money unless they have a borrower willing to sign a loan contract, which serves as the bank's new asset to balance its new liability in the borrower's demand deposit account.

No, it is not called counterfeiting. Counterfeiting is production of replica physical money (or sometimes other products) without legal authority.

 

Which is empirically true. In cases of hyperinflation, the supply of money typically lags prices, often by quite a lot.

No.

It's not that simple, but let's go with it.

Commodity money like gold is a completely different phenomenon, as it has negative feedback. Modern debt money systems have positive feedback, which encourages inflation and creates the boom-bust cycle.

It would actually be deflationary: because money is what is generally accepted in exchange, and value is what something would exchange for, money is inherently used to measure the value of everything else in the economy. Increased aggregate supply in the absence of increased aggregate demand -- i.e., purchasing power; money -- reduces average prices.

 

it does not, in any way.

to which I pointed out your comparing owning slaves to owning land/property is retarded.

this has been proven false.

you do not have a right to property I own. If you try and take it, I will easily stop you from doing so.

 

You are aware that I have already proved it does. You were talking about property. Chattel slaves are property. Therefore, every general statement you make about property also applies to chattel slaves. It does not matter how many times you deny that or call it retarded, it is just an indisputable fact of logic.

Speaking of retarded, you know that chattel slaves are property. Therefore, when you make a general claim about property, you are also making a claim about chattel slaves. You know this. You just have to contrive some way of not knowing it, because you have already realized that it proves your beliefs are false and evil.

No, you are aware that it has not, and that you have never even attempted to offer an argument to that effect because you know that if you do, I will just demolish and humiliate you for it.

You do not have a right to own other people's rights to liberty, no matter how much you feel they are your property, and no matter how many times you claim it is retarded to point out that valid property can't include other people's rights to liberty.

The same way slave owners easily stopped the abolitionists from taking their property....? The only unfortunate thing about emancipation of slaves was that slave owners' assets were not all forcibly confiscated and given as reparations to the slaves. Maybe we can do better when we emancipate people from the yoke of privilege.

 

You are aware it is true.

Incorrect. As chattel slaves are property, they are indisputably relevant to any discussion of property. You know this. You just have to contrive some way of not knowing it, because you have already realized that it proves your beliefs are false and evil.

You know that it is highly insightful, informative, illuminating, valid, and correct in every way.

People always have a right to their rights, even if evil people claim to own them as property.

The same way slave owners swiftly stopped the abolitionists from taking their property...?

 

except we both know it's false.

slavery is entirely irrelevant to anything being discussed. Comparing owning a human being to owning land/property is retarded, and completely moronic. You do not, have never had, or will ever have a right to property that I own. If you try and take it, I will easily stop you.

 

No. I know it is true, while you have to believe it is false, or commit suicide out of shame, disgrace, and revulsion.

No; it proves you wrong, so you have to pretend it is irrelevant. Chattel slaves are property, so any general claim about property, such as yours, must also apply to chattel slaves. You are just all butt-hurt because you have realized that chattel slavery proves your beliefs about property are false and evil.

And yet it has been a common theme in the writings of people incomparably more intelligent than you (from which readers are invited to draw their own conclusions).

Such a mystery.

To you, that is.

Yeah, about as easily as slave owners stopped the abolitionists from taking the "property" they claimed they owned.

 

The price of money, like the price of everything is a function of supply. When more is created, the price falls. A falling price of money is known as inflation. How much people owe has no effect on the supply of money or its price.

 

What is a "right to liberty"?

 

Scenario: I have one dollar. I deposit in the bank. The bank loans that dollar to someone. He cashes his loan check and puts the dollar bill in his pocket. I go to the ATM and withdraw my dollar and put it in my pocket. Question: Did the money supply go up by a dollar?

Issuing a loan isn't counterfeiting.

 

You deposit a dollar in the bank.
The bank lends out 90 cents.

When you go to the bank and withdraw $1.
The bank does not have your one $.

So it gives you $1 from it's fractional reserves.
Those 10 cents it kept back from your deposit and 90 cents that it kept back from the deposits of 9 other $.

The money supply remains the same.


Issuing a loan with money you don't have, is not physically possible unless you create more money.
Creating money, is a crime. It's called counterfeitiing.

 

A societal undertaking to constrain its members not to forcibly prevent each other from doing what they would otherwise be able to do.

 

You are fully aware it's false.

slavery is entirely irrelevant to anyting being discussed. Comparing owning a human being to owning land/property, is retarded and a completely false equivalence and invalid comparison. You do not and have never had the right to property that I own. I will swiftly stop you from taking it if you try.

 

That is not what a bank does. It uses your dollar as reserves and creates the money it lends to borrowers.

When a bank lends, it just increases the balance in the borrower's demand deposit account. It does not issue a check.

Yes, because the bank created the dollar it lent.

Right.

 

No, you are fully aware that I have proved it is true, and you have never offered any sort of facts, logic or arguments in support of your claim that it is false.

No. Chattel slaves are property. You made a general claim that all property is rightful. Any general claim that all property is rightful is a claim that chattel slavery is rightful. That is just basic logic that you now have to contrive some way of evading because you have realized that it proves your beliefs are false and evil.

No it isn't. I have proved, in multiple independently conclusive ways, that such a comparison is completely valid and illuminating, which is why people incomparably more intelligent -- and, let's face it, honest -- than you have also been making it for hundreds of years.

Which is exactly what slave owners said to the abolitionists, except that unlike you, slave owners at least tried to offer some kind of argument to justify the claim.

Which is exactly what slave owners said to the abolitionists, and with exactly the same disregard for liberty, justice and the truth.

 

That is not how bank lending works. Banks use customer deposits as reserves.

No, you are describing the fairy tale version of bank lending. Fractional reserves are simply a limit on how much debt money a bank can create, and some countries don't even bother to require fractional reserves any more because they are irrelevant. A 10% fractional reserve requirement just means a bank has to have $1 in additional reserves for each $10 in new debt money it creates as loan proceeds.

Which is what banks do.

No, it is not, when a licensed commercial bank does it.

No. Counterfeiting is production of replica currency (or sometimes other products) without legal authority.

 

except we both know it's false, and has been proven false.

have no relevance to anything being discussed. Comparing owning a human being to owning land/property, is retarded and a completely false equivalence and invalid comparison. You do not and have never had the right to property that I own. I will swiftly stop you from taking it if you try.

 

No, we both know it hasn't, as proved by the fact that you cannot reproduce any such proof, nor provide a reference for when it was stated or by whom, or where it might be found.

No, you are aware that I just proved they do, which is why your "response" was simply to childishly snip the context where I proved it.

No, it is indisputably valid and correct because ownership of anything is indisputably comparable to ownership of anything else. What else could it be compared to? Seamanship? Partnership? Scholarship? Leadership? Fellowship? Battleship? How could owning other people's rights to liberty not be comparable to owning other people's rights to liberty? Your absurd and disingenuous "objection" to such a perfectly valid and indeed inevitable comparison, which has been made for hundreds of years by people incomparably more honest and intelligent than you, merely proves your need to evade the facts because you have already realized that they prove your beliefs are false and evil.

<yawn> You do not and have never had the right to own other people's rights as your property.

Which is exactly what slave owners said to the abolitionists, so thanks for proving that you know owning human beings is entirely comparable and even similar to owning other people's rights to liberty in any other way: you just exhibited the exact same belligerent, unreasoned aggressiveness about your ownership of others' rights to liberty as slave owners exhibited about their ownership of others' rights to liberty.

 

Baff, when people are referring to "money" here, they are including money in bank accounts that does not actually exist. (or at least does not exist as paper dollars that the Central Bank has issued)

Does that makes sense? The terminology can be a little confusing.

It is still my contention though that this money in bank accounts (in general) does not actually lead to inflation, even though it is pretty much used just like ordinary paper money.


(Not to get too far off topic, but one big exception to this might have been during the Housing Crisis, where the bank had created money from loans that went bad. In that case inflation was caused by people thinking there was housing wealth that was not actually there, and the inflation actually happened gradually well before the loans went bad)

 

Printing electronic money is counterfeiting.
Money that doesn't exist. Doesn't exist.

People will talk a lot of arse about how banks create money.
But unless you are wearing your underpants on your head, you won't be able to see this magic money tree either.




Money in bank accounts, typically doesn't stay in the bank.
It gets spent in the form of loans and investments.

A fraction of the reserves is kept in cash.
Much of it is kept in the form of other prescribed assets. Such as gold or government bonds.

Very little of it remains in the bank in the form or cash or electronic money.
This small % of deposits could be considered inflationary, just as the unspent cash in your wallet could.
But this is clutching at straws in my opinion. An over analysis.



And today with electronic money the turn over of those deposits is very fast.
Velocity of money.

Where before a cheque would take one week to clear, bank cards now clear transactions instantly.
So the bank can lend out and have returned and re=lend out the same cash in seconds where before that process would have taken weeks.

Velocity of money can also be described as deflationary in effect.
Circulating the same money faster means that to all intents and purposes more money is available.

However there is a commercial cost to these transactions. They raise the price of goods and services. This process in and of itself is a traded transaction.
It adds price inflation as well as the afore mentioned deflation

 

Oops in the above post I have got inflationary and deflationary mixed up.
Too late to edit.
Please excuse my stupid.

Idle money in the economy. Bank reserves/money in your wallet can be considered *deflationary".
Velocity of money, the increased activity of money. the increased number of transactions each individual $ makes/hour, can be considered inflationary.

(I don't necessarily personally endorse those statements, but there is an argument to be made).

 

Money in bank accounts (which does not actually exist) represents loan obligations.
That money isn't actually there, but someone has the obligation of paying that money back to you.

Or another way we could phrase it, that money represents housing wealth, since the loan is secured with a mortgage on the house. The bank could theoretically sell the house, and thus get the money to pay you. So that money does represent something real of value, in a sense.

That is why I feel that more money in bank accounts is (generally) not going to result in inflation.

 

There are two kinds of money in bank accounts: money deposited in their accounts by savers, businesses, etc. (think of it as "deposit money"), which is essentially a liability of the bank that balances reserves transferred to the bank, and money created by the bank as loan proceeds ("debt money"), which is essentially a liability of the bank that will require a transfer of reserves from the bank. Money of both kinds exists as a legal liability of the bank. The main difference is that the debt money must be deleted according to the scheduled loan principal repayments, while the deposit money exists as long as the depositor leaves it there. I don't know what you erroneously imagine you think you might mean by your claim that such money doesn't exist.

Hopelessly confused.

You think houses costing $500K rather than $100K is not inflation??

 

Well, first of all, housing inflation is, in the strictest sense, not necessarily inflation.

I have written about this in past threads. We are getting into a kind of complicated subject here. I believe much of it was caused by inflation, but it was caused by the type of inflation of fractional reserve banking that was out of proportion to what the value of the houses actually was (i.e. the Housing Bubble). If you recall, the Federal Reserve began pumping out money to "prop up" the housing market, thus keeping housing prices at their new high.

Your point here doesn't really contradict anything I've been saying.

 

Money in bank accounts represents housing wealth, since if the person who took the loan doesn't pay it back, the house gets seized, then sold off.

There might not literally be enough paper money in existence for bank accounts to pay everyone off, but there are houses that have a mortgage on them.

That is, this money is not based off of "nothing".