Victoria Grant explains Fictional-Reserve Banking and why everything is crashing - page 4.

hazek

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Quote from: realnowhereman on May 17, 2012, 07:10:28 AM

Quote from: hazek on May 17, 2012, 06:58:11 AM

I guess that's a problem then, I always thought FRB means a bank lends more than it's deposits, meaning they create money out of thin air, something which we know is damn near impossible with bitcoin. Lending out a % of deposits != FRB to me.

Your understanding is wrong. A bank cannot lend out more than its deposits. In fact, the reserve ratio is what specifies how much they can lend out. They are allowed to lend (in the UK) 97% of deposits.

3 questions:
- Do depositors in such a bank have access to their deposits whenever they please?
- If no, do the depositors think they have access to their deposits whenever they please?
- If yes, how can that be if the bank lent 97% of their deposits to someone else?

lonelyminer (Peter Šurda)

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Quote from: hazek on May 17, 2012, 07:26:05 AM

And you say I'm the one obfuscating? Stop trolling me, please. Of course bitcoins are abstract as is the ownership of them, but abstract concepts do not invalidate the concrete concepts of ownership. If you claim otherwise you wont mind sharing the private keys to your bitcoins, since you have no ownership, right?

Once again, you are still to provide a coherent argument. Since all media and all computers involved in the functioning of Bitcoin are private property of the owners of these objects, it is logically impossible to also have "rights in Bitcoin". Such rights would be either redundant or contradict the rights in the media / computers. For a more detailed elaboration, see aforementioned Against Intellectual Property.

lonelyminer (Peter Šurda)

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Quote from: hazek on May 17, 2012, 07:20:47 AM

Of course it does, it's what makes a money a good money. I mean just have to look at the real world example of gold to see you're wrong and I'm right.

Wait, what? You can't be serious. What specific other property rights apply to money that do not apply to other goods? What property rights apply to gold that do not apply to other goods?

Quote from: lonelyminer (Peter Šurda) on May 17, 2012, 07:02:02 AM

It's easily provable. For any other act that could affect the price of BTC someone needs to create a good or a service of value, they have to apply labor to produce something, something that would affect the goods and service bucket which then gets matched with the money bucket. Merely adding to the money bucket(of course when I say money I mean 1 instances of it, 1 currency if you like, Bitcoin2 would be a separate bucket of money) does not add any value but in fact robs value form those already holding a piece of the money in this bucket.

Ahh, so you're a proponent of the labour theory of value? If some guy X does not "work", and this is somehow causally related to a decrease in the price of Bitcoins, he's violating your rights?

Quote from: hazek on May 17, 2012, 07:20:47 AM

I think the reason I have such a hard time is people around here have severely distorted beliefs about what money really is, how it originally came about and what was it's purpose in the market and especially what a good money is.

You're having a hard time because you cannot formulate coherent arguments. You randomly jump between all kinds of assumptions.

hazek

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Quote from: lonelyminer (Peter Šurda) on May 17, 2012, 07:17:24 AM

Quote from: hazek on May 17, 2012, 07:05:58 AM

That simply isn't true with Bitcoin. A depositor retains a claim on ownership but relinquishes the actual ownership to the operator. Once the depositors makes a deposit, the operator is in control of the deposit and the owner which in effect equals to a loan contract. The operator borrows from the depositor, and then lends to someone else who borrows from the operator.

The concept of "retaining a claim on ownership but relinquishing the actual ownership" makes no sense. It's just an obfuscation. Furthermore, again based upon TTTC and Kinsella's work, there is no ownership of Bitcoins. There is only ownership of the media and computers involved in the functioning of Bitcoin. Bitcoins are already an abstract concept, so derivative instruments issued by Bitcoin "banks" are even more abstract and there is even less reason why their issuance should be in any way legally related to each other.

And you say I'm the one obfuscating? Stop trolling me, please. Of course bitcoins are abstract as is the ownership of them, but abstract concepts do not invalidate the concrete concepts of ownership. If you claim otherwise you wont mind sharing the private keys to your bitcoins, since you have no ownership, right?

hazek

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Quote from: lonelyminer (Peter Šurda) on May 17, 2012, 07:02:02 AM

Quote from: hazek on May 17, 2012, 06:49:37 AM

Wrong. Money is a special good, because it has to have special properties that make it attractive to be used as money in the first place (fungible, divisible, recognizable, STORE OF VALUE) none of which apply to most goods hence why so few are ever chosen as money and even fewer are a good money. Denying this is being completely oblivious to history of money.

Non-sequitur. Merely because money is special economically does not imply that different property rights rules apply to it.

Of course it does, it's what makes a money a good money. I mean just have to look at the real world example of gold to see you're wrong and I'm right.

Quote from: lonelyminer (Peter Šurda) on May 17, 2012, 07:02:02 AM

Quote from: hazek on May 17, 2012, 06:49:37 AM

Riiiiiiight, someone being robbed is circular reasoning, care to elaborate how?

You argue that because the market price of BTC has decreased through FRB, this is a violation of property rights. However, this is what you have to prove, not assert. You are assuming your conclusion.

As I said already, almost any act whatsoever can decrease the market price of BTC. A creation of a new currency, say Bitcoin2, which has superior features than Bitcoin, for example, could cause this. Is that illegal too?

The fundamental economics is the same. Some goods S act as substitutes of another good M. If the production costs of S are lower than M, this leads to an increase of supply and a decrease in price. This happens everywhere and is not particular to money. Should it be illegal in those other cases too? Or should it be different with money?

It's easily provable. For any other act that could affect the price of BTC someone needs to create a good or a service of value, they have to apply labor to produce something, something that would affect the goods and service bucket which then gets matched with the money bucket. Merely adding to the money bucket(of course when I say money I mean 1 instances of it, 1 currency if you like, Bitcoin2 would be a separate bucket of money) does not add any value but in fact robs value form those already holding a piece of the money in this bucket.

I think the reason I have such a hard time is people around here have severely distorted beliefs about what money really is, how it originally came about and what was it's purpose in the market and especially what a good money is.

realnowhereman

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Quote from: JusticeForYou on May 17, 2012, 07:15:19 AM

And this is where the 'Leveraging' comes in to grow wealth. Unfortunately these 'unpaid' for assets get added to the formula. I'm saying leveraging isn't bad but one must be very careful and expect defaults and prepare for them so the whole house of cards don't come down. 30-40 is a safe number, 400:1 is INSANE.

Absolutely right. As I said above, the problem is not FRB, it is the level of FRB going on. The profit from spreads was not enough to cover the huge numbers of defaults that started happening from 2008 so the banks had to go crawling to governments to bail them out.

I also believe that the legal reserve ratio is not the correct tool for managing FRB; the interest rates on loans is (interest being effectively the "cost" of money). The fact that banks have been lending right up to what they are legally allowed to is evidence that demand for credit was too high. Therefore it needs lowering by making credit more expensive.

lonelyminer (Peter Šurda)

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Quote from: hazek on May 17, 2012, 07:10:08 AM

FULL STOP, that is fraud, stealing from savers holding this same money.

If I increase a supply of a good and this decreases its price, is it fraud? If not, is money covered by different property rights than other goods? If not, then your argument is erroneous.

Kluge

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Quote from: hazek on May 17, 2012, 07:13:04 AM

Quote from: JusticeForYou on May 17, 2012, 06:57:48 AM

Quote from: hazek on May 17, 2012, 06:50:33 AM

Quote from: JusticeForYou on May 17, 2012, 06:47:25 AM

Quote

Is that why we have FRB in Bitcoin? Oh wait we don't have it.

We don't? Hmm.. Ok, I missed something.

Oh we do? Then I missed something and should sell my BTC asap since apparently someone figured out how to counterfeit bitcoins. When, where and who did it?

Fractional-reserve banking is a form of banking where banks maintain reserves (of cash and coin or deposits at the central bank) that are only a fraction of the customer's deposits.

This has nothing to do with 'counterfeiting".

FRB is when someone lends more than what their deposits are. Where they keep a fraction of their deposits is irrelevant to FRB.

Fractional-reserve -- a fraction of reserves are kept as cash-on-hand for deposits. Full-reserve -- a full reserve of deposits is kept as cash-on-hand. Banks can't loan out more than what the have deposited with them unless they have equity (more assets than liabilities). The Fed can create money and loan it to commercial banks for free or near-free, but this isn't related to FRB - that's money creation as it usually happens in the current world.

I'm not sure if Austrians are using some obsolete definition or if we're confused.

lonelyminer (Peter Šurda)

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Quote from: hazek on May 17, 2012, 07:05:58 AM

That simply isn't true with Bitcoin. A depositor retains a claim on ownership but relinquishes the actual ownership to the operator. Once the depositors makes a deposit, the operator is in control of the deposit and the owner which in effect equals to a loan contract. The operator borrows from the depositor, and then lends to someone else who borrows from the operator.

The concept of "retaining a claim on ownership but relinquishing the actual ownership" makes no sense. It's just an obfuscation. Furthermore, again based upon TTTC and Kinsella's work, there is no ownership of Bitcoins. There is only ownership of the media and computers involved in the functioning of Bitcoin. Bitcoins are already an abstract concept, so derivative instruments issued by Bitcoin "banks" are even more abstract and there is even less reason why their issuance should be in any way legally related to each other.

Quote from: lonelyminer (Peter Šurda) on May 17, 2012, 06:54:37 AM

Yes he can create representations of the original deposits and lend them out, committing the fraud of charging interest on purchasing power no one consented for him to able to access while his borrowers steal through this purchasing power accessed out of thin air from all the other savers holding the underlying deposit. Sort of kinda what LBMAs allegedly do with paper gold.

Assuming your conclusion again. The fraudulence needs to be the conclusion, not the assumption.

JusticeForYou

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Quote from: realnowhereman on May 17, 2012, 07:10:28 AM

Quote from: hazek on May 17, 2012, 06:58:11 AM

I guess that's a problem then, I always thought FRB means a bank lends more than it's deposits, meaning they create money out of thin air, something which we know is damn near impossible with bitcoin. Lending out a % of deposits != FRB to me.

Your understanding is wrong. A bank cannot lend out more than its deposits. In fact, the reserve ratio is what specifies how much they can lend out. They are allowed to lend (in the UK) 97% of deposits.

Let me explain where the money "creation" comes from though: imagine there is only one bank in the universe. Imagine also that we have no such thing as cash, that it is all numbers on a screen. The bank starts with $100,000 of its own. Alice wants to borrow $100,000 to buy Bob's house. The bank agrees, and creates a $100,000 asset in the form of the loan to Alice; and a $100,000 liability in the form of a liability to Bob's current account. That is to say that Bob has $100,000 on deposit, the bank has $100,000 in equity and has loaned $100,000 to Alice. That is a reserve ratio of 100,000/200,000 = 50%.

Go again. Charlie buys Daves house. Charlie owes the bank $100,000; Dave is owed $100,000 by the bank (and hence has $100,000) on deposit.

Total deposits and equity = $300,000
Total loaned = $200,000
Reserve ratio = 66%

At no time does the bank lend more than it has on deposit. Money is "created" by the act of borrowing. If no one was willing to borrow then no money "creation" would take place.

And this is where the 'Leveraging' comes in to grow wealth. Unfortunately these 'unpaid' for assets get added to the formula. I'm saying leveraging isn't bad but one must be very careful and expect defaults and prepare for them so the whole house of cards don't come down. 30-40 is a safe number, 400:1 is INSANE.

hazek

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Quote from: JusticeForYou on May 17, 2012, 06:57:48 AM

Quote from: hazek on May 17, 2012, 06:50:33 AM

Quote from: JusticeForYou on May 17, 2012, 06:47:25 AM

Quote

Is that why we have FRB in Bitcoin? Oh wait we don't have it.

We don't? Hmm.. Ok, I missed something.

Oh we do? Then I missed something and should sell my BTC asap since apparently someone figured out how to counterfeit bitcoins. When, where and who did it?

Fractional-reserve banking is a form of banking where banks maintain reserves (of cash and coin or deposits at the central bank) that are only a fraction of the customer's deposits.

This has nothing to do with 'counterfeiting".

FRB is when someone lends more than what their deposits are. Where they keep a fraction of their deposits is irrelevant to FRB.

realnowhereman

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Quote from: hazek on May 17, 2012, 06:58:11 AM

I guess that's a problem then, I always thought FRB means a bank lends more than it's deposits, meaning they create money out of thin air, something which we know is damn near impossible with bitcoin. Lending out a % of deposits != FRB to me.

Your understanding is wrong. A bank cannot lend out more than its deposits. In fact, the reserve ratio is what specifies how much they can lend out. They are allowed to lend (in the UK) 97% of deposits.

Let me explain where the money "creation" comes from though: imagine there is only one bank in the universe. Imagine also that we have no such thing as cash, that it is all numbers on a screen. The bank starts with $100,000 of its own. Alice wants to borrow $100,000 to buy Bob's house. The bank agrees, and creates a $100,000 asset in the form of the loan to Alice; and a $100,000 liability in the form of a liability to Bob's current account. That is to say that Bob has $100,000 on deposit, the bank has $100,000 in equity and has loaned $100,000 to Alice. That is a reserve ratio of 100,000/200,000 = 50%.

Go again. Charlie buys Daves house. Charlie owes the bank $100,000; Dave is owed $100,000 by the bank (and hence has $100,000) on deposit.

Total deposits and equity = $300,000
Total loaned = $200,000
Reserve ratio = 66%

At no time does the bank lend more than it has on deposit. Money is "created" by the act of borrowing. If no one was willing to borrow then no money "creation" would take place.

hazek

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Quote from: realnowhereman on May 17, 2012, 06:56:18 AM

As I said above; money is under FRB is not created out of thin air. It is created by pulling apart a zero into an asset and a matching liability.

The money created by FRB is indeed an increase in money supply;

FULL STOP, that is fraud, stealing from savers holding this same money.

lonelyminer (Peter Šurda)

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Quote from: realnowhereman on May 17, 2012, 06:56:18 AM

The money created by FRB is indeed an increase in money supply; it is increased by the amount savers are willing to lend and borrowers are willing to borrow. In that sense, it is the moving of a portion of the borrowers future wealth creation into the present.

This is a bit imprecise. FRB creates more instruments than they have reserves. But this only leads to an increase in the money supply if these instruments act as a substitute of money itself, i.e. if they are used as a method of payment.

hazek

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Quote from: lonelyminer (Peter Šurda) on May 17, 2012, 06:54:37 AM

Quote from: hazek on May 17, 2012, 06:39:35 AM

Non sequitur. The question is whether or not the operator has to relinquish ownership over 100% of the deposits in order to charge interest on a loan.

A deposit contract means that the depositor retains ownership. So your argument makes no sense. What you are describing is a loan contract, where the ownership is transferred.

That simply isn't true with Bitcoin. A depositor retains a claim on ownership but relinquishes the actual ownership to the operator. Once the depositors makes a deposit, the operator is in control of the deposit and the owner which in effect equals to a loan contract. The operator borrows from the depositor, and then lends to someone else who borrows from the operator.

Quote from: lonelyminer (Peter Šurda) on May 17, 2012, 06:54:37 AM

Quote from: hazek on May 17, 2012, 06:39:35 AM

And the answer is a clear yes, which is why he needs 100% reserves in order to make a loan or more accurately an investment. 100% reserve does not mean that the operator has 100% of the serves after he makes his investment but instead that he has to have 100% reserve before he can make it.

An operator cannot invest more than 100% of his reserves, that's logically impossible. However, he can issue instruments whose price exceeds that of the reserves. If these instruments are usable in some way (for example, they can be used for payment, or at least speculation like on Bitcoinica), he can make additional profit on that, and he is operating at fractional reserves.

Yes he can create representations of the original deposits and lend them out, committing the fraud of charging interest on purchasing power no one consented for him to able to access while his borrowers steal through this purchasing power accessed out of thin air from all the other savers holding the underlying deposit. Sort of kinda what LBMAs allegedly do with paper gold.

lonelyminer (Peter Šurda)

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Quote from: hazek on May 17, 2012, 06:49:37 AM

Wrong. Money is a special good, because it has to have special properties that make it attractive to be used as money in the first place (fungible, divisible, recognizable, STORE OF VALUE) none of which apply to most goods hence why so few are ever chosen as money and even fewer are a good money. Denying this is being completely oblivious to history of money.

Non-sequitur. Merely because money is special economically does not imply that different property rights rules apply to it.

Quote from: lonelyminer (Peter Šurda) on May 17, 2012, 06:42:16 AM

Riiiiiiight, someone being robbed is circular reasoning, care to elaborate how?

You argue that because the market price of BTC has decreased through FRB, this is a violation of property rights. However, this is what you have to prove, not assert. You are assuming your conclusion.

As I said already, almost any act whatsoever can decrease the market price of BTC. A creation of a new currency, say Bitcoin2, which has superior features than Bitcoin, for example, could cause this. Is that illegal too?

The fundamental economics is the same. Some goods S act as substitutes of another good M. If the production costs of S are lower than M, this leads to an increase of supply and a decrease in price. This happens everywhere and is not particular to money. Should it be illegal in those other cases too? Or should it be different with money?

hazek

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Activity: 1078

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Quote from: Kluge on May 17, 2012, 06:52:07 AM

Quote from: JusticeForYou on May 17, 2012, 06:47:25 AM

Quote

Is that why we have FRB in Bitcoin? Oh wait we don't have it.

We don't? Hmm.. Ok, I missed something.

For some reason, the concepts of money creation and FRB are being blurred together in this thread. I sure as Hell don't keep 100% FV of deposits or bonds in my wallet.

I guess that's a problem then, I always thought FRB means a bank lends more than it's deposits, meaning they create money out of thin air, something which we know is damn near impossible with bitcoin. Lending out a % of deposits != FRB to me.

JusticeForYou

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Quote from: hazek on May 17, 2012, 06:50:33 AM

Quote from: JusticeForYou on May 17, 2012, 06:47:25 AM

Quote

Is that why we have FRB in Bitcoin? Oh wait we don't have it.

We don't? Hmm.. Ok, I missed something.

Oh we do? Then I missed something and should sell my BTC asap since apparently someone figured out how to counterfeit bitcoins. When, where and who did it?

Fractional-reserve banking is a form of banking where banks maintain reserves (of cash and coin or deposits at the central bank) that are only a fraction of the customer's deposits.

This has nothing to do with 'counterfeiting".

realnowhereman

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Activity: 504

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As I said above; money is under FRB is not created out of thin air. It is created by pulling apart a zero into an asset and a matching liability.

The money created by FRB is indeed an increase in money supply; it is increased by the amount savers are willing to lend and borrowers are willing to borrow. In that sense, it is the moving of a portion of the borrowers future wealth creation into the present.

If you want to argue about what the correct reserve ratio is; then I'll agree, the current (in the UK) 3% is appalling and results in 32 pounds being lent for every 1 printed. I would argue though that the fact we've reached that reserve ratio is not a function of the law setting that reserve ratio, but the central bank making borrowing too cheap (and hence demand for credit is too high, resulting in too many willing borrowers). The reserve ratio is the buffer at the end of the track, not the speed of the train.

lonelyminer (Peter Šurda)

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Quote from: hazek on May 17, 2012, 06:39:35 AM

Non sequitur. The question is whether or not the operator has to relinquish ownership over 100% of the deposits in order to charge interest on a loan.

A deposit contract means that the depositor retains ownership. So your argument makes no sense. What you are describing is a loan contract, where the ownership is transferred.

Quote from: hazek on May 17, 2012, 06:39:35 AM

And the answer is a clear yes, which is why he needs 100% reserves in order to make a loan or more accurately an investment. 100% reserve does not mean that the operator has 100% of the serves after he makes his investment but instead that he has to have 100% reserve before he can make it.

An operator cannot invest more than 100% of his reserves, that's logically impossible. However, he can issue instruments whose price exceeds that of the reserves. If these instruments are usable in some way (for example, they can be used for payment, or at least speculation like on Bitcoinica), he can make additional profit on that, and he is operating at fractional reserves.

Topic: Victoria Grant explains Fictional-Reserve Banking and why everything is crashing - page 4. (Read 6658 times)