Not necessarily. I can hold the view that fractional reserve banking is efficient and desirable and simultaneously hold the view that governments should not bail out banks.
You can, but it would be logically inconsistent. You would be endorsing an unstable financial system based upon promises which cannot logically be kept under various circumstances, thus resulting in an inevitable cascade of bank runs and broken promises. We already went through this, it was called the Great Depression. An institution called the Federal Reserve was created as a "lender of last resort" in response to the Panic of 1907, in order to socialize the systemic risk introduced by such a system. The FDIC was created later as the Fed failed to prevent (and in fact caused) the Great Depression, resulting in widespread bank failure. Of course the FDIC is an insurance scheme, but it is insufficient to protect the system without a central bank capable of generating fiat money, like the Fed.
Consider that even without governmental intervention, all banks would not opt to hold 100% reserves. There may be a few that do, and I imagine, were that the case, you would put your money there. But is there anything stopping them now? If governments did not back up banks, and they did not set up the FDIC, I imagine there would be more incentive to scrutinize banks' balance sheets to see if they are investing heavily in credit default swaps of dubious validity, or investing in securities that might be part of a bubble, or really, any bad investment. But government's intervention into failing banks doesn't force banks to not hold 100% of their account holders money on demand.
Why would any bank voluntarily have a 100% reserve requirement? The annointed banks have no reason to sacrifice profitability for prudence, when the Fed will use the inflation tax to bail them out. As far as where I put my money, I don't object to FRB because I'm worried about my deposits. I'm fairly certain my deposits will be paid in debased currency, should worse come to worst. I'm opposed to it because it is fundamentally unsound, unfair, and creates a two-tiered society of bankers and non-bankers. You may claim to not support bank bailouts, but the cataclysmic depression that would have occurred in the absence of the Fed's Wall Street bailouts would have made the Great Depression look like a walk in the park. It doesn't have to be this way. The economy doesn't have to be held hostage to the very largest banks.
I think this would be economically sluggish, but regardless, given this is your view, would you agree that this is only possible through regulation or law? Are you in support of a regulation or law that requires 100% reserves?
It might be construed as "economically sluggish", if the problem weren't too much fiat money and too much credit to begin with. That's like saying a methamphetamine addict would be "sluggish" if he stopped taking speed. If I didn't already make it clear, yes, I support abolishing the Fed and making FRB illegal. In practice it would mean if you want to avoid paying to store your deposits, you'd actually have to buy a CD, and not have access to the money for the duration. I'm in favor of less abstract forms of credit intermediation, that don't involve being totally divorced from risk, and that don't involve banks working with wall street to defraud the public on a large scale. The beauty of such a system, is that they simply could not do this. It also means that you will have to do your due diligence when selecting investments. It also means that you won't have to pay for the fraud and failure of others, nor will society at large. These are the external costs related to fiat-FRB.
What are you against?
1) Fractional Reserve Banking? Then you are in favor of regulating the banking industry by making them hold demand accounts with 100% reserves.
2)Government involvement in banking? Then you will likely have to accept that Fractional Reserve Banking will still exist, even without a central bank.
What am I missing, I can't grab a hold of your position on this?
Yes, to both. Google "Monetary Reform Act" for how this can be done without creating hyper-deflation. I would also abolish the central bank, and put a moratorium on government borrowing, if not ban it outright. I'm tired of the government borrowing in my name, and tired of paying foreign central banks interest with my tax dollars.
No way. A totally free market would still settle on a % reserve that people can agree with, on average. People want banks that give high interest, and charge less, and come with benefits, just like any other product. Banks that opt for 100% reserves would only be able to offer the type of honesty and idealism that you seem to prefer. The market would be rather small, even if all information was available. What that percentage would be (on average) is up for debate, but it wouldn't be 100%. Not even close.
I'm not an advocate of absolute freedom, that is anarchy. I'd like to see regulation where it really matters. I want to address the root cause of our economic problems - our monetary system. I couldn't run a public storage firm as a bank, neither should banks be able to run banks in such a way. This isn't really such an extreme position, it just seems extreme in the face of nearly a century of inflation, socialism (risk, not profits of course), fraud, and bailouts, courtesy of the Fed and our banking system.
Like I've said, fractional reserve banking can exist and likely would exist without the government. Can you prove that fractional banking is dependent on the government? Can you provide any history that shows this type of banking did not exist before government intervention?
I wouldn't attempt to disprove what history shows is obvious. But the necessity of the "lender of last resort" function of the Federal Reserve, it's raison d'etre, is due directly to the instability created by FRB itself. If you're claiming that we could allow the Fed the legal right to issue fiat money and not have bailout nation, then I would suggest you're more than a little naive. If you abolish the Fed, and you abolish FRB, then banks and corporations are free to fail without dragging the rest of society down the toilet with them, as opposed to existing as cancerous tumors on society.
And I honestly wasn't trying to ridicule critics of the banking system. I'm just pointing out that it's not that mysterious, or IMO, unethical to use OPM to create new money, as long as it's transparent. Forget government, let's talk about FRB, only.
I disagree. What's transparent isn't necessarily ethical. If I hold a gun to your head and rob you, it is both transparent and unethical. You can make a reasonable argument that someone should be allowed to consent to indentured servitude. But we have decided as a society that it is in our best interest not to observe such contracts. There are some things that we shouldn't reasonably consent to, and in fact should be prevented from, by law. In the case of FRB, we have what seems to be a good deal - interest paid on demand deposits. But the external costs, inflation, economic instability, inequitable banker profits, and worst of all, the necessity of a central bank which introduces the horrors of unending government debt and fiat money under the auspices of "lender of last resort" - are not worth the trade.
Are you against the concept, or the government's involvement? 2 different things...
I am for the government's involvement in banning it entirely, right after we abolish the Federal Reserve, followed by a return to constitutional money (gold and silver).
