[EMAIL PROTECTED] wrote:
>
> Hillary:
> >It's not theft to provide a liquidity service. fractional reserve banking
> > provides liquidity and is a free market credit configuration. Although
> > it is possible that depositors will have a delay in redeeming their
> > deposits or suffer a capital loss on their deposits, they are
> > compensated for these risks by the payment of interest and the provision
> > of liquidity. Fractional reserve banking economiese on the moneyary base
> > and slightly reduces its value, but this loss of value is analgous to
> > any commodity where users economise on its use, i.e. any commodity
> > whatsoever. Economising on gold for monetary use is no different from
> > any other cost-minimisation and transaction cost minimsation market
> > process.
>
> I'm just a simple country boy.
> The way I look at it is like this:
>
> It doesn't matter what commodity you're talking about, if you have an 1000
> units inventory of X, and you sell receipts for certain quantities of X to
> the public, then total quantity of all the receipts issued should be less
> than or equal to the 1000 units of X in your warehouse. If you knowingly
> issue receipts for more units than you have for any good other than money,
> it is legally considered to be fraud in almost all jurisdictions.
> Fractional reserve banking constitutes selling receipts for more units of X
> than you actually have.
Banks are not and do not pretend to be warehouses for stacks of paper
notes or bullion or whatever. Banks are liquidity institutions which
accept DEPOSITS hold LIQUID RESERVES and INVEST in DEBTS of various
kinds.
Deposits at banks are as good as the reputation of the bank for
maintaining liquidity and capitalisation. Holdings at a warehouse are as
good as the security, fortification and reputation of the warehouse for
securing property for owners. Banking is not fraud and its not
warehousing.
>
> If you define another good, Y, that is made up of 25% X, and 75% something
> else. That's fine. Sell it all day, just make sure you call it 'Y'. But
> when you sell 25%X and call it X, it ain't X. The market now has to
> determine the difference between real X and your stuff that you are calling
> X, but isn't really X. By using the same units you are deceiving the market
> into thinking that YOUR receipts for 1 unit of X are equivalent to 1 unit of
> X, when in fact, they are only equivalent to 0.25 units of X.
The economic value of X and Y could be the same, if the economic value
of 'something else' is the same as the economic value of X. In the case
of banking X and something else have the same value but different
LIQUIDITY. 'Something else' is loan assets which have value but cannot
be called in or sold, without significant loss of value, i.e. they lack
liquidity. So the role of the banks is to manage and hold these illiquid
assets, while providing liquidity for depositors.
>
> The following scenario would be fraudulent in the US: You have a house,
> free of all encumbrances, and you want to get an equity loan. You apply to
> two banks at the same time and their credit checks both go through close
> enough that neither is aware of your application with the other. You then
> sign deeds of trust with both banks, with neither knowing about the other.
> You thus successfully use the same house for full collateral with two
> different lenders at the same time. I know a guy who did this. If the
> banks ever figure it out, he will probably go to jail. Why? He sold two
> 100% receipts for the same house. (I am not talking about a 2nd mortgage.
> Both deeds of trust say they are a 1st deed of trust. Obviously the lawyer
> for the second bank that filed the trust deed didn't do his job.) Why is
> this legal for money when is considered unethical and illegal for anything
> else? Answer: because bankers are powerful and have been selling this
> schtick for 300 years.
One difference is that banks build reputation for ability to pay their
debts (i.e. deposits) while the home-owner has an inferior reputation,
not to mention that he is breaking the lending contracts he will have
signed. Banks borrow from willing depositors, the banks are unwilling to
lend against the house simultaneously.
If airlines overbooked flights by 5% knowing that 90% of flights more
than 5% of passengers do not turn up, and offered compensation to
passengers who were declined booked travel, is that fraudulent? I don't
know but i don't see any reason why it should be if passengers are
informed of this policy.
>
> Back to fractional reserve... The following examples makes the assumption
> that DigiGold invests the 75% of the e-gold deposits by creating new
> DigiGold receipts and issuing them to borrowers. They may do it completely
> differently, but for the sake of this example, we'll assume they lend out
> DigiGold.
>
> Bob pays DigiGold 1 gram of e-gold for 1 gram of DigiGold. DigiGold credits
> his account with 1 gram of gold. DigiGold then lends 3 grams of DigiGold to
> Bill at interest. On DigiGold's books there are now receipts issued for 4
> grams of gold. But there is only 1 gram of real gold (e-gold) there. If
> the market considers DigiGold to be the same as physical gold then the "gold
> supply" has just increased by a tiny fraction of the world total. The
> scarcity of gold relative to other goods and services has just decreased by
> a tiny fraction because the market cannot tell the difference between the
> receipts for real gold and the receipts for gold that does not exist. So by
> creating the 3 grams of ethergold, DigiGold reduced the value of real gold
> by (3 grams/TOTAL GLOBAL GOLD INVENTORY). It is an infitesimal amount, to
> be sure, but everyone who owns real gold was slightly hurt by the creation
> of the fictional gold. If a whole banking industry develops that does this
> then holders of real gold will see their gold decrease in value relative to
> other goods and services, because the market treats paper receipts for gold
> as if they were real gold. Thus, interest rates in gold rise to account for
> the inflation that results. The inflation causes a negative feedback loop
> that pressures gold holders to invest their gold in a fractional reserve
> institution at an interest rate high enough to account for the inflation
> caused by the fractional reserve system.
If digigold receives 1 gram of e-gold is does not lend out three grams
of digigold, it invests 0.75g of e-gold in gold denominated securities.
This does not cause inflation because the value of gold is equal to the
marginal industrial value of gold and the marginal costs of gold
production. It does free up 0.75 grams of gold from unproductive
warehousing into productive capital.
>
> The problem is not "using money efficiently". The problem is selling or
> lending more units of money than you really have.
Money is created by banks and currency institutions as well as gold
producers.
> Lending at interest with
> a fixed time contract, such as a CD, does not create more money because it
> is listed as a loan (non-liquid asset) on the balance sheet of the creditor,
> but is listed as a liability on the balance sheet of the borrower. The
> title to the actual asset is now held by the borrower. No new gold is
> created on paper but the gold is able to be used efficiently.
This market configuration is not effecient if the lender could have more
liquidity and the value of this liquidity was greater than its
production cost.
> The problem
> only arises when both the lender and the borrower EACH have in their hot
> little hands a tradeable instrument giving them title to the same distinct
> piece of gold. Now there is more gold on paper than there is in reality.
A demand deposit at a bank for gold is not a claim on any specific piece
of gold but a claim on the bank to deliver any bit of gold of
appropriate quantity on demand.
>
> My whole argument assumes that stealing is ethically wrong and that the
> state has a legitimate interest and authority to punish stealing. It would
> seem from VC's post that consistent libertarians do not believe in any
> ethical standards other than cause and effect? I've read Atlas Shrugged,
> but I am not up to date on libertarian ethics. That would make a great
> discussion.
>
> HK
Saying you are against theft does not differentiate your position from
anyone that i know.
My understanding of libertarian ethics, political economy and economics
is that theft and fraud and the initiation of force should be illegal
but that the resolution of instances of initiation of force/fraud is as
follows:
1) Individuals have the right to life, liberty and property
2) the meaning of these rights is that no individual should legally be
deprived of his life, liberty or property without due process of law
3) Individuals have a right to protect their life, liberty and property
from imminent threats with the use of force, individuals have the right
to self defence and to bear the means of self defence.
4) Individuals have the right to petition the government for the redress
of wrongs. This means taking people to court and bearing the costs and
risks of litigation.
5) The court system and legislature should make public policy as
follows: to limit the instances where litigation is successful to those
cases where it is demonstrated beyond reasonable doubt that the accused
has indeed initiated force/fraud against the litigant. Where it is not
shown that the accused has initiated force/fraud and caused the damage,
the litigant loses the court case, and must pay his own costs and the
costs of the person he has accused and the court costs. Where it is
shown that the accused has caused the damage by initiating force/fraud
against the litigant, the court awards costs and damages. If the accused
cannot pay these costs and damages that is bad luck to the litigant.
The damages awarded are the only price in the economy that the state
controls in libertarian political economy. This is the state's sole
means of directing and allocating resources in the economy. The damages
awarded directly influence behaviour including the incentives for
litigation, the incentives to avoid infringement (being sued) and the
incentives to avoid damages which cannot be recovered by litigation.
Everyone believes theft/fraud should be illegal, the differences arise
mainly relating to the means of redress. Libertarians do not favour the
state attempting to take up court cases on behalf of victims, because
this leads to victimless crimes being procescuted and to an inefficient
allocation of resources (by distorting the incentives for private
litigation, infringement avoidance and non-recoverable damage
avoidance). The victims of franctional banking are not litigating
because they don't exist or they have simply had an ecocomic loss
because of a competitor offering a substitute, rather than by the
initiation of force/fraud.
Its not the state's job to crack down on crime or provide security. Its
the state's job to allow individuals to provide for their own security
and to provide a legal avenue of redress which does not remove other
people's right to their life, liberty and property without due process
of law.
If you don't really understand these things I am not surprised. Crime is
the most misunderstood social problem that exists. It is not only widely
misunderstood, it is misunderstood by people who otherwise understand
many economic and social issues. Unfortunetely the same thing can be
said of fractional reserve banking.
David Hillary
---
You are currently subscribed to e-gold-list as: archive@jab.org
To unsubscribe send a blank email to [EMAIL PROTECTED]
