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Latest Comments594 Comments
Zimbabwe: When Even the Central Bank Can't Keep Up
Should Treasury Issue Hundred-Year Bonds?
Zimbabwe: When Even the Central Bank Can't Keep Up
1. Fractional reserve banking is neither justifiable or profitable against other money systems assuming those other systems are ethically configured (more later) 100% reserves only!
2. The fastest appreciating commodity in the area served by the money relative to other commodities in the area should be used to back the money.
3. As a consequence of 2.) total commodity backing should be swapped out as needed with other commodities in the area to maximize the appreciation rate of the backing commodity. Best swap price should of course be sought.
4. New money issue should occur when the money has appreciated relative to the commodity backing it in a manner that compensates existing money holders for the dilution of their money stock at the expense of new buyers of the money. Want a thriving money business? Run it ethically.
5. The price level in the money should increase as new money is issued but this should be easily calculable. Businesses could thus be informed how much to raise prices in advance of the new money so as to avoid losses.
6. If loans are made properly, V should increase, Y should increase and P should decline all measured in the money under discussion. The amount of income available for savings should thus steadily increase. The money should become incredibly popular as a result. This will cause a high demand for the current commodity as exchange of this for new money is the only way to acquire new money.
7. Remember no FRB! No loaning out of anything unless agreed upon by the saver for the length of time he agrees to.
8. I suggest the interest be shared equally between the bank and the savers.
9. The collateral should be sufficient to cover the principle plus the interest for the entire term. In case of default, the collateral should be sold and excess proceeds handed to the defaulter.
10. Beware of consumer loans. Productivity increases are the only means I know to grow an economy overall.
11. Keep track of of M, V, and P to determine Y. If Y fails to increase check your loan department. Even an increased preference for consumption should not overwhelm increases in aggregate output, IMO. V should always increase too incidentally as this is a stable money system with optimum growth potential,IMO. Increases in the expected rise in price level due to new money issues should be broadcast to all money holders so prices can be adjusted upward to avoid unnecessary losses. Aggregate output should also increase by new money issues. Available savings should not increase beyond what the new owners of the money wish to save. As that additional supply of savings is lent out, V should increase and later on Y. Perhaps increases in V are temporary despite my previous comments but aggregate output should always increase.
12. This system should not produce the business cycle yet provide optimal increases in the money supply. Chalk that up to a concern for ethics. Give you know Who the credit that you may prosper.
12. Suggestions and comments welcome.
Zimbabwe: When Even the Central Bank Can't Keep Up
Zimbabwe: When Even the Central Bank Can't Keep Up
There is no need for fractional reserves, ever! In the event a bank in a particular money suspended or reduced lending in an attempt to cause price deflation for its benefit, competing banks in that money could buy the commodity backing the money at reduced prices by issuing new money thus allowing them to increase V by new non-FRB loans of their own. Moonbat very happy and ashamed of previous Zimbabwe type solution yet he points out the pro rata distributions of new money to prevent dilution of existing money stocks is a good idea whoever came up with it.
'Bailouts' Are Misunderstood
The proper way to increase V is new lending from real savings resulting from previous increases in aggregate output resulting from previous lending etc. Note however that the lending should result in increased aggregate output. How does one know if aggregate output has increased or just the price level for a given P*Y? Just see if Y is falling as determined by measurement of the price level. True economic growth should be characterized by rising V, lowering P, and increasing Y. M can be increased sustainably by the proper use of commodities and assets in succession to ethically distribute new money by selling new money for a commodity at greater than par value and using the "profit" to compensate existing money holders for the dilution of their money stock. After distribution, the now bigger commodity backing should be swapped out for appreciating assets in the money till the next issue of new money. A virtuous circle? If not, I would like to know why not.
Zimbabwe: When Even the Central Bank Can't Keep Up
Zimbabwe: When Even the Central Bank Can't Keep Up
I've come round to the conclusion that no use of money created by even a temporary use of fractional reserve banking is justified EXCEPT in a hopefully rare situation where a bank or banks in a particular money decrease lending in an attempt to create price deflation for the purpose of acquiring assets at cheap prices before resuming lending. Then, competing banks in the same money system, by measuring the velocity of that money, could in principle, counter that strategy and render it a waste of time by loaning out a sufficient amount of "made from thin air money" to restore V to its former value. However, even in this case the reserve ratio would be very high. I would not be surprised to learn that de facto reserves were 100% caused ironically by the action of the offending banks, validating the ethics in this case. But perhaps not. I will post my latest version of an ethical money and banking system later. BTW, in the process, JMK's smear of gold as a "barbarous relic" has been smashed, is my hope. Simply put, the ethical issue of new money requires a temporary backing by a commodity so that the issue of that money will compensate existing money holders for dilution of their stock. Between new money issues, the entire backing commodity can be swapped out for assets. Thus no wasteful storing of consumable commodities between money issues.
Gold Price and the Money Supply
Last comment on this thread, sorry for thinking out loud.
Gold Price and the Money Supply
But if I live, I will make it work or know the reason why not (God willing of course).
Gold Price and the Money Supply
A kinda of a bust today in my thinking today (caused by a previous unsustainable boom). But I thought I would throw out that banking idea anyway lest it perish with me.
Gold Price and the Money Supply
I was about to say "What would limit new loan and thus new money creation? Good question."
I don't think this system needs FRB since it allows for new PERMANENT money creation while FRB creates temporary money. I always think in terms of 100% reserves anyway by default. No FRB for me.
Thank you very much for that comment.
Gold Price and the Money Supply
Would this be inflationary since the money supply always increases? Maybe, if the increased supply of money chases the same supply of goods, for instance. But even so, no one would suffer since every money holder is proportionately repaid as the loans are paid off. At most, increased prices that all the money holders now have the money to pay.
I guess when FRB was invented these details were considered prohibitive.
Not All Savings Is Good Savings
Yes, I realize the Fed prints the money. So what I was trying to convey was that evil couple, the Federal Government and the Fed. Between the two them, they do a number on the country.
As for money, precious metal backing is very useful in gaining initial acceptance for a currency but later, in the event of unavailability or scarcity it would not be needed as long as the issuing bank had a deserved reputation for honesty and fairness in the issuing of new money so as not to dilute existing holders,IMO.
Honest innovations and convenience would also help. Of course any bank with such a good reputation could become a target of government for its own misuses.
I sure wish we had free banking. I have some ideas I would love to try.
Not All Savings Is Good Savings
True, but I would bet that that is not what is meant. So my question is still revelant, IMO.
Smarty,
We all love ya, even that commenter I would bet. How about "gub'print"? "Mint" is really too kind, don't you think?