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Would a fixed money supply and full reserve banking eliminate boom-bust cycles?

Would a fixed money supply and 100% reserve eliminate/minimize boom-bust cycles?

  • Yes

  • No

Results are only viewable after voting.
A

Anarchist420

Diamond Member
I was wondering what other people here thought. Anyone who has been here long enough knows how I feel about central banking and the state granting banks the privelege to embezzle.

I know it would've averted the Great Depression.
 
YAanarchist420Thread

Is your stock of these threads running out? How long was the list you drew up before you started doing this?
 
no.


the major way it would have averted the great depression is by ensuring we had practically 0 economic growth to begin with. when you start at 0 it's hard to fall further.\


further, the post civil-war period was full of panics, and we didn't have the fed back then.
 
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ElFenix said:
no.


the major way it would have averted the great depression is by ensuring we had practically 0 economic growth to begin with. when you start at 0 it's hard to fall further.
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You're saying that we have zero economic growth unless we have a fiat currency? 😵

ElFenix said:
further, the post civil-war period was full of panics, and we didn't have the fed back then.
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That's because the government was doing the Fed's "job."
 
I don't know a lot about this, but where would you get loans if banks were required to keep 100% reserves? The federal government?
 
joshsquall said:
I don't know a lot about this, but where would you get loans if banks were required to keep 100% reserves? The federal government?
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How is that equivalent to a fixed money supply?

Actually banks having to increase their capitalization is a Basel III regulation.

Additionally where are banks supposed to get money to loan if nobody is saving?

To the OP:

Boom-bust cycles would still happen, since it is a free market correction tool against bad investments, but they would be smaller both in time and effect.
 
bamacre said:
You're saying that we have zero economic growth unless we have a fiat currency? 😵
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not 0 but not up to our expectations over the last century. being on 100% specie stifled western europe until the spanish started looting south america, which was the first increase in the money supply since the discovery of a large mine during roman times (in romania iirc).



GaiaHunter said:
How is that equivalent to a fixed money supply?

Actually banks having to increase their capitalization is a Basel III regulation.

Additionally where are banks supposed to get money to loan if nobody is saving?

To the OP:

Boom-bust cycles would still happen, since it is a free market correction tool against bad investments, but they would be smaller both in time and effect.
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you'd have two kinds of banks. one that promises to have your money any time, day or night. but you'd have to pay for everything because they're not going to do that for free. the other would pay you and act as a financial intermediary to loan money and whatnot, but couldn't loan out more than it had managed to attract from customers. it'd be like a bond heavy mutual fund. there'd be restrictions on withdrawals, most likely.
 
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lol posting in an anarchist420 thread

Why would anyone support a fixed currency? That means population growth would cause deflation. That's bad. Very bad. Inflation is bad too, but there's always a happy middle ground.
 
ShawnD1 said:
lol posting in an anarchist420 thread

Why would anyone support a fixed currency? That means population growth would cause deflation. That's bad. Very bad. Inflation is bad too, but there's always a happy middle ground.
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Actually, population growth would likely be offset by increase in whatever the currency is backed by. Gold and silver are still being mined, for example. Nevertheless, deflation is arguably only bad under our current fiat system.
 
Define economic growth... We supposedly had great economic growth thanks to the dotcom and housing bubbles, but it all vanished in short order.
 
joshsquall said:
The OP specified full reserve banking. I just don't understand where the money to make loans would come from in a full reserve banking scenario. Private investors or the federal government?
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Think of it like this. You have a checking account and a savings account at a bank. You get nothing for an interest rate for the money in your checking account and the bank holds those funds. Your savings account however (if you would want one) gains interest revenue, as those funds are loaned out. In this example, the interest revenue gained on a savings account would be more than our current system offers (zero?) simply because banks need money to loan, and instead of getting money from the Fed at zero percent, they get it from customers' savings. Supply and demand of money. This increases the incentive of Americans to save money when interest rates are high, and makes businesses and investors less likely to borrow when interest rates are high.
 
bamacre said:
Actually, population growth would likely be offset by increase in whatever the currency is backed by. Gold and silver are still being mined, for example. Nevertheless, deflation is arguably only bad under our current fiat system.
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Good point about mining gold and silver.
About deflation only affecting fiat money, have you read about the history of the United States? In Ben Franklin's autobiography, he explicitly stated that switching from fiat money to hard money was the direct cause of the declaration of independence from Britain. While fiat money naturally inflates (sometimes way too much), hard currency tends to deflate. When all of the money leaves a local system, such as a small town, then all trade grinds to a halt. That's basically what money is - it's a tool to make trade a lot easier.
 
bamacre said:
Think of it like this. You have a checking account and a savings account at a bank. You get nothing for an interest rate for the money in your checking account and the bank holds those funds. Your savings account however (if you would want one) gains interest revenue, as those funds are loaned out. In this example, the interest revenue gained on a savings account would be more than our current system offers (zero?) simply because banks need money to loan, and instead of getting money from the Fed at zero percent, they get it from customers' savings. Supply and demand of money. This increases the incentive of Americans to save money when interest rates are high, and makes businesses and investors less likely to borrow when interest rates are high.
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Sounds like I just don't understand full reserve banking then. Wouldn't full reserve banking mean they need to be able to cover 100% of their deposits at any time, regardless of whether they're in a checking or savings account? This means they couldn't loan out any of their deposits.
 
I think in this situation boom/bust cycles would instead refer to the periodic violent uprisings that would occur.
 
ShawnD1 said:
Good point about mining gold and silver.
About deflation only affecting fiat money, have you read about the history of the United States? In Ben Franklin's autobiography, he explicitly stated that switching from fiat money to hard money was the direct cause of the declaration of independence from Britain. While fiat money naturally inflates (sometimes way too much), hard currency tends to deflate. When all of the money leaves a local system, such as a small town, then all trade grinds to a halt. That's basically what money is - it's a tool to make trade a lot easier.
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Fiat money doesn't naturally inflate. 😀

As for the bottom example, those kinds of problems are MUCH less likely to happen in today's times. More technology plus bigger population.
 
joshsquall said:
Sounds like I just don't understand full reserve banking then. Wouldn't full reserve banking mean they need to be able to cover 100% of their deposits at any time, regardless of whether they're in a checking or savings account? This means they couldn't loan out any of their deposits.
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No, what you're missing is, in the example I gave above, banks would NOT need to keep money from savings accounts in reserve, just money from checking accounts. You as a customer, could choose whether or not you want a savings account. If one chooses to, those funds are not available to the customer in the same manner of those in his checking account, but he gains interest revenue on those funds as they are loaned out.
 
joshsquall said:
Sounds like I just don't understand full reserve banking then. Wouldn't full reserve banking mean they need to be able to cover 100% of their deposits at any time, regardless of whether they're in a checking or savings account? This means they couldn't loan out any of their deposits.
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I don't know exactly what the OP meant.

100% reserves for banks would mean that no loans were possible and so you would have to pay the banks to keep your money.

If it is 100% reserves for the government/central banks, then it would mean the central banks couldn't print any more money unless they bought more gold/silver to back it up. If the economy strengthened they could print more money and if the economy weakened remove money from circulation (which if you notice is completely at odds with keynesianism).
 
bamacre said:
Actually, population growth would likely be offset by increase in whatever the currency is backed by. Gold and silver are still being mined, for example.
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Probably not. It was a coincidence that gold kept up with population growth in the 19th century.
 
joshsquall said:
Sounds like I just don't understand full reserve banking then. Wouldn't full reserve banking mean they need to be able to cover 100% of their deposits at any time, regardless of whether they're in a checking or savings account? This means they couldn't loan out any of their deposits.
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Reserve requirements are calculated by taking in institutions reserveable liabilities, which are composed of their net transaction accounts (Deposits due on demand and ATS/NOW accounts are transaction accounts. Savings and time deposits are non-transaction accounts. Non-transaction accounts are not reservable). The reserve requirement that the bank needs to hold is then similar to the tax system. Up to a 10.7 million in net transaction accounts the bank is exempted from holding reserves. The transaction accounts from 10.7 to to 55.2 million are reserved at 3%. And above 55.2 million are reserved at 10%. I'm assume that the OP is wondering about a 100% reserve requirement on net transaction accounts.
 
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her209 said:
How do you propose we fix this bad idea?
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Lets the government stop borrowing money and the fed to print money for starters. Then government needs to stop increasing the attractiveness of consumption loans.

With less money available for consumption loans people would consume less and save more (of course if the Fed keeps printing money and reducing the value of savings only fools would save). With the extra savings, investment loans would be available to rebuild the manufacturing industry and create jobs.

Now this won't be a easy or fast process nor very popular.

That is why politicians, of whatever political area, try to intervene.
 
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