| Subject: | Re: [socialcredit] Replying to William Ryan | | Date: | Sunday, June 10, 2007 10:48:15 (+0930) | | From: | John Hermann <hermann @............au>
|
william_b_ryan@yahoo.com wrote:
> First, in regarding bailment, a deposit is not a
> bailment. In support of this I could cite many
> references but a quotation from a recent paper from
> Professor Selgin should suffice:
>
> "In every case deposit 'banking' at first involved
> little more than the receipt of coins for safekeeping
> or warehousing, for which service depositors were
> required to pay a fee. By early modern times this
> warehousing function had given way in most cases to
> genuine intermediation, with 'deposits' becoming debt
> as opposed to bailment contracts, and depositors
> sharing in bank interest earnings instead of paying
> fees."
> http://www.geocities.com/new_economics/selgin-banking.txt
I disagree. Deposits do not need to become debt, i.e. to return interest to
the depositor.
> --------------------------------------------
>
> "The point is that within the financial system as a
> whole there always exists a surplus of reserves - that
> is, a surplus over whatever reserve aggregate is
> needed to back customers' deposits. This surplus is
> effectively adjusted by the central bank (the sole
> creator and destroyer of reserves)..."
> ----------------------------------------------
> -----------------------------------------------
> This would not be the case in the proposed one hundred
> percent system. The central bank would no longer be
> permitted to create reserves.
This is your idiosyncratic view of how a central bank might operate. It is
not my view. And I don't think any sane economist would hold to the view
that a central bank should not be allowed to create reserves.
> All new money is to be
> spent into circulation or otherwise disbursed by
> government.
That is one mechanism by which new reserves may be distributed. Open market
operations provide another mechanism.
> Banks including the central bank are no
> longer permitted to create money.
Where did you get that crazy idea from?
> This, however, creates a contradiction in the theory.
> Banks are supposedly permitted to grant loans from
> pre-existing funds but in a situation where deposits
> are to be one hundred percent backed by reserves.
Banks do not "grant loans from pre-existing funds". The basis of bank
lending is capital adequacy, not reserves. Sufficient reserves are injected
into the system by the central bank to allow the volume of bank business to
be carried on without difficulty, i.e. to allow banks to carry out their
necessary function of servicing the needs of the growing economy.
> Bank deposits are in every case, regardless of the
> type, liabilities of the banks.
>
> Either all of the deposits are to be backed one
> hundred percent by reserves, or some of the
> deposits--in which case it would be a fractional
> reserve system.
> It is not possible to back all of the deposits one
> hundred percent with reserves, for the simple reason
> that if you start in a situation where all of the
> deposits are one hundred percent backed, the crediting
> of new deposit balances through loans would
> necessarily mean at that instant not all deposits are
> one hundred percent backed.
It does not matter, as long as there is a mechanism available by which any
necessary reserves may be introduced into the financial system on an ongoing
basis.
JH
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