rickholio

I just built a house. An awful lot of cash (I'm talking banknotes here, as well as cheques) was laid out. All that cash came from a home loan, from a local bank branch. So at least part of it came from a vault, the part that was needed, and the rest of it is promised to my creditors. My creditors believe the bank's promise, and are therefore satisfied.

So yes, banks on a federal reserve system may not have as much tangible money (if you consider banknotes 'tangible', as opposed to a commodity backing) as on their books, but they have enough to process the day-to-day transactions and that's all that's really needed. Well, they also get given bills to moderate interest rates, but that's tangental to this conversation.

I have funds in bank accounts, and funds in RRSP, etc. By this guy (and apparently your) reckoning, those funds don't really exist and I'm being defrauded because I don't have $xxx thousands sitting in my hands in either banknotes or boullion. Yet strangely enough, any time I go to my bank to pay a bill, hit a bank machine to pull out some cash, put a dinner on my bank card everyone ends up happy... and so long as there isn't a massive panic and everyone tries to pull all thier assets out of a bank simultaneously, it'll stay that way.

Of course. So long as banks can yield up currency when demanded, then the situation is entirely acceptable. The federal reserves send what paper currencies needed to the banks (and in turn to their branches) as required. It isn't rocket science.

Now this is where the bullshit starts.

A $100 dollar bill is basically just a cheque. There is no intrinsic value to it. The only value attached is that which society agrees to honor it for.

A bank making a loan is no different. They're writing you a cheque, and so long as it's transferrable to the goods and services you're seeking, it's perfectly acceptable to all parties.

As an individual, I can write as many cheques as I like. The only time it becomes fraud is if I do it deliberately with the intent of NOT PAYING. If I have $1000 in my account and I write a cheque for $10k, it's not fraud if I have a reasonable expectation of having the other 9k in my account by the time that cheque comes due. I can pass these cheques out as many and as much as I like, and they're all valid so long as the people I give them to have trust in my ability to honour the promise at some later date.

So long as a bank meets its feduciary responsibility to provide people with tangible assets upon demand (ie: when people come to 'cash their cheques') the system works. Many people write rent cheques for the start of the month but know they don't have money in their accounts until a few days before that cheque comes due at end-of-month payday. Are they 'fraudulent'?

The bank assumes a number of risks. For example, you may default on your loan and make it impossible to reclaim the asset (a car that they can't repossess, for instance). It also runs the risk that many people simultaneously will demand tangible assets (banknotes or boullion) and be incapable of supplying them.

These risks are, admittedly, quite small compared to the 'little guy' who has much more to lose. When you have billions of assets at your command, losing a $100k on the books is going to sting a lot less than having $120k in assets and losing $100k on your home.

But those assets are no more created out of 'thin air' than your guarantee of paying the rent at the end of the month by writing a cheque today, earning the money tomorrow, and having the landlord cash it on the 31st.

Disclosure of what? How banking systems work? It's not some super double top secret shit we're talking here. If people can't be bothered to take some simple economics and find out how thier world works its their own lookout.

As I said, this is the only point that guy may have some traction on... but honestly, bringing a whole system crashing down because a bank neglected to add the line: "Oh, by the way, you're giving us express permission to loan your money to other people, perhaps at many mulitples of your deposit because we've run the numbers and we have an excellent expectation of making back many multiples when we invest it" is inane.

Hey, you're starting to get it!

Yes, the whole system is based on trust. Trust that the banks will honor exchanges of your money for the goods and services you need, trust that the people banks lend money to will faithfully repay their loans with interest, trust that a banknote with a particular value attached will be accepted uniformly with the backing of the BoC, etc etc. If the trust breaks down, the system breaks down.

I've not seen these, but I've seen others like it. Good luck pounding your head against THAT brick wall, when basically everyone with money (such as it is) and power have vested interests in keeping that wall up.

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