Whereas those other things syphon resources from capital accumulation, monetary inflation and instability totally distorts the whole capitalist system.

PART 2

“RISK MANAGEMENT” is a fine-sounding phrase which thieves from the prestige of the entrepreneur. But in the context of banking its really just akin to the writing of a whole lot of dud cheques and then attempting to walk the tight-rope of this passing of dud cheques and not get busted.

Under 100% backing the key activity of the banking system would simply be to lend people money to buy things that make the borrower more productive and therefore easily capable of quickly paying back that loan.

If the bankers are charging about all worried about RISK MANAGEMENT they aren’t focusing on what ought to be their core business… IE recycling savings into their most productive use for the highest interest rate they can get.

“In the past some Banks have commited fraud. But this is mostly irrelevant. What Graemes account of history lacks is tangeable examples.”

Here Terge is totally missing the point.

Fractional reserve ought to have been fraud then. And its not fraud now. It was fraud then or it ought to have been considered to be fraud then. But its the same activity. Creating Ponzi-bank-money.

The consequences of the fraud on the rest of the people and most particularly on the wealthy were so severe what would naturally have been fraud is now no longer fraud. Its been licensed, accomodated and protected.

The fraud is now LICENSED, ACCOMODATED and PROTECTED.

So what ought to have been fraud is fraud no more.

Banking is now a cartelised industry organised on statist grounds much like our TV broadcasting industry is.

But we can make fractional reserve fraud again. Its not ACTUALLY fraud its NATURALLY fraud. And in making it fraud again we get ourselves clarity in property rights. A better, fairer society, protection from one form of raiding our wallets, and a free entreprise money and banking system that works well.

We can’t analyze this in a vaccumn. The free enterprise setup that I want WORKS. Works really well and gets rid of inflation AND recessions.

Whereas Terges setup doesn’t work and his transition-process would cause the worst depression the country has ever seen.

Terges system will work even less well then it did before, now that we are in the computer age.

“What Graemes account of history lacks is tangeble examples.”

This must be some sort of ‘free bills” mantra. What would be the point in me listing all the bank failures in history? You can fill pages with just summaries of 1 bank failure after another. The preceding boom and the following bust. From the Medicis on. And earlier if you can dredge up the Roman and then Venetian information.

The fact is that fractional leads to bank failures and depressions. Always… Except for since about 1982…. Where the balancing act of a few of the central banks is such that they’ve been able to avoid these recessions for quite a few years at a time.

Our guys here in Australia have managed to avoid a recession since “the recession we had to have”. Thats going 14 years or more. Thats a pretty good record to beat. With 100% backing we can beat it and get rid of the inflation.

But you free things up under gold fractional reserve the whole financial sector will crash like its never crashed before and it will take society with it.

It will crash like it COULD never crash before… Like it COULD never crash before the information age.

Not all versions of liberty are entirely identical.

And not all of them work.

PART 1

“DavidL – if you left your gold with Storage King and they subsequently lent it out it would be fraud ……….

……….E-gold is like unallocated storage in that they are 100% backed but you don’t get the same bars back again.”

This whole screed of Terges’ is just magnificent. I’m going to save it somewhere . Because it shows PRECISELY how the monetary system was meant to evolve in terms of what sound monetary policy without government intervention would have been like.

The way things work under fiat-fractional-reserve is so complicated that billions of dollars in salaries and bonuses are payed out every year.

We have many dozens of financial products. From interest rate swaps, currency-hedge products, futures, all sorts of different bank accounts.

And the financial firms pay many of their finance workers well. Untold 7 and 8 figure salaries scattered about promiscuously.

Government fretting over balance of payments figures and any amount of other activity.

So a great deal of resources go into the financial system and it doesn’t make anything tangible. And they aren’t even doing a very good job of what would normally be their role in the financial system.

In the 70’s it was said in South America that if you got a flat tire on your way to the bank you would go broke. So much was it the case that the real economy was having to support the financial economy and that people who were not part of the banking system were having to charge about on account of the financial systems dysfunction.

You would have basically three ways of dealing with unspent cash. Your stash of coins and bars at home. Your bars and coins at the bank on-call….. with a debit-card attached.

And the third main category would be term loans.

Of course all those other financial products would exist as well. But there just wouldn’t be a whole lot of call for it. And the banking industry wouldn’t employ so many people. And it surely wouldn’t pay these huge salaries for doing things (when viewed through the prism of 100% backing) that are pretty useless and wasteful activities.

While welfare (direct redistribution) is hard to abolish outright, indirect redistribution (such as subsidies) can go immediately, significantly reducing a tax burden.

1. Medium of Exchange: let the private sector do it exclusively.
2. Unit of Account: make sure the government chooses wisely because it can not readily avoid having a very big influence on this decision.

If we had Free Banking and if the government wants to set the tax scales in terms of gold grams and if tax debts are settled in gold grams then I think it is near impossible for silver grams to gain a foothold in the market as a prevalent unit of account. Likewise with any rival unit of account. The government dictates by virtue almost of governing and only a massively pedantic free banking government could avoid exercising any bias in this activity. There is a quite powerful Nash style equilibrium process at play. It would be like if all military vehicles drove on the right hand side of the road but the government claimed it was taking a neutral position on left-hand versus right-hand driving. Basically it can’t be neutral unless taxation is zero and government spending is zero. And if it can’t be neutral then it needs to choose wisely.

Mises, Hayek and the mainstream economic literature point towards the validity and benefits of free banking practices.

* The Theory of Money and Credit by Ludwig von Mises.

and

* Money, Bank Credit, and Economioc Cycles by Jesus Huerta Se Soto.

Study these carefully and save a lot of time doing personal theorizing.
See