Newsweek; “Economic meltdown made possible by libertarian ideas.”

HT, Libertarian republican.

Libertarians are on the liberal shit list this year, and the term libertarian is being used as a swearword. Huffington Post sees Sarah Palin as “the new ideological heir to Ayn Rand, Alan Greenspan, Milton Friedman and Ronald Reagan and their “selfish,” and “money-grabbing attitudes.” …

What’s good for the country was irrelevant. It’s Me First, the idea made popular by Ayn Rand, Ronald Reagan, the Bush dynasty, Milton Friedman, Alan Greenspan, and the crowd of money-grubbing right wingnut media hacks in process of swinging enough to the center to keep working if the Hanoi Candidate and his Miss Wannabee Alaska go down as the mood of the country shifts away from selfishness.”

 Boston Globe then slamed her for being a free market, pro-growth, anti-zoning “libertarian.”

 “Palin’s property-rights agenda exploited a deep anger toward the expansion of local government, an attitude that had defined politics in the Matanuska Valley since its settlement 80 years earlier as a way station for gold miners heading north. She used opposition to land-use restrictions to tap that vein of frontier libertarianism and a conspicuous display of her social views to connect with the new middle-class families who had suburbanized the valley in the 1980s.”

 Now Newsweek have an article, The Libertarians’ Lament,– “Their heroic view of capitalism makes it difficult for them to accept that financial systems without vigorous government oversight constitute a recipe for disaster.

 In 2006, the liberal media made an effort to reach out to libertarians to help the Democrats win control of Congress. Daily Kos had weekly articles imploring libertarians to overthrow Republican rule. Newsweek and leading newspapers, ran editorials on “Why libertarians should vote Democrat this year.”

 Now it appears they have given up on using us as useful idiots and want us ‘under the bus.’

 “A source of mild entertainment amid the financial carnage has been watching libertarians scurry to explain how the financial crisis is the result of too much government intervention, not too little. One line of argument casts as villain the Community Reinvestment Act, which prevents banks from “redlining” minority neighborhoods as not creditworthy. Another theory blames Fannie Mae and Freddie Mac for subsidizing and securitizing mortgages with an implicit government guarantee. An alternate thesis is that past bailouts encouraged investors to behave recklessly in anticipation of a taxpayer rescue. But libertarian apologists fall wildly short of providing any convincing explanation for what went wrong. Like all true ideologues, they interpret mounting evidence of error as proof that they were right all along.”

 They then use go on to lay the blame at the feet of three “market fundamentalists,” (Soros term): “Three officials, more than any others, have been responsible for preventing effective regulatory action for a period of years: Alan Greenspan, the oracular former Fed chairman; Phill Gram, the heartless former chairman of the Senate Banking Committee; and Christopher Cox, the unapologetic chairman of the Securities and Exchange commission.

 To end it they have a rousing chorus of criticism of the basic libertarian philosophy: –

 The best thing you can say about libertarians is that, because their views derive from abstract theory, they tend to be principled and rigorous in their logic. Those outside of government at places like the CATO Institute and Reason magazine are just as consistent in their opposition to government bailouts as to the kind of regulation that might have prevented one from being necessary. “Let failed banks fail” is the purist line. This approach would deliver a wonderful lesson in personal responsibility, creating thousands of new jobs in the soup kitchen and food-pantry industry.

 The worst thing you can say about libertarians is that they are intellectually immature, frozen in the worldview many of them absorbed from Ayn Rand. Like other ideologues, libertarians react to the world failing to conform to their model by asking where the world went wrong. Their heroic view of capitalism makes it difficult for them to accept that markets can be irrational, misunderstand risk and misallocate resources—or that financial systems without vigorous government oversight constitute a recipe for disaster. They are bankrupt, and this time, there will be no bailout.

It appears to me that in the leadup to the election they have either decided that they are wasting their time pursuing votes from us, or that they don’t need us. 

133 thoughts on “Newsweek; “Economic meltdown made possible by libertarian ideas.”

  1. I had a good belly laugh watching the Daily Kos trying to recruit libertarians to their side. That date lasted all a three seconds before she ran. The gal had barely shut the car door when she realized her date was the big bad wolf.

  2. It is said that there is no such thing as bad publicity. I’m glad libertarians rate a mention in the USA. Such a pity we are invisible in Australia.

  3. Newsweek is owned by the Washington Post Co., which also owns one of America’s more leftist newspapers. As for the Huffington Post…jeez, the hate!

    Note that Newsweek is describing libertarianism as an ideology. That’s an understandable mistake, especially since so many libertarians are themselves working so hard to reduce the philosophy into an ideology.

    If Senator Obama’s poll numbers had not continued to grow with each plunge in the Dow over the past two weeks, I seriously doubt that the Left press would be crowing about the declining influence of libertarian philosophy. The philosophy is not declining, but perhaps the ideology is; if so, good riddance to the ideology.

    There are at least two enduring influences from the philosophy of libertarianism in America, implemented by the two major political parties based upon the thinking of libertarian philosophers: The US no longer has a military draft, due to Milton Friedman’s sharp economic criticism to Nixon that the draft represented a form of slave labor; the entire welfare system in the US was revised under Clinton due to the critique by Charles Murray that the system peversely rewarded not working.

    Murray has a new book, on the US education system. The howls from the Left have barely begun, but his philosophy is very sound. Expect the entire focus of US education to shift in response to Murray’s philosophy–not his ideology–within a decade.

    If the philosophy was not so influential, its detractors at Newsweek and Huffington would not be so upset. As for their hate, like all partisan hate it is grounded in fear: Fear that libertarianism–the philosophy–will win.

  4. I notice that they argue that capitalist libertarians won’t admit when they are wrong, but provide no evidence that they were wrong, other than snide dismissal:
    Like all true ideologues, they interpret mounting evidence of error as proof that they were right all along.”

    “…mounting evidence of” exactly what “error”.

    Take the time to absorb the implications of this video concerning the progressively successful approach of the Left in America, and why it works.

    They will not be beaten on the campaign trail, they have to be fought by introducing and supporting proper ideas among the general public. Donate all you can to the Ayn Rand Institute, they are the ones doing it in the best and fastest way. It may still take two or three more generations. Perhaps Obama’s grandchildren will be capitalists! Snerk.

  5. Still, it’s good to know that Libertarians have such awesome power! Let’s get the tide to go back next!

  6. We’ve got the usual suspects on my blog putting up a thread of doom in lieu of an argument. I haven’t been able to shake anyone down to give me a case for legalizing ponzi-schemes more generally. Alleged libertarians sticking up for fractional reserve and other fraudulent ponzi-schemes are really selling us down river. Since in doing so they are making the left look like the commonsense side of the argument. The fractional reservists refuse to make an argument for the advantages of this and other ponzi-schemes.

    Now this is a big problem. And we ought to fight it out and declare a winner. Historically all banking crises come about through fractional reserve. Which is a ponzi-scam and a debasement of the currency. Why is almost everyone here sticking up for this racket when we see that Iceland, and now the US have been fundamentally ruined by this practice and we ourselves have been terribly harmed.

  7. Allowing people to freely enter into credit contracts is entirely consistent with a live and let live philosophy.

    The banking system did not collapse in 2000-2001 when we had little to no inflation. The system does not necessarily require continual debasement to keep on going. It is entirely erroneous to call our private banking system a “Ponzi scheme”.

    You are thoroughly confused Graeme.

  8. I think these type of articles show an awful lot of ignorance.

    Same old strawman arguments.

    And calling Palin a libertarian. Are there people out there who would actually buy that?
    I suppose there are some pretty dumb people out there. The other day I saw a video of some drunk hicks saying they would never vote for Obama because his name was like “Osama”.

    It’s also interesting to note that Ayn Rand wasn’t a libertarian and did not approve of the libertarian political movement.

  9. Ayn Rand was a libertarian. The term libertarian is not just confined to members of the Libertarian Party USA. It’s a very broad term, and encompasses essentially all lovers of liberty, and most especially Sarah Palin.

    Gov. Palin has attended two meetings of the Libertarian Party of Alaska incidentally.

    Eric – Houston, Texas USA

    (I’ve visited Perth and Freemantle in the Navy)

  10. Ayn Rand was not a libertarian. The recent failures are were not caused by Capitalistm and the free market. They were caused by government intervention into the financial markets.

    Blaming Capitalism is like blaming a man for gasping for air when his captor slightly releases the noose around his neck. Take the noose off and you will see productivity and wealth sky rocket in this country.

    I am amazed at the ignorance of the American people. I guess I can’t blame them..the propaganda in this country is only second to the Communists!

  11. The dictionary definition of libertarian is someone who believes in freedom of thought, behaviour, etc. How does Ayn Rand not qualify to be called a libertarian, even if she never joined the party?

  12. Ayn Rand spoke out against libertarians and looked down on them. She would have taken offense to being called a libertarian.

    Palin? Depends how broadly you want to define libertarian. Personally I wouldn’t call her libertarian. Something more along the lines of populist with capitalist and federalist leanings.

    But then again I don’t even like to use the term libertarian for myself, I prefer “classical liberal”.

  13. Eric, Palin’s strong opposition to abortion isn’t libertarian.
    Also in her interviews she has been crapping on about speculators causing price hikes etc just like McCain.
    She tows the republican party line which is highly central and pro-government intervention in just about everything at the moment.

    So it’s on these grounds that I disagree that she is a libertarian. Although I agree the definition of libertarian is ambiguous and broad.

    Ayn Rand quotes on libertarians:

  14. No matter what you can say about the Democrats I would sure as hell rather them over the Republicans. Its like the choice of K-Rudd or John Howard all over again, the party I vote for may not represent me but I’m certainly picking the lesser of two evils in regard to people.

    Now on to the criticisms of Libertarians more broadly. I think the arguments made in this article hold true for a certain type of libertarian, one that the USA has made popular. These are the libertarians who don’t just believe in limited/no government involvement in social and economic affairs but justify this view by legitimizing the practices of stupid greedy people.

    They view corporations as intrinsically good and pure. They view business as always non-exploitative and peaceful. They justify negative externalities as means to an end and the use of labor in corrupt and oppressive countries a demonstration of true “freedom”. They do not view markets as simply practically efficient but as some sort of biblical doctrine that is always trustworthy and good.

    To oppose such views would be viewed as “anti-liberty” and “socialist” but this is just ridiculous mudslinging. A true libertarian is one that views government as having no place in pushing ideology upon the people, but defends every right for individuals to revolt against dangerous and destructive aspects of the private sector when necessary.

    Now I don’t agree with government intervention as a solution, but I do think its time for society to re-think (or possibly think?) about the form of capitalist economy we wish to live in. True social change does not come from the changing of laws to force us to do “good” it comes from a change in personal beliefs and behavior so that we choose to do good. This does not mean big government or anti-market policies or anything like that. It simply means living in the real world and realizing that like every other political ideology libertarianism/capitalism is not without its flaws.

    I’ll probably get a lot of crap for this but I think libertarians often find themselves defending groups/institutions within society which they don’t personally believe in. Choosing to support some private institutions but criticizing the forms of others should not be incompatible with a pro-liberty doctrine.

  15. You will get a lot of crap jarryd. A true libertarian defends people revolting, only anarchists defend that. Are they the true libertarians? True social change comes from changing beliefs and behaviour. Sounds like you want to create a New Man!

  16. Ponzi schemes and currency debasement are not part of the libertarian philosophy since they are fraud. Now they are wrecking everything and yet most people here are supporting these rackets. Mark Hill claimed that I was against credit contracts. But he was lying. I said I was against fractional reserve and other legalised ponzi-schemes.

    These schemes have wrecked the US. They cannot come out of this one. Not following the Paulson plan. This is a depression that must last for years.

    So what is the argument in favour of fractional reserve?

    We need an argument that isn’t about people telling lies. In this context lies don’t count.

  17. Whether Palin or Rand are or are not libertarians is a red herring. The facts are that those of us who believe in less government, lower taxes and more freedom are on the back foot.

    We all know that stupid but well-meaning US govt regulations such as the Community Reinvestment Act, the govt-sponsored duopoloy of Freddie and Fannie, tax-deductibility of mortgages, non-recourse mortgage lending and no-lose mortgage refis made significant contributions to the current problems. (Kevin Rudd – please note the recent tripling of the First Home Buyers’ Grant is squarely in the well meaning but stupid category).

    However, to argue, as Patrick does, that capitalism is not to blame is to misunderstand capitalism and markets. Of course capitalism is partly to blame. Greed (the selfish pursuit of profit) played a huge part in the current crisis. But, and this is the key point, this does not make capitalism (or greed) wrong nor undesirable.

    Capitalism is defined by opportunity, then investment, then profit, then copy-cat overinvestment and finally bust. Always has been, always will be.

    This is not wrong. Nor undesirable. It is simply the best system anyone has yet devised.

    Those of us who cheer for free markets (liberals, libertarians or whatever) should be making our case loud and clear. Govt intervention always makes things worse. History confirms this. But markets arent perfect either.

  18. Pommy. Its fractional reserve that is to blame. And fractional reserve has no place in capitalism. So why are you blaming capitalism?

    Does anyone here have an argument in favour of fractional reserve?

  19. gmb – trade has waxed and waned since the dawn of time.

    stop harping on about fractional reserve.

  20. Factional reserve is an innovation, and innovation is forbidden. They did not have this practice in Arabia when Mohammed lived. Therefore, it MUST be evil!

  21. “Government cripples you, then hands you a crutch and says, ‘See, if it wasn’t for us, you couldn’t walk.’ ” — Harry Browne

  22. This quote is from Palin – not libertarian or pro-capitalist.

    “Darn right it was the predatory lenders, who tried to talk Americans into thinking it was smart to buy a $300,000 house if we could only afford a $100,000 house. There was deception there, and there was greed, and there is corruption on Wall Street. And we need to stop that.

    Again, John McCain and I, that commitment we have made, and we’re going to follow through on that, getting rid of that corruption.”

  23. Did we have some argument in favour of fractional reserve here Jason?

    Have you found that argument yet?

    Tim Palins comments are in fact perfectly in line with libertarianism. There is corruption on wall street. The entire place is now crooked with stock watering, mob involvement, political corruption, open stealing from the taxpayer and so forth.

  24. Can I ask Mark and Jason not to turn this thread into another thread of doom but come up with an argument for legalised priviledged ponzi-schemes or admit they are wrong.

    You are grownups now. Can we have you acting like non-morons for just a short change?

    We now have pyramiding markets as a sort of ubiquitous feature of the American financial markets. What is the justification for these? And what is the argument in favour of the priviledged legalised ponzi-scheme that is fractional reserve….

    In addition what is the justification for all the subsidies and bailouts that the Americans are being asked to foot for the bankers who are now in a frenzy of open public stealing and bribery?

  25. How about you nicholas. Can you see any reason for the priviledged practice of pyramiding and selling fake ponzi-shares? Watering the stock as it were? Known as naked short-selling this is clearly a violation of property rights is it not? It leads to smaller companies not being able to raise capital.

    See the monetary cranks always turn these into threads of doom. But in all these years they have not come up for a justification for specially legalised and priviledged ponzi-schemes.

  26. Duoist; Great comment, one of the things I find most disturbing about the US LP is that there is the degree of friction between the ideological libertarians and the philosophical ones leading to the situation where a good candidate who displays many libertarian leanings being rejected by a significant proportion of the party as not libertarian enough, or neocon.

    The reason why I included Palin in this post is that the left hate her and are going for immature name calling, and one of the rude names they call her is libertarian, which gives us a fair idea of how far apart the left and ourselves are. Still its a bit better than the ‘Palin is a cunt’ T shirt effort.

    Palin is not standing as a LP candidate but has shown a significant belief in many libertarian ideas, and in my opinion she is probably one of the most libertarian candidates in this election outside the LP. There are very few elected officials who will go so far as to oppose town planning, we used to and I still do, Houston was our ideal. How many libertarians these days have the guts to argue against it?

    Obviously both sides of the big party contest are wrong on the financial crisis, it wouldn’t have happened without the government being involved, however using the ratings system to recommend products to people when courts have already ruled that ratings agencies assessments are only opinions and not legally binding, is at least fraud.

    As for Rand, most of us accept her as libertarian and respect her for it. Rand herself rejected the LP on the basis that she considered her philosophy to be inconsistent with politics: –

    If, at a time like this, John Hospers takes ten votes away from Nixon (which I doubt he’ll do), it would be a moral crime. I don’t care about Nixon, and I care even less about Hospers. But this is no time to engage in publicity seeking, which all these crank political parties are doing. If you want to spread your ideas, do it through education. But don’t run for President—or even dogcatcher—if you’re going to help McGovern. Ayn Rand, Ayn Rands Q&A on libertaeianism.

    Some would call her a neocon for that statement.

  27. Curiously, FA Hayek said something similar:

    Fisher: I share all your worries and concerns as expressed in The Road to Serfdom and I’m going to go into politics and put it all right.

    Hayek: No you’re not! Society’s course will be changed only by a change in ideas. First you must reach the intellectuals, the teachers and writers, with reasoned argument. It will be their influence on society which will prevail, and the politicians will follow.

    – Friedrich August von Hayek, The Road To Serfdom (Reader’s Digest) IEA version

  28. Thank you for your kindness, Mr. Fryar.

    As for Rand – Ayn Rand is a libertarian to libertarians. She was adaman–to the point of being scurrilous (she called all libertarians, “scum bags”)–that she was definitely not a libertarian. She considered libertarians to be liars and cheats, not worthy of even mentioning in polite conversation. She literaly loathed libertarians.

    If Australian libertarians would like to read a very small book that preceeded Ayn Rand’s thinking (for which she never gave credit), William Graham Sumner in 1883–long before Ayn Rand–established ‘men of the mind,’ the rationalism of capitalism, and especially the moral grounds of personal interest in his thin book, “What Social Classes Owe Each Other” (his answer: absolutely nothing). Sumner’s ideas preceed Rand’s philosophy, are far more moderate than Rand in her argument, and are a joy to read for their clarity, brevity, and simplicity.

    Perhaps it’s time for us libertarians to accept the sneering Ayn Rand at her strident word that she is not a libertarian, and read her predecessor’s identical philosophy with an appreciation for his more moderate tone in espousing human rationality as the ultimate moral good.

  29. BioShock is a good game to play if one wants to explore a dystopian society created by anarchism. It is probably one of the best pieces of fiction on the subject. It sits on a bookshelf alongside 1984, Atlas Shrugged, Minority Report, Soylent Green and other great works of political science-fiction…

    Unlike anarchists, libertarians and liberals respect certain governmental safeguards, but I can still think of a number of dystopian futures that could exist under the types of libertarianism promoted around these parts.

    I agree mostly with what pommy said however. Liberalism is the best system devised to this point. But unlike Randites I don’t think that mean selfishness and greed are good. Nor is gluttony, nor sloth, nor wrath, nor envy, nor lust, nor pride. These “deadly sins” are vices that need to be tempered and bridled. Not denied entirely. I don’t believe that we should deny ourselves all earthly pleasures- but we should look at the consequences of pursuing our pleasures.

    Liberalism isn’t perfect, but it works. As a friend of mine says:
    Liberalism and free markets work if people are selfless OR if people are selfish.
    Socialism works if people are selfless, but if they are selfish it falls apart.

    I believe that if people were all saintly, it wouldn’t matter what political system we had. But while we hopefully try to be saintly, we are not, so free markets are the best option. Free markets allow us to fail.

  30. Look fractional reserve never works. It is fractional reserve that is the problem here. This is the enemy we ought to focus on. This is what has ruined the US and is screwing us up here.

    Its an inherently fraudulent practice. It disturbs the price system. And people are incredibly arrogant about it. So clearly its what we have to go after here. We are talking about crony-socialist money.

    Its not about the inherent greed of anyone so much as people wanting to steal via fractional reserve. If they wanted to make money via honest production they could be twice as motivated and greedy. But we are talking about thieves here. In America the stealing has gone open and public and we are talking thieving in the trillions.

  31. Shem; I am not a fan of Rand, but to be fair she spoke of the ‘ virtue of selfishness.’ She didn’t argue that greed, gluttony, sloth, wrath, ……, is good. If you are a sovereign entity, that which you attain by just means is yours to possess and as such you are under no moral obligation to divest yourself of any portion of it for any reason except by your own personal choice.

    This is in my opinion a reasonable position, if it suits you you may choose to allocate some of it to altruistic purposes, but you are under no obligation to do so.

    Liberals do not argue for personal altruism, they argue for confiscation and reallocation.

  32. Graeme,

    If any firms or individuals other than banks become levered more than their collateral, shall we also put them in gaol?

    That either doesn’t seem libertarian or consistent (and so by rule of law, is not libertarian).

    How can non depository financial institutions such as insurance funds become 100% backed? Should they? Why?

  33. Consentual banking between adults (ie FR-banking) should not be banned… but this crisis does raise issues of how alternative monetary systems would have handled it.

    I fear that a Terje-gold system would not have been able to increase the supply of base money sufficiently.

    Not sure what would have happened under free-banking.

  34. John – Given that mopping up liquidity would have entailed selling central bank assets such as gold I’m not sure how or why the physical quantity of gold would have been a limiting factor.

    Perhaps you mean that in real terms the utility of gold has been increasing over recent years. On that I’m sceptical.

  35. I’m one “frozen in the worldview many of them absorbed from Ayn Rand.” I got “frozen” in 1962, when I first heard Ayn Rand speak (at M.I.T.), got a Ph.D. in philosophy, taught philosophy for 7 years at Hunter College, became a good friend of Ayn Rand up to the time of her death. That’s really a deep freeze. But I didn’t “absorb” anything–I learned (a process which includes heavy questioning, critical judgment, and years of hard thinking).

    Now, on to fractional reserve banking (FRB): how do the opponents of it reconcile their opposition to this practice with the principles of laissez-faire?

    Suppose that, in a laissez-faire world, the Mulligan Bank decides to engage in fractional reserve. They give full disclosure of this fact to their customers. Perhaps they put a disclosure notice on each bank note. Okay, where’s the force or fraud? Nowhere. End of story. Well, almost the end: opponents of FRB will grumble, “Well, if it was fully disclosed, no one would patronize that bank or use those notes, so economically it would fail.”

    My reply: 1) If so, so what? It still leaves FRB completely legal (as it should be) under laissez-faire. 2) FRB *is* practical; in the 19th century, under the pure gold standard, American banks did practice, successfully, FRB. Of course, the reserve ratios were 40% to 60%–nothing like today’s 5%-10%.

    To those fearful of FRB, I say: trust the market. The practice works because it is rational.

  36. “If any firms or individuals other than banks become levered more than their collateral, shall we also put them in gaol?”

    Fractional reserve is not the same as LEVERAGE Mark. You see you have to understand the situation. And its not about consenting adults either. It always starts with someone breaking trust. For example the racket that they’ve got going now with pyramiding shares. People may be used to getting FTD IOU’s (Failure To Deliver IOU’s) as opposed to real shares, and they may even be happy with it. But the arrangement comes out of embezzlement and the distortion it does to the market will continue as long as the practice does.

    So none of these ponzi-schemes has ever passed any market test. And its fundamentally ahistorical to describe them as consensual.

    John what about counterfeit share trading? You in favour of this too? And in both cases what is your pricing/economics justification?

    What about the selling of ponzi-gold leading to shortages of gold. Whereas normal market trading would have cleared that shortage. Can this be said to be consensual? How so? And what is the economics advantage of this ponzi-scheme? Of having more fake silver trading than a years worth of production?

    What are the economics advantages of all these shady operations?

  37. Binswanger its very easy to support my case against fractional reserve. Its fraud under otherwise normal market conditions. And socialism under todays conditions.

    That was easy.

    Its always had to be supported by the government. It didn’t work in the 19th century at any time. Always the banks either ripped off their clients and went under or they got away with special priviledges. If you imagine that there is some time when it didn’t rip off the rest of the community you are just making it up.

    What years are you talking about?

    So lets go again. What is the justification for this ponzi-scheme? When it means one law for some, and one law for others, and the banks are always being subsidised by the rest of the community!!!!!

  38. I’ve not read much Ayn Rand, but the comments quoted above suggest that she was against libertarian anarchy and perhaps did not regard minimal government economic and social liberalism as libertarianism.

  39. GMB, Palin wasn’t talking about that kind of corruption. As can clearly be seen by the context of her statement. As I understand, she and McCain wrongly view speculation, short selling etc as harmful.
    The Republicans cannot be counted on to be economically conservative. They are definitely not libertarian.

    I recently read someone ask this: Where are the short sellers in the high markets? And where are the speculators in the low markets?
    These questions demonstrate that traders respond to reality, not create reality (like in some kind of primacy of consciousness view of the world).

  40. Well I don’t know about that Tim. She might have seen it the way I do but she’s caught having to support this bailout since the old man did. That would make it hard to express herself unambiguously.

    In fact there can be no such thing as normal short selling now in the American market. Since the American market is infected with so many ponzi-shares (or “fractional-reserve-shares), pretty much all short-selling has to be considered naked. And unlike covered shorts this really IS!!!!! a bad thing. They’ve had small undervalued energy and mining companies whose share price has for years defied all reason because of this. And this is a bad thing since you want your own share price just above fair value if you want to raise money to expand.

    If they cannot get rid of all their fractional-reserve shares from this market than they will come out of this recession without the customary explosion of new small business expansion that the end of the recession tends to bring in the US. Its just a disaster. So if they aren’t willing to settle up and bankrupt all these brokers or somehow clear out the ponzi-shares it really would be better to ban short-selling and let the naked shorts clear while the recession is on.

    pedro. I think the philosopher was offended by some of the libertarian leadership at the time. So the comments have to be put in that sort of context. I was a bit surprised by those harsh comments about Hospers. A very good philosopher who remains a supporter of hers to this day.

  41. “Suppose that, in a laissez-faire world, the Mulligan Bank decides to engage in fractional reserve. They give full disclosure of this fact to their customers. Perhaps they put a disclosure notice on each bank note. Okay, where’s the force or fraud? Nowhere. End of story.”

    No good because when engaging in fractional reserve he would be PYRAMIDING upon the Orren Boyle bank ponzi-gold. And since this gold might then trade ten times in the hour that would infect everyone elses stuff too.

    But its worse than that. Since its not entirely rational to have the entire worlds money based on gold and silver. Which would price gold and silver out of the market for normal industrial uses. We really would want other commodities as well. Liquified-coal and others. But we can only have gold and silver if we have even the SMELL of fractional reserve since people will then only trust value that they can hold in their hand.

    So even allowing the potential of fractional reserve means forfeiting superior economic performance and a further level of safety against govybank looters.

  42. For those interested, Rand was a reader of Mises (although not a Kantian like Mises). She regarded central banking as morally repugnant and politically unnecessary.

    In addition, Greenspan wasn’t an objectivist. His autobiography claims that Rand’s philosophy has inherent contradictions, and that his “fervor receded.”

    So when someone lumps Greenspan, Palin and Rand altogether and says they are representative of libertarians – this statement clearly shows ignorance.
    These three don’t even agree on economic theory let alone other ideology.
    And none of them would even call themselves libertarians.

  43. Yeah its a pity his fervour receded. Because he did a very good job early on. Really only in the mid-1990’s he started coming unstuck. Had he only had the job for ten years we might still think of him as the maestro.

  44. So long as it is non-compulsory, I will not oppose FR Banking.
    Graeme, maybe you should start a bank not based on FR principles? We would then be able to see if you are right or wrong! Or can you point to an existing example of such banking?

  45. But its fraud and currency debasement. So why are you supporting it? And what is your ECONOMIC justification for it?

    It causes shortages and underpricing. With the subsequent catch-up high prices down the track. Of course if selling ponzi-goods is the monetary good then it causes the opposite. So inflation then catch-up deflation later.

    I already knew your position. You have to say WHY??? You have to actually make an argument. You said that was your position already. So now justify it.

    Its not voluntary in the same way that fraud isn’t voluntary. And the other thing is it has a sort of pandemic nature attached to it. So if you let it go a little bit it will ruin everything.

    Like the Americans are supposed to be a free enterprise nation. But they are getting shortages in gold and silver as a direct result of ponzi- gold and silver selling. This is fraud and you have to justify it with some sort of ARGUMENT and not merely say mystifyingly that you agree to it. Like its some sort of religious committment.

  46. But we only have UNTHINKING supporters of fractional reserve since they never put up a case. Ponzi-selling is a direct attack on the viability of the market. On the pricing mechanism. That everyone has become desenstized emotionally to this type of fraud is not in itself an argument. Yet its about the only argument you guys seem to have.

    The free enterprise system is not supposed to have shortages ever. Shortages are supposed to be caused only by price controls. And yet we have these shortages all over the place because of the fraudulent practice of ponzi-selling being institutionalised and even the customer being desensitized.

    Customer desensitization isn’t a valid argument. Or if you think it ought to be make a good fist of it. Thats whats really going on here. And with Binswanger. Since fractional reserve ponzi-schemes have been around since before the medicis its a simple case of customer-desensitization to fraud.

  47. GMB, Can you point to an existing example of banking that does not use Fractional Reserve Banking? One Positive example will do you more good than all the negative comments about the current system.
    Alternatively, you might start up a system that is acceptable to you, so the rest of us can see what you mean.

  48. No you cannot. There isn’t one. The last one was the Amsterdam bank which was a glorious success for the people of Holland but it was only ever marginally profitable in its own right.

    Thats not an argument.

    So lets have a proper argument in favour of ponzi-selling more generally. In favour of phantom-selling. Phantom-trading. Its causing shortages and it might be the its causing customer resignation and densensitization. But so far no-ones made the argument that just because people have become desensitized to it that this means it ought not be wiped out.

    Its just embarrassing. I mean capitalism was supposed to be a system without shortages. I’m not even sure the economists have dealt with the wider phenomenon of fractional reserve everything.

    Now does somebody have a valid argument in favour of this sort of things. Rather than religious statements of affirmation.

  49. You see if you make a phantom-sale you’ve deceived the market at both ends. You’ve told the supplier and the consumer that the price is higher than it needs to be because there is more supply out there than there really is. So you are in the process of not just ripping off your customer. But you are distorting the price system itself.

    So this Henry Paulson racket. Where you pyramid up these ponzi-shares…. and loan them to several people to short-sell…. well thats totally debauching the share-selling pricing mechanism and therefore the entire viability of raising capital from the stockmarket.

    Now it might not seem such a big deal since fractional reserve money has already destabilized the pricing of the sharemarket. But in fact its robbing the ability of smaller companies to expand more quickly.

    So what was that argument in favour of it. So far mostly just religious affirmations. As if we can make our minds up about complex situations by reference to a single statement that Ayn Rand once said. Apparently a single statement by Ayn Rand decades ago is all we need to make up our minds about high finance around here.

  50. Thats really it here. The board split into two wings. One of which hates private money and loves both socialist money and inflationism…. Like Soon and others… And the rest of you seeming to think that all of high finance regulation….. that you don’t even so much as need to THINK about it. Its all contained in something Ayn Rand said about the initiation of force. No further brain power need be applied in all the decades intervening.

  51. Bidie

    Don’t you have a mortgage from the fractional reserve bank? Shouldn’t you be preaching to yourself about the evils of dealing with these devils.

  52. “Capitalism is supposed to be a system without shortages”? I think there might be some shortages somewhere upside of your head.

  53. No no. You guys are just idiots.


    Capitalism is supposed to be a system without shortages. And yet ponzi-selling is creating shortages.

    Do you get that yet pedro you moron?

    Now does somebody have an ECONOMIC argument for this? Or is it just about something the philosopher said some decades ago?

    JC you moron. We are talking about PUBLIC POLICY.

    Have you got that now? Idiot?

    If you are not up to the conversation mate. If you are too stupid. Don’t participate.

  54. yeah Bird, stop being such a hypocrite.

    I’m a net saver so you’re borrowing my money. if you’re going to be consistent about this you should give me and JC back our money.

  55. Now does someone have a REAL argument. You know a real argument? No-one? Don’t be like a global warming fanatic and hold out on us.

    Now Binswanger posed a situation where you have one trustworthy fellow who wants to perhaps make it cheaper for you by only keeping 50% of his on-call stuff on hand. Perhaps he will use the loans to underwrite the transaction costs or something. But its one bloke. And he’s only keeping 50% of the on-call stuff on hand. And he tells you about it. Its on all his notes. Who could object?

    This is not the scenario at all. What we have instead is a government-bank cartel, all ready to roll, and ready to start various inflationist and ponzi schemes if you give them any leeway whatsoever.

    So its not about some lone banker merely doing it in some prudential way in order to reduce costs. Its about people who in many time periods are hard to separate from the government of the day.

    And if it was just about a lone banker keeping a 50% reserve this would not begin to take into account the two/three/and twenty-banker pyramiding that goes on. So its not a relevant situation to decide whether its fraud or not. Because it assumes the bankers have to be deaf dumb and stupid and not realize that they are pyramiding the fake money on top, in conjunction with the other banks.

    Because each banker obviously KNOWS that this is whats going on, then this is what makes it fraud. If it were only Midas Mulligan in Galts Gultch it wouldn’t be fraud but there we don’t have the same counter-party risk.

  56. Alright. All the usual morons are turning it into a thread of doom.

    Lets go over it again for the moron Jason soon.


    Got that yet Jason.

    Its not about arresting tellers. Or abusing people for buying a house. Its about monetary-economics and public policy.

    So does anybody have a REAL argument going. From the point of view particularly of economics?

    So far NOTHING.

    So we see that the fractional-reserve support is totally unthinking and irrational. Its either a statement of faith from the right. Or its a hatred of sound money from the left.

    Bear in mind that every time we go over this the usual suspects go into wrecking mode to set up a thread of doom.

  57. We are talking about PUBLIC POLICY. Not arresting tellers. Not harrassing house buyers. Not talking about me. Its about PUBLIC POLICY.

    Got that yet you irrational mutants?

  58. Right. Does anyone have an actual sound argument for supporting ponzi-selling. For saying that ponzi-selling ought to be considered fraud and all markets involved with it ought to be phased back to straight honest selling. No fractional-reserve or ponzi-transactions.

    So far we’ve had the usual attempts to close the discussion down and the attempts from the other side to make it, not a technical matter of monetary-economics, but rather a chance for a CHURCH-LIKE MOMENT. A church-like moment to affirm their support for something a very great philosopher said some decades ago. As in all judgement coming down to a one-liner.

    But we haven’t really had any real arguments have we.

    We must let people PRETEND that its a two-way argument when its not.

  59. so it’s not personal and we shouldn’t be harrassing tellers or BORROWERS but abusing traders and bankers is OK?

    sounds awfully convenient to me …

  60. No we are talking about PUBLIC POLICY dopey. Public policy.

    But the bankers you are referring to aren’t bankers. They are welfare queens.

    In your culture do you even understand about having discussions about public policy?

    Its a public policy discussion. The bankers have shown what they are about. They want their continued priviledges, subsidies and bailouts.

  61. So we that Jason has tried to get the discussion offtrack. But what is the economic argument for ponzi-trading. Ponzi-selling. For pyramiding a lot of phantom sales on a few stored goods. And for fractional reserve ponzi-banking as well.

    Because this sort of thing is causing shortages as we speak. Which is completely unnatural to capitalism.

  62. What is your economic argument in favour of fractional reserve and ponzi-trading more generally?

    You have come out in favour of NAKED (naked!!!!!) short-selling. But why? What advantages to the price system do you think this sort of fractional reserve has over covered-shorts? Why don’t you suppose selling fake shares ought not merely be considered fraud?

    Is it just desensitization so that it doesn’t SEEM like fraud? If so that in itself does not constitute a valid argument.


  63. Yeah thats a great answer.
    So this is what happens. They usual suspects, and often people involved in ponzi-rackets themselves, wreck the thread by turning it into a thread of doom.

    But they cannot justify their position:


    You have come out MANY TIMES in favour of NAKED short-selling. Every time you have done so you have dishonestly attempted to obscure or ignore the difference between naked and covered short-selling.

    But in any case you have come out in favour of ponzi-shares. Using ponzi-shares for shorting. But why? What advantages to the price system do you think this sort of fractional reserve has over covered-shorts? Why don’t you suppose selling fake shares ought not merely be considered fraud?

    Is it just desensitization so that it doesn’t SEEM like fraud? If so that in itself does not constitute a valid argument.

    Try again.

  64. Did you have that argument yet Jason?

    Are you even an economist Jason?

    So ponzi-selling generally. And ponzi-cash trading more particularly…… ECONOMIC ADVANTAGES? Advantages to the price system? Conjuring resources from out of nowhere?

    Explain your support on economic grounds.

  65. I swear to God, after 30+ threads of doom, I still don’t understand what the basic objections to FRB is. Logically it seems that it is about the velocity of money in the economy expanding the money supply. It isn’t the credit multiplier per se, because aparently there is no problem with loaning term deposits. So it’s something do do with borrowing short and lending long. Except that somehow it makes money out of nothing? Is it that keeping on-call deposits acts as a de-facto Asset Reserve Ratio to slow down the credit creation process? I honestly don’t get it.

    What if I enter into 1 week or 1 day term deposits with my bank, and they lend the money on the same terms? Are we all good then? Because I don’t see much functional difference between that and the current system. And if that isn’t ok, why is a one month term deposit OK? And why can private individuals loan money but bankers can’t?

    Seriously, despite 10,000 references, I don’t even know the definiton of a Ponzi scheme. I could look it up on Wikipedia, but I’m afraid I’l break through into a different part of the net inhabited by people like Graeme, and once you fall down that particular rabbit hole, there is no coming back.

  66. What do you think the advantages of fractional reserve are Tim?

    When you trade or sell make-believe something the market acts like its the real thing. So if I start selling gold I don’t have I’m telling the market that there is more gold around than there really is. Hence its a disaster. Because you are instructing the market to do the wrong thing.

    So supposing its in gold. You wind up with a lower price for gold than the market would come to otherwise. The producer doesn’t get enough for it. Not enough is supplied. When you finally get so backlogged that the reality of it becomes apparent you then get a big surge in the price of the gold until the backlog clears and the ponzi-racket can start off again.

    So if its your monetary metal that this is happening to you will always get a boom and a bust.

    I don’t see the advantage of it?

    What advantage do you see in it?

    When you take deposits and you relend them you are not creating any monetary imbalance or the impression that there is more cash out there than there is. You are getting a cut in interest which is just and good. Like you take in a deposit, you relend it and you take not ALL the interest but a cut in interest as your reward.

    But when you make a fake loan with money that you don’t have you take possession of the entire principal and interest of the loan. You’ve taken hold of all the resources for that. Not a cut of interest. But all of principal and interest. And no-one has saved so that you can borrow this amount. So you’ve debased the currency. You’ve created a demand but without the supply of the goods. What are the advantages in that?

    We have literally hundreds of years of history of this to fall back on. None of it good. We wind up with a boom, inflation, all sorts of problems, than a bust.

    Can you find any advantage in this?

  67. OK with the gold bit. But I don’t see how it follows to the money. If I start trading tomorrow, giving people cheques that say $10,000 dollars that I don’t have, and they go and spend them, well, fine, but if I lend the money that someone has given me to hold on to, then surely nothing has been harmed in the process, unless the person wants their moeny back and I can’t give it to them. I can’t see the creation of money that wasn’t there with an ordinary style loan.

  68. If you are a bank and they have the money on-call (not at term) the damage is done regardless of if you can pay it back or not. Because you set up the impression that people in the community have more cash than they really have. So even if you can pay it back you cause at first a reduction in price of the good the money is based on, and then later an increase. And this is regardless of the fact of whether you are caught out or not.

    But since the thing we are talking about is money instead of a low price in the good then a higher price you wind up with a HIGH PRICE IN OTHER GOODS THEN A LOWER PRICE. Because money is priced inversely to other goods.

    Bear in mind we are not talking just about you. We are talking about your interaction with other banks creating a pyramiding effect.

    Its not whether you get busted or not. The distortion is there regardless.

  69. bloody hell Graeme according to the logic of 78 we should tax the most microscopic externalities. “Because you set up the impression that people in the community have more cash than they really have”.

    What the heck does that even mean?

  70. Its not an externality. Its direct money debasement. Its not some sort of small thing attendant upon production. Nothing is produced. So its all negative against no positive.

    Externalities are about some tiny negative coming off thousands of people producing positives. No comparison. Don’t try it on. Its not to be brought onto externalities theory. Its a direct aggressive act against society. A direct attack on the currency.

  71. Its a direct debasement of the currency as well as a direct attack on the price system and most particularly its an aggressive attack on capital markets decision-making. Its more of a direct attack then if they had inkstains on their hands.

    This is no minor externalities carping.

  72. Credit in circulation does act as a medium of exchange. As such it provides an alternative to currency. Normally one would expect product substitution to reduce the price (or value in this case) of the product being displaced. As such I would agree with an assertion that using credit as a medium of exchange will tend to cause the value of currency to decline, and commercial banking is efficient at fascilitating the creation of credit. However I would not call this debasement. I would merely call it a decline in the demand for currency. It is like Ford entering the car market and reducing the price of Holdens, but it isn’t debasement.

    Any mechanism intended to maintain the value of the currency will need to compensate for any such decline in demand by reducing the supply of currency. This could be achieved by a monetary authority or by private mechanisms.

    If an economy was closed (eg the world economy) and the currency was gold and only gold and the stock of gold was fixed and it was all currency then credit expansion would be inflationary because there would be no mechanism to restrict the supply of currency.

    However no gold standard in history every converted all the gold to coin. Under a gold standard the stock of currency is not fixed. There is plenty of scope within a gold standard to accomodate a declining demand for currency. In fact a gold standard entails a large degree of automaticity in dealing with this issue.

    Product substitution is not debasement.

  73. “However I would not call this debasement.”

    It doesn’t matter what you decide to call it Terje. Its debasement if its ponzi-gold and not real gold. Or ponzi-diesel and not real diesel. If they’ve pyramided up ontop of the gold all this fakery then thats debasement. And it means the price of gold (spending on goods) is too low (high) now but the price of gold (spending on goods) will be too high (low) later when the shit hits the fan. Its setting up a gold shortage for later on even as there is an apparent but not a real oversupply now.

    But its really worse than all that. Because when you take a deposit at term and reloan it as slightly higher interest and a slightly shorter term you are only brokering the value of these resources voluntarily. You couldn’t commandeer that value until someone came up with some goods of real value.

    But when you and other banks cook up a scam allowing you to make a ponzi-loan you are commandeering the value INVOLUNTARILY. Nobody handed that value over to you voluntarily. So it would be a racket even if it didn’t cock up price signals and capital allocation decisions. It would be inherently immoral even if it didn’t leave people in the lurch and ruin their lives.

    “There is plenty of scope within a gold standard to accomodate a declining demand for currency. In fact a gold standard entails a large degree of automaticity in dealing with this issue.”

    No what it is is this. The gold standard, once phase-in-issues are sorted, allows a great deal of flexibility in dealing with wider economic problems. But immediately you start allowing people to sell, exchange and pass around over the computers the ownership of not REAL GOLD but only make-believe gold, you are throwing the price signals into reverse. You are getting people to mine too little when they ought to be mining more. To lend too much when they ought to be lending less. To reduce their cash balances when they ought to be increasing them. You’ve just gone and thrown all the workings of the machine against itself. And when reality hits and there are gold shortages then the problems with allowing this fraud to become ubiquitous become painfully felt.

    So what is the justification for allowing this fraud?

    Reynolds is totally crooked. He now reckons that if I go to a broker and buy some shares its OK for the broker to put on the pretense that he’s helped me buy the shares. So long as he can keep the pretense going. Or not even then, but so long as he fulfills some arbitrary regulation to do with delivery.

    But then this appears to be Cambrias point of view as well. In thinking that this fraud is OK they are claiming that its OK to undermine all the pricing functions that a stock-market has and to ruin its capital-raising and pricing mechanisms.

    So its only lunatics talking. Lunatics who have come out of a group of proven failures who cocked things up spectacularly. And the best thing is to try and justify this nutty position on your own somehow if you choose to back nutty positions out of some sort of religious commitment.

  74. Graeme, why isn’t the same impression created by loaning money on term? what is functionally different about the on-call deposits? Forget about telling me how this is magnified through all the other banks or anything else, just answer that bit first.

  75. Tim, I’m not sure bird is capable of a rational explanation. The claimed problem with fractional reserve is that it increases the stock of money be cause the money lent to the bank on call by a depositor is then lent for a term to the borrower, so the same amount of money is therefore available to the borrower and the depositor. The risk is that borrowers want there money back (a run) and the banks can’t give it. The secondary claimed risk that the stock of money is increased by the actions of the banks and so prices are inflated accordingly thus putting dislocations in the economy.
    No question that inflating the money supply will inflate prices and cause dislocations and also under-price credit, but the alternative to FR banking seems to me to be way worse that the claimed problems of FR.

    Graeme, please point to the test book explaining how capitalism is a system without shortages. Or, as an alternative, please explain to this moron how a system without shortages also has prices.

    Communism was supposed to deliver the system without shortages.

  76. Tim. Its totally different because now the co-operating banks have created a situation where the amount of cash which people assume they have in their possession is greater than what it was before.

    Lets go over the two processes separately. I’ll give an example where money IS NOT created. And then I’ll give an example where money IS created:

    Imagine we don’t have any financial products exept for term loans and demand deposits.

    This like a planet of the apes world where we have a mixture of modern and medieval technology.

    We have an isolated Island capitalist monarchy and there are five individuals and five banks that we are considering as being representative.

    The banks are banks A B C D and E………
    The Individuals are individuals V W X Y and Z.

    Our starting point is a situation where the King has decreed that when you put money in the bank it has to be a clear-cut thing. It has to be either ON-CALL or it has to be A TERM LOAN.

    This has been the way of things for about the last 50 years.

    The King takes a survey of the TOTAL MONEY SUPPLY OF THE ISLAND.

    What he found with our representative individuals and banks is this:
    Individuals V W X Yand Z each had $5000 in cash around the house. And they each had $5000 deposited with the banks (A B C D and E)
    So when the king added up the total money supply he took it that it was (for this representative survey.)

    And in the survey he asked HOW MUCH MONEY DO YOU HAVE ON HAND?

    V sez: $5000 cash at home PLUS $5000 cash at the bank EQUALS $10,000 dollars of MONEY.

    W sez: $5000 cash at home PLUS $5000 cash at the bank EQUALS $10,000 dollars of MONEY.

    X sez: $5000 cash at home PLUS $5000 cash at the bank EQUALS $10,000 dollars of MONEY.

    Y sez: $5000 cash at home PLUS $5000 cash at the bank EQUALS $10,000 dollars of MONEY.

    Z sez: $5000 cash at home PLUS $5000 cash at the bank EQUALS $10,000 dollars of MONEY.

    So the King concluded that the money supply for his representative set was FIFTY THOUSAND DOLLARS ($50 000).

    INDIVIDUAL V wants to spend $15000 on some capital equipment to make his business grow.

    He is ready to put up $3000 of his own from his house-cash-stash. And he puts about expressions of interest around the banks to see if they can raise the money.
    So the banks advertise that they will pay an interest rate if people are willing to lock their money away for a time period.

    Individuals W and X each take $3000 dollars out of both their home-cash-stash and their bank-cash-stash and the two of them get to bank A first and give bank A the $12000.

    Now Individual V takes his $3000 and the $12000 borrowed from Bank A and he buys some CAPITAL EQUIPMENT which costs him $15000 (a motor for his fishing boat and some nets, some fishing boat refurbishment) from individual Y.

    And individual Y takes that $15000 and he puts $10,000 in the house-cash-stash and $5000 in the bank-cash-stash…….

    NOW HOW MUCH MONEY DO YOU HAVE ON HAND asks the King again?
    V sez: $2000 cash at home PLUS $5000 cash at the bank EQUALS $7,000 dollars of MONEY.

    W sez: $2000 cash at home PLUS $2000 cash at the bank EQUALS $4,000 dollars of MONEY.

    X sez: $2000 cash at home PLUS $2000 cash at the bank EQUALS $4,000 dollars of MONEY.

    Y sez: $15000 cash at home PLUS $10,000 cash at the bank EQUALS $25,000 dollars of MONEY.

    Z sez: $5000 cash at home PLUS $5000 cash at the bank EQUALS $10,000 dollars of MONEY.

    So the King concluded that the money supply for his representative set was STILL fifty thousand dollars ($50 000).

    Now on this basis we can say that NO NEW MONEY has been created. And the reason why no new money has been created is that there is a clear seperation between ON-CALL MONEY and TERM LOANS.

    So long as two things hold there is no creation of money:

    There is a clear distinction between TERM LOANS and ON-CALL MONEY and
    The banks line it up that they always get the money THEY LEND back prior to WHEN the money THEY (the banks) borrow FALLS DUE.

    So in other words if they act the way the rest of us are supposed to act and ARE STOPPED FROM BEING TEMPTED from dipping into that GREAT POOL of short-term money that their sort of business tends to find gathering amidst itself……..

    ………So what we are saying is if we can get the banks to resist the temptations of the proffesion and act like the rest of us we have a situation where MONEY isn’t arbitrarily created.



    So now we return to the status quo ante. And there is an announcement by the King that from here on in they practice fractional reserve. He tells them that Fractional Reserve is a good thing. That all that Gold is just sitting there doing nothing. And we want the Gold “working hard for the people”.

    Anyhow we will repeat the same situation as before. This time with four of the banks amalgamating into one big bank.

    V takes $3000 of his own money and borrows $12000 from the peoples bank.

    Individual V then buys $15000 worth of capital equipment from individual Y.

    Individual Y takes the $15 000. But this time he puts $10 000 into the Co-operative bank and only $5000 is added to his house-cash-stash. Because the Co-operative bank is now not charging fees.

    The King now takes another survey.

    He asks the people


    V sez: $2000 cash at home PLUS $5000 cash at the bank EQUALS $7,000 dollars of MONEY.

    W sez: $5000 cash at home PLUS $5000 cash at the bank EQUALS $10,000 dollars of MONEY.

    X sez: $5000 cash at home PLUS $5000 cash at the bank EQUALS $10,000 dollars of MONEY.

    Y sez: $10 000 cash at home PLUS $15000 cash at the bank EQUALS $25,000 dollars of MONEY.

    Z sez: $5000 cash at home PLUS $5000 cash at the bank EQUALS $10,000 dollars of MONEY.

    So the King concludes that the money supply for his representative set was SIXTY TWO THOUSAND DOLLARS ($62 000).

    $12 000 has been created by the banking system out of thin air.

    Now note that its not a one transaction deal to create the extra money out of thin air. It requires

    A loan
    A purchase
    The depositing of the cash by the seller into another bank.

    And most of the time it won’t be in the same bank as the one that made the loan.

    And its this triple-step and the seperation in time between the crime committed and the new money created which has turned this into a sort of magicians sleight of hand, that has made it difficult to see that new money has been created out of thin air.

  77. “Graeme, please point to the test book explaining how capitalism is a system without shortages. Or, as an alternative, please explain to this moron how a system without shortages also has prices.”

    Pedro. You are confusing “SCARCITY” with “SHORTAGES”. Capitalism, properly considered, never has shortages. But scarcity and abundance are something else again. Under capitalism you can always get scarce things for the right monetary price.

    When this is not the case we have been trained to look for price controls. From here on in we ought to train ourselves to look also for ponzi-selling. Because we are getting shortages that don’t seem to be related to specific government regulations.

    Yes you are a moron. And you ought to have simply taken it for granted that you had the wrong end of the stick.

  78. Except that Brid is not looking at the bank ledgers, which include the debt owed by V, so V in fact has a negative cash balance but productive assets. Plus, that “new” money is not ciculating all at once and so the inflationary effects are not the same.
    In bird’s example A, the productive asset might never have been bought because of the problem matching time preferences and the higher interest rate required for a long term loan in those circumstances. Thus the prohibition of fraction reserve limits the expansion of production by denying banks the opportunity to take risks in lending money.
    Under FR, banks adjust the time preference attached to money and the risk taken is that there will be a run. The benefit is the explosion is available capital for productive uses.
    The question for Bird is to explain how the 20th century expansion of wealth could have happened without FR.

  79. Brid, I’m sure I don’t have the wrong end of the stick because i believe that end is the one up your arse. Saying that scare products are not in short supply because you can buy them at the right (high) price is just stupid. Capitalism is the most productive system because it most efficiently allocates scarce resources.

    One thing is for sure, these seems an abundant supply from you of nonsense about FR. It seems you haven’t found a market clearing price yet. Perhaps you need to start paying people to take the rubbish.

  80. No you are just being an idiot Pedro. Consider this:

    “Except that Brid is not looking at the bank ledgers, which include the debt owed by V, so V in fact has a negative cash balance but productive assets.”

    It makes no difference what the bank ledger says you dope. Since it is the public that is spending the new ponzi-money. And it is the public that has been given the impression that there is now more gold (or silver, or diesel or whatever) out there than there is.

    And no it doesn’t improve investment. Thats wrong also. No new resources have been created. Hence prices will simply rise in accordance with Cantillon (Kan-Tee-On) effects. That is to say the new money circulates in particular ways pushing up the prices for those things the people who get the new money first spend it on. It destabilizes everything and leads to buying to take advantage of asset price rises, rather than buying to improve cash-flow.

    So it immediately cocks up capital allocation decisions without providing any additional capital goods. Its a total disaster.

    Whereas if new gold is produced its always through the same channels in a stable way. The gold miner pays their workers and they go and spend on stuff. It get released in this modest and stable way.

  81. Well just get used to the idea that YOU ARE IGNORANT of economics pedro.

    And you simply failed to distinguish between SCARCITY and SHORTAGES which are two different things. Shortages can occur even when things are abundant.

    Aside from your ignorance the point is that we used to say that shortages are the result of price controls. We ought to now say that shortages also occur as a result of rampant ponzi-selling. Since the government involvement in this ponzi-selling can be more historical and indirect.

  82. The most important thing is DON’T LISTEN TO THE BANKERS. They have messed it up. White-anted us and the American nation even more. And are proven failures and welfare recipients. They don’t even really understand their own industry let alone the wider economic issues involved with the debauch they create with their cartelised and subsidised trickery.

  83. OK, now I get it. There are two kinds of people in the world:

    1) Libertarians and capitalists, who are greedy and selfish and only look out for their own interests, and

    2) Government regulators, who are selfless and altruistic, only looking out for the common good, never their self interests.

    The first group need to be controlled and regulated. The second group shall rule the world.

    See, it’s all so simple once you understand.

  84. why did you take advantage of this ponzi-money to get yourself a house via this cartelised and subsidised industry Graeme?

  85. They don’t even really understand their own industry let alone the wider economic issues involved with the debauch they create with their cartelised and subsidised trickery.

    That why of course you left banking to pursue a career in a factory, Bird?

  86. I think this is a generational thing.

    An old fart like Bird squeezes out the ponzi money for all it’s worth then he says to the young fellows like me and JohnZ ‘It’s over kids. Ponzi money is wrong. No ponzi money for you, just for me’. The next generation is supposed to go without any home ownership as Bird implements his revolution after having milked the ponzi money dry.

  87. Well I know what the others are on about John. They are doing the thread of doom technique in lieu of a valid argument.

    Perhaps you are grouping those welfare-recipients who affect to call themselves BANKERS with the entrepreneurs and capitalists. But they are really part of the larger govybank counterfeiting ring. And you ought not slice things that way. You’ll just confuse yourself. Wind up grouping mega-thief Henry Paulson along with true creators like Steve Jobs and Thomas Edison.

  88. I thought the change to CDs has abolished the broken record, but apparently not. I prefer the traditional religious nutter, cause they do their silly muttering in a hole in the desert instead of around other folks.

  89. You don’t have an argument do you pedro? Pedro. They called him “Pedro…… The Man Without An Argument”.

    “Hey There Goes Senor Pedro”
    “Zey Call heeem Ze Man without Zeee argument. Ole. Areeba. Areeba”

    I would suppose you leave home without your pants on just the same as you make posts without a valid argument. You ought to have acknowledged that you now have the difference between shortages and scarcity all sussed out. Thats if you managed to nail that one down yet.

  90. Read back what i wrote earlier Graeme. But I’m not going to keep chewing on this bone. Please don’t think the creation of terminal boredom in others somehow makes you the victor in any exchange.

  91. So you reckon you are not WRONG????

    Just get it sorted mate. Its only standard economics in this case. There is a clear definitional differentiation between SCARCITY and SHORTAGES. You can have shortages in the midst of abundance if you have government price fixing. Scarcity and shortages are totally different things under the study of modern economics.

    You screwed it up. Thats where you first tried to have a shot at me. And you come off second best.

    You are wrong and I’m right. If you want to set a whole new definitional norm for this quite straightforward and uncontroversial definitions differentiation go right ahead.

    You dope.

    Now have you got it nailed down here fella. Not any proposed definitions change by yourself. But have you sorted it out what the difference between scarcity and shortages is?

    You’d think you’d be able to learn something at this slow implied pace.

  92. Thanks, John. Your post said it all!
    Graeme is mellowing- he hasn’t said ‘idiot’ for several lines yet!

  93. You dishonest fool gray. You are trying to deceive people and skew the conversation off-track. John most likely has the wrong end of the stick here. Whereas you are capitalizing on this likelihood to knowingly attempt to deceive people.

    Our welfare recipient bankers are not to be confused with entrepreneurs and innovators. Not unless they are venture capitalists or something. I’m sure there are really good bankers out there. Some of these guys down in the commercial banking department might be doing some good work.

  94. You are not exactly the best barometer for this sort of thing.

    In any case we haven’t got the most magnificent case out there for fractional reserve. I think that monetization of commodities is more vital than ever. Since I don’t think we can rely on the supply of a lot of these things. I think prices will become more unhinged than ever. We want the big stocks that 100% backed monetization would bring.

  95. See? Not one ‘idiot’, or mention of the p-word. Graeme is mellowing! It must be our influence! Keep thinking those loving thoughts, fellow lovertarians. After we’ve got Graeme off the pills, who do we cure next?

  96. Bird

    for someone who talks about fractional reserve you show very little understanding of what the term actually means and its significance. Burying yourself in dead enders’ sites who blame the ” fiat currency” and the Federal reserve for their miserable lives is not really economics. In fact its a form of socialist economics cloaked up in the ” fairness doctrine” which seems where you’ve headed.

  97. Personally I like the word “ponzi”.

    Pon·zi –noun a swindle in which a quick return, made up of money from new investors, on an initial investment lures the victim into much bigger risks.

    Also called Ponzi game, Ponzi scheme.

    [Origin: after Charles Ponzi (died 1949), the organizer of such a scheme in the U.S., 1919–20]

  98. No you are talking bullshit mate. I show great of the subject and you are simply lying.

    Don’t listen to these dimwitted welfare recipient bankers people. Except perhaps to do with his new play on oil. Because thats a winner. But his claims that I don’t understand fractional reserve are outright lies. The bankers like him and Reynolds will lead you astray every time.

    Notice that JC won’t go into specifics about this alleged non-understanding. He won’t do it because he barely understands this business. But his lack of specifics ought to confirm to the laity that he is full of manure

    Likely to make a ton of money on his oil plays but nonetheless full of manure.

  99. “Bird

    for someone who talks about fractional reserve you show very little understanding of what the term actually means and its significance. ”

    Why do you tell such ridiculous lies you moron. Okay. I’m calling you on that. Back up your ludicrous idiotic claims.

    The fact is you are lying. But lets see your explanation anyhow you ridiculous welfare queen.

  100. Back it up?

    Your fractional reserve schtik is exactly the same argument you were plugging about pyramids and national highway systems on Mars that you picked up from some truther website.

    None of what you’ve said is convincing or hardened up with economic evidence. It’s voodoo in the same way as your Martian theories.

  101. Look the Mars thing. I just look at the pictures, realising that they could be fakeups, but if they aren’t there are certain implications to them.

    And there is no reason to think we know that they are fakeups or that the implications are out of the question. Since we now know that each planetary body, that has neither a strong magnetic field, nor a substantial atmosphere, has a valuable energy supply for industrial production. In our lifetime the Chinese will be exploiting the Moon for its helium3. Probably at a horrible loss but the plans are afoot.

    You lost your opportunity to respond to the photos in a reasoned or scientific way. Its possible to respond in this way thinking that they are faked photos but still working things out on the basis that they aren’t.

    This was a case of your irrationality and not mine.

    You can go to the appropriate thread and make your argument but you’ve never been able to. I didn’t go to know truther site. I just took the photos, looked at them, and said if IF!!! they are for real then THIS is probably what they must mean. Since no-ones going to set up big structures on a moon just for the hell of it or to grow asparagus.

  102. Now what was that argument of yours about me misunderstanding fractional reserve. You are bullshitting. You had to bring the Mars gig in just to make your lies float.

    Concentrate on that. And if you want to go to the right thread and make your case about the photos being faked. Or what you think they mean if they are not faked.

  103. That would be insane. Futures contracts are essentially a more liquid forward contract.

    How would farmers mitigate risk?

    Why do you want to expose farmers to unecessary levels of risk?

  104. I never once said anything about banning futures. You just repeated the exact same lie as Edney did.

    But I recommend that thread on Ozrisk. I don’t think any one of you guys understands just how quickly the corruption of our financial markets has developed. And trying to follow what I’m saying here might help you guys get to grips with it.

    Andrew is being quite generous with allowing my comments. And so I’ve toned down my insults. Towards Andrew that is. Edney is still copping it, curse his black heart.

  105. For the non-economists in the room: Historically who are the most famous economists who have argued for 100% reserve?

    I heard Friedman used to, but abandoned this on pragmatic grounds, ie: to difficult to implement politically. Is this true?

    It might be interesting to read their arguments.

    GMB has pointed out his moral objection. It’s like the abortion argument. You can’t tell an anti-abortionist that you’re pro-choice, because if abortion truly was murder, then choice doesn’t come into it. You can’t choose to murder someone.
    Likewise, if someone thinks fractional reserve is theft, you can’t convince them by saying it’s voluntary. Because you don’t have the right to choose theft. ie: the issue is not fraud (we all know fractional reserve takes place) – the issue is theft.

    While I find GMB’s commenting volume and style not to my liking, from what I’ve briefly read of the responses, many seem to be insufficient.
    eg/ If GMB has a loan himself from a bank that practises fractional reserve, so what? This makes him a hypocrite but it’s not an argument for or against fractional reserve.

    I don’t currently see the problem with fractional reserve, but I’m fairly clueless to economic issues so my opinion doesn’t mean anything.

    As an aside, I’d also be interested to see how many libertarians support a central bank?

  106. If GMB has a loan himself from a bank that practises fractional reserve, so what? This makes him a hypocrite but it’s not an argument for or against fractional reserve.

    Sure it does. If he thinks it’s participating in theft then he himself is a thief and therefore cannot be trusted on the issue.

    This also wrecks your abortion logic. If the argument is abortion is murder and GMB had an abortion then he is a murderer and has no valid argument to make about the abortion issue unless he showed contrition which in his case would be to pay back the loan and apologize for the theft.

  107. Good point JC.
    I would agree that if someone is a criminal (by their own standards) that you definitely cannot take their statements on the issue at face value.

    But I think it’s ultimately still an ad hominem argument.

    I was hoping my distinction between fraud and theft may clear things up a bit in my own mind, if I get some responses.

  108. “This also wrecks your abortion logic. If the argument is abortion is murder and GMB had an abortion then he is a murderer and has no valid argument…..”

    Stop right there. You are busted being an idiot. Tell yourself what logical fallacy you have made and give yourself an uppercut.

    Come up with a logical argument and stop trying to turn these into threads of doom you great useless welfare queen.

  109. “eg/ If GMB has a loan himself from a bank that practises fractional reserve, so what? This makes him a hypocrite but it’s not an argument for or against fractional reserve.”

    Don’t compromise with this jerk Tim. Thats a ridiculous argument. This is a public policy issue and not one of personal finances. In a world of overblown house prices and rampant inflation-looting you are asking the people who want to improve things to SACRIFICE THEMSELVES???? By following both the limitations of the looters rules and our own?

    This reminds me of when some leftist (Erich Segal) rented a libertarian an apartment in New York. Anyway he finds out that this was a rent-controlled apartment. So he asks Segal about it. Segal says “I thought you were a libertarian”. Robert Nozick tries to reason with Segal but Segal won’t see reason. He really is in contempt with Nozick for being in favour of freedom. So he thinks he can discriminate against him.

    I have a superannuation fund that I’ve voluntarily topped up. I use fiat money. I have a medicaire card. And I’m not going to simply quit my job so as not to pay taxes, get by without fiat money and do all these things and try and survive in a rented room with a bar of gold to keep me company.

    To say that I’m being hypocritical is LUNACY.

    Its just childish. Its these leftists crony-socialists like JC and JohnZ bearing their teeth. Its the dumbest argument that anyones ever tried to make.

  110. Yeah I understand your point to GMB. That we have no option but to pay income tax even if we (like I) think it’s theft and that there are other, more moral ways to tax for a small government.

    JC did rightly point out that my abortion/choice example is quite different when the person aborting is against abortion compared to someone attempting to stop others from aborting that doesn’t abort themselves.

    But it’s still an ad hominem line of argument and therefore not a logical rebuttal.

    This is the type of thing we see in politics all the time. Theory and arguments take second place to personal attacks.
    In some contexts a person’s actions can be very telling and relevent but it would definitely be an improvment if politics and our society valued more meaningful debate.

  111. The point was that JC was being insane and an ethical nitwit. Of course you have to take advantage to some degree of the setup you are given. But JC has it totally backwards. He’s saying that if you oppose his irrational view you ought to live the life of a trappist monk or your argument has no valence. Whereas I’m saying he ought to do well for himself, make money gambling on the dodgy market if he can, but strive to improve the situation.

    This is not some minor point or me doing anything wrong buying a house. This is JC just being a lunatic, picking up on something that JohnZ tried on. Its so moronic its just threadwrecking.

    You are still softpedalling the stupidity of it. I had to get my Ausswim, Level 1 and Level 2 when I was a swimming coach. I don’t believe in that sort of compulsion. Compulsion is everywhere. If a solo-dad sends his kids to the public school, yet advocates private education this isn’t even a little bit hypocritical. Unless his is a multi-millionairre or something.

    You’ve got to realize that the line of argument is just gaga driveling-retard talk. You don’t BEND TO IT at all. He’s got to take the opposite approach like he used to. Be successful. Be as ethical as you can be without matyring yourself or your success. But look to a better world.

    And its just dishonesty anyway. Because if I did this hairshirt routine and got by under malnutrition independently shuffling along the open road with a bag of gold always at my side they would ignore the argument on that basis also.

    We have to civilise the finacial industry. They have gone hog wild and think that they don’t have to produce wealth to make money. That they are allowed to ponzi-up and dilute resources and off-load them as the real thing.

    They have to be house-trained.

  112. Graeme, why don’t you open something that you don’t call a bank, but which otherwise would be a bank (Whole Metal Depository Store?), and let people put their precious metals in it? I don’t know why they would, except for safe-keeping, but you might get some.
    Now how do you, as the Store-keeper, make a profit from this? Would you charge them a holding fee? If you get robbed, what do you repay them with?
    And how do you stop the customers from inventing FR by themselves? I might have 100kg Gold (don’t I wish!) at your store for safekeeping, and I issue a note to someone giving him or her control of some of that gold. If none of them actually collect it, but just accept the notes, I might end up giving 1000% of the gold to other people, all without your participation, or even knowledge! (The obvious solution, outlawing customers, might be impractical.) Here, the customers would be guilty, and the banks totally innocent!
    I think FR is here to stay, regardless of whether it is good or bad.

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