Quote from: CoinCube on January 11, 2017, 04:43:00 PM

Quote from: Lateralus on January 11, 2017, 10:29:20 AM

Quote from: CoinCube on January 11, 2017, 05:52:52 AM

The banks are allowed to create multiple simultaneous claims which cannot be simultaneously honored to the benefit of themselves and favored insiders. The value of all of the other money in the economy drops when ever this is done.

Literally babbies first argument against fractional reserve banking. The money-multiplier theory has been debunked time and time again. AGAIN, it's simply called LEVERAGE. You're trapped in circular logic.

Quote from: CoinCube on January 11, 2017, 05:52:52 AM

The prime beneficiaries are both the bank who collect interest...

Conveniently you leave out the part where the bank splits the earned interest with depositors.

Also FRB != central banking & interest rate manipulation. You guys keep trying to tie those two things together when they are completely separate ideas.

This is a thread on Armstrong's work isn't it? One of the most critical aspects of his entire thesis is that you people who rip on FRB and can't see the inherent flaws of commodity-backed currencies (and how unnecessary they are in the first place), are just as lost as anyone.

Austrian theory is NOT INFALLIBLE, and that's saying a lot because I have immense respect for their school of thought. There are PLENTY of others who share that same respect and yet agree when these critical flaws are pointed out in classical Austrian theory.

Money in whatever form it takes gold, dollars, or bitcoin is ultimately a signaling system a channel for information to travel through.

Knowledge and Power by George Gilder
https://www.amazon.com/Knowledge-Power-Information-Capitalism-Revolutionizing/dp/1621570274

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Capitalism is not chiefly an incentive system but an information system. We continue with the recognition, explained by the most powerful science of the epoch, that information itself is best defined as surprise: by what we cannot predict rather than by what we can. The key to economic growth is not acquisition of things by the pursuit of monetary rewards but the expansion of wealth through learning and discovery. The economy grows not by manipulating greed and fear through bribes and punishments but by accumulating surprising knowledge through the conduct of the falsifiable experiments of free enterprises. Crucial to this learning process is the possibility of failure and bankruptcy. In this model, wealth is defined as knowledge, and growth is defined as learning.

That new economicsthe information theory of capitalismis already at work in disguise. Concealed behind an elaborate mathematical apparatus, sequestered by its creators in what is called information technology, the new theory drives the most powerful machines and networks of the era. Information theory treats human creations or communications as transmissions through a channel, whether a wire or the world, in the face of the power of noise, and gauges the outcomes by their news or surprise, defined as entropy and consummated as knowledge. Now it is ready to come out into the open and to transform economics as it has already transformed the world economy itself.

Let us imagine the lineaments of an economics of disorder, disequilibrium, and surprise that could explain and measure the contributions of entrepreneurs. Such an economics would begin with the Smithian mold of order and equilibrium. Smith himself spoke of property rights, free trade, sound currency, and modest taxation as crucial elements of an environment for prosperity. Smith was right: An arena of disorder, disequilibrium, chaos, and noise would drown the feats of creation that engender growth. The ultimate physical entropy envisaged as the heat death of the universe, in its total disorder, affords no room for invention or surprise. But entrepreneurial disorder is not chaos or mere noise. Entrepreneurial disorder is some combination of order and upheaval that might be termed informative disorder.

Shannon defined information in terms of digital bits and measured it by the concept of information entropy: unexpected or surprising bits...The accomplishment of Information Theory was to create a rigorous mathematical discipline for the definition and measurement of the information in the message sent down the channel. Shannon entropy or surprisal defines and quantifies the information in a message
...

In the Shannon scheme, a source selects a message from a portfolio of possible messages, encodes it through resort to a dictionary or lookup table using a specified alphabet, then transcribes the encoded message into a form that can be transmitted down a channel. Afflicting that channel is always some level of noise or interference. At the destination, the receiver decodes the message, translating it back into its original form. This is what is happening when a radio station modulates electromagnetic waves, and your car radio demodulates those waves, translating them back into the original sounds or voices at the radio station.

Part of the genius of information theory is its understanding that this ordinary concept of communication through space extends also through time. A compact disk, iPod memory, or Tivo personal video recorder also conducts a transmission from a source (the original song or other content) through a channel (the CD, DVD, microchip memory, or hard drive) to a receiver chiefly separated by time. In all these cases, the success of the transmission depends on the existence of a channel that does not change significantly during the course of the communication, either in space or in time.
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The problem with fractional reserve is that it allows multiple simultaneous claims that are expected to be honored but in reality cannot be. Thus it allows fraudulent claims or noise into the channel. The ultimate consequence of this is an increasing distortion of the underlying signaling mechanisms in the economy.

Yes of course depositors also benefit some to from the scheme. It is everyone else in the economy who suffers. Fractional reserve banking is different than central banking. However, fractional reserve is ultimately a process that increases economic distortion or noise. This is why it was recurrently associated with economic crises and bank runs. Historically this distortion directly paved the way to our current central banking (an even greater distortion) and there is no reason to think the same processes would not immediately recur if we could somehow reset the system back to a gold or silver standard.

I am less familiar with Armstrong's discussion on gold but my understanding is that he feels that over the very long term it will gradually lose its liquidity which will erode its value.

Armstrong Economics Will Gold and Silver Become the Underground Currencies of the Future?
https://www.armstrongeconomics.com/markets-by-sector/precious-metals/gold/will-gold-and-silver-become-the-underground-currencies-of-the-future/

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ANSWER:They probably will to some extent, but it will be very limited. Gold and silver have lost their mobility. You can no longer hop on a plane with a briefcase full of metal. The more likely outcome is that gold and silver will simply be a hedge against government. It is unlikely that everyone will simply be using them at the local Starbucks.
Government will make transactions in gold or silver illegal and equivalent to money laundering.

I agree with his analysis above. Ultimately, fractional reserve represents a very challenging obstacle that distorts and thus reduces growth over the long run. A gold standard is not a solution but technology (coupled with a greater awareness of the problem) may someday provide one. Decentralized blockchain technologies are very interesting as they appear to be the first steps in that direction.

The velocity of money slows down if you deleverage so its a hard problem that will only be solved with asymptotically ideal money which offers more efficient transfer utility... then slowly technology and process breakthroughs will allow us to get back and over the hump.