Quote from: Astrohacker on August 02, 2011, 03:54:18 PM

Quote from: JoelKatz on August 02, 2011, 08:35:16 AM

Quote from: Astrohacker on August 02, 2011, 04:14:59 AM

Perhaps that's what he meant. However, I believe this economic analysis is incorrect. You're saying that by keeping the money in the bank, and having the bank loan it out, that this was good for the economy. There was some positive contribution of wealth that would not have happened without loaning that money out. I believe this is wrong because the total quantity of money is irrelevant. You're not going to improve things by adding money into the system (and I'm well aware that Ben Bernanke disagrees, but he's wrong). So long as the money is sufficiently divisible, the sum total of it is an irrelevant quantity.

I agree with that. However, see my post above. If you don't loan your money out and someone else does, you will turn 100 bitcoins into 100 bitcoins while someone else turns 100 bitcoins into 108 bitcoins.

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In practice, inflating a money supply does not increase the wealth. It merely redistributes the purchasing power of the money to the people who get the new money. It is a way of taking wealth from everyone who uses the money and giving it to the people who get the new money. It's equivalent to counterfeiting. For some reason, everyone understands that when a non-banker counterfeits a dollar, it is wrong. But when bankers do it, they think it is right and good, when in fact it is equally as bad.

You are entirely correct in the case of, say, a government printing money. However, this is not correct in the case of loans. The people who get the money pay it back with interest. They get purchasing power today (presumably when they need it more) in exchange for foregoing purchasing power in the future when they expect to need it less.

If people are willing to pay interest, it will typically be because they can make better use of the purchasing power today. Loans help people to efficiently time-shift consumption and production in cases where the most efficient pattern isn't produce-consume.

The obvious example is the guy who gets a job that pays 20% more than he's making, but he needs a car. He can't produce the value he needs to consume in the form of a car without the job. A loan allows how to consume the car now when he needs it, and produce the value of the car later when he will most likely be able to.

Certainly banks do some bad things and certainly people take bad loans. But the fundamental logic of banking and loans is completely sound.

There is nothing sound about fractional reserve banking. It is a giant scam, and probably the biggest mistake in the history of the legal system. It should be illegal. Or better, unregulated, so the market can force banks to keep high reserves.

Here's how banks counterfeit money. You deposit $100. The bank loans out $80 of your money to someone else. They put that money back in the bank. The bank now has $100 - all your money. But your checking account says $100, and the loanee's checking account says $80, for a total of $180. The bank has now effectively created--that is, counterfeited--$80 in new money. They gave this new money to themselves, and then loaned it out. Since their reserves are still over 20% (or whatever the present reserve requirement is), they keep doing this until they have stolen control over 80% of the money.

Banks declare themselves owner of most of the money, and charge a toll (interest) for using it. They are not providing a valuable service. They are trolls executing a giant scam that rips off everyone.

In response to your other points, I defer to cypherdoc.

If you expect to get interest from your bank, how should they pay you off, if they didn't lend it for interest? How else could one get a credit?

The interesting part in the fractional reserve banking is that with a reserve of 20% one bank after another can lend in total 4 times the inital money!
1. bank: $100 = $80 credit + $20 reserve
2. bank: $80 = $64 credit + 16 $reserve
3. bank: $64 = $51,2 credit + 12,8 $reserve
...
The Summ of money held as reserve by all banks equals the inital cash deposit, while 4 times that money is spend as credits.