Unclear on the Concept

I tend to write after thinking, which makes writing difficult. Usually, what I actually put on the screen is a fraction of the thinking I do on a subject.  Which is why I am in utter awe of someone who can write like this:

Solutions for Reducing Corruption

1. Replace the Fiat currency system with more viable energy based currency system. Replace the Fractional Reserve Banking with absolute reserve banking this can be done by introducing online clearing of cheque and all banks has to settle the outstanding on weekly basis, so that banks are not able to create money from thin air through book entries, they can only loan out money they have as deposit or equity. This will enable better allocation of resources and better distribution of wealth and will result in reduction of corruption in the society.

There is more in that fine comment, all of it completely meaningless.

15 thoughts on “Unclear on the Concept

  1. Ravi,

    You’d be surprised to know that evaluating the impact of an absolute reserve banking system was the first question in our macroeconomics midterm. (Not from the corruption angle though) It is an idea that has been proposed by (supposedly) some reasonably well established economists.

  2. Yeah, the lunatic fringe of the libertarian movement oppose fractional reserve banking for some incomprehensible reasons. But that was not the point of the post. What he described as absolute reserve banking is in fact fractional reserve banking. If a bank can loan money from its deposits, then it is no different from what we have now.

  3. I am not sure where he went wrong:
    “Fractional-reserve banking refers to the common banking practice of issuing more credit than the bank in deposits, when lent money is used and then deposited in the same bank or a different bank.”


    I am not against fractional banking. Though I am not worried about alternatives either. They would work just as well.

  4. The Wikipedia line is incoherent as well. I will explain why if you want.

    But try to understand this guy’s point okay? What has Absolute reserve banking to do with online clearance of cheques? And if cheques are to be cleared online, how can the clearance not involve book entries? And how on earth does fractional reserve banking lead to concentration of wealth?

    Opponents of fractional reserve banking are the crazy aunts we libertarians hide out of embarrassment. But the beauty of this comment is that it goes beyond the normal stupidity of opposing fractional reserve banking. It makes no sense whatsoever. Opponents of fractional reserve banking say that On-demand savings accounts should not be given out as loans; only FDs should be. If that what this guy is saying, then online clearing of cheques is neither here nor there.

  5. Completely off-topic request (couldn’t find another way to contact you, and asking you to provide one is my request-within-request):

    Could you please enable full feeds?

    More precisely, your posts containing a fold (the “more” tag) appear with the same fold in the feed as well. This is rather inconvenient for subscribers (specifically, me) and beats the whole purpose of subscribing.

  6. What’s so hard to understand in the murray rothbard piece? I guess you did not look into the fact that creating money out of thin air (when the money is not backed by an equivalent value of any hard material like gold or some thing else) will increase the money supply just as was (if a little simplistically) explained and that would obviously increase inflation. The fact is that the FED is a private banking cartel that is authorised to print money without backing it with any material goods.

    When the FED lowers the interest rates, it essentially creates money to bailout the banks (in the guise of avoiding a credit freeze) , which eventually increases the money supply, thus causing inflation. And, the worst hit are usually the poor and lower middle classes whose savings lost the proportionate percentage of their savings/dollar assets due to a sudden increase in money supply. This is how it concentrates the wealth on wallstreet at the expense of those lower income classes. Got it?

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