why is gold and silver going down right now?

If there were no fractional reserve banking - then what money would banks have to loan?

 

Log in or Sign up to hide this ad.

The money they earned from having a profitable business model. The ones that don't do sound business would go away, rightfully so.

 

Ok, I am just saying expect to have a 10% economic contraction or more for the foreseeable future. To say a business must generate its own working capital to grow will completely destroy any hope of a economic recovery, and will lead to the worst depression this country has ever seen.

I am for sound money, but such a proposal would destroy any modern nation.

 

If their is no fractional reserve banking then banks are not able to loan out depositors money. The only revenue stream a bank would have is a warehousing fee for holding depositor's money and other misc charges to depositors for accounting for it. Do you not understand that if a bank loaned any of a depositor's money out then the banks remaining reserve would only be a fraction of deposits.

 

You are correct, of course. People sometimes speak against fractional reserve banking without thinking about what would happen without it. Without bank lending, the funds available to businesses to expand or finance working capital would be limited to annual personal savings plus reinvested earnings. If savings and reinvested earnings were a very generous 10% of GDP, and companies earned a 10% return on total capital, then the maximum economic growth rate would be 1% annually. Without the availability of credit, capitalism as we know it might become just another failed economic system.

The reason this didn't happen under the old gold system was due to the effect of the circulation of bills of credit as currency [i.e., Adam Smith's Real Bills Doctrine], but this probably wouldn't be legal today.

 

Overly generous I think. A gold standard absent of fractional reserve banking economic growth would also be constrained by gold inventories.

 

To get back to the OP question, I got the latest NN yesterday and it talks about the new strength in collector coins in a couple of article. It also talks about how slow PM purchasing has got, and how some collectors are trading in bullion and moving up to collector coins.

I know that a numismatic magazine will be biased that way. Has anyone else seen this? My only observation was a local show where the big bullion dealer, who just 6 months ago would have people 3 deep at his table, looked to actually have time to enjoy the show unbothered by customers at times. To be fair, he was making deals, and I don't know his business so I am not presuming to guess how profitable it was for him, just saying he appeared less hectic than normal.

Does it appear to you the bullion market is settling down? I am not commenting on pricing, just activity.

 

Here is an interesting article I found linked on coinflation. I bet fatima likes the last paragraph on how gold is safer than silver.

http://www.thehindubusinessline.com.../article3315021.ece?homepage=true&ref=wl_home

 

I do understand this. However I disagree with loaning out money that does not belong to you, plain and simple. Maybe this would ruin the banking industry, but after what it has done to the economy I wouldn't feel bad for it. I don't think anyone with a moral compass would argue that loaning out something that doesn't belong to you is a shady practice. Just because that's how it's always been done doesn't make it right. If companies could only loan out the money that belonged to them, and not money they didn't have to earn that they got for free there would be a lot more incentive to be responsible with the money. Yeah it would hurt small businesses ability to expand AND often go into debt servitude, but it would ensure that only sound business models thrive which is the opposite of what we have today.

 

I just don't think you comprehend that if this were enacted today, 90% of all businesses in the US could not make their payroll next week. Overnight you would have the most severe depression in history. I am not even exaggerating Inflexion. There are very few thoughts in the world that would destroy the world economy faster than this one.

Btw, how would a banker ensure a "sound business model"? All business plans look pretty sound when written up. Bankers are not loaning money to businesses they know will fail. Saying "only sound business models thrive" means you have the wisdom of Solomon to know which new ideas will succeed.

 

Well at somepoint we have to change our entire view of economic thinking. We simply cannot continue on this notion of expansionism. For 60+ years we have been expanding. It is time that we enter a period of sustainability. China can exercise monetary policy in support of expansionism because they are an emerging market (we are a dry well). This backwards thinking of solving debt with more debt helped get us into 295 billion dollar balance of trades deficit last year.

Why do you believe that China purchased soooooooooooo much gold a few years ago? They knew that that American dollar was trash.

Our balance of trades outlook is very grim. We have keynesian economist who want to offset deficits with monetary policy, and Austrian economists who believe the free market will work its way out.


At some point we will have to settup an importation system that is out of necessity and not convenience.

(rant rant rant).

 

The US is a "dry well"? That's news to the world.

No one is "solving debt with more debt". The theory is: "Run surpluses during booms, run deficits during recessions", the government as spender & lender of last resort to keep the economy moving when it otherwise wouldn't be. Years of unfunded war and unfunded tax cuts took a budget surplus and turned it into what we have now, compounded by the financial market crash and great recession.

China, the largest foreign holder of US dollars, thinks the US dollar is "trash"? That's news to the Chinese.

Tell that to US corporations sending labor overseas and tell that to US consumers buying cheaply-made electronics and clothing. Are you suggesting a VAT?

 

If you don't grow you will end up the next Japan, without growth how else do you think an ever shrinking working force sustain an aging population.

 

Also remember Japan was the 1980's China. Remember all of the stories how Japan was going to own the world? China is a power, but a rapidly aging one that soon will have a gargantuan burden to be able to simply feed and care for its hundreds of millions of elderly thanks to Mao's one child policy. India is a power but needs to find room and jobs for almost a BILLION new adults in the next decade.

The whole world has problems. Is the US sick, yeah, but most of the world is in the ER in beds next to us.

 

If 90% of businesses can only continue to function by accumulating debt then 90% of businesses should never have been started to begin with. Nevermind that 1% of businesses get free money from the government and can never fail, therefore shutting out all competition. If this favortism were not the case then the rest of the businesses would not need to borrow as much to compete. I am not saying to cut the cord overnight. What I am saying is that the debt based mentality is a problem and until it is done away with we will not see a true recovery. Obviously that would need to be done incrementally, but better to have a controlled transition than one forced by the market when we're not expecting it. Exponential debt is unsustainable and if this course is not veered from it will amount to cutting the cord.

A sound business model is pretty simple. You make more money than you spend. If you can't do that you shouldn't be in business. In the case of banks, they aren't really loaning money to anybody, because it wasn't their money to begin with. If it were, they might think twice before loaning that money out to someone who hasn't proven their reliability. Ideally a banker and a lender would be two separate business models. A banker would charge a fee to safeguard your money and simply store it, nothing else, where as a lender would be someone with their own existing capital that they can choose to loan to whomever they like as an investment. Banks using other peoples' money as an investment with inherent risks is a major flaw. The fact that the FDIC needs to insure our money means that there is too much risk in this scenario. It's not like we have outlaws running around holding up bank tellers to get into the safe these days. It's mostly digital and if the FDIC is ever needed it's due to incompentecy at best (and thus the business should go away to allow the competent ones to take over) and maliciousness at worst.

 

Ok. Some of those comments were extreme. We are not a dry well. We still have the resources to self sustain our country, but something has to be done about the massive importation.

I'm sorry but the logic of let's take on more debt simply to buy more goods does not make sense to me. Also this notion of massive growth does not makes sense to me. The multiplier effect... growth... growth... growth... this does nothing but lead to a giant bubble.

In this case the bubble has been building for 60 years.

Likewise I disagree with any form of taking on more debt to solve debt.

 

Gold inventories are irrelevant. There is no constraint as long as the purchasing power is free to adjust.

 

Wow! I don't know how "ideal" that would turn out to be. Economic growth would stall-out to near zero [or worse] if the availability of capital was restricted to the savings rate. Your model was never successfully used by anyone, contrary to popular goldbug belief. Bankers always used deposits to purchase bills issued by businesses [See Adam Smith's Real Bills Doctrine]. Under your model, a business could not pay employees until after the goods produced by the business were sold. And it could not pay suppliers for the items needed to produce the goods unless the business owner had saved up enough gold to fund the business ahead of time. I know you've posted links in the past to articles by Antal Fekete. You may want to go back and read them.

 

Hmmmm. Adam Smith said this about fiat money.......

[highlight]

You have taken Adam Smith out of context. As for the gold standard, I will point out yet again that for the 130 years the USA was on the gold standard, there was little inflation and the country experienced one of the greatest economic expansions in the world's history. At the end it had become the unrivaled industrial power of the world. So it's proof enough that you don't need banksters issuing paper to make economies expand. You say it can't happen, but every history book will disagree with you.

 

What time frame are you talking about? From our founding to 1933? We were an agrarian society founding some of the richest farmland in the world. Unless you can find us 10 more Iowa/Illinois for us to settle, this is not reproducible.

Btw, US economic prosperity blossomed WELL after 1933, so I simply do not know what "unrivaled industrial power" you are even talking about. The ONLY reason we bacame the "unrivaled industrial power in the world" is that WWII bombed the crap out of every other factory around. Gold did not prevent Japanese and German bombs from landing on our factories, geography did. Also, all of the factories we DID have coming out of WWII was financed by government paper, not gold.

I simply do not know what history book you are reading, unless the one you wrote yourself.