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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: smolejv@gmx.net who wrote (11806)12/12/2001 11:51:21 PM
From: Don Lloyd  Read Replies (2) of 74559
 
dj -

...So, discussing the case of 100% reserves required is fine - for a fresman course on "let me start you on banking". ...

The reason for discussing this is that it is 'fractional reserve banking', not fiat money itself, that represents the primary danger of deflation/depression when the expanded credit that boosts the money supply subsequently contracts and takes the money supply with it, depressing economic activity and business profits, and making loan repayment difficult as the purchasing power of the required money repayments increases. This is all new to me within the last week or two.

This was a major reason that the US suffered severe business cycles even under the gold standard, as it was always a fractional reserve gold standard, or at least that was what I read.

Regards, Don
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