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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: SG who wrote (100992)	2/6/2009 9:56:23 AM
From: orkrious	7 Recommendations Read Replies (4) \| Respond to of 110194

Marc Faber: US Inflation Could Hit 200% cnbc.com

To: SG who wrote (100992)	2/6/2009 12:53:31 PM
From: Hawkmoon	Read Replies (1) \| Respond to of 110194

Wouldn't that promote sound lending practices? The fractional reserve system has always seemed like a Ponzi scheme to me. What?? Surely you jest???!! A sound financial system is one in which loans that are extended have a reasonable chance of being paid back and those that are not are properly capitalized or insured. And if you think a 1:1 ratio for extending loans should be the goal, then the Europeans are going to face far more problems than we are. Many of their biggest banks were leveraged (geared) 40:1. But I think 12:1 is reasonable.. It's worked, more or less, for the past 70 years. The reality is that it just doesn't really matter what your ratio is, but the quality of the loan. Right now we have nearly ZERO interest rates, which means we have a tremendous surplus of excess cash not being utilized for lending purposes (something like $4 trillion by last count). Saving is being penalized because no one wants to borrow. Get rid of your fractional reserve system and we'll never see interest rates above 1% again. If you doubt this, look at Japan where they have approximately $5.5 Trillion in savings (with $4 trillion in outstanding loans), while their economy is only $4 Trillion. That's an excess in savings of approx $1.45 Trillion. japaneconomynews.com So effectively Japan doesn't have a fractional reserve system. Their savings exceed their economic activity, yet they are swiftly going into a deep recession.. In sum.. saving is good.. but investment is better because capital must be productively utilized to create further wealth. Hawk