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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (154)	4/8/1998 6:12:00 AM
From: porcupine --''''>	Respond to of 1722

George Will on "Falling Gas Prices". sacbee.com

To: porcupine --''''> who wrote (154)	4/8/1998 6:51:00 PM
From: Freedom Fighter	Read Replies (1) \| Respond to of 1722

More on Fractional Reserves: >In a free market, shouldn't, for example, a depositor, a bank, a car >buyer, and a car dealer be free to decide what percentage of the >depositor's savings must be on reserve, what amount of interest the >depositor will receive, and what amount of interest the car buyer >will >pay in order for the bank to extend to the car dealer the difference >between the buyer's down payment and the car's purchase price? I agree with you. A bank should be allowed to lend the full amount of deposits at whatever interest rate the market bares. It should also pay whatever interest rate the market bares on deposits. That would be a free market in my mind as in yours. The problem is this. Banks can lend money well beyond the amounts that they have on deposit. It is literally just an accounting entry. There can be as little as $1 dollar of reserves for every $10 of checking money. That is what historically has caused the problems, bank runs and other disasters. So rather than eliminate the cause of the problem they created a central bank. That has opened up a whole new can of worms. (at least in my mind) I am well aware that this is a minority position. It is one I have only come to in the last 2 years as I started reading less mainstream economic theories. (Austrian Economics) >As I said, I haven't given much thought to this issue. So, allow me >to >ask a question that I think is theoretically relevant: Should the >limit >of coverage an insurance company can write be limited to 100% of the >premiums plus paid-in capital the insurance company has already >received? What would the history of GEICO have been under such a >stricture? You make an excellent point here. I must think about it carefully before responding. I am not sure what the regulations are in this area except that there are ratings agencies, reinsurance companies etc... One small difference is that the failure of Geico would not have systematic implications throughout the economy the way a large bank failure could. >Also, for the record, do you happen to know what Milton Friedman's >position is on the Gold Standard and fractional banking? Essentially the entire establishment is pro fractional reserve banking. Some are pro gold but they are in the minority. The pro gold people/anti-fractional reserve people are mostly Libertarians. This is a small but growing group according to stats. I have not read anything that Friedman has said on the subject. For myself, I am less interested in the gold standard and more interested in controls over credit expansion.