As long as a loan is collateralized by an asset that a reasonable market would value at or above the amount of the loan, the only issue is liquidity...right? So whether the ratio is 10%, 2%, etc. is kind of irrelevant. If folks want their money all at once, no reserve requirement would be sufficient. But at least the idea here (not that it has been followed) is to keep things stable enough so no large group runs for the exits and so long as conditions are maintained that don't foster those runs, the system should work.
That is not correct. For demand deposits there should be a 100% reserve requirement. No bank run is possible: if everyone shows up and wants the money they are legally able to demand at a given moment, it's all there.
Loans are then (strictly) duration matched with financial instruments offered to the public. Collateralization provides the banks with assets to offset the inevitable bad loans, but "investors" can't demand their money back earlier, and the banks had damn well better be on point when it comes to making and managing the loans, or they are out of business. There would be a secondary market for these instruments, of course.
It's pretty straight forward when you just think in terms of contracts. Its a testament to how fucked up (or, perhaps, effective) our education system is that smart people like yourself can't see these problems straight away.
> Loans are then (strictly) duration matched with financial instruments offered to the public.
So loans are funded by the public?
> It's pretty straight forward when you just think in terms of contracts. Its a testament to how fucked up (or, perhaps, effective) our education system is that smart people like yourself can't see these problems straight away.
Why are folks like you so afraid of discussing issues that might challenge your worldview? I would argue that only by being able to articulate answers to these questions (some of which you claim have such obvious answers) can we obtain a better understanding. Maybe your schooling encouraged a blinders mentality, but I humbly suggest you be open yourself to provide answers and not insults.
Why are folks like you so afraid of discussing issues that might challenge your worldview? I would argue that only by being able to articulate answers to these questions (some of which you claim have such obvious answers) can we obtain a better understanding. Maybe your schooling encouraged a blinders mentality, but I humbly suggest you be open yourself to provide answers and not insults.
The last part was a bit offsides, sorry about that, but it was directed mainly at the econ education community, not at you. I'm happy to discuss anything, as I hope this thread indicates. I've come to my understanding through a long and winding path, including half an econ degree at Berkeley, some marxism, a trip through anarcho-capitalism and forcing myself to concentrate long enough to get through (most of) Steve Keen's work.
I'm advocating a 100% reserve ratio on demand deposits only, duration matching of non-demand deposits and a citizens dividend for economic stimulus. Ain't no school gonna teach you that. :)
Thanks a bunch for that reply and I too love discussing this material and I don't think we have much of a disagreement. What I am advocating is having answers to these basic questions like, "why have a reserve ratio?" So many times, even these basic questions haven't been thoroughly explored through debate so that people, new to the subject matter, don't have anywhere to go for context (except people shouting at each other).
With regard to your other reply I have some questions:
> I'm advocating a 100% reserve ratio on demand deposits only, duration matching of non-demand deposits and a citizens dividend for economic stimulus. Ain't no school gonna teach you that. :)
These would be demand deposits paying zero interest (not that they're paying much more than that today :) ?
"duration matching" sounds like those deposits are participants in the loan (e.g. share the risk)?
"citizens dividend for economic stimulus" not sure about this one?
Or, ask yourself: why is there any reserve ratio at all?