[NikolaNovak]

>>banks couldn’t lend as much money if they couldn’t create it

I feel there's shifty language and moving posts all the time.

Fractional reserve banking, to my limited understanding and your previous post, is lending some of the money that got deposited to. Where is this "creating money" (for non central banks) coming from? The phrase comes in and out of various conversations about banking system and it's the most slippery thing I've ever seen. Can you please elaborate on your understanding of how "banks create money" so we can have a discussion from same basic understanding and principles?

And it's not "banks couldn't lend as much money". If we didn't have fractional reserve banking, it feels banks could not lend AT ALL. This is not shades of gray, it feels like a basic principle. If a bank gets deposits, and can't do anything with deposits, and has to keep all the deposits in a vault, then it cannot do any loans. SImplified and all, but again, I want to see if our basic understanding is in line.

Also, what does "more democracy" concretely mean here, as nice as the phrase is? Aren't regulations by government the spear of the democracy, in practical sense?

[loup-vaillant]

https://www.youtube.com/watch?v=4AC6RSau7r8

More or less. Long story short, when money is lent in a bank, it’s then deposited elsewhere, and then it can be lent again, such that with a fractional reserve of 10% you can ultimately multiply the amount of money in all deposited accounts by 10. In other words, a whole bunch of money just got created. It’s not central money, but it’s still money.

You could maybe try to counter with "but but but bank runs", but if this happens the state tend to print central money to compensate, thus actualising the money creation that happened with fractional reserve banking alone.

> If we didn't have fractional reserve banking, it feels banks could not lend AT ALL.

They could lend their own money.

> Also, what does "more democracy" concretely mean here, as nice as the phrase is?

In this particular instance I’m thinking of full reserve banking (deposit banks turn back into glorified vaults), print central money for mortgages (and burn that money when it’s paid back), and democratically (with congress, referendum, whatever) define clear criteria about who can contract mortgages, and what for. Criteria which would then be enforced by mortgage clerk, on behalf of the state.

The point here is that instead of letting private interests that want to make money decide, the people decide (possibly through elected officials) of the applicable criteria.

[mikea1]

> this particular instance I’m thinking of full reserve banking (deposit banks turn back into glorified vaults), print central money for mortgages (and burn that money when it’s paid back), and democratically (with congress, referendum, whatever) define clear criteria about who can contract mortgages, and what for.

This is an interesting idea. The problem with a single lender is that it removes incentives for good customer service and (sometimes) good products. Monopolies, whether public (DMV) or private (your local cable company) are universally hated. It would be difficult to design the right incentives for the government to provide a good product.

I think the main disconnect is that deposit banks never operated as a glorified vault. Lending against deposits is supposed to be understood by anyone entering that agreement. I understand why it may be a surprise when you first learn about fractional reserves because it may not fit an existing mental model. Instead, it seems unfair that a bank can create money. But it's not. Money supply and money velocity is a term used by economists to describe how much and how quickly money exchanges hands. The world's accounting books, with all debits and credits, always sum to the same total: however much money the central bank has printed.

There are a lot of benefits of the current system (liquidity, virtual guarantee of withdrawal, conveniences). Your proposal would replace a system where you receive a small income from your deposits to a system that steadily decreases the size of your deposits; I think that would be a hard sell.

[loup-vaillant]

> Monopolies, whether public (DMV) or private (your local cable company) are universally hated.

I believe that's mostly a US thing. Here in France we love state monopoly on tap water, energy, and trains and snail mail service… Privatising those and opening them to competition generally caused more problems than it solved.

> Lending against deposits is supposed to be understood by anyone entering that agreement.

The only agreement most people understand, at the most basic level, is that money they deposit can be retrieved at any time. The idea that a bank run could even be a thing nowadays feels outlandish (I don't know the particular, but I understand that we have put various mechanims in place to make bank runs very unlikely, if at all possible).

> Your proposal would replace a system where you receive a small income from your deposits

I don't receive any income from my regular bank account. I even pay a small fee for the privilege of having that account. The things that pay interest back are special accounts, some of which I don't have immediate access to. For those the bank is very clear that it will use that money to invest in stuff, justifying why there's a return on interest at all.

Now if we went all the way to forbidding investment accounts, sure, every bit of inflation means your money is evaporating over time. I'm actually okay with that. It's a form of tax, with a flat rate, that rich people with a ton of money will pay more than the small folks. But yeah, it sure would be a hard sell to those rich people.