All it is is changing the reserve asset ratio for non-federal banks to 1.[/quote]
If the reserve asset ratio is 1, then non-federal banks will be unable to lend out money, because they have to keep all deposits on hand, no?
Or maybe you mean that companies will only be allowed to lend out of their own capital. But then what’s to stop someone from creating a company that pools investor money and lends it out at interest, in essence, making an end run around the “lending against deposits” rule? People want to get interest on their money, the bill explicitly prohibits banks (“depository institutions”) from paying interest on deposits, even if they could, which they can’t because they have to keep 100% of deposits on hand, and there’s no profit in that. So they will organize these makeshift investor pools. How is that better (or different) from the existing fractional reserve lending system?[/quote]
The way i read it, is banks can lend out to the limit of deposits, they can’t multiply.
if a bank has $10 on deposit, they lend out $81 dollars.
under the kucinich plan, if a bank has $10 on deposit they lend out $10.
basically what happens is Bank margins decline.
They go from a spread of 3% on 9X deposits or 27,
down to 3%.
