[underdose]

davelj, I’ve given more thought to your comment, and I’d like to point out that I would LOVE to actually have a fractional reserve banking system. Maybe the 75% of banks that you say will pull through unscathed still operate under a fractional reserve model, in which case they deserve our confidence, but no actions by the federal government can help us differentiate those from the imprudent ones. But the overall lack of confidence stems from the fact that largely banks have been operating under a multiple reserve system.

With a true fractional reserve, banks can not lend out more than a fraction of deposits from savers. If the demand to borrow excedes the supply of savings, market forces push interest rates higher. Saving is encouraged, frivolous borrowers are squeezed out. Not so with our multiple reserve system, in which banks can lend out an unbounded multiple of deposits from savers. Demand to borrow excedes savings? No problem, the Fed will lend the bank any amount of money at 1 or 2% interest, well below the rate of inflation. The bank has too many risky loans on its books? No problem, Fannie or Freddie will buy those loans and provide fresh new capital with which the bank can write new loans. With the current system, interest rates are artificially low, saving is discouraged, and frivolous borrowing is rampant. That’s what causes this bubble/bust cycle that is wrecking our economy.

The system is broken. The system has to be restored to a true fractional reserve system, and prudent lending standards have to be (re-)adopted. Then, and only then, can confidence return. And then confidence will return of its own accord. Confidence can not be purchased by a bailout that facilitates a continuation of the broken system.

[underdose]

davelj, I’ve given more thought to your comment, and I’d like to point out that I would LOVE to actually have a fractional reserve banking system. Maybe the 75% of banks that you say will pull through unscathed still operate under a fractional reserve model, in which case they deserve our confidence, but no actions by the federal government can help us differentiate those from the imprudent ones. But the overall lack of confidence stems from the fact that largely banks have been operating under a multiple reserve system.

With a true fractional reserve, banks can not lend out more than a fraction of deposits from savers. If the demand to borrow excedes the supply of savings, market forces push interest rates higher. Saving is encouraged, frivolous borrowers are squeezed out. Not so with our multiple reserve system, in which banks can lend out an unbounded multiple of deposits from savers. Demand to borrow excedes savings? No problem, the Fed will lend the bank any amount of money at 1 or 2% interest, well below the rate of inflation. The bank has too many risky loans on its books? No problem, Fannie or Freddie will buy those loans and provide fresh new capital with which the bank can write new loans. With the current system, interest rates are artificially low, saving is discouraged, and frivolous borrowing is rampant. That’s what causes this bubble/bust cycle that is wrecking our economy.

The system is broken. The system has to be restored to a true fractional reserve system, and prudent lending standards have to be (re-)adopted. Then, and only then, can confidence return. And then confidence will return of its own accord. Confidence can not be purchased by a bailout that facilitates a continuation of the broken system.

[underdose]

davelj, I’ve given more thought to your comment, and I’d like to point out that I would LOVE to actually have a fractional reserve banking system. Maybe the 75% of banks that you say will pull through unscathed still operate under a fractional reserve model, in which case they deserve our confidence, but no actions by the federal government can help us differentiate those from the imprudent ones. But the overall lack of confidence stems from the fact that largely banks have been operating under a multiple reserve system.

With a true fractional reserve, banks can not lend out more than a fraction of deposits from savers. If the demand to borrow excedes the supply of savings, market forces push interest rates higher. Saving is encouraged, frivolous borrowers are squeezed out. Not so with our multiple reserve system, in which banks can lend out an unbounded multiple of deposits from savers. Demand to borrow excedes savings? No problem, the Fed will lend the bank any amount of money at 1 or 2% interest, well below the rate of inflation. The bank has too many risky loans on its books? No problem, Fannie or Freddie will buy those loans and provide fresh new capital with which the bank can write new loans. With the current system, interest rates are artificially low, saving is discouraged, and frivolous borrowing is rampant. That’s what causes this bubble/bust cycle that is wrecking our economy.

The system is broken. The system has to be restored to a true fractional reserve system, and prudent lending standards have to be (re-)adopted. Then, and only then, can confidence return. And then confidence will return of its own accord. Confidence can not be purchased by a bailout that facilitates a continuation of the broken system.

[underdose]

davelj, I’ve given more thought to your comment, and I’d like to point out that I would LOVE to actually have a fractional reserve banking system. Maybe the 75% of banks that you say will pull through unscathed still operate under a fractional reserve model, in which case they deserve our confidence, but no actions by the federal government can help us differentiate those from the imprudent ones. But the overall lack of confidence stems from the fact that largely banks have been operating under a multiple reserve system.

With a true fractional reserve, banks can not lend out more than a fraction of deposits from savers. If the demand to borrow excedes the supply of savings, market forces push interest rates higher. Saving is encouraged, frivolous borrowers are squeezed out. Not so with our multiple reserve system, in which banks can lend out an unbounded multiple of deposits from savers. Demand to borrow excedes savings? No problem, the Fed will lend the bank any amount of money at 1 or 2% interest, well below the rate of inflation. The bank has too many risky loans on its books? No problem, Fannie or Freddie will buy those loans and provide fresh new capital with which the bank can write new loans. With the current system, interest rates are artificially low, saving is discouraged, and frivolous borrowing is rampant. That’s what causes this bubble/bust cycle that is wrecking our economy.

The system is broken. The system has to be restored to a true fractional reserve system, and prudent lending standards have to be (re-)adopted. Then, and only then, can confidence return. And then confidence will return of its own accord. Confidence can not be purchased by a bailout that facilitates a continuation of the broken system.

[underdose]

davelj, I’ve given more thought to your comment, and I’d like to point out that I would LOVE to actually have a fractional reserve banking system. Maybe the 75% of banks that you say will pull through unscathed still operate under a fractional reserve model, in which case they deserve our confidence, but no actions by the federal government can help us differentiate those from the imprudent ones. But the overall lack of confidence stems from the fact that largely banks have been operating under a multiple reserve system.

With a true fractional reserve, banks can not lend out more than a fraction of deposits from savers. If the demand to borrow excedes the supply of savings, market forces push interest rates higher. Saving is encouraged, frivolous borrowers are squeezed out. Not so with our multiple reserve system, in which banks can lend out an unbounded multiple of deposits from savers. Demand to borrow excedes savings? No problem, the Fed will lend the bank any amount of money at 1 or 2% interest, well below the rate of inflation. The bank has too many risky loans on its books? No problem, Fannie or Freddie will buy those loans and provide fresh new capital with which the bank can write new loans. With the current system, interest rates are artificially low, saving is discouraged, and frivolous borrowing is rampant. That’s what causes this bubble/bust cycle that is wrecking our economy.

The system is broken. The system has to be restored to a true fractional reserve system, and prudent lending standards have to be (re-)adopted. Then, and only then, can confidence return. And then confidence will return of its own accord. Confidence can not be purchased by a bailout that facilitates a continuation of the broken system.

[underdose]

“On the one hand, debt as a pct of GDP is large but not excessive by either international standards or by historical standards.”

alarmclock, in your journeys down the rabbit hole have you come across shadowstats.com? Another user forum turned me onto it, and it is quite informative. Check out this article:

http://www.shadowstats.com/article/292

A little more than halfway down the page is a chart that shows US debt as calculated according to generally accepted accounting principles (which should be trusted more than the govt. propag… er, um, statistics) vs. GDP next to the rest of the world’s debt vs. the rest of world’s GDP. By international standards, we’re the most insolvent, negative net worth debtor in all of history. He also points out that if the govt. seized 100% of all salary and corporate income this year, according to GAAP we would still be operating at a deficit. Yikes!

Frankly, I see little difference between debasing the currency and defaulting. Inflation is a sneaky way to default, but it is defaulting in spirit none-the-less. So how soon? The government is already defaulting, and at an accelerating pace as they ramp up the bailout machine. China has already called for a new reserve currency in response to this slow default. The catastrophic “default” that you fear will be a massive flight from the dollar, which China could easily instigate. Maybe the floor will drop tomorrow, maybe many years from now. But I can not allay your fears because I too fear it could be very soon.

[underdose]

“On the one hand, debt as a pct of GDP is large but not excessive by either international standards or by historical standards.”

alarmclock, in your journeys down the rabbit hole have you come across shadowstats.com? Another user forum turned me onto it, and it is quite informative. Check out this article:

http://www.shadowstats.com/article/292

A little more than halfway down the page is a chart that shows US debt as calculated according to generally accepted accounting principles (which should be trusted more than the govt. propag… er, um, statistics) vs. GDP next to the rest of the world’s debt vs. the rest of world’s GDP. By international standards, we’re the most insolvent, negative net worth debtor in all of history. He also points out that if the govt. seized 100% of all salary and corporate income this year, according to GAAP we would still be operating at a deficit. Yikes!

Frankly, I see little difference between debasing the currency and defaulting. Inflation is a sneaky way to default, but it is defaulting in spirit none-the-less. So how soon? The government is already defaulting, and at an accelerating pace as they ramp up the bailout machine. China has already called for a new reserve currency in response to this slow default. The catastrophic “default” that you fear will be a massive flight from the dollar, which China could easily instigate. Maybe the floor will drop tomorrow, maybe many years from now. But I can not allay your fears because I too fear it could be very soon.

[underdose]

“On the one hand, debt as a pct of GDP is large but not excessive by either international standards or by historical standards.”

alarmclock, in your journeys down the rabbit hole have you come across shadowstats.com? Another user forum turned me onto it, and it is quite informative. Check out this article:

http://www.shadowstats.com/article/292

A little more than halfway down the page is a chart that shows US debt as calculated according to generally accepted accounting principles (which should be trusted more than the govt. propag… er, um, statistics) vs. GDP next to the rest of the world’s debt vs. the rest of world’s GDP. By international standards, we’re the most insolvent, negative net worth debtor in all of history. He also points out that if the govt. seized 100% of all salary and corporate income this year, according to GAAP we would still be operating at a deficit. Yikes!

Frankly, I see little difference between debasing the currency and defaulting. Inflation is a sneaky way to default, but it is defaulting in spirit none-the-less. So how soon? The government is already defaulting, and at an accelerating pace as they ramp up the bailout machine. China has already called for a new reserve currency in response to this slow default. The catastrophic “default” that you fear will be a massive flight from the dollar, which China could easily instigate. Maybe the floor will drop tomorrow, maybe many years from now. But I can not allay your fears because I too fear it could be very soon.

[underdose]

“On the one hand, debt as a pct of GDP is large but not excessive by either international standards or by historical standards.”

alarmclock, in your journeys down the rabbit hole have you come across shadowstats.com? Another user forum turned me onto it, and it is quite informative. Check out this article:

http://www.shadowstats.com/article/292

A little more than halfway down the page is a chart that shows US debt as calculated according to generally accepted accounting principles (which should be trusted more than the govt. propag… er, um, statistics) vs. GDP next to the rest of the world’s debt vs. the rest of world’s GDP. By international standards, we’re the most insolvent, negative net worth debtor in all of history. He also points out that if the govt. seized 100% of all salary and corporate income this year, according to GAAP we would still be operating at a deficit. Yikes!

Frankly, I see little difference between debasing the currency and defaulting. Inflation is a sneaky way to default, but it is defaulting in spirit none-the-less. So how soon? The government is already defaulting, and at an accelerating pace as they ramp up the bailout machine. China has already called for a new reserve currency in response to this slow default. The catastrophic “default” that you fear will be a massive flight from the dollar, which China could easily instigate. Maybe the floor will drop tomorrow, maybe many years from now. But I can not allay your fears because I too fear it could be very soon.

[underdose]

“On the one hand, debt as a pct of GDP is large but not excessive by either international standards or by historical standards.”

alarmclock, in your journeys down the rabbit hole have you come across shadowstats.com? Another user forum turned me onto it, and it is quite informative. Check out this article:

http://www.shadowstats.com/article/292

A little more than halfway down the page is a chart that shows US debt as calculated according to generally accepted accounting principles (which should be trusted more than the govt. propag… er, um, statistics) vs. GDP next to the rest of the world’s debt vs. the rest of world’s GDP. By international standards, we’re the most insolvent, negative net worth debtor in all of history. He also points out that if the govt. seized 100% of all salary and corporate income this year, according to GAAP we would still be operating at a deficit. Yikes!

Frankly, I see little difference between debasing the currency and defaulting. Inflation is a sneaky way to default, but it is defaulting in spirit none-the-less. So how soon? The government is already defaulting, and at an accelerating pace as they ramp up the bailout machine. China has already called for a new reserve currency in response to this slow default. The catastrophic “default” that you fear will be a massive flight from the dollar, which China could easily instigate. Maybe the floor will drop tomorrow, maybe many years from now. But I can not allay your fears because I too fear it could be very soon.

[underdose]

My apologies to everyone. I fear I must have made my point poorly because there are two scathing responses about something that isn’t my stance at all.

I do want a fractional reserve banking system, and I do recognize that at the heart of any monetary system, whether backed by gold or fiat, it depends on confidence. My point is that the confidence must be legitimate, that is, it must be backed by strong fundamentals. The prevailing attitude in the markets for as long as I can remember has been that perceptions are more important than reality. Most “experts” pay more attention to “consumer confidence” than savings rate and how broke with credit card debt people are. They also care more about sentiments that the economy is OK than the $700-800 billion trade deficit. They cared more about the misplaced belief that houses would never go down in price rather than objective measures like price to income or price to rent. So my point is that attempts to repair people’s confidence cosmetically repeats the same mistakes and fails to address the real problem. I was just disagreeing that confidence is the biggest problem. The hard, cold, objective numbers that banks are broke because of poor management is the biggest problem. Improved confidence will not make those ugly facts go away.

And incidentally, according to the pre-1980 calculation method of CPI, inflation is closer to 14-15% than the tamer 5-6% being pushed by the government. So, actually, I would be THRILLED with 20% interest rates!! Not always, but in this environment, absolutely! The -10% real rates on treasuries strongly discourages saving, so I think it is a bad thing. Since I’m a saver instead of a borrower, I want as much rent on my money as possible…

[underdose]

My apologies to everyone. I fear I must have made my point poorly because there are two scathing responses about something that isn’t my stance at all.

I do want a fractional reserve banking system, and I do recognize that at the heart of any monetary system, whether backed by gold or fiat, it depends on confidence. My point is that the confidence must be legitimate, that is, it must be backed by strong fundamentals. The prevailing attitude in the markets for as long as I can remember has been that perceptions are more important than reality. Most “experts” pay more attention to “consumer confidence” than savings rate and how broke with credit card debt people are. They also care more about sentiments that the economy is OK than the $700-800 billion trade deficit. They cared more about the misplaced belief that houses would never go down in price rather than objective measures like price to income or price to rent. So my point is that attempts to repair people’s confidence cosmetically repeats the same mistakes and fails to address the real problem. I was just disagreeing that confidence is the biggest problem. The hard, cold, objective numbers that banks are broke because of poor management is the biggest problem. Improved confidence will not make those ugly facts go away.

And incidentally, according to the pre-1980 calculation method of CPI, inflation is closer to 14-15% than the tamer 5-6% being pushed by the government. So, actually, I would be THRILLED with 20% interest rates!! Not always, but in this environment, absolutely! The -10% real rates on treasuries strongly discourages saving, so I think it is a bad thing. Since I’m a saver instead of a borrower, I want as much rent on my money as possible…

[underdose]

My apologies to everyone. I fear I must have made my point poorly because there are two scathing responses about something that isn’t my stance at all.

I do want a fractional reserve banking system, and I do recognize that at the heart of any monetary system, whether backed by gold or fiat, it depends on confidence. My point is that the confidence must be legitimate, that is, it must be backed by strong fundamentals. The prevailing attitude in the markets for as long as I can remember has been that perceptions are more important than reality. Most “experts” pay more attention to “consumer confidence” than savings rate and how broke with credit card debt people are. They also care more about sentiments that the economy is OK than the $700-800 billion trade deficit. They cared more about the misplaced belief that houses would never go down in price rather than objective measures like price to income or price to rent. So my point is that attempts to repair people’s confidence cosmetically repeats the same mistakes and fails to address the real problem. I was just disagreeing that confidence is the biggest problem. The hard, cold, objective numbers that banks are broke because of poor management is the biggest problem. Improved confidence will not make those ugly facts go away.

And incidentally, according to the pre-1980 calculation method of CPI, inflation is closer to 14-15% than the tamer 5-6% being pushed by the government. So, actually, I would be THRILLED with 20% interest rates!! Not always, but in this environment, absolutely! The -10% real rates on treasuries strongly discourages saving, so I think it is a bad thing. Since I’m a saver instead of a borrower, I want as much rent on my money as possible…

[underdose]

My apologies to everyone. I fear I must have made my point poorly because there are two scathing responses about something that isn’t my stance at all.

I do want a fractional reserve banking system, and I do recognize that at the heart of any monetary system, whether backed by gold or fiat, it depends on confidence. My point is that the confidence must be legitimate, that is, it must be backed by strong fundamentals. The prevailing attitude in the markets for as long as I can remember has been that perceptions are more important than reality. Most “experts” pay more attention to “consumer confidence” than savings rate and how broke with credit card debt people are. They also care more about sentiments that the economy is OK than the $700-800 billion trade deficit. They cared more about the misplaced belief that houses would never go down in price rather than objective measures like price to income or price to rent. So my point is that attempts to repair people’s confidence cosmetically repeats the same mistakes and fails to address the real problem. I was just disagreeing that confidence is the biggest problem. The hard, cold, objective numbers that banks are broke because of poor management is the biggest problem. Improved confidence will not make those ugly facts go away.

And incidentally, according to the pre-1980 calculation method of CPI, inflation is closer to 14-15% than the tamer 5-6% being pushed by the government. So, actually, I would be THRILLED with 20% interest rates!! Not always, but in this environment, absolutely! The -10% real rates on treasuries strongly discourages saving, so I think it is a bad thing. Since I’m a saver instead of a borrower, I want as much rent on my money as possible…

[underdose]

My apologies to everyone. I fear I must have made my point poorly because there are two scathing responses about something that isn’t my stance at all.

I do want a fractional reserve banking system, and I do recognize that at the heart of any monetary system, whether backed by gold or fiat, it depends on confidence. My point is that the confidence must be legitimate, that is, it must be backed by strong fundamentals. The prevailing attitude in the markets for as long as I can remember has been that perceptions are more important than reality. Most “experts” pay more attention to “consumer confidence” than savings rate and how broke with credit card debt people are. They also care more about sentiments that the economy is OK than the $700-800 billion trade deficit. They cared more about the misplaced belief that houses would never go down in price rather than objective measures like price to income or price to rent. So my point is that attempts to repair people’s confidence cosmetically repeats the same mistakes and fails to address the real problem. I was just disagreeing that confidence is the biggest problem. The hard, cold, objective numbers that banks are broke because of poor management is the biggest problem. Improved confidence will not make those ugly facts go away.

And incidentally, according to the pre-1980 calculation method of CPI, inflation is closer to 14-15% than the tamer 5-6% being pushed by the government. So, actually, I would be THRILLED with 20% interest rates!! Not always, but in this environment, absolutely! The -10% real rates on treasuries strongly discourages saving, so I think it is a bad thing. Since I’m a saver instead of a borrower, I want as much rent on my money as possible…

[Author]

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