I'm sorry. Excuse me for trying to be helpful.

- NonE

I'm starting to think this anti-Fractional Reserve Banking stuff is all nonsense. It's akin to a conspiracy theory. I don't think that FRB is actually inflationary at all (any more than spending money is inflationary). What's the difference between loaning money and spending it? People don't go around warning that spending causes inflation.

Apparently, the "inflation" charge has something to do with (or is explained as) the "multiplier effect". I'm going to look that up, but I have the suspicion that it's bullshit.

Yeah... the "multiplier effect" theory is bogus. Check it out:

Let's assume that banks are required to hold %10 reserves.

Joe puts $100 into Bank A.

Bank A loans $90 (of Joe's money) to Frank.

Bank A now has $10 (of Joe's money), and Frank has the other $90.

At this point. No money has been created. It has simply changed hands (it's been spent/loaned).

Frank takes his $90 and deposits it into Bank B.

Bank B loans $81 (of Frank's money) to Stan.

Bank B now has $9 (of Frank's money), and Stan has the other $81.

Let's add up all the money at this point:

Bank A has $10.
Bank B has $9.
Stan has $81.

No money has been created; it's merely changed hands.

Fractional reserve banking (as far as I can tell) is not inflationary. The "multiplier effect" theory seems to be bull crap.

Correct me if I'm wrong.

According to investopedia, a $100 deposit creates $500 in deposits (thanks to the multiplier effect), but as demonstrated above, I don't see how that is true:

http://www.investopedia.com/terms/m/multipliereffect.asp

"The expansion of a country's money supply that results from banks being able to lend."

Bull crap.

Over time, a $1 bill can be spent 500 times, and thus make $500 worth of purchases. I wouldn't call that inflation or "new money" however. When something changes hands, it doesn't divide into two. It doesn't exist in both hands simultaneously.

You are wrong, and you don't understand it. The bank gets a deposit of $100 and instantly creates credit lines in the amount of $1000. That money doesn't exist, but the bank has created positive account balances. Now the guy who has the credit line goes out and makes a $500 purchase, which the bank honors by paying the merchant and knocking the guys available credit down 500 bucks plus whatever their interest rate is. There is no new money from the mint, but there is an approximation of money, in the form of credit, created by the bank. That's how it works.

The point is, they never lend out any of the depositors money at all, ever, period. They hold actual deposits as reserves and they create credit lines and loans at the maximum rate the fractional reserve limit allows them to, and they charge interest. The reserves, deposits and installment payments allow them to make small, day to day transactions and cover withdrawals, but the credit is just so many numbers on computer screens they keep track of, that money has never actually existed in the form of dollar bills or coins.

First things first: I think you've fashioned a bit of a false dichotomy in your quasi-accusation (inferred via questions) against NonE. It sounds to me like you've assumed a link referral inherently implies a dodge, and such a dodge inherently means one doesn't grasp the subject-- while it can just as easily, if not likely, mean one doesn't wish to expend the time & energy typing out such when it's already done nicely (and contextually, including even more valuable info) elsewhere (even if in another medium i.e. audio). Thus one wishing to not rehash something doesn't necessarily imply they don't grasp the subject. Not to even get into whether something graspable is inherently simple enough to type out in a forum.
Granted, as you mention with "UPB", it certainly can mean that-- but not inherently. I guess I'm just offering that you chill abit; put aside the temptation to assume the negative. FWTW.

Meanwhile, speaking of Rothbard, he has this (excerpted from LewRockwell) which addresses one aspect of this subject:

Quote:

I set up a Rothbard Bank, and invest $1,000 of cash (whether gold or government paper does not matter here). Then I "lend out" $10,000 to someone, either for consumer spending or to invest in his business. How can I "lend out" far more than I have? Ahh, that's the magic of the "fraction" in the fractional reserve. I simply open up a checking account of $10,000 which I am happy to lend to Mr. Jones. Why does Jones borrow from me? Well, for one thing, I can charge a lower rate of interest than savers would. I don't have to save up the money myself, but simply can counterfeit it out of thin air. (In the nineteenth century, I would have been able to issue bank notes, but the Federal Reserve now monopolizes note issues.) Since demand deposits at the Rothbard Bank function as equivalent to cash, the nation's money supply has just, by magic, increased by $10,000. After Jones borrows checking deposits from me, he is going to spend it. Why else pay money for a loan? Sooner or later, the money he spends, whether for a vacation, or for expanding his business, will be spent on the goods or services of clients of some other bank, say the Rockwell Bank. The Rockwell Bank is not particularly interested in holding checking accounts on my bank; it wants reserves so that it can pyramid its own counterfeiting on top of cash reserves. And so if, to make the case simple, the Rockwell Bank gets a $10,000 check on the Rothbard Bank, it is going to demand cash so that it can do some counterfeit-pyramiding of its own. But, I, of course, can't pay the $10,000, so I'm finished. Bankrupt. Found out. Hence, under free competition, and without government support and enforcement, there will only be limited scope for fractional-reserve counterfeiting. Banks could form cartels to prop each other up, but generally cartels on the market don't work well without government enforcement, without the government cracking down on competitors who insist on busting the cartel, in this case, forcing competing banks to pay up. Central Banking Hence the drive by the bankers themselves to get the government to cartelize their industry by means of a central bank. In modern central banking, the Central Bank is granted the monopoly of the issue of bank notes (originally written or printed warehouse receipts as opposed to the intangible receipts of bank deposits), which are now identical to the government's paper money and therefore the monetary "standard" in the country. People want to use physical cash as well as bank deposits. If, therefore, I wish to redeem $1,000 in cash from my checking bank, the bank has to go to the Federal Reserve, and draw down its own checking account with the Fed, "buying" $1,000 of Federal Reserve Notes (the cash in the United States today) from the Fed. The Fed, in other words, acts as a bankers' bank. Banks keep checking deposits at the Fed and these deposits constitute their reserves, on which they can and do pyramid ten times the amount in checkbook money. Here's how the counterfeiting process works in today's world. Let's say that the Federal Reserve, as usual, decides that it wants to expand (i.e., inflate) the money supply. The Federal Reserve decides to go into the market (called the "open market") and purchase an asset. It doesn't really matter what asset it buys; the important point is that it writes out a check. The Fed could, if it wanted to, buy any asset it wished, including corporate stocks, buildings, or foreign currency. In practice, it almost always buys U.S. government securities. Let's assume that the Fed buys $10,000,000 of U.S. Treasury bills from some "approved" government bond dealer (a small group), say Shearson, Lehman on Wall Street. The Fed writes out a check for $10,000,000, which it gives to Shearson, Lehman in exchange for $10,000,000 in U.S. securities. Where does the Fed get the $10,000,000 to pay Shearson, Lehman? It creates the money out of thin air. Shearson, Lehman can do only one thing with the check: deposit it in its checking account at a commercial bank, say Chase Manhattan. The "money supply" of the country has already increased by $10,000,000; no one else's checking account has decreased at all. There has been a net increase of $10,000,000. But this is only the beginning of the inflationary, counterfeiting process. For Chase Manhattan is delighted to get a check on the Fed, and rushes down to deposit it in its own checking account at the Fed, which now increases by $10,000,000. But this checking account constitutes the "reserves" of the banks, which have now increased across the nation by $10,000,000. But this means that Chase Manhattan can create deposits based on these reserves, and that, as checks and reserves seep out to other banks (much as the Rothbard Bank deposits did), each one can add its inflationary mite, until the banking system as a whole has increased its demand deposits by $100,000,000, ten times the original purchase of assets by the Fed. The banking system is allowed to keep reserves amounting to 10 percent of its deposits, which means that the "money multiplier" – the amount of deposits the banks can expand on top of reserves – is 10. A purchase of assets of $10 million by the Fed has generated very quickly a tenfold, $100,000,000 increase in the money supply of the banking system as a whole. Interestingly, all economists agree on the mechanics of this process even though they of course disagree sharply on the moral or economic evaluation of that process. But unfortunately, the general public, not inducted into the mysteries of banking, still persists in thinking that their money remains "in the bank." Thus, the Federal Reserve and other central banking systems act as giant government creators and enforcers of a banking cartel; the Fed bails out banks in trouble, and it centralizes and coordinates the banking system so that all the banks, whether the Chase Manhattan, or the Rothbard or Rockwell banks, can inflate together. Under free banking, one bank expanding beyond its fellows was in danger of imminent bankruptcy. Now, under the Fed, all banks can expand together and proportionately.

If I'm reading this correctly, and assuming it is accurate, the issue is not, per your examples, that The Bank(s) lends out $90 of a $100, but that they multiply that $100 by 10, loaning out $10,000 --times however many institutions play in the musical chairs game?!

And jus for the record: I'm not saying I grasp this all (nor that this is "all" that there is to contemporary "inflation"/"money", U.S. or otherwise)! I'm just offering what I have above FWIW. So is it ok if I copy/pasted rather than linked??

Lastly, I think you've found a missing link per there being two forms of "FRB"-- the common definition type, and the FRB (ab)use of the label? [I have no idea whether Rothbard clarified his usage of the term/label, but it seems to me, contextually, it'd be erroneous to assume he used it in any sense other than linked to FRS, no?]

[this of course doesn't get into whether said fractional loaning is backed by collectible equity; nor whether "monetizing" itself is equity-based; nor that said FRB monetization is interest/debt bound-- nor whether such concepts are even valid/valuable to hold... *whew*]

Can anyone make sense of this statement?

"The process begins when an initial $100 deposit of central bank money is made into Bank A. Bank A then takes 20 percent of it, or $20, and sets it aside as reserves and then loans out the remaining 80 percent, or $80. At this point there is actually a total of $180 in the system, not $100; because the bank has loaned out $80 of the central bank money, kept $20 of central bank money in reserve, and substituted a newly created $80 IOU claim for the depositor that acts equivalent to and can be implicitly redeemed for central bank money (the depositor can transfer it to another account, write a check on it, etc.)."

What does is mean to say:

"the bank has substituted a newly created $80 IOU claim for the depositor that acts equivalent to and can be implicitly redeemed for central bank money"

What was substituted? What was the "newly created $80 IOU" a substitute for?

That doesn't make sense.

From what I can tell, I've been right this whole time. I have found no evidence at all that "fractional reserve banking" means "The bank gets a deposit of $100 and instantly creates credit lines in the amount of $1000".

I could be wrong of course, but I don't think that's what FRB is. I don't think commercial banks can do that, and Federal Reserve banks have no reason to do that (they can just create money whenever they feel like it).

The idea that fractional reserve banking (which seems to me to mean loaning out a fraction of a deposit) is inflationary in nature, appears to be based upon the idea of the "multiplier effect" (as illustrated here):

http://www.federalreserveeducation.org/fed101_html/policy/frtoday_depositCreation.pdf

As far as I can tell, the idea that the multiplier effect means that new money has been created is bull crap. It's like saying that 5 different people spending the same $1 bill (one after the other) creates new money (turns $1 into $5). That's a ridiculous way to look at it.