Talk:Fractional-reserve banking/Archive 7

This is an archive of past discussions about Fractional-reserve banking. Do not edit the contents of this page. If you wish to start a new discussion or revive an old one, please do so on the current talk page.

Archive 1

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Archive 5

NPOV dispute [- Criticism Henry Ford quote editor bias of removal, source is verified and valid.

Quote from Henry Ford on the fractional reserve banking system is continually being removed for the following claimed reasons:

1) "Henry Ford was not talking about fractional reserve banking." 2) "Henry Ford is antisemitic (valid reason) but a biased reason." 3) "Henry Ford's quote is untimely, 1921." 4) "Federal Reserve is not a fractional reserve bank." Others???

My corresponding counter points to the claims:

1) Henry Ford was talking about fractional reserve banking, because 10% is a fraction, and setting it low or high determines the reserve fraction ratio setting. 2) Henry Ford is evidently indeed antisemitic, however, this was before WWII, and Henry Ford's credibility is still very substantial in the light of the evidence that he was a very influential businessman who was very knowledgeable about international banking & finance and it's effects on business, and he was thus a very powerful and influential critic of fractional reserve banking. 3) Henry Ford's quote is not untimely as the fractional reserve design of the Federal Reserve act enacted in 1913 is not substantially different than the present day Federal (private) Reserve. 4) The Federal Reserve is a fractional reserve banking system, fractional reserves are stated and designed into the Federal reserve act.

All of the claims for quote removal have been debunked. There is no rational reason other than bias or non-objective non-rational reasons (other than emotional) to remove the quote. — Preceding unsigned comment added by AmourReflection (talk • contribs) 02:18, 10 June 2012 (UTC)

Please review entire above talk section before commenting here, particularly AmourReflection comments, and the counter arguments to AmourReflection.AmourReflection (talk) 02:22, 10 June 2012 (UTC)

Dear AmourReflection: I don't see any persuasive arguments in the material you've been presenting, and (as far as I can see) none of the other editors who have commented on this talk page have found the arguments you've presented to be persuasive. I don't think that continuing to revert other editors and by re-inserting the material you are proposing is a fruitful approach. Also, conclusory statements such as "All of the claims for quote removal have been debunked" and "There is no rational reason other than bias....", etc., etc., are not persuasive. Yours, Famspear (talk) 03:36, 10 June 2012 (UTC)

DEAR EDITORS, PLEASE EXPLAIN WHAT PART OF "Please do not remove this message until the dispute is resolved. (June 2012)" IS NOT UNDERSTOOD?AmourReflection (talk) 04:40, 10 June 2012 (UTC)

Dear Mr. Famspear, so tell me, how is a dispute resolved when only one party has decided it is resolved, or you just prefer to simply remove NPOV tags because you feel the dispute has been resolved? So you say my arguments are not persuasive when your side is arguing things like saying 10% is not a fraction. Ok, fine, I'll argue with that non-sense. Ok, I'll say that 10% is not a fraction and follow your amazing claim that 10% is not a fraction. Now can you argue something just a little more persuasively than that perhaps, if you wish to call a 10% a fascinating non-fraction, and you wish to claim that is not something can be debunked is actually quite interesting, can you elaborate please? I'd like a further discussion on this because clearly this article is major NPOV fail. We have been editing the criticism section of all sections, it would seem this is a section that would have criticism, but clearly you, and a few other editors seem to not like to handle criticism, then why even have a section on criticism at all?AmourReflection (talk) 04:47, 10 June 2012 (UTC)

I agree that the NPOV dispute tag should be there. I removed it by accident. (However, see below.)

I do not say that your arguments are not persuasive when "my side" (as you put it) is "arguing things like saying 10% is not a fraction." Your argument about "fractions" is between you and whichever editor wants to argue with you about that.

No, it is not correct to say that I "seem to not like to handle criticism." Please stay on topic. Please review my posts above. If the material you are proposing goes anywhere, I would argue that it goes in the article on criticism of the Federal Reserve, not in the article on fractional reserve banking. That is my view, and there is no need to "elaborate." I have already explained my position.

Now, another word about Neutral Point of View. I agree that the NPOV dispute tag should be on the article right now, but even that is a bit of a stretch. I believe the real problem is not that the material is not being presented neutrally, but rather that the material you propose really "goes better" in another article: Criticism of the Federal Reserve. And, as I noted on your own talk page, there is no guarantee that other editors will approve of insertion of the material there, either. Famspear (talk) 05:08, 10 June 2012 (UTC)

Thank you for admitting that. I want to reach a new level of understanding.AmourReflection (talk) 08:03, 10 June 2012 (UTC)

These were the arguments used on your side, as reasons to remove the quotation, I am glad you concur that this is not your basis for removal.AmourReflection (talk) 08:03, 10 June 2012 (UTC)

Criticism is the topic, and removal of material from the criticism section is evidence of the inability to accept (handle) criticism. I don't mean this to be a personal attack, I am just pointing out, that a person who has a section identified as criticism, it would seem, also be open to criticism. I am open to the removal of Henry Ford's criticism, but there seems to be severe lacking of acceptance to allow criticism in. Because of this lack of openness, this is evidence of lacking in neutrality.AmourReflection (talk) 08:03, 10 June 2012 (UTC)

It is irrelevant to me that Henry Ford's quote be accepted in any other place other than where his central idea (concept), of which he is discussing is, especially considering the context of his quotation. The article is titled 'fractional reserve banking', setting the fraction is a control input for banking is it not, and is it not this idea that Henry Ford is discussing? It would help me understand, if you can explain to me what banking control input Henry Ford is talking about other than fractional reserve setting. It is completely obvious that Henry Ford is talking about the U.S. Federal Reserve, but this is clearly an example, considering the context of the reference. Just because this is the a type of bank, does not mean that Henry Ford is not talking about the idea of control of a bank. It is evident that you are focused on the type of bank in the quote, and you seem to be ignoring that Henry Ford is discussing a control mechanism of banks, namely setting reserve ratios.AmourReflection (talk) 08:03, 10 June 2012 (UTC)

AmourReflection, I can explain it to you, but I can't understand it for you. Famspear and I have explained what Ford is (obviously) criticizing and why we deem it irrelevant for this article which is about fractional reserve banking and not about the Federal Reserve, and you have exhibited a clear misunderstanding of what we've said and then carried on anyway. Oh and, the content should stay out of the article while this dispute is ongoing, since its inclusion is what is being contested (there is so-far an obvious consensus that it shouldn't, and no consensus for its inclusion). I don't even think we've made the arguments you've said we're making. I never proposed that Ford's antisemitism was, in and of itself, a grounds for exclusion - rather, I said that it called the source's relevancy into question since he is ultimately criticizing Jews and ideas he perceives to have Jewish origin. In Chapter 61, he is criticizing the monetary policy of the Federal Reserve and the Federal Reserve itself, but he is not at all criticizing the concept or framework of fractional reserve banking. That said, I really do wish some of the other editors who've objected to including the quote would participate more in this discussion, given AmourReflection's fixation on things that Famspear and I have said. Perhaps someone else can help him understand what we're saying or at least calm his persistent attacks on our objectivity and motives. Then again, I can wish in one hand and... John Shandy` • talk 05:45, 10 June 2012 (UTC)

Dear Shandy, When you say Henry Ford is "not at all criticizing the concept or framework of fractional reserve banking", can you explain how this is not the same thing as discussion of a reserve ratio setting an idea, namely fractional reserve idea: "Today the Federal Reserve boasts of its own reserve as if that were a sign of national economic health. With the country struggling to live, the Federal Reserve ought to be low, not high. The height which the reserve has reached is a measure of the depth of the country's depression. If the Federal Reserve would let out a part of that flood of money — a high financial authority suggests that less than 10 percent would do it — it would be like an infusion of blood into the nation's veins." Certainly, both fractional reserve banking -AND- U.S. Federal Reserve are mentioned in his quotation, but look at Henry Ford's first sentence "The Federal Reserve ***Idea*** was doubtless right; if it had not been, it could not have been established." Now what "idea" do you believe is Henry Ford talking about an idea of setting a fractional reserve, or an idea of Federal Reserve and not of fractional reserve, or should we simply ignore his explanation of the idea in the last two paragraphs of his quotation and automatically assume that he exclusively talking about Federal Reserve only, as opposed to the control mechanism that the Federal Reserve uses, namely, setting the reserve ratio, the fractional setting.AmourReflection (talk) 08:03, 10 June 2012 (UTC)

How about we look at it this way, if Henry Ford were explicitly mentioning 'fractional reserve banking' would you accept his quotation, or would you still continue to dismiss it? Would he have to mention more than one federal bank outside the U.S., or in order for you to accept his quote, would he of been required to not mention any specific bank, but only fractional reserve banking in the abstract? Is it not that this article is about explaining fractional reserve banking, and this article on fractional reserve banking has specific examples, namely, the control of fractional reserve banking, of which is setting the reserve ratio fraction, is it not, and is it not that Henry Ford is also discussing the same idea of setting a reserve fraction? You are choosing to deny that Henry Ford is talking about an idea of fractional reserve banking, because you are choosing to distract your argument to exclusively limit Henry Ford's argument to the U.S. Federal Reserve. It is obvious that he is discussing the U.S. Federal Reserve, but he is discussing the control mechanism of the U.S. Federal Reserve, and this control mechanism is fractional reserve setting, is it not? What would keep this fractional reserve setting from not having similar results in any other fractional reserve bank in the world? You see, he is talking about an idea, not just a bank, and just because he is discussing the U.S. Federal Reserve bank, does not mean he is not discussing the idea of fractional reserve banking, he is criticizing the idea of fractional reserve banking, an idea he admits is right, otherwise it would not have been established. You see, Henry Ford is talking about the engine (fractional reserve control) that runs the banking car (Federal Reserve, can be any bank in any country). Are you choosing to deny that he is discussing how the engine of a bank works and not just the bank? You are not having a neutral point of view, because your view is biased on the idea that Henry Ford is focusing on criticism of exclusively the U.S. Federal Reserve bank when he is clearly discussing the mechanism of the bank, how to set a reserve ratio and what the effects are. You are biased in that you are ignoring that Henry Ford is talking about the idea of fractional reserve banking. Henry Ford is talking about the machine, not just a machine he is talking about how the machine works, and how to optimally set the machine. Unfortunately, your argument too, tends towards fractions are not fractions. Just because some fractions produce irrational numbers, does not mean there are rational fractions as well, but look, they are all fractions none the less. The U.S. Federal Reserve is a fractional reserve banking system of which contains an input control mechanism known as a fraction. Henry Ford is discussing how to set and control this particular fractional reserve banking system, and he is focused on the reserve ratio of whether it needs to be high or low. Henry Ford's quote can easily fall under both Federal Reserve and Fractional Reserve Banking as he is discussing both, but you won't even admit he is discussing both other than your Venn Diagram analogy, but you are clearly biasing it on to be exclusively under Federal Reserve, and thus contradicting your own Venn Diagram analogy. Contradicting yourself does not help in your own argument, and it makes it much harder for me to be convinced your argument is accurate, as clearly you are lacking in a NPOV on this particular problem, but at least you have admitted there are some overlap. Most of the fractional reserve banking article is centered around examples and how fractional reserve banking works, and Henry Ford's quote clearly does the same, and aligns with a specific example of fractional reserve banking, as the U.S. Federal Reserve fractional reserve ratio setting of 10%, namely setting the fractional banking reserve value to a low value, and this article is full of examples of specific reserve requirement settings and even at least one with the same setting of 10% in the money multiplier section. Henry Ford also discusses that this system can be easily manipulated, and it is clear it can be easily manipulated, all one has to do is look at the money multiplier formula m=1/R, if one sets R equal to zero the multiplier m value is infinity. Infinity is not rational, and is thus easily manipulated. This formula is lacking a NPOV since if R=0 m=infinity. Henry Ford is discussing the same ideas the same concept. Your argument is like saying just because someone talks about a particular kind of car, namely, "Ford" ("Federal Reserve") cars, they are not discussing the engine ("Fractional Reserve Banking") that drives that car. You are denying the engine by focusing on the type of car, and that is clearly lacking in a NPOV. I clearly recognize Henry Ford falls under both, but you are preferring, via bias, and failing in NPOV that you wish it to go under Federal Reserve, and you are denying that it falls under BOTH fractional reserve banking AND federal reserve, but just because you wish it to not be under fractional reserve banking, because this is your preferred view, does not mean it must not be. Your argument of why is simply because it happens to fall on the Venn overlap of Federal Reserve. I give you credit for at least admitting it falls under fractional reserve banking but you are choosing to bias it under the guise of Federal Reserve only and you are thus clearly not expressing a conclusive NPOV under your own admission of the Venn diagram in this respect, as you are clearly ignoring the overlap, and you are ignoring your own argument. Henry Ford is talking about the 'engine' inside of a particular car, but you prefer, via lacking in NPOV, that he only be talking about the particular car, you chose to deny that he is discussing the operation of the engine (setting of reserve fraction), as you are biasing him on only and exclusively the particular car, and that is lacking in NPOV. If you were truly having a NPOV you would recognize that reserve fraction ratio settings of 10%, high or low, is pertinent to the article, and is informative to the reader. Just because Henry Ford mentions "Federal Reserve" does not mean you can just ignore his discussion on setting of the banking reserve fraction and claim it is not relevant to fractional reserve banking, that is having a bias to a particular kind of bank, instead a NPOV would be recognizing the quotation also discusses the engine that makes the bank operate. The logic of this denial is still not convincing to me.AmourReflection (talk) 08:03, 10 June 2012 (UTC)

(Why) do banks create new money only as a portion of the central bank money deposited?

I quote from the article: "Each successive bank involved in this process creates new commercial bank money on a diminishing portion of the original deposit of central bank money. This is because banks only lend out a portion of the central bank money deposited, in order to fulfill reserve requirements and to ensure that they always have enough reserves on hand to meet normal transaction demands." From the initial deposit of $100 to bank A, $80 is lend out. What is preventing bank A to put the full $100 central BM in reserve, and lend out $400 commercial BM? (I cannot login because it says cookies are disabled, which is not true.)

"What is preventing bank A..." - Nothing let me explain - I hope this is not too long but I have to establish a few maths things 1st :

Both the "Quick Example" and the Table version of the "Example of deposit multiplication" start from the situation of Bank A having far too many reserves than it needs.

Bank A Balance Sheet :		Required Reserves	Excess Reserves
Reserves	100	20	80
Current Account	(100)

Bank A classically earns no Interest on it's Central Bank Reserves but will pay a small amount of interest and have Admin Charges it has to incur to service the $100 Current Accounts, so to stop making a loss and remain in business it will very quickly either/or

A) Have to use those reserves by creating loans $400 that will earn it money up to the

reserve ratio :

Dr	Loans Issued	400
Cr	Current Accounts Created	(400)

This will leave Bank A's balance sheet looking like this :

Bank A Balance Sheet :		Required Reserves	Excess Reserves
Reserves	100	100	0
Loans Issued	400
Current Accounts	(500)

It can do this by issuing one Loan of $400 or several smaller loans adding up to $400 The cycle shown in the main article in the "Quick Example" of Bank A issuing smaller and smaller loans until 'The total amount of the Current Accounts' X 'The Required Reserve Ratio' = 'The Reserves they have' : which is $400 in new loans, is basically nothing more

than a school maths thing where you sum a geometric progression the long way round and

then the short way round - using the formula - and show they are the same. A Geometric Progression

a	100	X	0.8	=	80
b	80	X	0.8	=	64
c	64	X	0.8	=	51.2
d	51.2	X	0.8	=	40.96
e	...

This is a Geometric Progression : Start with a number then multiply it by a fixed amount (0.8 in this case which is 100% less the 20% Reserve Ratio : 100%-20% =80% = 0.8). The Add up all the 80 + 64 + ... and you get $400. Add on the initial $100 and you get $500 - which is $100 X what they call the "Money Multiplier" but is actually just a standard School Maths formulae for the sum of a geometric Progression : see How to Sum a Geometric Series s = a/(1-r) Where a = the initial $100 and r is 0.8, which gives you : 100/(1-0.8) = 100/0.2 = 500 The bank in this option needs to issue $400 of loans and it can issue one loan of $400, 4

loans of $100 or a geometric progression of loans if it's customers want this (but this is

unlikely and for the point of your question unnecessary)

B) It can sell it's excess Reserves to other banks who have found customers to loan to : So for instance, in the Tabular example in the main article, Bank F has found a customer and has loaned out $26.21 to them. At this point Bank F's Balance sheet will

look like this :

Bank F Balance Sheet :		Required Reserves	Short Fall of Reserves
Reserves	26.21	5.24	(5.24)
Loans Issued	(26.21)
Current Accounts	(26.21)

With Bank A having an Excess of Reserves of $80 and classically earning it no money on

those reserves and Bank F having a shortfall of (5.24) in Reserves, Bank A can sell 5.24 of

it's Reserves to Bank F by setting up an Inter-Bank Loan account to Bank F and earn

LIBOR interest rates from bank F on this loan. So then the Balance shees of the Banks will

look like this :

Bank A Balance Sheet :		Required Reserves	Excess Reserves
Inter-Bank Loan to Bank F	5.24
Reserves	94.76	20	74.76
Current Accounts	(100)

Bank F Balance Sheet :		Required Reserves	Excess Reserves
Reserves	5.24	5.24	5.24
Loans Issued	26.21
Current Accounts	(26.21)
Inter-Bank Debt to Bank A	(5.24)

In this way Bank A can sell all it's non-Interest earning excess reserves to what ever bank requires them. Indeed Bank F can issue a loan up to $400 and buy all of Bank A's Excess Reserves in one go. The schedule shown in the main article of Banks issuing ever decreasing loans again is just a demo of a Geometric Progression adding up and shows us

nothing about how banks work in reality.

C) Bank A can return the excess Reserves to the Central Bank. The "Start position" for the "mainstream economics relending model" is quite interesting, I've seen it as "a rich man walks into a bank and deposits $1 Million" (and then the usual

Geometric progression, with r = (1 - the reserve ratio), is scheduled out and then added up

and shown that this sum equals $1M/Reserve Ratio - which of course it will - it's the simple

formulae for the sum of any geometric progression ! These two numbers equalling each

other is then effectively declared to be proof of how banking works) In the tabular example in the main article the phrase "from an initial deposit of $100 of central bank money" classically what this means in terms of Balance Sheets is :

Central Bank :
Government Debt	100
Reserves of Bank A	(100)

Bank A Balance Sheet :		Required Reserves	Excess Reserves
Reserves	100	20	80
Current Accounts	(100)

What Bank A can do as option C is sell it's excess reserves to the Central bank and buy $80 of Government Debt (Classically Gilt Repos) that the Central bank has to give us :

Central Bank :
Government Debt	20
Reserves of Bank A	(20)

Bank A Balance Sheet :		Required Reserves	Excess Reserves
Government Debt	80
Reserves	20	20	0
Current Accounts	(100)

Having got to the point where the reserves of the Commercial banks are where they should be; either by using the "mainstream economics relending model" with it's geometric progressions of smaller and smaller loans being issued or by some combination of the real life options A) B) and C) shown here, we then reach the

interesting point : What happens next ? Implied in the "mainstream economics relending model" is this : the Commercial banks wait around till more "Reserves" are released by the Central Bank, say on pay day for the Army or when the Central bank buys government debt to get a movement like:

Central Bank :
Government Debt	10
Reserves of Bank A	(10)

Bank A Balance Sheet :		Required Reserves	Excess Reserves
Reserves	10	2	8
Current Account's of Soldiers	(10)

and Bank A then takes the $8 excess reserves it has and issues loans to the tune of $8/0.2

= $40 in a declining geometric progression. But the "mainstream economics relending

model" offers no proof that this is what happens in reality. Instead it just presents its trite

geometric progression schedule as shown above and proves only that it knows how to add

up such a series.

The Non-Mainstream model has, for what happens next, this : The Commercial banks seek

out new Customers to loan to and given they have adequate security/business plan... then

the banks will issue new loans and in doing so create new money. At this point they will be

short of the required Central Bank Reserves - which they can acquire from the Central Bank

by selling the Central Bank a few Gilt Repos. This view offers as proof, not "Add it to the 1st number you thought of" school maths tricks - which is essentially what the geometric progression schedules offered by the "mainstream economics relending model" is, instead it points to links to the Web sites of the Central banks which say things like

"The Central bank will buy and sell reserves to any commercial bank that can provide adequate security" - i.e. go out, issue loans and if you need more reserves just ask, don't

wait around until we issue reserves by accident on Army pay day or when the government

needs to issue a bond". I can't see anywhere in the Professional Business World schedules

of ever decreasing loans being issued whereas in the academic literature it's the mainstay. In summary "mainstream economics" in its understanding of banking has got its very base completely wrong. Why is this important ? If, to every Economics 101 class in the World, it is told that the

Private Commercial Banks Create money, then instead of them spending half a semester

adding up pointless geometric series, they will develop the natural retort "Such power

should not be in private hands, if anything should be under direct democratic control then

the banking system should", in later life when they are in positions to do so they will

implement such a system - This "Fractional Reserve Banking : Yes or No ?" question is not just a small technical question - a Directly Democratically Elected banking system will produce the largest change - improvement - in civilisation the World has ever seen - this is an issue of the highest importance.

DamienMea (talk) 17:00, 16 June 2012 (UTC)

Talk pages are for discussing improvements to the article. Do you have any specific suggestions? John Shandy` • talk 19:24, 16 June 2012 (UTC)

Well it hard to know where to start, the 1st line says "Fractional-reserve banking is a form of banking" and it's not - as I'm showing above : Based on what I have shown it would be better to write "Fractional-reserve banking is a theoretical construct created by academic Economists that mis-understands how banks work. It suggests, without any evidence, and in the face of documentation to the contrary issued by Central banks - that loans, and hence new money, are created by Commercial Banks Post Hoc these Commercial banks being in receipt of balances with the Central Bank which they call Reserves, the amount of such new loans 'based' on these Reserves being issued in ever reducing values in a geometric progression.

Economic text books on the subject frequently show a fairly simple geometric progression of these loans of reducing values being issued and appear to use the fact that the sum of them is equal to the result of the formulae for the sum of a geometric series (which as it's a geometric progression is to be expected) as some sort of evidence that this is what happens in the real World : The example usually shows $1,000 of new Reserves leading to $10,000 of new Commercial loans being made. No discussion is made about the reverse effect that would ensue and would ensue on a frequent basis when a small amount of reserves being lost would cause a magnified entire Commercial Bank system wide calling in of loans and the devastation to business this would cause... but again in in a geometric progression.

84.93.170.179 (talk) 21:47, 16 June 2012 (UTC)

Great, so that's a start. Now that we have some tangible suggestions, do you have any reliable sources to support your proposed changes to the lead paragraph? Due to WP:V and WP:OR, we cannot include content that is not verifiable or that is original research, and due to WP:NPOV and its WP:UNDUE clause, we cannot give undue weight to fringe views or minority points of view unless enough reliable sources establish them as significant points of view. John Shandy` • talk 22:17, 16 June 2012 (UTC)

Hi John Shandy, I've just sent an email to the Bank of England to help sort out this issue :

Fractional Reserve Banking Wikipedia Query

Hi,

Having read a lot of your publications over the years I have got the understanding that,

in "normal times" (and even now) Commercial Banks in the UK issue New Loans to

Customers based on the customer's ability to service these loans, the security the customer puts up for these loans and the Commercial banks risk and other internal policies.

Any shortfall a Commercial bank has in it's Central Bank Reserve Ratio requirement as a result of issuing such loans can be rectified - during a15 day period I understand - by buying such reserves from other commercial banks who have excess reserves or directly from the BOE itself.

I was reading an article in Wikipedia this morning that said the we use what they called "Fractional Reserve banking" whereby the Commercial banks wait till "Reserves" - Central bank balances - are sort of accidentally deposited with them and then they issue lots of small loans to customers in a geometrical series of reducing loan values to re-establish the reserve ratio.

This seems to me to be palpable nonsense. I did an Edit on the Wikipedia Talk page for this site to explain that this is nonsense and an editor on the site has asked for more back up from me.

Given the academic economic text books are awash with these geometric progressions of declining value loans as an "explanation" of how a Commercial bank works I thought it best to go to the horses mouth as it where and ask yourselves the BOE.

The main Wikipedia site on this issue is :

http://en.wikipedia.org/wiki/Fractional_reserve_banking

and my critique of it is the "Reply" to the post :

"(Why) do banks create new money only as a portion of the central bank money deposited?"

on this page :

http://en.wikipedia.org/wiki/Talk:Fractional_reserve_banking

Can you arrange for Me/Wikipedia to be sent some links to official BOE publications that either :

a) Back up the Fractional Reserve Banking Theory as explained in the main article - I've only ever seen it done in "academic" articles showing how Lloyds, Barclays etc issue geometrically reducing loans to customers based on a receipt of a BOE balance and how they call in loans in a contra-wise geometrical series manner when they lose these balances.

or

b) Show what I am saying is correct, that the Central Bank Reserves held by Commercial bank are not the base of their business but an after the fact - after the loans have been issued - thing/insurance/requirement they buy easily either from another commercial bank that has excess Reserves or from yourselves directly by the sale of Gilt Edged Repos (and now other things) and in doing so showing and stating explicitly that either "Fractional reserve banking, as explained in the Wikipedia article is substantially correct or that, as I have stated, "Fractional-reserve banking is a theoretical construct created by academic Economists that mis-understands how banks work." and palpable nonsense.

If you don't have such an article(s) available can you arrange for a definitive one to be written that covers this issue ? - or issue an official statement on this ?

Thanks

Damien Mearns

84.93.170.179 (talk) 23:59, 16 June 2012 (UTC)

Damien, I don't understand the need to query the Bank of England asking them to produce sources (or write new ones custom tailored to your point of view) to support your proposed content. If the content is indeed verifiable, surely there are an abundance of presently-available reliable sources you could find yourself? Also, you need to understand that this article is about fractional reserve banking in general, and not about the Bank of England, the U.S. Federal Reserve, or any other specific central bank or specific national banking system. John Shandy` • talk 03:57, 17 June 2012 (UTC)

Hi John, I think the need is this : The main issue is not between a "major view" and a "minority view" it's between the Academic view and the view in the Professional Banking World. The Academic World has as one of it's aims to publish stuff - consequently there is an "abundance of presently-available sources", all fully and perfectly referenced, that explain Fractional Reserve Banking. For the professional world, Publishing stuff is a minor thing but the BOE - the Bank of England, for example, have papers that explain how they are happy to sell reserves to any Commercial Bank that wants to buy them which "means" that we don't do Fractional Reserve banking in the UK (Ditto US and everywhere else) but I wanted to see if they had a paper stating that "explicitly" - to counter academic quantity with professional quality - one definitive explicit BOE stamped article to put the issue to bed. You say for instance that "you need to understand that this article is about fractional reserve banking in general, and not about the Bank of England, the U.S. Federal Reserve, or any other specific central bank or specific national banking system." - with a definitive reference from the BOE we will have the back up to change the main article's 1st paragraph from : "Due to the prevalence of fractional reserve banking...". To "no known country actually uses Fractional Reserve banking (insert BOE Reference) though for many years it was mistakenly thought and taught by academic Economists (Insert any link to a Fractional Reserve geometric Progression page at a University Web site for instance) that this system was prevalent around the planet. This change to the article could, and indeed should, be made now using the BOE link that states that the BOE is happy to sell Reserves as this "means" that Fraction Reserve Banking is not a "prevalent" system around the planet but it might be better to wait a few days till they provide us with an article that doesn't just "mean" we don't use Fractional Reserve Banking but that also "states" we don't use it. To dramatically improve the article it needs to go from "The World uses Fractional Reserve Banking and this is how it works" to "It used to be thought, in the academic World, that Fractional Reserves banking was the "prevalent" system of banking and this is how they thought it worked ..." but it turns out that nothing like it is actually used anywhere - BOE Reference. Indeed the in the Real Banking World the system is the opposite of what the academics taught : They taught $10 in Reserves will create $100 in new money Loans, Whereas $100 in new money loans is created 1st by the Commercial Banks and $10 in reserves is then easily acquired by the Commercial banks either from other Commercial banks who have excess reserves or directly from the Central bank - and no geometric progressions are needed at all. This way Wikipedia gets to show the geometric progression schedule which a user of Wikipedia would want to see, but it is put in the correct context of it being at best a wholly theoretical construct and at worst an historically mistaken belief by the academic world of how real banking works. So I think a definitive BOE reference on this will be very valuable for Wikipedia to dramatically improve the article. 84.93.170.179 (talk) 09:45, 17 June 2012 (UTC)

Well so far we don't have such a reference. I think you are overestimating the Bank of England's responsiveness as a central bank probably has more important things to do than to serve articles to Wikipedia editors. At any rate, there's not really such a thing as a single definitive source. In other words, it is rarely if ever the case that one source refutes a preponderance of others. Plus, nothing has been presented to say that the way the Bank of England operates is the only way or prevalent way. And, fractional reserve banking has existed since before the advent of modern central banks anyway (although I don't think the article touches on this yet, as its history section needs some attention). John Shandy` • talk 14:31, 17 June 2012 (UTC)

"You are right to say that "it is rarely if ever the case that one source refutes a preponderance of others" but this is one such rare case : if a preponderance of sources outside a profession - say one thing about how a profession acts and the leading source inside the profession say "we don't act like that we act like this" then this would trump all other sources added together. If the Bank of England says they do not use Fractional Reserve Banking and they say that the rest of the Central Banks round the World act in the same manner, and the Bank of England is a fairly standard Central Bank that advises other Central Banks around the World, then it is a good basis to change the main article. If you then want to add that "back in history, pre-Central Banks, Fractional Reserve Banking was used" then, if you can provide reliable sources for this, and I'm not sure that, at that point, a 'Standard Economic text book' showing historical geometrical series of reducing loans being issued by country blacksmiths alone would count as reliable evidence, given by then they would be discredited. I suggest that you'll struggle to find such reliable historical sources as, if you think about it, where a small change in the "base money" upwards causes a large increase in the money supply - Bank loans - a small reduction in the 'base money' would also cause a large calling in of loans. These wild fluctuations in the money supply would make doing very much business at all near impossible. If such a system had ever really been tried it would have lasted only a short time before being replaced with something more far more stable. 84.93.170.179 (talk) 16:21, 17 June 2012 (UTC)

No really, fractional reserve banking has roots in the 1600s and 1700s when gold and silver coinage were predominant. Just assuming that it would've failed if tried doesn't make it so. Anyway, you're using some fuzzy language like "the Bank of England is a fairly standard central bank that advises other central banks around the world" - what is a "fairly standard central bank" and who's to say that even if the Bank of England advises other central banks that those banks heed such advice, or that the advice pertains particularly to what banking system they use? Wikipedia would disagree that one source from inside a profession entirely refutes all sources from outside of it. More importantly, a source on what the Bank of England does would not necessarily be incompatible with the other sources that support this article's characterization of fractional reserve banking (which is what the article is about, not the national banking system of the United Kingdom). Please see Verifiability: Reliable sources and WP:Identifying reliable sources. I welcome sources from the Bank of England, but one source about the Bank of England's operations is not going to refute other high-quality reliable source or garner a significant revamping of an article about fractional reserve banking. It may, however, make great contributions to the Banking in the United Kingdom article. John Shandy` • talk 17:40, 17 June 2012 (UTC)

It's quite well known for it : "CCBS has established relationships with most central banks around the world... 22800 delegates from 174 central banks have participated in CCBS events..." www.bankofengland.co.uk/education/ccbs/prospectus2012.pdf 84.93.170.179 (talk) 17:48, 17 June 2012 (UTC)

This article, like all others must be based on reliable sources and must reflect the consensus of opinion in academic writing. The fact that the experts may be wrong is irrelevant. Also, if the Old Lady of Threadneedle Street gets away from figuring out what to do next week in the event of the total collapse of the European economy to answer our query, the reply still would no meet standards for reliable sourcing. Time to close this discussion. TFD (talk) 17:59, 17 June 2012 (UTC)

Weren't we just going over this very same issue, but with a different editor/username and on a different article (the Fed one? Money multiplier one? Can't remember), a month or two back?VolunteerMarek 18:04, 17 June 2012 (UTC)

Re "Weren't we just going over this very same issue, but with a different editor/username" - no that must have been a different person, but if the policy of Wikipedia is really as you state : "The fact that the experts may be wrong is irrelevant" then I'm sure this issue will come up time and time again. Your qualification "...in 'academic' writing", given the dispute is essentially between what the professionals in the field write in official publications and how they train Central bankers around the World to do the same, and what the academics outside the profession write that : "The fact that the academic experts may be wrong is irrelevant" is a rather curious position - is this really official Wikipedia policy ? If so it should be made more known on the front sheet of the Wikipedia site : "Wikipedia - a summary of what academics say, if this is wrong and conflicts with what professionals working in the field say and publish in their official documentation then this is 'irrelevant'" You say : "the reply", from the Bank of England as to a clear statement as to if the UK and the rest of the World, whose Central Bankers they train, do or do not use Fractional Reserve Banking... "still would no meet standards for reliable sourcing" - I find this incredible and I challenge it. 84.93.170.179 (talk) 23:57, 17 June 2012 (UTC)

Heh, actually your response - in particular your clarification that "the dispute is essentially between what the professionals in the field write in official publications and how they train Central bankers around the World to do the same, and what the academics outside the profession write" - makes me pretty certain that we discussed this already and you're the same person as whoever it was (honestly, I loose track) that got banned on the money multiplier article or wherever it was.VolunteerMarek 00:37, 23 June 2012 (UTC)

By the way, has the Bank of England sent that one source to refute them all? John Shandy` • talk 22:32, 22 June 2012 (UTC)

I've got a Reference and still waiting : "We acknowledge receipt of your e-mail dated 17/06/12 June (our ref FF 26786). We will reply in due course. In the meantime this is what they are essentailly saying when they say this : "In theory, there are two possible ways of achieving this. One is to use OMOs to adjust the quantity of reserves to bring about the desired short-term interest rate, implicitly or explicitly drawing on an identified demand schedule. Neither in the past nor in the current review have we even briefly entertained the notion that this is realistic." "http://www.bankofengland.co.uk/publications/Documents/speeches/2004/speech225.pdf" "...Neither in the past nor in the current review have we even briefly entertained the notion that this is realistic" - that's pretty strong stuff. It's not saying we've gone for option B over option A - it's saying A (to adjust the quantity or Reserves) is an unrealistic theory and a complete non-starter. This is what the professionals are saying and as they are saying this, in public, that the economic text books contain unrealistic theories, then I find it a surprise that you are now moving into 'detective' work and concluding that "there is only one person in the World who says these things", think about it : There are no "Lists of which banks have what reserves this week so 'that'll be the place to go to for a loan' " in the FT or anywhere else - which is what you've expect to happen if reserves were in limited supply, I've never seen special rates to attract current account holders from soldiers and civil servants - the counter-bank for these transactions will be the Central bank and so would be these valuable reserves. There is no sight nor sound of Fractional Reserve banking, with its geometrical progression of smaller and smaller loans, to be seen anywhere outside the pages of an economic text book. While we're waiting for the reply from the Bank of England do you have any examples of such things ? - If you have I'll be very interested to see them, its good to learn new things DamienMea (talk) 11:56, 25 June 2012 (UTC)

The Bank of England said No : "Dear Mr Mearns, Thank you for your e-mail of 17 June concerning fractional reserve banking. Cash ratio deposits (CRD) : "What are Cash Ratio Deposits? Cash ratio deposits (CRDs) are non-interest bearing deposits lodged with the Bank of England by eligible institutions (ie. banks and building societies), who have reported average eligible liabilities (ELs) of over £500 million over a calculation period. The level of each institution's CRD is currently calculated twice-yearly (currently in May and November) at 0.11% of average ELs, over the previous six end-calendar months, in excess of £500mn. What are CRDs used for? The interest earned from the deposits is used by the Bank towards funding its operations. What are eligible liabilities? Broadly speaking, eligible liabilities consist of sterling deposit liabilities, excluding deposits with an original maturity of over two years, plus net foreign currency liabilities. Interbank liabilities (excluding cash ratio and special deposits with the Bank of England) are also included on a net basis. - it does not use the deposits as a monetary policy tool.

Commercial banks are certainly able to keep reserves with the Bank of England. However, reserve balances are voluntary - there are no reserve requirements at the Bank of England. Therefore, theoretically, banks don't have to hold any reserves at all at the Bank of England, other than CRDS, but in practice they tend to hold some for the purposes of settlement with other banks." - Can we change the main Article to match what the Bank of England says ? DamienMea (talk) 13:46, 6 July 2012 (UTC)

That is certainly interesting. However, unpublished emails are not reliable sources (see WP:RS for what constitutes a reliable source). Plus, this article is about fractional reserve banking, not the Bank of England or banking in the United Kingdom. John Shandy` • talk 16:19, 6 July 2012 (UTC)

Yes I appreciate that, I did ask them to post a definitive statement on their Web site. If they do this then we can amend the main article where it says that "Fractional Reserve Banking is used by most countries" and replace it with "Fractional Reserve Banking is a theoretical Banking system not used in practice that says..." - I'll chase it up. DamienMea (talk) 16:42, 6 July 2012 (UTC)

No. We explained before that one source does not simply refute the numerous other sources. The Bank of England is one central bank in the entire world. You will be duly disappointed by the actions of other editors should you attempt to inject such a change. John Shandy` • talk 16:48, 6 July 2012 (UTC)

Good Point, as the Bank of England, through its Centre for Central Bank Studies "has established relationships with most central banks around the world" I'll see if I can get them to also say what the rest of the World gets up to as well. DamienMea (talk) 18:57, 6 July 2012 (UTC)

criticism

I'm sorry but Lew Rockwell, Mises.org etc. are not reliable sources. What's more, links to blogs that feature the opinions of these are even more unreliable.VolunteerMarek 04:14, 23 June 2012 (UTC)

Regarding the Mises Institute, it carries an explicit Austrian point of view (as well as classical liberal and libertarian points of view). While it's certainly fine that the institute carries this point of view, I think the institute's publications are really only reliable for the opinions of the institute and its members. While a number of Mises Institute contributors may be scholars, it would only be their peer-reviewed and vetted publications that would be reliable for other purposes.

With regards to relevancy, since we have a Criticism of fractional reserve banking article, I think it's okay for the Criticism section of this article to mention something like environmental degradation, simply because it is in the actual criticism article. Now, as for whether it should be in the criticism article, that's a separate question. Basically, I think our criticism section should simply summarize or segway into the criticism article. If there's a content dispute to be had, let's have it for that article, and then simply make this section follow from there. John Shandy` • talk 05:03, 23 June 2012 (UTC)

Apologies. I didn't realize that you and the IP already are discussing at that talk page. John Shandy` • talk 05:09, 23 June 2012 (UTC)

The problem with including the environmental degradation stuff (putting aside that's it's pretty fringe-y) is that that is a criticism of economic growth not fractional reserve banking. I can see it being in the economic growth article, properly attributed and all that, but here's it's just irrelevant (also self contradictory - it seems people want to argue that fractional reserve banking is bad for the economy, yet it causes this economic growth thing which is bad for the environment... well, the people who come to these pages aren't exactly known for their logical acumen.VolunteerMarek 05:40, 23 June 2012 (UTC)

You have a good point about it being a criticism of encouraged economic growth rather than a criticism of fractional reserve banking, so I agree that its relevancy is questionable. John Shandy` • talk 07:06, 23 June 2012 (UTC)

Regarding VM's allegation that the arguments are inconsistent: No, they are not inconsistent. The allegation is that FRB induces the "wrong" kind of force-fed economic growth, termed "malinvestment" by Austrians. This is "Ponzi-like" speculation in residential housing construction and other speculative capital investment that ultimately is unsustainable when no sucker can be found to buy the inflated assets (a subtle twist on the greater fool theory). "Economic growth" is necessary to keep the system alive, but that eventually results in environmental degradation, destruction of farmland and economic crises. At least that is the allegation. Linking the environmental stuff to FRB may be (may be) OR with the previous refs, but Michael Rowbotham certainly links up both FRB and environmental destruction so I will change the references. The question will then be solely whether Michael Rowbotham is a credible ref (which I respectfully suggest he is given he's published two books on the topic still in print). However the OR allegation can be put to rest. — Preceding unsigned comment added by 58.167.69.26 (talk) 13:33, 23 June 2012 (UTC)

Looking at Rowbotham's books, I see he's not a research scholar (no significant credentials, no vetted academic publications), and his 2 books are not published by reputable university presses or by well-known, reputable publishing companies. The books are published by Jon Carpenter Publishing, which as far as I can see is fairly insignificant and is one of many clients of the Independent Publishers Group. Anybody can write a book about anything and have it published, but that doesn't mean it is reliable. On a side note, looking at the Michael Rowbotham article I see that it is entirely a WP:COPYVIO of his Amazon.com mini-bio. I shall tag it as a copyvio. John Shandy` • talk 17:06, 23 June 2012 (UTC)

WP:COPYVIO by Amazon copying Wikipedia?? That's a "rant" if I ever saw one. — Preceding unsigned comment added by 58.167.69.26 (talk) 12:10, 24 June 2012 (UTC)

It wasn't until a fellow editor pointed it out to me that I realized Amazon was pulling author bios from Wikipedia. I kindly thanked that editor for correcting it. It was a simple mistake, I welcomed its correction, and moved on. That is quite different from alleging that editors are censoring Criticism of fractional reserve banking or Fractional reserve banking and then offering a rant on your views of Europe and your insistence on portraying Volunteer Marek like he's a member of the Stasi (see WP:CIVIL and WP:AGF). I think it's fine to have Mises Institute sources referenced in the article, but they should be attributed as the opinions of the institute and be given only the weight they are due (see WP:UNDUE). John Shandy` • talk 17:11, 24 June 2012 (UTC)

No need to use them at all. Even if they are rs for the opinions expressed by their authors, we need to establish the significance of their views, per WP:WEIGHT, and can use mainstream sources for this. TFD (talk) 17:20, 26 June 2012 (UTC)

General copyedits; the confusing term "deposit"

I made some copyedits which (hopefully) will help the average reader. As I think may have been discussed on this talk page or in the talk page of some related article, the term "deposit" as used in fractional reserve banking can be confusing, because it has more than one meaning.

A bank customer may make a "deposit" of, say $100 in U.S. currency with respect to the customer's checking account at a U.S. bank. The customer may think of the actual, physical currency, the paper money, as the "deposit."

However, once that deposit is made, that $100 in currency no longer belongs to the customer. In property law, we would say that the deposit is not a bailment. Instead, the bank owns the $100 in currency, and the customer owns an asset called a "demand deposit." On the books of the bank, the "demand deposit" account balance at any given moment is a liability, not an asset of the bank. In double entry accounting terms, the bank makes a debit to an asset account (called "currency on hand" or some such thing) and the bank makes a credit to a liability account (called "deposits", or something like that).

On the right side of the bank's balance sheet (also known as the statement of financial position, etc., etc.), the total of "deposits" as of a given date is the total liability that the bank owes to its depositors, not the money the depositors "deposited."

By contrast, the money the depositors deposited -- that is, the money held by the bank as of that date -- is shown on the left side of the balance sheet, as an asset of the bank. The bank, not the customer, owns the money.

The terms "deposit" (as a noun and a verb) and "withdrawal" (as a noun) and "to withdraw" (as a verb) as used in banking can be somewhat misleading. The verb "to deposit" (in the sense of "to put money in the bank") really means to make a loan to the bank. The bank is borrowing from the customer. In this particular kind of borrowing, the ownership of the money itself is actually transferred from the customer to the bank. The verb "to withdraw" means to have the bank satisfy (pay off) that loan. Part of the key to understanding all this is understanding that these terms have multiple meanings.

Another part of the key is understanding some of the basics of double entry accounting -- the same double entry accounting used by businesses and other organizations and individuals all over the world. Every time a bank customer makes a "deposit," there are at least two accounts on the bank's books that are affected -- an asset account (on the left side of the balance sheet) and a liability account (on the right side). Famspear (talk) 19:33, 19 July 2012 (UTC)

Excellent improvements. The terminology confusions, in my opinion, led to a number of past discussions on this talk page about the mechanics of double-entry accounting and the act of "lending deposits." I suspect these changes will help readers wrap their minds around that, so good job. John Shandy` • talk 22:23, 19 July 2012 (UTC)

thanks, Famspear (talk) 15:04, 20 July 2012 (UTC)

Removed the POV tag

I've removed the POV tag, originally added by AmourReflection over the Henry Ford quote that was kept out of the article by consensus for its lack of relevancy and notability. The user never returned to continue discussing the content dispute after his block expired, so I consider it a non-issue now. John Shandy` • talk 06:14, 7 August 2012 (UTC)

I have returned, and you (et. al.) never responded to defend your lack of NPOV, I also see you conveniently removed the talk section on the NPOV without even responding to my points, very convenient of you to ignore it I see. -AmourReflection. — Preceding unsigned comment added by 68.231.173.251 (talk) 06:30, 9 August 2012 (UTC)

You are incorrect that I "conveniently removed the talk section on the NPOV" as if you view the history for this talk page you will see that MiszaBot I archived your two threads in this edit, because the bot archives any thread that has had no responses in 30 days. We addressed your points and you kept repeating your points and edit warring (see WP:IDIDNTHEARTHAT). The consensus among editors who were reverting you, as well as editors who were responding to you on the talk page, is that the quote is inappropriate for this article because it is not discussing what you claim it is. Now it seems you're back to stoke the coals. John Shandy` • talk 06:46, 9 August 2012 (UTC)

You never responded to my points regardless if a bot removed them automatically or not, I waited well beyond the period for you, or anyone to respond. Respond to them, so the discussion can continue constructively, you can not just simply dismiss them without response just because a bot removed them. These actions alone illustrate your lack of NPOV. AmourReflection (talk) 07:09, 9 August 2012 (UTC)

Since it appears there is major cognitive dissonance among the editors of this article the NPOV tag will stay until perspectives are reconciled. New material of criticism has been added, as none of the counterarguments to Henry Ford's statements appeared in any way substantial, considering even the own words of editors against the quote recognized its relevancy (see Venn diagram intersection admission in talk), and then decided to retract it or deny their own statements, cognitively denying it's relevancy, this is fundamentally estoppel.AmourReflection (talk) 08:14, 9 August 2012 (UTC)

You can re-read the discussions here and here. You never adequately addressed our points; rather, you repeated your arguments and offered misrepresentations of our arguments. What more is there to discuss? John Shandy` • talk 13:17, 9 August 2012 (UTC)

Dear Shandy, it does not matter what it is, it is not whether I like IT or not whether it is fractional reserve banking, Nigerian banking, Vegas Casino banking, it can be anything, a black box, a green box, Joe's Cave banking box, it doesn't matter at all to me as you perceive, what matter is the performance of the box (again, it could be any type of box in the universe with any banking system or shell game system or random number generator box of the universe) it doesn't matter, what matters is HOW THIS BOX PERFORMS, and clearly this box, whatever you want to call it, FAILS TO PERFORM well consistently and reliably over its history of operation. So to improve the article, the Simple Example that you claimed to be the original author of, of which you were not (see revision history above), not only after your modification did you get the example value wrong after 50 iterations, you used the smaller value instead of the net value, the sum of the perceptions of the box input and box output (M1), and you only took it to 50 iterations (minor problem), and then you claim I don't understand this when you effectively plagiarize my example and get it wrong (it is no wonder you wish to believe it is not counterfeiting, just look at yourself).AmourReflection (talk) 16:20, 10 August 2012 (UTC)

Dear AmourReflection: Thank you for sharing that with us. Famspear (talk) 19:18, 10 August 2012 (UTC)

NPOV [Criticism]

Criticism from reliable verifiable relevant sources is continually being removed in edit wars. Discuss here before editing this section, instead of thoughtless baseless editing.AmourReflection (talk) 10:47, 9 August 2012 (UTC) — Preceding unsigned comment added by AmourReflection (talk • contribs) 10:45, 9 August 2012 (UTC)

Dear AmourReflection: Quite to the contrary -- you haven't posted here since June 10, 2012. Others have indeed responded to your comments. And now, as soon as the NPOV tag is removed, you return and put the tag back.

I'm going to let the tag stay, but other editors may remove it.

AmourReflection, the purpose of an NPOV tag is to note the existence of an ongoing discussion or debate about whether the article is presented with a neutral point of view. The proper purpose of the tag is not to express your disagreement with what is in the article, and the proper purpose is not to express your view that the article material is not neutrally presented. There is a fine line there.

I suggest that if you want the tag to stay, you should provide specific examples of why you contend the article material as currently worded is not presented with a neutral point of view. The fact that the material you wanted to insert into the article was rejected by other editors is not a valid reason for the presence of the NPOV tag, and the fact that you want that material inserted is not, in and of itself, evidence of the existence of an ongoing debate about neutrality. Famspear (talk) 12:46, 9 August 2012 (UTC)

I agree with what Famspear said. That your POV isn't overwhelmingly reflected in the article does not mean the article itself is non-NPOV. Famspear has given a good clarification of the purpose of the tag. John Shandy` • talk 12:53, 9 August 2012 (UTC)

Yes, and an ongoing discussion requires assertions and responses, not just assertions. If there is no response to the assertions, then there is no ongoing discussion, and none of the editors responded to my last set of assertions, either by cognitive dissonance, or by just having a biased point of view, and the abandonment of discussion falls on the editors, and your failure to transcend your estoppel.

So tell me then, what is the proper use of a NPOV tag when you delete it at will, especially when you delete it specifically in this criticism section without even responding to what was written in it, namely, that the fractional reserve banking system is, effectively legalized counterfeiting by non-governmental entities? A reliable source reference was cited, and none of you made any statement at all for the reason to remove. How does it fit within your so called "neutral point of view" by removing material without even identifying a reason for removal? So you can simply remove material without even analyzing it or thinking about it, or do you simply remove material because the evidence offends you? Why even contribute then to anything in Wikipedia if any editors work can be removed randomly and without just cause? Explain.AmourReflection (talk) 17:18, 9 August 2012 (UTC)

Or at least give me your arguments how fractional reserve banking is not effectively legalized counterfeiting by non-governmental entities.AmourReflection (talk) 17:22, 9 August 2012 (UTC)

Dear AmourReflection: No, we've already been through this. Other editors have already responded to what you wrote. You had not posted here since mid-June. Once the NPOV tag was removed, however, you immediately returned. As I have already stated, the purpose of an NPOV tag in an article is to show that there is an on-going discussion as to whether the article is presented with a neutral point of view. You have replaced the NPOV tag. I have not removed it.

We're not here to "give you our arguments" about whether fractional reserve banking is or is not "legalized counterfeiting by non-governmental entities."

You are no different from any other editor in Wikipedia. Anything and everything you contribute can be "removed randomly" as you put it. Your personal view about what is "just cause" for removal of what you contribute may differ from the view of another editor.

AmourReflection, regarding your comment about your material possibly "offending" other people, I sense that you might have strong personal feelings about the topic of "fractional reserve banking." I do not, and some other editors probably do not, have strong personal feelings about the topic. For me, it's just a subject for an article in Wikipedia. Please try not to take the actions of other editors personally when they edit or remove what you have contributed. It's not personal. Famspear (talk) 17:48, 9 August 2012 (UTC)

Dear Famspear et.al. it is not personal as you are making a false assumption, but say what you will. I am editing here because I have some diminishing respect for Wikipedia, and my respect is starting to decrease with this experience editing here. Indeed it is an article, but I ask you, what is the incentive to contribute anything good at all in Wikipedia then if it gets removed without even a word for the reason for removal? So is the end result of Wikipedia to simply allow the authors who persistently and consistently remove material they don't agree with as the end evolution of Wikipedia? If so, I find Wikipedia lacks significantly in credibility, as this is the basis of your behaviors to remove new matter without any reason, without any though, and without discussion as you just have with the new statement in the criticism section in the last 24 hours.AmourReflection (talk) 18:16, 9 August 2012 (UTC)

After all, this is a criticism section, the title suggests criticism will be here, but it appears the Wikipedia editors in here are hypersensitive to the criticism in the criticism section. So who is really taking this personally? Is the very definition of "criticism" not understood, or editors are simply unable to handle criticism in the criticism section? If criticism is censored then why call it criticism? Then why even have a criticism section to begin with? Since the criticism section displays extraordinary bias for removal of new criticism, are all of you simply incapable or unable to handle valid criticism? Why are you taking this personally as your behavior of removal without response suggests you are the ones who are taking it personally? To me, an editor who can not handle criticism without even responding to the reasons for censorship is clearly taking the criticism personally. If Wikipedia is going to have any value, editors need to respond to reasons for removing new matter other than no reason at all.AmourReflection (talk) 18:25, 9 August 2012 (UTC)

So someone in here, explain to me, the reasons for removing the statement that "fractional reserve banking is effectively legalized counterfeiting by non-governmental entities", what is the reason for removal of this statement?AmourReflection (talk) 18:32, 9 August 2012 (UTC)

Dear AmourReflection: The material about "legalized counterfeiting", etc., is in the article. It hasn't been "removed," or at least I haven't removed it. I don't understand your question. Famspear (talk) 18:42, 9 August 2012 (UTC)

PS - I did edit it to show that it's Hammond's critique, assuming that this is correct. (I haven't read the source article itself.) But the material is right in the article where you put it. Don't you see it? Famspear (talk) 18:51, 9 August 2012 (UTC)

Dear Famspear, This was removed by Lawrencekhoo "Fractional reserve banking is effectively a legalized form of non-governmental private counterfeiting.^[1]" with only the words "undo OR POV". So what is the reason for removal, any ideas?AmourReflection (talk) 18:54, 9 August 2012 (UTC)

OK, I see. When I first looked at his edit, I saw only the removal of the POV tag; I didn't scroll down far enough to see the removal of the Hammond text. I'll let Lawrencekhoo respond to you regarding his edit, if he so desires. However, as you can see, I have not removed the material. Famspear (talk) 19:02, 9 August 2012 (UTC)

OK, now I've had a chance to skim the article, and I modified the Hammond material. Hammond is pointing out that Murray Rothbard contends that fractional reserve banking is effectively a legalized form of counterfeiting, etc. I believe this makes clear the source of the critique.

In other words, Wikipedia itself cannot take the position that fractional reserve banking is a form of legalized counterfeiting, etc. What Wikipedia can do is report what reliable, previously published third party sources have stated in their critiques of fractional reserve banking.

This illustrates one aspect of how Wikipedia works. It's a stretch to say that fractional reserve banking is "counterfeiting". Why? Because counterfeiting by definition involves some sort of fraud or misrepresentation. By contrast, when an American bank engages in fractional reserve banking -- by creating money through a loan -- the bank does not print Federal Reserve notes or coins. The bank simply debits an asset account called "loan" and credits a liability account called "demand deposits." The bank is not making an express or implied false statement. But Murray Rothbard would disagree with me. Rothbard contended that what the banks do is sort of like counterfeiting. So, even though I, as a Wikipedia editor, disagree with Rothbard's critique and some of his logical train of thought, an accurate description of his critique might be acceptable in a section of the article on criticism. The fact that I, as an editor, disagree with Rothbard's characterization does not necessarily mean that his critique can't be described in the article -- as long as it is presented with a neutral point of view. In this case, Wikipedia itself cannot take a position. Wikipedia simply reports what previously published third party sources have already written. Famspear (talk) 20:41, 9 August 2012 (UTC)

Dear Famspear, I patently disagree that it is a stretch to say that it is mere counterfeiting, if money is effectively copied, at least the fraction of it that is loaned out, it is certainly a degree of counterfeit, mathematically higher and more extreme than mere counterfeiting (copying 1 to 1) in that not only does it effectively copy a large fraction of money, it multiplies it, to a value higher than mere copying. It is no stretch at all, and mathematically, it's an EXTREME form of counterfeiting, because not only is it not mere copying it is orders of magnitude of expansion, and the public is misled that the production of money is linearly printed by government, not multiplied by private banks.AmourReflection (talk) 20:52, 9 August 2012 (UTC)

Dear AmourReflection: That's the whole point. Nothing is being "copied." There is no actual "copying" and there is no effective "copying" -- of anything.

When we say that banks create "money," we're not referring to currency and coins -- not that kind of money. We're referring to checking accounts. A checking account is a liability that the bank owes to its customer. A checking account is not a representation of currency and coin owned by the customer.

Part of the reason that some people think the way Rothbard thinks is that the average person really doesn't understand fractional reserve banking, and what a checking account is. Another part of the problem is the terminology problem. When we say banks "create money," we're not talking about Federal Reserve notes and coins; we're talking about (usually) checking accounts. Most of the "money" owned by most people in places like the United States is not currency and coin; it's a checking account.

Let's say you have a checking account balance of $1,000. The bank is not telling you that there is a stack of currency (such as Federal Reserve notes) or coins somewhere in the bank building that has your name on it, and that totals to $1,000. Some people may assume that this is the case, but bank doesn't say that. Why? Because it's not true. The currency and coin that is in the bank belongs to the bank, not to the customer (except for whatever is kept by customers in safe deposit boxes, separate safekeeping boxes, etc.). The money in the vault belongs to the bank, not to you.

At the moment you open a checking account by depositing $100 in Federal Reserve notes at a bank, those physical pieces of paper currency cease to be your property, and they become the property of the bank. You, in turn, now own an asset called a checking account (a demand deposit account).

If the bank loans those Federal Reserve notes to Joe down the street from you, the bank is not loaning "your" money. The bank is transferring ownership of its own money to Joe. The bank no longer owns the physical currency. Instead, the bank owns an asset called a "loan" or "loan receivable" (terminology varies).

The terminology of banking, however, does probably help to create the misperception that the bank is "counterfeiting" or "creating fake money." The banks (and their customers) use the terms "deposit" and "withdrawal." These terms can be misleading, to the extent that they mislead the customer to think that the physical currency he "deposits" in the bank still belongs to him, and that the bank is later going to loan out "his money."

Many people who are confused and angry when they learn about how fractional reserve banking works probably have never actually taken a college course in banking or have never read a bank's financial statements. Most people don't know how to understand a bank's financial statements. If people were taught in high school, etc., about how fractional reserve banking works, perhaps fewer people would be upset. Famspear (talk) 21:04, 9 August 2012 (UTC)

Dear AmourReflection: Do you see the fallacy in your reasoning? It's your assumption that "the public is misled that the production of money is linearly printed by government, not multiplied by private banks". That's the whole point. The public is not being misled.

Let's suppose you have a checking account balance of $1,000. You go to the bank and you say, "Mr. Banker, I want to borrow $99,000 so I can use the money to start a business." The Bank says, "OK, we'll credit your checking account for $99,000. You now have a balance of $100,000. And please sign this note for $99,000, promising to pay back the loan." So you agree, and you do so, and everyone is happy. The bank has not made any false statement at all -- they haven't "misled" you. The bank has not told you that you now somehow "own" a stack of Federal Reserve notes and coins that totals to $100,000. The bank has simply debited "loans receivable" for $99,000, an asset on its books, and has credited "demand deposits" for $99,000 (a liability on its books). It may seem strange to you because you're not familiar with how banking works. Famspear (talk) 21:15, 9 August 2012 (UTC)

Again, if there is anything "misleading" about what the banks do, it is to use the words "deposit" and "withdrawal." These terms may tend to lead the average person to incorrectly conclude that the physical currency he or she "deposits" "in" the bank is somehow still his or her property -- that perhaps the bank puts that money in some special stack with his or her name on it. Such is not the case. Once you "deposit" the currency, the ownership is transferred to the bank. You have, in effect, made a loan to the bank. The bank even shows your deposit account balance as a liability owed by the bank to its customer on the bank's financial statements. Famspear (talk) 21:20, 9 August 2012 (UTC)

Dear Fampspear and Shandy, you are both obfuscating the system in your arguments above, and it is this very obfuscation that produces the tools of manipulating of money legally condoned(currently). No high school class other than simple math, or even a middle school math education is required to figure out the simple example that money is effectively counterfeited in the banking system. Let us take the simple example of $1000. If a person is to counterfeit $1000, they would copy 100% of it, and yes, that is indeed 100% counterfeiting. Now, we take into the obfuscated fractional reserve system, as an example of a reserve requirement of 10%, this obfuscated system converts it into $9954. Effectively, this is 995.4% copying. The obfuscated system can be a "black box", it can be anything, and fundamentally, it doesn't really matter what it is, it could be a Casino in Vegas, or someone sitting behind a desk in Zimbabwe. Now, regardless of what the black box is, if $1000 is inserted and $9954 pops out of the box, effectively, the $1000 has been copied 9.954 times, so instead of the level of counterfeit being a factor of 1, it becomes a factor of 9.954, so fundamentally it is much more SEVERE than counterfeiting. It doesn't matter, unless you have a desire to obfuscate it via jargon, if you call the money with any label or form, salt from a Sea of Europa, markings on a stick, it can be anything it wants to be, but it is still a representation that has an input and an output, regardless of what form it takes, it is still fundamentally the same thing.

Now your arguments that $1000 is not a "reserve note", does not carry much weight, because the $1000 can be demanded by the depositor at any time for any reason to be converted into reserve notes or coins, call it a loan, call it a deposit, call it deity marked valid, call it whatever, call it E Pluribus Unum, call it gold or silver, or copper, or thin air, and thus the customer of the black box has a perception that this is true, that there is real value.AmourReflection (talk) 21:51, 9 August 2012 (UTC)

Dear AmourReflection: You're still not getting it. Let's use a simple example, with simplified rules. If a bank owns $1,000 of currency and coin (and no other assets that qualify as "reserves") and has a reserve requirement of 10%, that means that the balance of the bank's currency must be equal to no less than 10% of the amount of the bank's deposit liabilities. Let's say that the bank has no depositors. It has just opened for business. If someone walks into the bank and says, "I want to borrow $10,000. Can you, Mr. Banker, create a checking account for me for that amount?" The bank says, "Sure." The bank simply debits its "loans receivable" account for $10,000 (an asset on its books) and credits its "demand deposit liabilities" account (a liability on the bank's books) for $10,000. Now, here's what the bank's balance sheet looks like:

ASSETS Currency and coin$1,000 Loans receivable10,000 total$ 11,000

LIABILITIES AND STOCKHOLDERS' EQUITY Deposit liabilities$ 10,000 Stkhldrs equity1,000 total$ 11,000

Now, the customer may think that he "owns" $10,000 in Federal Reserve notes (currency), but if he does, it's because he doesn't understanding banking. The bank never told him he owns any Federal Reserve notes.

Now, if he writes a check for $10,000 and the payee tries to cash that check at this bank to obtain $10,000 in currency, the bank is in big trouble. THAT's a part of fractional reserve banking that people like Murray Rothbard don't like -- and it's a valid fear. What the bank would like is for the payee to open a checking account at the bank for $10,000 -- otherwise, you have what is similar to a "run" on the bank.

But there is nothing particularly nefarious about this. There is always a danger for a bank -- or any other business -- that the bank may be equitably insolvent (cash flow insolvent). That is, the bank cannot pay its debts as they become due. In the example above, the bank is solvent on a balance sheet basis (that is, it has net positive net worth of $1,000, the amount of stockholders' equity (assuming that the loan receivable is fully collectible). But on a cash flow basis, it is insolvent -- because it has current liabilities of $10,000 and current assets of only $1,000. It has a negative working capital situation.

Nothing unusual about that. Lots of businesses operate that way. Some get in trouble. Others don't. Famspear (talk) 22:12, 9 August 2012 (UTC)

Dear Famspear, again you are expressing a great desire to make the example more complex than it really is or needs to be. For this discussion to continue constructively, please stay within the bounds of the simple example and not add unnecessary confusion of specific banks, specific entities, specific names, specific types of money, specific aspects of money, and any other unnecessary terminology until we have reconciled perception on a fix instead of a dead reckoning. If this is going to be a good encyclopedia, the best level of understanding is basic fundamentals first, then to the jargon later. So can you agree to stick to simplicity first, before continuing?AmourReflection (talk) 22:28, 9 August 2012 (UTC)

Dear AmourReflection: No. I am simplifying it for you. I understand that it's difficult to understand. Believe me, this is the easy part of "basic banking 101", and I'm using a minimal amount of technical jargon. If you can't understand my over-simplified example, you're not going to be able to understand the details fractional reserve banking.

At any rate, we digress. The purpose of this talk page is not to discuss the subject of fractional reserve banking specifically. I gave you the simplified example as an illustration. The purpose of this talk page is to discuss ways to improve the article which is about fractional reserve banking. Some illustration may be helpful, but if it's not, then perhaps there's little point in filling up the talk page with more illustration. Famspear (talk) 23:16, 9 August 2012 (UTC)

(Dear Famspear, this is your personal attack, it is simple to understand and I understand it, you don't understand that it is simple, you want to make it complicated so you can weasel out of the basic fundamentals AmourReflection (talk) 23:40, 9 August 2012 (UTC))Believe me, this is the easy part of "basic banking 101" (Dear Famspear, very belittling of you, it could be banking 606, or 666, or Nobel Prize Banking, I don't really care how obfuscated you want to purposely make the parlance, but you are attempting to just go 1 level above basics so you can obscure your logic, all I am asking is to grind down to the fundamental physics of the problem not the smoke and mirrors you wish to apply.AmourReflection (talk) 23:40, 9 August 2012 (UTC)), and I'm using a minimal amount of technical jargon (Dear Famspear, It is simpler than you are making it, you are failing to recognize it is even simpler. AmourReflection (talk) 23:40, 9 August 2012 (UTC)). If you can't understand my over-simplified example (Dear Famspear, I understand it very well. AmourReflection (talk) 23:40, 9 August 2012 (UTC)), you're not going to be able to understand the details fractional reserve banking. (Dear Famspear, I understand the details, you are unwilling to get to the physics of the problem, you prefer to use trite language. AmourReflection (talk) 23:40, 9 August 2012 (UTC))

Dear AmourReflection: No, I'm not using trite language. No, I'm not attacking you personally. No, I am not weaseling out of basic fundamentals. No, I am not making it complicated. No, I am not obfuscating. No, I am not trying to obscure logic. And yes, if you cannot understand my over-simplified example, then you are not going to understand the more complex aspects of banking. I have explained the basics in basic terms that I'm sure others here can understand. I would suggest that you now move on to the task at hand: working on ways to improve the article. Famspear (talk) 01:15, 10 August 2012 (UTC)

What Famspear explained are the fundamentals of fractional reserve banking. He did not attack you, AmourReflection. I don't know how we can make it any simpler or clearer. We shouldn't have to devote so much time and effort to resisting one editor's obscure, fringe point of view. As this discussion seems to be going nowhere, perhaps it's time to pursue some kind of request for comment to get more input. John Shandy` • talk 01:32, 10 August 2012 (UTC)

Dear Famspear, That is interesting, this simple fractional reserve example of going from "$1000 to $9954" that you claim I fail to understand. Based on your comment above "if you cannot understand my over-simplified example" So you claim to be the original author of this super simple example of going from $1000 with 10% reserve ratio to another number. I am really curious, is this true? Were you the original author of this, or perhaps did you decide to overwrite the original author with your own convenient math to illustrate smaller numbers to make your point. Have you considered wondering or having the curiosity to know who the original author of the simple example is? You ought to try to go back in the revision history. You will find that not only your number after 50 iterations is wrong (It is $9,948.46 for demand deposits or $18,902.08 M1, with $994.85 reserve, effectively $19,896.92 total), but you also failed to realize who the actual original author is who anticipated all this. If you are curious about who was the original author that entered $1000 in originally as a simple example, who recognized that the total is actually $18,997.28 (M1), effectively $19,997.13 total after 84 iterations that includes reserve $999.86, you conveniently decided to erase and take credit for the example by modifying it incorrectly. If you actually have vigilant curiosity, you can go back and look, to discover your ideas have crashed and burned, and it is no wonder why this system is such nonsense to begin with. Perhaps if you reflect some love of vigilant curiosity, you will then see the light of the Sun of self-evident truth, but now you are only looking at the reflections in the cave, you believe in Oz, but you have never lifted the curtain, the smoke and mirrors you believe as "truth" are being revealed, and it takes the eye of a dog to demonstrate this to you.AmourReflection (talk) 04:31, 10 August 2012 (UTC)

Your assumption of bad faith on the part of Famspear is ridiculous. That entire reply to him is nothing other than a meandering rant. The interpretation of fractional reserve banking as a form of counterfeiting is a fringe point of view not supported by the mainstream. Your allegation that Famspear is somehow over-complicating or misrepresenting the mechanics of fractional reserve banking is out of touch with reality. How can we possibly have a meaningful discussion with you when you dig your heals in and ignore everything we say and accuse us of maneuvering conveniently to somehow carry out an agenda? These are not the signals of a willingness to resolve the content dispute or move on. John Shandy` • talk 05:21, 10 August 2012 (UTC)

Dear Shandy, Ridiculous? Then do the math yourself, and take a look at who the original author is of the simple example (of whom Famspear claims to be), or are you not willing to discover that? As far as being "fringe", let me ask you this, is basic mathematics a fringe point of view?AmourReflection (talk) 05:48, 10 August 2012 (UTC)

So indeed if it is indeed a "meandering rant", try looking at who made this edit below, and who do you think "68.230.69.33" is? Is it Mr. Famspear who claims himself as the original author of the simple example, who claims to understand this more than I do, who claims he knows what he is doing but makes math errors, and who claims I don't understand it?:

(cur | prev) 19:48, 11 March 2012‎ 68.230.69.33 (talk)‎ . . (61,988 bytes) (+2,185)‎ . . (→‎Criticisms: Added criticism of banks collectively ignoring collateral performance, along with quotes from prominent historical figures.) (undo) (cur | prev) 18:26, 9 March 2012‎ 68.230.69.33 (talk)‎ . . (59,803 bytes) (+64)‎ . . (→‎How it works) (undo) (cur | prev) 18:24, 9 March 2012‎ 68.230.69.33 (talk)‎ . . (59,739 bytes) (+46)‎ . . (→‎How it works) (undo) (cur | prev) 18:22, 9 March 2012‎ 68.230.69.33 (talk)‎ . . (59,693 bytes) (+81)‎ . . (→‎How it works: clarification of "copy" is 90% for a fractional reserve amount of 10%) (undo) (cur | prev) 18:16, 9 March 2012‎ 68.230.69.33 (talk)‎ . . (59,612 bytes) (+764)‎ . . (→‎How it works: Added numerical example.) (undo)

Well you see here, it was me, I was "68.230.69.33" before I even had a Wikipedia username.AmourReflection (talk) 06:02, 10 August 2012 (UTC)

If you are arguing that commercial banks effectively create money, neither Famspear nor myself disagrees with that. But, they do not copy money and they do not counterfeit money. Even if you don't believe this, it matters not, because the view that fractional reserve banking is a legalized counterfeiting activity is not a mainstream view as can be gleaned from the reliable literature on the topic. We would be giving undue weight to that fringe point of view if we were to have the article adopt the view rather than attribute the view to Rothbard. John Shandy` • talk 06:21, 10 August 2012 (UTC)

Dear Shandy, The burden of mathematical proof rests on you then, as you can use all the scriptures of human history that you want, all the way to prima facie of the very first fractional reserve bank in human history, but you will have to prove this mathematically to convince me it is not effectively legalized counterfeiting, and I have seen no mathematical proof to convince me that this is not legalized counterfeiting of currency. You can use all the semantic labels of any human language of earth, but the numbers are numbers, that is all they are, you can not claim one number is one thing, and not another thing and pretend they are not the same thing. As far as "main stream" goes, you are patently wrong on that, have you ever wondered what Occupy Wall Street is all about? The 99% who realize this is nothing more than the oldest legalized poncy scheme in human history. Or perhaps you failed to study history, and learn that many who you effectively label as "fringe" people with fringe ideas (including Henry Ford where you and other editors valiantly oppose and oppress ad nauseam):

“The bank hath benefit of interest on all monies that it creates out of nothing.” - William Paterson (1658-1719), International Banker, in 1694 obtained the charter over the Bank of England and the money system fell into private hands.

"Permit me to issue and control the money of a nation, and I care not who makes its laws!“ - Mayer Amschel Rothschild (1744-1812)

"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and it's issuance“ - President James Madison (1809-1817)

“I believe that banking institutions are more dangerous to our liberties than standing armies” - Thomas Jefferson

“The refusal of King George III to allow the colonies to operate an honest money system, which freed the ordinary man from the clutches of the money manipulators, was probably the prime cause of the Revolution.” - Benjamin Franklin (Founding Father of the United States)

“The Congress shall have power to… coin money [and] regulate the value thereof.” - Section 8, U.S. Constitution, 1783

“If the American people ever allow the banks to control the issuance of their currency (instead of Congress), first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers occupied. The issuing power of money should be taken from the banks and restored to Congress and the people to whom it belongs.” -Thomas Jefferson, letter to then Secretary of the Treasury, Albert Gallatin, 1802

“The eyes of our citizens are not sufficiently open to the true cause of our distress. They ascribe them to everything but their true cause, the banking system” – Thomas Jefferson

“All the perplexities, confusion and distress in America arise not from defects in our Constitution; not from want of honour or virtue, so much as from downright ignorance of the nature of coin, credit and circulation.” - President John Adams, 2nd U.S. President

“I killed the bank.” - Written on the grave of Andrew Jackson (1767-1845)

"The few who understand the system will either be so interested in its profits or so dependent on its favours that there will be no opposition from that class, while on the other hand, the great body of the people mentally incapable of comprehending the tremendous advantage that capital derives from the system will bear its burdens without complaint and perhaps without even suspecting that the system is inimical to their interests." - John Sherman letter sent to New York bankers, Morton, and Gould, in support of the then proposed National Banking Act, 1863

“Whoever controls the volume of money in any country is absolute master of all industry and commerce.” - President James A. Garfield, assassinated 1881

“People who will not turn a shovel of dirt on the project, nor contribute a pound of material, will collect more money, from the United States, than will the people, who supply all the material and do all the work. This is the terrible thing about interest… But here is the point: If the nation can issue a dollar bond, it can also issue a dollar bill. The element that makes the bond good, makes the bill good, also. The difference, between the bond and the bill, is that the bond lets the money-broker collect twice the amount of the bond, and an additional 20%. Whereas the currency, the honest sort, provided by the Constitution, pays nobody, but those, who contribute in some useful way. It is absurd, to say that our country can issue bonds, and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the people.” – Thomas Edison

“The Morgan interests took advantage… to precipitate the panic [of 1907], guiding it shrewdly as it progressed.” - Life Magazine, 1907

"Let me control a peoples currency and I care not who makes their laws." - Meyer Nathaniel Rothschild in a speech to a gathering of world bankers February 12, 1912, a requote of his ancestor Mayer Amschel.

"This [Federal Reserve Act] establishes the most gigantic trust on earth. When the President Wilson signs this bill, the invisible government of the monetary power will be legalized....the worst legislative crime of the ages is perpetrated by this banking and currency bill. From now on, depressions will be scientifically created." - Charles A. Lindbergh, Sr., 1913

“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is now controlled by its system of credit… We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the world - no longer a Government of free opinion, no longer a Government by conviction and vote of the majority, but a Government by the opinion and duress of small groups of dominant men.” - Woodrow Wilson, 1919

"The financial system has been turned over to the Federal Reserve Board. That Board administers the finance system by authority of a purely profiteering group. The system is Private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people's money” - Charles A. Lindbergh, Sr., 1923

“I am afraid that the ordinary citizen will not like to be told that the banks can and do CREATE money, and they who control the credit of the nation direct the policies of governments and hold in their hands the destiny of the people.” - Reginald McKenna (1863-1943), President of the Midlands Bank of England, UK Chancellor 1915-16, January 1924

"When the Federal Reserve Act was passed, the people of these United States did not perceive that a world banking system was being set up here. A super-state controlled by international bankers and international industrialists acting together to enslave the world for their own pleasure. Every effort has been made by the Fed (Reserve) to conceal its powers but the truth is — the Fed has usurped the government!" ? Congressman Louis McFadden, Chairman of House Comm. on Banking and Currency from 1920 to 1931

“Mr. Chairman, we have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks, hereinafter called the Fed. The Fed has cheated the government of these United States and the people of the United States out of enough money to pay the Nation's debt. The depredations and iniquities of the Fed has cost this country enough money to pay the National debt several times over. These twelve private credit monopolies were deceitfully and disloyally foisted upon this country by the bankers who came here from Europe and repaid us our hospitality by undermining our American institutions. Those bankers took money out of this country to finance Japan in a war against Russia. They created a reign of terror in Russia with our money in order to help that war along. They instigated the separate peace between Germany and Russia and thus drove a wedge between the Allies in the World War." ? Congressman Louis T. McFadden, Chairman of House Banking Committee 1921 through 1931 — in a speech made before the House in 1934

“[The Depression] was a carefully contrived occurrence. International bankers sought to bring about a condition of despair, so that they might emerge the rulers of us all.” - Louis T McFadden

"The depression was the calculated 'shearing' of the public by the World Money powers, triggered by the planned sudden shortage of supply of call money in the New York money market....The One World Government leaders and their ever close bankers have now acquired full control of the money and credit machinery of the U.S. via the creation of the privately owned Federal Reserve Bank." - Curtis Dall, FDR's son-in-law as quoted in his book, My Exploited Father-in-Law

“The real truth of the matter is that a financial element in the large centers has owned the government since the days of Andrew Jackson.” - President FD Roosevelt (1933-1945)

“Banking was conceived in iniquity and was born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear, and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create deposits.” - Sir Josiah Stamp (1880-1941), President of the Bank of England in the 1920's, the second richest man in Britain

“The Federal Reserve is one of the most corrupt institutions the world has ever seen. There is not a man within the sound of my voice who does not know that this Nation is run by the international bankers.” ? Congressman Louis T. McFadden, Chairman of the House Banking and Currency Committee, June 20, 1932

"Some people think the Federal Reserve Banks are United States Government Institution. They are private credit monopolies which prey upon the people of the United States for the benefit of themselves and their foreign customers." - Congressman Louis T. McFadden, Chairman of the House Banking and Currency Committee, June 20, 1932

"Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency... By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some... The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” - John Maynard Keynes

“The increase in the assets of the Federal Reserve banks from 143 million dollars in 1913 to 45 billion dollars in 1949 went directly to the private stockholders of the [federal reserve] banks." - Eustace Mullins In Secrets of the Federal Reserve (1952)

“Here are the simple facts of the great betrayal. Wilson and House knew that they were doing something momentous. One cannot fathom men's motive's and this pair probably believed in what they were up to. What they did not believe in was representative government. They believed in government by an uncontrolled oligarchy whose acts would only become apparent after an interval so long that the electorate would be forever incapable of doing anything efficient to remedy depredations." - Ezra Pound in the intro to Secrets of the Federal Reserve (1952)

"The powers of financial capitalism had another far reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements, arrived at in frequent private meetings and conferences. The apex of the system was the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the worlds' central banks which were themselves private corporations. The growth of financial capitalism made possible a centralization of world economic control and use of this power for the direct benefit of financiers and the indirect injury of all other economic groups." - Professor Carroll Quigley, 1966

“The people must be helped to think naturally about money. They must be told what it is, and what makes it money, and what are the possible tricks of the present which put nations and peoples under the control of the few. If the American people knew the corruption in our money system there would revolution before morning!” ? Henry Ford, Sr (1863-1947)

“We have gold because we cannot trust Governments.” - President Herbert Hoover (1929-1933)

“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.” - Alan Greenspan, in 1966, before becoming Chairman of the Federal Reserve Board, 1987-2006.

“This is a staggering thought. We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon.It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.” ? Robert H. Hemphill (Credit Manager of Federal Reserve Bank, Atlanta, Ga.)

“I cannot morally blame all Americans for allowing, for instance, the birth of the Federal Reserve System and the money destruction that has followed. They are simply ignorant about it and don’t know what happened or what is happening. They think that prices go up rather than that dollars go down.” - Robert R. Prechter, Jr, economist born 1949

"When you or I write a check there must be sufficient funds in out account to cover the check, but when the Federal Reserve writes a check there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money." - Boston Federal Reserve Bank

"Every Congressman, every Senator knows precisely what causes inflation...but can't support the drastic reforms to stop it because it could cost him his job.“ - Robert A. Heinlein, Expanded Universe, 1980

AmourReflection (talk) 06:54, 10 August 2012 (UTC)

Dear AmourReflection: OK, we already understand that you don't like the concept of fractional reserve banking. Again, this talk page is not the proper place to try to explain how you feel. The wholesale dumping of a list of familiar quotations about the Federal Reserve System, fractional reserve banking, banking in general, etc., etc., is not appropriate. We've seen all this before, and this material doesn't belong here.

Again, let's steer this back to the purpose of this talk page: To discuss ways to improve the article. Famspear (talk) 09:06, 10 August 2012 (UTC)

Dear Shandy, it does not matter what it is, it is not whether I like IT or not whether it is fractional reserve banking, Nigerian banking, Vegas Casino banking, it can be anything, a black box, a green box, Joe's Cave banking box, it doesn't matter at all to me as you perceive, what matters is the performance of the box (again, it could be any type of box in the universe with any banking system in the universe or shell game system or random number generator box or any machine that manipulates numbers) it doesn't matter, what matters is HOW THIS BOX PERFORMS, and clearly this box, whatever you want to call it, FAILS TO PERFORM well CONSISTENTLY and RELIABLY over its HISTORY of operation. So to improve the article, the Simple Example that you claimed to be the original author of, of which you were not (see revision history above, March of this year), not only after your modification did you get the example value wrong after 50 iterations, you used the smaller value instead of the net value, the sum of the perceptions of the box input and box output (M1), and you only took it to 50 iterations, and then you claim I don't understand this when you effectively plagiarize my example and get it wrong (it is no wonder you wish to believe it is not counterfeiting, just look at yourself and what you do).AmourReflection (talk) 16:25, 10 August 2012 (UTC)

Dear AmourReflection: Thanks, again, for sharing that with us (whatever it is that you're sharing with us). Famspear (talk) 19:20, 10 August 2012 (UTC)

Dear AmourReflection: You are not alone in equating 'money creation' with 'legalized counterfeiting'. But because its loaded terminology and your co-editors will resist till the cows come home, why not settle for a quote from a 'respected' source who also views it that way? Great list of quotes by the way - may be in the wrong place but hey.... — Preceding unsigned comment added by 86.46.120.50 (talk) 20:10, 25 August 2012 (UTC)

Since AmourReflection and IP86.46.120.50 seem to be so confused, I decided to copy and adapt some explanation I wrote in another talk page. Hopefully this will help. Here we go:

The money that the Federal Reserve System creates does not belong to the Federal Reserve System. And there's no profit to the Federal Reserve System (or anyone else) at the moment the Federal Reserve System creates that money (more on this below). Profit essentially means an increase in net worth. However, at the moment when the Federal Reserve System issues a Federal Reserve note, the net worth of the Federal Reserve System generally does not increase or decrease. There is generally no profit (or loss for that matter) to the Federal Reserve System when it issues a Federal Reserve note -- although the Fed is definitely creating money -- for someone else.

Think about it in terms of just a Federal Reserve note (such as the one dollar bill in your wallet). If you were going to have an accountant prepare a statement of financial position for you and also one for the Federal Reserve System, how would that one dollar Federal Reserve note be shown on YOUR financial statement, and how would that same note be shown on the Fed's financial statement? Think about it.

When the Fed issues Federal Reserve notes (the money you carry around in your wallet), the Fed is creating a liability of the Fed, not money owned by the Fed. The Fed may, for example, buy government securities by issuing Federal Reserve notes. That means that the Fed is BORROWING in the same way that you borrow when you borrow money from a bank to buy a house.

Think of a Federal Reserve note as being similar to the promissory note you sign when the bank makes a loan to you to buy a house -- because that's what a Federal Reserve note essentially is. It represents a LIABILITY OWED BY THE FEDERAL RESERVE SYSTEM, not MONEY OWNED BY THE FEDERAL RESERVE SYSTEM.

The same dollar that you hold in your wallet (which would be shown as an ASSET on the left side of your balance sheet, if you were to prepare one) is shown on the consolidated balance sheet of the twelve Federal Reserve banks as a LIABILITY OWED BY THE FEDERAL RESERVE BANKS -- on the RIGHT side of their balance sheet. It's money, but IT'S NEVER THE MONEY OF THE FED. At the moment it is issued, it's a LIABILITY OF THE FED, a DEBT OWED BY THE FED. It's a debt owed to WHOEVER OWNS the dollar, and it stays that way until the Fed gets it back. When the Fed gets it back, its legal and economic status is extinguished -- just as the debt you owe on a promissory note is extinguished when you pay off the debt and the lender hands you back your cancelled note (as some lenders still do).

The basic concept is that you cannot owe a debt to yourself. The Fed cannot owe a debt to itself. To the Fed, the printed but as yet unissued Federal Reserve note represents nothing more than what you would have if you typed up a nice, legal-looking "promissory note" at home that said "I hereby promise to pay the holder of this note the sum of twenty dollars on demand." As long as you yourself hold that note in your possession, the "note" is meaningless. It has no legal or economic status.

But if someone cuts your lawn for 20 dollars, and you say to that person "hey, will you let me owe you until next week and just take this twenty dollar promissory note as evidence of my debt to you?" that note becomes evidence of a debt you owe to that person AT THE MOMENT YOU ISSUE THAT NOTE to that person.

Again, as long as the note is in YOUR possession, it is neither money you own nor a liability you owe. It's just a nice piece of paper with some writing on it.

With the Fed, it's the same thing. The Federal Reserve note, when held by the Fed prior to its issuance, is neither "money" nor "money owned by the Fed" nor a "liability owed by the Fed." It's nothing but a nice piece of paper.

At the moment the Fed ISSUES that note to someone (usually, to member bank like Wells Fargo or Bank of America), it then becomes a LIABILITY owed by the Fed, but it does NOT become money OWNED by the Fed.

Let's say that the Fed decides to buy government securities owned by Wells Fargo. The people at Wells Fargo and the people at the Fed decide that the securities in question are worth $10,000. What happens is that Wells Fargo transfers $10,000 of securities to the Fed, and the Fed transfers $10,000 of Federal Reserve notes to Wells Fargo (actually, more likely the Fed simply credits Wells Fargo's checking account at the Fed, but we're illustrating a point here). On the Fed's books, the Fed debits an asset account called "investment in government securities" (or whatever) for $10,000 and credits a liability account called "Federal Reserve notes outstanding" (or whatever) for $10,000. You have a balance entry, and there is no gain or loss on the transaction. If the value of the securities later goes UP to $11,000 and the Fed sells them for that amount, the Fed has a $1,000 gain -- but that's no different than if YOU had bought the securities for $10,000 and sold them for $11,000.

Again, a Federal Reserve note is generally never "money" when its held by the Federal Reserve System. It's money for YOU when YOU hold the note. But as soon as that note is returned to the Federal Reserve System, its legal and economic substance is extinguished. The Fed cannot "owe money to itself." Similarly, you cannot "owe money to yourself" (at least not in the sense that we're talking about).

When the Fed creates money, it does so not by printing the Federal Reserve notes (actually they're physically printed by the Treasury), but by ISSUING the notes to SOMEONE ELSE. And the money that is created is NEVER OWNED BY THE FED. The money is owned by the people who RECEIVE the notes FROM the Fed. The Federal Reserve note represents a LIABILITY owed by the Fed TO the HOLDER of the note, not money OWNED by the Fed.

This stuff is difficult to understand in part because the average person is not used to thinking of the dollar bills in his wallet as representing a liability owed by someone else to him. Those dollar bills are an ASSET for YOU, because YOU'RE NOT THE FED.

Similarly, that promissory note you created -- as long as it's held in the pocket of the guy who mowed your lawn -- represents an ASSET for HIM, in part because HE'S NOT YOU. As long as YOU'RE holding your own note, you "own" nothing (other than a piece of paper with some writing on it, with no legal or economic significance).

The basic concepts are gleaned gradually over a period of time, as a person studies. In a college or university economics curriculum in the United States, there is often going to be a course called "Money and Banking", which will inevitably include the coverage of some aspects of the Federal Reserve System. A person majoring in economics or accounting would do well to take this kind of course. The textbooks tend to be a bit technical. To really grasp the basics and put all the concepts together, one should also consider taking college courses in auditing, financial accounting, and an introduction course in macro-economics. A law school course on commercial transactions will typically include coverage of the laws on bank collections and deposits, and that's helpful too. Famspear (talk) 16:46, 28 September 2012 (UTC)

Dear Famspear, your entire last entry is talking about the Federal Reserve and not fractional reserve banking. As a gentleman, you have frequently accused me of relating the Federal Reserve in here when we are discussing fractional reserve banking, so then as a reflection of yourself, I am now pointing that out to you here.

That aside, when your side plagiarizes my simple fractional reserve banking example and then gets it wrong, then completely removes it from the article itself, and now you accuse me of being confused. It is no wonder to me that you wish to continue to paint a picture of obfuscation of which I see right through. Your continued suggestion of taking the plethora of obfuscated economics on something a 3rd grade math student could easily do, is illustrative of your profound desire to continue the common deceit, ad nauseam, of not only doing worse than legally counterfeiting currency, it is a multiplication of currency counterfeiting, and is a universal deceit throughout human history. After removing all your layers of certified obfuscation that makes you appear to be such a brilliant narcissistic genius to keep your game of deceit, when all reality is, it boils down to basic simple elementary math, and a game of child's play, where only the greedy wish to continue the game of deceit, because this game is just artificially made overly complicated enough to confuse the lazy intellectual, and just sophisticated enough to dazzle the masses with smoke and mirrors. The entire foundation of the fractional reserve banking system is based upon obfuscation when all reality it is easily boiled down to basic simple 3rd grade mathematics, and you know it.

"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and it's issuance“ - President James Madison (1809-1817)

And by the way, Famspear, if you wish to talk federal reserve, the national debt is the greatest political lie in human history. The United States has the constitutional power to annihilate all debt at the stroke of a pen, instantly, because what backs the bond backs the bill, and so shall every nation, once they all realize it, and they will, because they already have, it is starting to occur. Your absurdity and obfuscation of this ancient poncy scheme applied to governments is about to end, as the curtain of obfuscation begins to rise, and nations free themselves from the shackles of artificial bonds.

“Banking was conceived in iniquity and was born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear, and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create deposits.” - Sir Josiah Stamp (1880-1941), President of the Bank of England in the 1920's, the second richest man in Britain AmourReflection (talk) 23:07, 28 September 2012 (UTC)

Dear AmourReflection: Thank you for sharing that with us. Famspear (talk) 00:11, 29 September 2012 (UTC)

Criticism of fractional reserve banking is a POVFORK and should be merged here

Criticism of fractional reserve banking and this article aren't anywhere near long enough to support the obvious WP:POVFORK that it is. It should be merged back here. —Cupco 02:02, 28 September 2012 (UTC)

:I disagree, although I'm not adamant about it. The reason is this: This article is already long and the Criticism section has grown and been cut back. It could grow again. Merging it will tend to make it either too cumbersome and an invitation for edit warring (and that has happened incredibly often on this page) or it will be cut down to be an afterthought. Forks are useful when (1) the main article is already long and (2) the criticism section could grow. Both apply here. FRB123 (talk) 10:43, 30 September 2012 (UTC)

If the two articles were combined even without any redundant overlap, at the size they are today the combined article could double without exceeding article size recommendations. —Cupco 17:03, 30 September 2012 (UTC)

Done —Cupco 02:10, 2 October 2012 (UTC)

I disagree Cupco, the POVfork is illustrative of why there is edit wars going on in here. Fractional reserve banking is simple enough for a 3rd grade math student to understand, but this article is extremely overly bloated already on the descriptions that will only confuse a 3rd grade math student. The size of the article reflects the humbug nature of supporters and instills this common purposeful obfuscation of the masses. It is the same obfuscation that has gone on for ages throughout human history, because people prefer the smoke, mirrors, wishing never to raise the Curtain of Oz. Printing money is an easy job, but to keep the rights to print money, there is a strong desire illustrated in this article to create smoke and mirrors.

Here is a source that reinforces my point above: “The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. The process by which banks create money is so simple the mind is repelled. With something so important, a deeper mystery seems only decent.” -John Kenneth Galbraith (1908- ), former professor of economics at Harvard, writing in ‘Money: Whence it came, where it went’ (1975). AmourReflection (talk) 21:19, 2 October 2012 (UTC)

So you disagree with the merge even though it leaves eight paragraphs of criticism in the main article, which gets far more page views, instead of just one? Well, whatever, there's no logical reason for the split. —Cupco 22:46, 2 October 2012 (UTC)

I agree with the merge Cupco, just saying the article size has no need to double (that is what I disagree with, as it is too big), considering this is 3rd grade math expanded into obfuscation.AmourReflection (talk) 02:07, 3 October 2012 (UTC)

Commodity money

Criticism of commodity money systems are irrelevant to this discussion as FRB occurred with the gold standard in any case. If you want to "balance" the Criticisms section, you need to find references to the advantages of FRB over FullRB. I believe Hayek mentioned that capital investment would have been lower with FullRB and therefore the benefits outweighed the costs, but can't find the exact quote. Explicit listing of the advantages and disadvantages of FRB over FullRB are surprisingly hard to find from economists such as Krugman etc but I'm sure they are out there. That's the kind of thing you need.FRB123 (talk) 01:10, 30 September 2012 (UTC)

Well, I agree and disagree. FRB has always had the effect of allowing an economy to grow with production increases, where hard commodity money would become scarce, deflating (and thus limiting growth.) You just can't separate things that grow the money supply from each other like that. If you go to full backing and for some reason the government doesn't want to print (e.g., fixed income pensioners are in political control) then you're headed for deflation and eventual depression, even under fiat currency. I'm sure I can find a source which is more explicit about it. —Cupco 01:54, 30 September 2012 (UTC)

I agree with you FRB123. Count Truthstein (talk) 02:06, 30 September 2012 (UTC)

:::Cupco thank you for sharing your own personal reflections on the interaction between FRB and commodity money systems. However until you find a reliable reference to insert that somehow inherently connects up the two concepts, talk of commodity money systems should be discussed on the commodity money talk page and the main page here should be confined to the pros and cons of FRB alone. If anyone can find a reliable response to Murray Rothbard in the Criticisms section please feel free to insert it. - FRB123 (talk) 10:38, 30 September 2012 (UTC)

I added a couple peer reviewed journal articles and a Yale/Cowles report. There's quite a bit on the subject in Google Scholar. —Cupco 17:06, 30 September 2012 (UTC)

:::::I'm sorry you still don't get it. The references you have used - particularly Krugman - having nothing to do with FRB and don't even (once) mention FRB in the article. They talk about the disadvantages of commodity money systems. The two concepts are completely separate. It's like adding a discussion whether silver could be money in this article. So what? It's irrelevant. To show you they are independent concepts, read Ellen Brown - she advocates 100% banking with fiat money. George Selgin advocates gold with FRB. So you can have FRB and gold, Full RB and fiat money growth, Full RB and gold, or FRB and fiat money growth (as we have now). Please don't add anything without reading up and "getting" this fundamental fact.FRB123 (talk) 00:58, 1 October 2012 (UTC)

Krugman is there for the examples of what happens when the money supply doesn't keep up with growth. The three other sources added today don't talk about commodity money at all. They are strictly about the relationship between FRB and the money supply, and all are supportive of FRB because they realize that certain political situations (e.g. most of the last couple decades) result in very tight money during relatively slow growth, which is non-optimal. It's easy to find papers opposed to FRB, but those are already in the article. If you only include the statements opposed to FRB and delete the counter-arguments, that violates WP:NPOV. Do you want to use the article as a WP:SOAPBOX or show both pro and con? Policy demands the latter. —Cupco 01:49, 1 October 2012 (UTC)

:::::::OK, let's add those that analyze FRB in the Criticisms page to balance Criticisms and leave them out of this page. This little section is supposed to be a fork anyway and should just summarize the Criticism, which it does. Adding Krugman is so clearly inappropriate as OR it's not worth commenting on. - FRB123 (talk) 03:43, 1 October 2012 (UTC)

Well you know I think the criticisms fork should be merged back here, and so far the only reason not to is that the articles might get larger in the future. Again, they could almost double before exceeding recommended length. —Cupco 05:07, 1 October 2012 (UTC)

~~:::::::::I don't have a major problem incorporating the fork in here, provided the material is transferred rather than deleted.FRB123 (talk) 23:47, 1 October 2012 (UTC)~~

Thanks. I feel very much better about it this way, having everything in one place, and I think you should too. The amount of criticism seems to more closely match the amount that's out there in the literature, and the counter-arguments don't take half the criticism section. The total article length is still very manageable, even with essentially all the see-alsos, external links, and further reading merged. —Cupco 02:13, 2 October 2012 (UTC)

IMF proposes eliminating government debt by eliminating fractional reserve banking

Could someone please comment on http://www.telegraph.co.uk/finance/comment/9623863/IMFs-epic-plan-to-conjure-away-debt-and-dethrone-bankers.html which I believe is talking about http://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf ? Is this a workable proposal? Should it be in the article? What are the downsides? Plexis Pi (talk) 18:45, 22 October 2012 (UTC)

It's already referenced on the mainpage (criticisms section) and on the full reserve banking page. Of course it's workable. For more on this issue, see the "The Money Masters" videos online on YouTube or google "Ellen Hodgson Brown". Reformers generally "split" into full reserve greenbackers (on the left) and Austrian School free currency supporters (on the right). The IMF proposal is a just a re-hash of greenbacker proposals that have been around for over 100 years. The NEED Act also talks about this. There is a lot of information already out there. Google Stephen Zarlenga, Ellen Hodgson Brown, Michael Rowbotham, Web of Debt, The Money Masters, Money as Debt. Just for starters. It's not so much that the IMF proposal is cutting edge. It's simply they can't ignore the stuff that is already out there and are re-hashing Fisher's proposal from 100 years ago almost in desperation that the "conventional" ideas on banking no longer work. For a criticism of these ideas, google Gary North and "greenbackers" or Gary North and Ellen Hodgson Brown. This is quite old and "boring" to those interested in monetary reform but may excite some newspapers because they are about 40 years behind the curve on these issues. To answer your questions: (1) Yes. Of course it's workable. Or at least more workable than the current system that requires exponential growth of the money supply just to remain solvent (2) It's already referenced in the criticisms section, but expand it if you want to. (3) Downsides are: (a) reduction in capital investment (b) very difficult to transition to without a massive credit crunch (c) increased govt control over the economy and (d) the problems Gary North identifies (huge risk of stupid govt-funded malinvestments and a possibly inevitable slide into militarism and fascism). Would it be better than the current system? Probably. But the preferred approach of free market types is currency competition and free banking, rather than government issued fiat (which has always - always - died through overissuance and hyperinflation). It's not so much that the ideas in the IMF paper are "new" (they most definitely are not new) but they have been politically impossible to implement because they would all require some kind of credit crunch and mass liquidations (Greece x 100) that no politician has the guts to implement. So we're trapped even though the current dysfunctional system is unsustainable and will crash at some point if exponential growth in the money supply can't be sustained (and it can't). Finally you may ask why Ellen Hodgson Brown doesn't have a page, why many of the other references are very small on WP, and why 'Criticism of FRB' is so tiny given the very well received IMF paper on this very topic. That's because government-employed academics and bankers cut this stuff out (shamelessly) on many previous occasions over several years and blocked or banned those who tried to oppose their views. This shows progress doesn't occur simply with accumulation of new knowledge, but rather from the exhaustion and demoralization of those in power who didn't want to listen to these ideas in the first place - until they have to. FRB123 (talk) 05:09, 23 October 2012 (UTC)

It's a paper written by people visiting at the IMF, not an IMF position paper. The IMF does not espouse full reserve banking. LK (talk) 09:36, 23 October 2012 (UTC)

~~:::Thx LK, I'm sure many people would be interested in that fact. Plexis please take note of this important fact. FRB123 (talk) 09:38, 23 October 2012 (UTC)~~

Ellen Brown does have a page. Her views have change a bit since Huckleberry Hudson (that's the original name his father, a Twain admirer, gave him :-) ) took it upon himself to aid her economic studies.John Z (talk) 11:10, 23 October 2012 (UTC)

What is the evidence that the authors are not full-fledged IMF officials? They appear to be from [1] and [2]. Plexis Pi (talk) 23:22, 23 October 2012 (UTC)

It's a IMF research paper, they work for IMF. Volunteer Marek 00:43, 24 October 2012 (UTC)

But to be clear it's not a "position paper". It's just a research paper, one out of hundreds and thousands that the IMF publishes. Volunteer Marek 00:48, 24 October 2012 (UTC)

~~== Indictment on our education system ==~~

For evidence of a lack of understanding of basic English grammar I present EXHIBIT A. SPECIFICO could you please refrain from editing over the top of people if you don't understand basic English grammar. It's incredibly frustrating. And no doubt (eventually) embarrassing for you.

"it" vs. "them"

The sentence reads as follows:

Less liquid forms of deposit (such as time deposits) or riskier classes of financial assets (such as equities or long-term bonds) may lock up a depositor's wealth for a period of time, making it unavailable for use on demand.

This can be reduced to "A or B may lock up C for a period of time, making it unavailable..." Where A="less liquid forms of deposit (such as time deposits)" Where B="riskier classes of financial assets (such as equities or long-term bonds)" and where C="a depositor's wealth" The pronoun "it" refers to C. The sentence refers to the relative liquidity of various alternative forms in which ones wealth may be held. The words "making it unavailable for use on demand" refer to the wealth, not to the alternative assets in which it might be invested.

Please give this some thought and if you still believe that the pronoun should be plural kindly explain why in a detailed and reasoned response that you think would be convincing to the fresh eyes of a third party. Thank you.'''SPECIFICO''' (talk) 05:25, 5 November 2012 (UTC)

In all honesty it is embarrassing someone has to explain this. Using another example:

(a) Population can be singular: "The whole voting population is against corrupt bank bailouts of dumb lazy billionaires."

(b) The mere fact there is the mention of "population" (or "wealth") in a sentence does not make it the subject. For example:

"Bill and Ted, as members of the voting population, are totally against corrupt bank bailouts of dumb lazy billionaires."

(c) Bill and Ted are members of the population - but they are also the "real" subjects of the sentence. You do not say "Bill and Ted, as members of the population, is against corrupt bank bailouts of dumb lazy billionaires."

You are confusing the mere reference to the word "wealth" as the "dominant" subject, when it clearly is not. I can't explain it any more clearly. Please speak to an English teacher before continuing this debate (or "correcting" other people's grammar). I'm not kidding when I say you really don't know what you're talking about.

I've cleaned up the sentence. Sue tried but even her edit did not clear up the sentence. Hers did not make sense either. It should be fine now. Could people mess around in their heads with edits prior to editing please. There is some very sloppy stuff happening all over WP at the moment. — Preceding unsigned comment added by 124.176.79.201 (talk) 13:55, 5 November 2012 (UTC)

Maturity Transformation vs Financial Intermediation

All banks - including FULL RB banks and MMMFs - engage in financial intermediation. FRBanks engage in maturity transformation. Any talk of financial intermediation - even if cited - needs to be put on another page as that is not what FRB provides. FRB is about maturity transformation, not financial intermediation. Please stop swapping MT for FI. They are not the same, and FRB is just an example of MT.FRB123 (talk) 22:34, 14 October 2012 (UTC)

Note FRB123 has been indef blocked as a sockpuppet of Karmaisking [3]. --TFD (talk) 03:44, 14 November 2012 (UTC)

The cites are for text books that explain how fractional reserve banks work. They take in deposits and give out loans. Those books contrast this with dfull reserve banks that take in deposits and don't give out loans. They define full reserve banking as keeping all deposits as reserves, therefore a full reserve bank - that keeps all deposits as reserves - cannot act as a financial intermediary. LK (talk) 05:59, 17 October 2012 (UTC)

Sorry that is completely incorrect. FullRBanks can lend out time deposits - they simply can't lend out demand deposits. So they can act as financial intermediaries. This is one of the key misconceptions about FullRB which has been beaten to death on the FullRB talk page and resolved. FRB involves maturity transformation. See here. - FRB123 (talk) 11:00, 17 October 2012 (UTC)

Both terms are correct but when discussing the mechanism of FRB in particular, maturity transformation is more relevant. Financial intermediation can occur without FRB, as FRB123 states. Count Truthstein (talk) 22:50, 17 October 2012 (UTC)

I don't understand your point. If FI can occur in many other contexts (and it can) then the only service FRB provides that is different is MT. So "benefits" should only include MT. Simple. FRB123 (talk) 23:35, 17 October 2012 (UTC)

Look, let's stick to Wikipedia policy. Policy states that what is in the articles has to directly reflect what is in reliable sources (see WP:STICKTOSOURCE). The sources represent FRB as 'lending out deposits, while keeping a fraction as reserves', and full reserve banking as 'keeping all deposits as reserves, not making loans'. I'm not going to argue about whether that accurately represents full reserve banking or not, but that is what the sources say. Given that, full reserve banking cannot engage in financial intermediation. Also, nowhere in any source I know of does it state 'FRB is about maturity transformation, not about financial intermediation; financial intermediation is possible under both fractional and full reserve banking'. If you want to insert that, find reliable sources that actually state that, otherwise it is original research. LK (talk) 04:02, 18 October 2012 (UTC)

What sources say full reserve banking is 'keeping all deposits as reserves, not making loans'? Full RB would (of course) lend out time (or term) deposits. This has been discussed on the talk page and it's been clear your simplification of FullRB is simply incorrect. None of these make that claim. Where is your source?

In addition, the sources you use say "banks do this". They do not specifically split up FRB and FULLRB and refer to one and then the other. So your sources can be used on the banking page but not on this page. You are actually guilty of OR (not me) by not putting the references in their precise context. Find a reference that refers specifically to FRB (as opposed to FULLRB) providing the service of FI. You won't find it. It doesn't exist. Because the refs refer to "banks" providing this service but never distinguish between FRB and FULLRB. Which means they are referring to banking generally, not FRB in particular. FRB123 (talk) 06:17, 18 October 2012 (UTC)

I just noticed that FRB123 has been banned, so he won't comment on future changes to the article. Count Truthstein (talk) 15:01, 29 October 2012 (UTC)

fractional reserve system just an interpretation of how the bank of clearance operates -- and is incorrect when it comes to how the banks lend funds between themselves when we borrow from them

The fractional reserve system idea is a cover story. The article does disclose this later in the article when it states "In practice, some central banks do not require reserves to be held, and in some countries that do, such as the USA and the EU they are not required to be held during the day when the banks are lending, and banks can borrow from other banks at near the central bank policy rate to ensure they have the necessary amount of required reserves by the close of business." The bank of clearance after creating credit can purchase cash reserves if necessary, so the cash reserve is a function created after the a bunch lending combinations at the bank of clearance over time, and not before as the fractional reserve system lends us to believe.

Simple said, the fractional reserve system suggests that all loans are the made from lending real cash and that after some many times it it reaches a limit with bank multiplier effect. Whereas in the real world banks are not lending this real cash, and therefore the new deposits which the fractional reserve system used to count the cash, cannot be as those deposits did not come with cash, the deposits are bank IOU's to other banks.

BUT the openning in the article pulls a fast one and suggests the fractional reserve system is real, wheres it should read a common folk myth explanation for how banks can lend more paper then they have, nevertheless it is not how banks create loans. --Prettyladieslover (talk) 02:48, 9 November 2012 (UTC)

Please have another look at the opening paragraph and see whether the modified wording addresses your concern.'''SPECIFICO''' (talk) 04:17, 9 November 2012 (UTC)

Opening sentence "Fractional-reserve banking is the practice whereby banks retain only a portion of their customers' deposits as readily available reserves from which to satisfy demands for payment." This is a widely held belief and it is how the bank mulitiplier is taught, so the aricle is correct to express it this way. THIS DOES NOT MAKE IT THE REAL WORLD THOUGH. Several banks (with no money) -- can make loans when those loan IOU's are redeposted with the cartel. There is more than one type of fractional reserve banking system and that's the point the article needs to express. --Prettyladieslover (talk) 19:53, 9 November 2012 (UTC)

Without commenting on your view, I can say that I believe the second sentence now relaxes the textbook exposition of serial-loaning of customer deposits and makes it clear that the bank can issue money, subject to its having sufficient reserves, however acquired.'''SPECIFICO''' (talk) 20:23, 9 November 2012 (UTC)

Dear "Prettyladieslover: This paragraph from the section on "How it works" is pretty important:

.... a deposit at a bank is considered a loan from the customer to the bank. That is, the funds deposited are no longer the property of the customer; in other words, bank deposits are not a bailment. The funds become the property of the bank, and the customer in turn receives (or increases his or her balance in) an asset called a deposit account (e.g., a checking or savings account). That same deposit account is a liability of the bank on the bank's books, and in the bank's financial statements. Because the bank in turn makes loans to borrowers, currency and coin reserves at the bank available to repay customers with respect to the demand deposit liabilities of the bank are only a fraction of the amounts owed by the bank to its depositors.

Part of the misconception that some people may have about banking revolves around confusion over the word "money." I think Average Joe Citizen consciously thinks of "money" as being only paper currency and metal coin.

Yet, if you ask that same Average Joe (who has a bank account balance of, say, $5,000) whether he has any "money in the bank", Joe will probably say "Sure, I've got $5,000 in the bank." And Joe will be correct in the sense that he has $5,000 of money – but none of that $5,000 is currency and coin. It's simply a debt owed by the bank to Joe. If you asked Joe whether the bank has a stack of $5,000 in paper currency set aside with his name on it, Joe might say, "Well, I certainly hope so, because the bank statement says my account has $5,000 in it. They better not be lying to me."

Of course, the bank has never lied to Joe. The bank has not told Joe that any of the currency and coin in the bank vault belongs to Joe. Indeed, that currency and coin in the vault does not belong to Joe. The currency and coin belongs to the bank. There is no stack of bills totaling $5,000 with Joe's name on it.

Money, of course, is more than just currency and coin. A bank account is money, by definition. A bank account is a liability owed by the bank to a customer or another bank, etc., etc. Famspear (talk) 21:59, 9 November 2012 (UTC)

I made a few changes to the article on the use of the term "cash." I changed "cash" to "currency" or "currency and coin". When people talk about "cash reserves" in the United States, for example, they're really talking about the portion of reserves constituting actual paper currency -- Federal Reserve notes -- and current coins of the United States (pennies, nickels, dimes, quarters, etc.). The other kind of "reserve" held by a bank is, of course, an account it holds with another bank -- sort of a checking account it has with the other bank.

The term "cash," like the the term "money," has more than one meaning. In a set financial statements for a typical business audited by a certified public accountant, the term "cash" would generally be understood to include not only actual currency and coin on hand but also the bank account balances that business has. Indeed, for most businesses, "cash" in THAT sense means PRIMARILY bank accounts.

When a bank manager talks about the reserves held by his bank, he or she may be talking mainly about: (1) currency and coin in the bank vault, plus (2) bank accounts that the bank has with other banks. However, Average Joe may not realize that category (2) is part of the bank's reserves. Famspear (talk) 22:10, 9 November 2012 (UTC)

Cash, Currency, Reserves

Famspear, I do not believe that your recent edit to the article resolves the problem you have identified. A bank can suffer insolvency if it loses reserves due to large outflows of demand deposits. It's not necessary for depositors to withdraw their funds in currency. Also, please consider whether your change fully addressed your stated concern. Finally, I believe that the term "currency" is unambiguously defined as federal reserve notes plus coin. I suggest you revert your recent change, which I think actually takes this section farther from a clear exposition of the function.'''SPECIFICO''' (talk) 22:49, 9 November 2012 (UTC)

The purpose of the edit was to change the term "cash" to "currency and coin." In context, that's what is meant by "cash" in those particular passages. So, the edit achieved its purpose.

It is certainly true that a bank can suffer insolvency if it loses reserves -- defined roughly as currency and coin plus bank accounts that the bank holds with other banks -- due to large "outflows" of demand deposit liabilities. However, that's really a separate issue. It is also correct to say that it is not necessary for depositors to withdraw funds in currency. Depositors could simply write checks on their accounts. However, again that is a separate issue.

You are correct that "currency" is Federal Reserve notes and current coins of the United States. So, you probably need to be a bit more specific about what your concern is. Famspear (talk) 01:26, 10 November 2012 (UTC)

I am saying "currency and coin" is redundant. Your edit should just use "currency" where it says "currency and coin."'''SPECIFICO''' (talk) 01:40, 10 November 2012 (UTC)

Ah, I see what you are saying. Well, in banking parlance, the term "currency" generally means only paper currency. On a bank's ledger, a typical account title is "currency and coin," which is short for "paper currency and current coin."

However, you are correct that the term "currency" also has a broader meaning that includes both paper currency and coin. I'm a former bank auditor, and I'm used to the banking terminology.

I'll change the article to provide a specific definition that includes both. Famspear (talk) 02:00, 10 November 2012 (UTC

Thanks. As stated above, I believe that the references to currency should be changed or broadened to refer to loss of reserves, whether as currency or fed funds. This may not be so simple an edit. I didn't examine the section closely.'''SPECIFICO''' (talk)

Yeah, I didn't either. And, I think that the average person thinks of "reserves" as just being currency, not understanding that banks have "checking accounts", so to speak, with other banks, and that these "checking accounts" are an even larger part of the reserves of that bank than the total currency held by the bank. I'll try to get to this some time in the next few days. I'm pre-occupied right now. Famspear (talk) 16:44, 10 November 2012 (UTC)

Actually most of a bank's 'checking account' funds is kept with the central bank, not other commercial banks. This is especially true when the central bank also runs the interbank clearing system, as the Fed does with Fed Funds in the US. LK (talk) 04:29, 15 November 2012 (UTC)

Interest rate as determiner of money supply growth

This edit removed a very well-sourced statement about the money supply and how it relates to loans. This is very relevant to the subject of this article, as readers will be reading it to understand how central bank actions can affect the money supply. Lawrencekhoo says that it is a fringe theory, but there are many reliable sources for it. If there are arguments against it, this theory is still worth mentioning along with sourced criticisms. Count Truthstein (talk) 23:01, 16 November 2012 (UTC)

It would help the discussion if you could post here the parts of the deletion to which you refer, along with their citations. Thanks.'''SPECIFICO''' (talk) 01:28, 17 November 2012 (UTC)

"A number of central bankers, monetary economists, and textbooks, have claimed that the size of the money supply depends primarily on the target rate set by the central bank, and not on the reserve ratio as one may expect. The lower the interest rate, the more money banks will create through the extension of credit. While banks may seem limited by their reserve requirements in the amount of credit they can extend, central bank market operations will provide base money on demand to meet the banks reserve requirements, after the banks have begun the lending process^[2]^[3]^[4]^[5]^[6]^[7]^[8]^[9] and that rather than deposits leading to loans, causality is reversed, and loans lead to deposits.^[10]^[11]^[12]^[13]"

^ "Yes, Virginia, Banks Really Do Create Money Out of Thin Air"; Jeremy R. Hammond; August 4th, 2012. http://www.foreignpolicyjournal.com/2012/08/04/yes-virginia-banks-really-do-create-money-out-of-thin-air/4/
^ "Prof Richard Werner describes credit creation". WWW.the-free-lunch.com.
^ "Disyatat, P. 2010 The bank lending channel revisited" (PDF). Bank for International Settlements. Page 2. the concept of the money multiplier is flawed and uninformative in terms of analyzing the dynamics of bank lending. Page 7 When a loan is granted, banks in the first instance create a new liability that is issued to the borrower. This can be in the form of deposits or a cheque drawn on the bank, which when redeemed, becomes deposits at another bank. A well functioning interbank market overcomes the asynchronous nature of loan and deposit creation across banks. Thus loans drive deposits rather than the other way around.
^ "Paul Tucker, Money and credit: Banking and the Macroeconomy" (PDF). Bank of England. banks....in the short run.....lever up their balance sheets and expand credit at will....Subject only but crucially to confidence in their soundness, banks extend credit by simply increasing the borrowing customer's current account.....This 'money creation' process is constrained by their need to manage the liquidity risk from the withdrawal of deposits and the drawdown of backup lines to which it exposes them.
^ "Glen Stevens, the Australian Economy: Then and now". Reserve Bank of Australia. money multiplier, as an introduction to the theory of fractional reserve banking. I suppose students have to learn that, and it is easy to teach, but most practitioners find it to be a pretty unsatisfactory description of how the monetary and credit system actually works. In large part, this is because it ignores the role of financial prices in the process.
^ "White, W. Changing views on how best to conduct monetary policy: the last fifty years". Bank for International Settlements. Some decades ago, the academic literature....emphasised the importance of the reserves supplied by the central bank....., and the implications (via the money multiplier) for the growth of money and credit. Today, it is more broadly understood that no industrial country conducts policy in this way under normal circumstances....there has been a decisive shift towards the use of short-term interest rates as the policy instrument [in industrialised countries]. In this framework, cash reserves supplied to the banking system are whatever they have to be to ensure that the desired policy rate is in fact achieved.
^ "Freedman, C. Reflections on Three Decades at the Bank of Canada" (PDF). Bank of Canada. It used to be that most academic research treated money (or sometimes base) as the exogenous policy instrument under the control of the central bank. This was an irritant to those of us working in central banks, because the instrument of policy had always been the short-term interest rate, and because all monetary aggregates (beyond base) have always been and remain endogenous. In recent years, more and more academics, in specifying their models, have treated the short-term interest rate as the policy instrument, thereby increasing the usefulness of their analyses...
^ http://college.holycross.edu/RePEc/eej/Archive/Volume18/V18N3P305_314.pdf Understanding the Remarkable Survival of Multiplier Models of Money Stock Determination. Eastern Economic Journal, 1992, vol. 18, issue 3, pages 305–314
^ The economics of money, banking and finance: a European text. Fourth edition. Howells, P. G. A. Baines, K. Page 241. FT Prentice Hall. 2005. ISBN 978-0-273-69339-0.
^ "(Holmes, 1969 page 73 at the time Senior Vice President of the Federal Reserve Bank of New York responsible for open market operations) I have not seen, cited in Bank and Credit the Scientific Journal of the National Bank of Poland" (PDF). In the real world, banks extend credit, creating deposits in the process, and look for reserves later. The question then becomes one of whether and how the Federal Reserve will accommodate the demand for reserves. In the very short run, the Federal Reserve has little or no choice about accommodating that demand… ...'
^ "Modern Money Mechanics. Page 37. Money Creation and Reserve Management" (PDF). Federal Reserve Bank of Chicago. Page 7. Of course, they do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers' transaction accounts. Loans (assets) and deposits (liabilities) both rise by $9,000. Reserves are unchanged by the loan transactions. But the deposit credits constitute new additions to the total deposits of the banking system. Page 37. In the real world, a bank's lending is not normally constrained by the amount of excess reserves it has at any given moment. Rather, loans are made, or not made, depending on the bank's credit policies and its expectations about its ability to obtain the funds necessary to pay its customers' checks and maintain required reserves in a timely fashion ...'
^ "The Transmission of Monetary Policy in Canada" (PDF). Bank of Canada. Required reserves have traditionally been justified by a desire to influence the size of the money multiplier and by prudential concerns. However, central banks' views about money supply determination have for a long time been that the money stock is demand determined
^ Elements of Banking Made Simple, Hoyle and Whitehead (Oxford: Heinemann, 1989 edition). From preface "specifically designed to meet the requirements of the Institute of Bankers’ Banking Certificate and Foundation Course". Page 22 "Consider a deposit....£1000 in banknotes....(a) We can lend out £700.... This is the simple view of bank lending. (b) It is....possible for us to have deposits of £3333.33. As we only have deposits....of £1000 we can lend out £2333.33, provided we can find borrowers. This is the more sophisticated view of bank lending.

Quick reaction -- I don't see that the references support the assertions in the deleted text. Just looking at the final reference, multiplier vs. reserves explanation of money supply, so what? It does not tell us that monetary base grows spontaneously. Which references do you believe support the statement that was deleted? I'll look more closely tomorrow. Thanks.'''SPECIFICO''' (talk) 04:26, 17 November 2012 (UTC)

Well, although the phrasing of this particular edit is imperfect and confusing or confused (the Central Bank controls the interest rate, but that does not usually give it real control over "the money supply" -as is empirically obvious right now ) - this goes to THE very serious, very long-standing problem in this article: The undeservedly very short shrift given to loans-create-deposits, endogeneous money, banks are not reserve-constrained view, along with the excessive weight to money-multiplier theories. It is very much NOT a fringe theory, unlike the numerous ones frequently pushed here, and should not be lumped in with them by those who undertake the thankless task of defending the article from such. At worst, it is a (very) significant minority view. (And it is clearly becoming increasing (and imho deservedly) popular again.) As I've posted here, see the archives, at times in the past century, it was the clear majority view according to unimpeachable references, and there are many current, weighty sources calling the money-multiplier a myth, that reverses the actual causality.John Z (talk) 06:25, 21 November 2012 (UTC)

Banks make loans against their reserves and credit the proceeds to depositors accounts. That can be stated in one sentence. That's how banking works, and I have never seen a WP:RS that says otherwise. On the other hand, there are several fringe "endogenous money," unconstrained credit growth, and other myths afloat here, and I have not seen those stories supported by a WP:RS. They are untrue on their face. We don't have runaway inflation. As to the story about serial re-lending approaching the reciprocal of the reserve requirement, that section and its colorful illustrations have been in this article since long before I arrived here. That material seems to be used in many texts and may be a useful heuristic, because it does not assume any particular legal or institutional regime. It may be used as a parable to explain the evolution of fractional-reserve banking. I don't understand why it's controversial. Current-day banks create M1 by crediting customer accounts at the banks' discretion, subject to applicable regulation and reserve requirements. Maybe the article should include a chart like the following [4] vs. a chart of M1 with cited explanation. Aside from ongoing maintenance work of weeding out the obvious POV and unsourced fringe rants, it seems unlikely that this article will attract the level of serious work it will require to flesh it out and complete it in robust condition.'''SPECIFICO''' (talk) 18:47, 21 November 2012 (UTC)

Dear SPECIFICO: The phrase "banks make loans against their reserves" could be misleading to some average readers, though. I could see how, to the uninitiated, it might sound like the bank is using its reserves as collateral for the deposit liability it owes to the borrower, which as you and I know is not the case. Of course, your comment that banks create M1 by crediting customers' accounts hits the nail on the head.

Boy, there is something about the topics of banking, fractional reserve banking, the Federal Reserve System, etc., that really does bring out the wild-eyed, paranoid, hair-on-fire, "the Fed is a private corporation" controlled by a "cabal" of "evil international banksters", fringe rants in Wikipedia (and other places on the internet). I know that this will likely never change. Famspear (talk) 19:12, 21 November 2012 (UTC)

General criticisms and banking style alternatives

Why are alternatives mentioned in this section of fractional reserve banking?

The alternatives go off the subject and out of scope of fractional reserve banking. Aside from going out of scope of fractional reserve, a gold standard would more than likely cause a depression because the money supply would greatly shrink. A silver standard is more than likely wiser as not to shrink the money supply as significantly. In any case, these are off topic from the general criticism of fractional reserve banking. Alternatives to fractional reserve banking need to be a separate article in my opinion.70.190.253.77 (talk) 02:36, 21 November 2012 (UTC)

http://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf mentioned above is the only serious alternative, and should be summarized in this article. 75.166.195.241 (talk) 23:39, 27 November 2012 (UTC)

I disagree, alternatives have no place in this article other than citing links to other articles of alternative systems. Mentioning alternatives only muddies the topic and makes it more complex to what is needed, and is also irrelevant to fractional reserve banking.70.190.253.77 (talk) 20:58, 5 December 2012 (UTC)

If anyone plans to edit criticism section. Please discuss here, before editing further. Thanks!70.190.253.77 (talk) 07:34, 14 December 2012 (UTC)

Please do not remove NPOV tag until criticism discussion is resolved per Wikipedia policy.70.190.253.77 (talk) 01:41, 15 December 2012 (UTC)

Number one observation / criticism / issue of concern is what is an international currency sale: is it a swap of fiat currencies issued by the government -- or is it a swap of fractional reserve banking deposits??! Is there an obligation created so the local government's central bank must provide guarantee these international currency sales with fiat currency paper notes that reduce the local nation's currency value. The nature of the orgin of what determines world currency values, is a function of fractional banking. --Prettyladieslover (talk) 22:49, 20 December 2012 (UTC)

Yes, but we are talking about fractional reserve banking here, not relative currency values, that discussion belongs elsewhere.70.190.253.77 (talk) 05:19, 23 December 2012 (UTC)

NO but. All earnings, paper money, concepts of wealth are equal to and actually are a Quasi-contract stock we all are shareholders in, which we use to trade for bank account points. Currency markets are also a dervative of fractional banking as currency is a fractional banking product/service.

edit consideration in In the [wiki article] financial crisis of 2007–2008 There was a near shut down of the Bank for International Settlements and the Foreign exchange market. Currency prices are not based on the sale of fiat currency, rather fractional banking deposits sold by private banks. When these key banks too big to fail are in trouble, the credit markets no longer partake in fractional reserve banking. The problems of banks selling loan packages to each other, and the feedback loop of banks being responsible for morgage products packaged together and sold and resold between the banks, meant the avalanche was not isolated to a single bank, building a snowball. Unable to trust the balance sheet of fellow banks, fractional banking and the international credit markets shut the hatches to credit to weather the storm. This created a domino effect in stock market capitalization sizes, as the M3 money supply tried to turn itself into the M1 monetary aggregate." --Prettyladieslover (talk) 19:40, 29 December 2012 (UTC)

Interesting, but I still patently disagree. Currency trading is only a relative differential OUTPUT between international banks. Currency trading is NOT a fractional reserve system. This is like saying a bridge is the same thing as a car. Certainly a bridge allows a car to cross a canyon, but a bridge is not the same thing as a car (maybe in some twisted obfuscated universe it might be, but not in this universe). Money from one nation, whether it be M1, M2, M3, etc., is the output of that nation, just as money is the output of another nation across an international border. Money is transferred between two nations via currency trading, the "bridge" between two nations.70.190.253.77 (talk) 22:10, 29 December 2012 (UTC)

The gas bill for a car is more to drive up a hill/slope and then down a hill/slope to a spot -- compared to the driving to that same spot over a flat line/no slope, correct? Basically the incline/decline in a currency and balancing the purchases later (zero sum game) when the currency is lower is not the same gas bill? Supply is a function of fractional banking and money is made here. --Prettyladieslover (talk) 18:51, 4 January 2013 (UTC)

Shall we talk about banana prices in Africa, compared to central America? What absurdity do you wish to tie currency trading with criticism of fractional reserve banking in order for you to more thoroughly obfuscate the topic? What point are you trying to make here?70.190.253.77 (talk) 03:36, 5 January 2013 (UTC)

Final comment. Fractional banking and international trade. Modern trade between nations is not about who can make it the cheapest, but rather, the two trading nations divide up the mix of productions between them, and these allocations achieve economies of scales while still protecting jobs and the right to make something in each nation for people. Basically a high dollar interfers with this employment production strategy, so fractional banking helps us keep it lower by providing the supply. --Prettyladieslover (talk) 21:10, 11 January 2013 (UTC)

International trade is outside the scope of fractional reserve banking.

So, if you wish to continue to expand the scope of argument, using your logic, shall we now talk about how the Moon orbits the Earth, and it's effect on the tidal current that causes it to cost more for ships to go up stream on certain times of the day as the tide goes in and out, such that they have to get a bigger loan from a fractional reserve bank because of this effect? What is your point of absurdity outside fractional reserve banking? Why do you wish to complicate the topic outside the scope of fractional reserve banking criticism?

How about we talk about the actual subject at hand here, that is, criticism of fractional reserve banking, or have you forgotten what the actual topic is? Or may I recommend you move yourself over to the topic you seem to prefer to discuss, that is, international trade? How about you move yourself over there to that Wikipedia article, and come back here, when you want to talk about fractional reserve banking criticism? 70.190.253.77 (talk) 07:31, 12 January 2013 (UTC)

O kay the topic. Criticisms. How about the definition of the word itself. Its counter point Full-reserve banking, also known as 100% reserve banking can not exist by defintion, therefore all banking and lending systems are fractional reserve in nature, as the numbers add up to more than the amount of pocket tockens aka fiat currency, paper stuff, by definition. Impossible to provide an example of a 100 percent reserve banking?! --Prettyladieslover (talk) 20:50, 19 January 2013 (UTC)

It's counter point is an alternative system, again out of scope of the section on criticism of fractional (<100% reserve banking). And your point is? What is it that you want to modify in the criticism section exactly?70.190.253.77 (talk) 20:32, 20 January 2013 (UTC)

These should be external links

This video: http://www.youtube.com/watch?v=CI5CFQXJxcA and this website: http://www.fractionalreserves.com/ should both be on the external links list. I am experienced enough to know that they will be rejected on spurious grounds, but I am mentioning it because between them they provide a lot of information that could resolve arguments people have been having here for years. Reissgo (talk) 13:36, 11 January 2013 (UTC)

Hmmm, that contact e-mail address on that surely unbiased website sure looks familiar. Ravensfire (talk) 14:55, 11 January 2013 (UTC)

The resources page on fractionalreserves.com contains a list of references which are of generally higher quality than the current collection of introductory-guides-written-by-people-who-are-not-central-bankers on the main FRB page. I see no reason this should not qualify as an "external link". — Preceding unsigned comment added by Reissgo (talk • contribs) 15:59, 11 January 2013 (UTC)

Of course you don't ... it's your site! Ah, but it must have been a small oversight of you to forget to mention that, wasn't it? Surely you'd wouldn't try to hide something like that, would you? Of course not. Just like this entire section isn't the usual grandstanding. Ravensfire (talk) 16:02, 11 January 2013 (UTC)

I didn't write the references. I didn't write "the concept of the money multiplier is flawed and uninformative in terms of analyzing the dynamics of bank lending."... that was someone from the Bank for International Settlements.... not me. Reissgo (talk) 16:18, 11 January 2013 (UTC)

Wikipedia is not your personal WP:SOAPBOX. Please start a blog. Ravensfire (talk) 16:27, 11 January 2013 (UTC)

This page: http://www.fractionalreserves.com/web.htm is one sentence by me followed by a long list of top quality references, mostly written by central bankers. Hardly my personal soapbox. How about if I separated that page from the rest of the site and put it somewhere on its own with no possible link back to anything of mine. Then would you still argue against a link to it? (and if so why) Reissgo (talk) 16:39, 11 January 2013 (UTC)

Reissgo, if you think that you have discovered significant third party sources you may list them here or use them individually in other ways which accord with Wikipedia policy. You are raising a false issue concerning your website. There is no need to link to it rather than directly to the appropriate content.'''SPECIFICO''' (talk) 17:51, 11 January 2013 (UTC)

I have had enough battles trying to make edits to the main page (some of which have been successful and are in there to this day) but am quite sick of the process. I am now armed with a list of links to mostly super-high-quality references which generally refute the money-multiplier bias on the main page. Getting them in one by one would be a time consuming nightmare, so I though that a link to the list as a job-lot via an "external link" would save a lot of pain. If it is acceptable I shall put the list on a single page website with no links to anything of mine and then add that as an external link - but I won't do it unless it gets the all clear on this talk page. Reissgo (talk) 18:10, 11 January 2013 (UTC)

Thank you for your reply. That is not acceptable to me.'''SPECIFICO''' (talk) 19:15, 11 January 2013 (UTC)

So to summarise; someone is suggesting that the wiki page on fractional reserve banking has a link to a collection of articles and research papers written by central bankers and leading monetary specialists... but this link is being blocked because its "not acceptable" to SPECIFICO. Reissgo (talk) 15:17, 12 January 2013 (UTC)

Reissgo, fractionalreserves.com is not going to work as an external link or reference. Nor is your book. WP:ELNO #11 is the guideline, and your website qualifies as a personal website. I wish you could be included as a recognized authority, but that is not going to work either. WorldCat does not have your book listed [5], and CreateSpace is Amazon's outlet for WP:SPS authors. Some of the links you list on FR.com can be listed, but we must avoid creating a WP:LINKFARM. In closing it looks like WP:COI applies in your case, so please follow guidelines. Thanks.--S. Rich (talk) 17:03, 12 January 2013 (UTC)

I have objected to (and reverted) Reissgo linking to fractionalreserves.com (and fullreservebanking.com) in the past. Others here have already cited policy, but the salient point is that Wikipedia doesn't just link to sources, it references them. Reissgo argued that this takes time, and yes indeed, it does take time to write a quality encyclopedia article. That's what we're tasked with, however. And none of us are alone in this effort. Furthermore, unless the website belongs to or represents the subject of a Wikipedia article, I don't think an external link to a website advancing a point of view on the topic is appropriate (or at least I don't think it ideal).

On a strictly separate note Reissgo, I think you might not be assuming good faith on our part, as your website explicitly categorizes editors of this Wikipedia article as leading purveyors of misinformation. A number of editors here have given genuine thought and serious discussion to how best to improve and expand the article's coverage of criticisms (without giving undue weight to views of the Mises Institute). I see some quality sources displayed on your list, but they should be integrated into the article just the same as any other. I have been quite busy with life these past several months, but I shall pledge my support as I am able to commit it. John Shandy` • talk 06:46, 13 January 2013 (UTC)

I, too, noticed the "leading purveyor" comment on the website. It indicates a mis-understanding of how WP works. We are each pushing on a WP:POLE with our various edits. And we are doing so as a WP:COMMUNITY. Of course WP has errors. We find those errors everyday and seek to correct them. But we are not here to WP:RGW or soapbox. If, Reissgo, you do not want to join the community, please do not contribute. On the other hand, if you will remain detached enough from your own POV to make contributions IAW the 5 pillars, please join us. Everyone has their personal biases. Confirmation bias exists. Even in the most objective of sciences, biases exist. And as economics is such a loosy-goosy science, differences of opinion are going to exist. Just because someone else's opinion differs is not license to label them, or Wikipedia, as as leading purveyor of information, and then expect to share good faith with other editors. If I were you, Reissgo, I'd remove the leading purveyor line from your website. It would go far, IMHO, to improve your credentials -- as a Wikipedian. In any event, you can expect I, and other editors, to defend the page from inappropriate edits. --S. Rich (talk) 08:10, 13 January 2013 (UTC)

Too many poor quality references

Given that this subject is so controversial, why are so many of the references to articles which are not in peer reviewed journals? Surely an upgrade in reference quality would prevent much of the fighting. Reissgo (talk) 21:26, 4 March 2013 (UTC)

Which ones do you have in mind? I see lots of references to textbooks, publications by central banks, and from the critical side, links to the Mises Institute. Sounds like a fairly balanced and respectable set of sources. I found one blog post, which is generally frowned upon, but perhaps not a problem because the anti-fractional-reserve position is not widely held. Still, I think the critical position can easily be represented by articles on the websites of the Mises and Cato institutes and the like, as well as by select quotes from some of the libertarian classics like the works of Hayek. Martijn Meijering (talk) 12:29, 9 March 2013 (UTC)

How about references 1,2 an 3 for a start. The references would be fine if it wasn't for the fact that super highly qualified people (e.g, Paul Tucker, the deputy governor of the Bank of England - and that's just the beginning of a long list) would strongly disagree with the conclusions that this wiki article draws from those references. Peer reviewed journal papers are the "gold standard" (excuse the pun) of references. But LK and some others are keen to defend poorer quality ones - I dare say that its probably against wiki policy, but I'm not knowledgeable enough about wiki to be sure. Reissgo (talk) 16:13, 10 March 2013 (UTC)

Riessgo, Tell us what makes you so enthusiastic about Paul Tucker? I don't see any justification for calling him a super highly qualified people. I hope you don't just mean his place of employment. Thanks. SPECIFICO talk 17:06, 10 March 2013 (UTC)

Not just who he works for but also his seniority. He is number two at the Bank of England. The bank of England's entire Raison d'être is to control the money supply. So a solid understanding of how the money supply is determined is his main qualification. Reissgo (talk) 13:08, 12 March 2013 (UTC)

Tucker's on the regulatory and settlements side, not monetary policy. Thanks anyway. SPECIFICO talk 13:44, 12 March 2013 (UTC)

So it's not the references themselves, but the way they are used? What conclusions do you disagree with? I see nothing controversial in the lede that cites those references. As for peer-reviewed articles, I don't think they are of lower quality as a reference than a textbook. In fact, they may even be better, because it is harder to tell from an article whether it has gained mainstream acceptance. Martijn Meijering (talk) 16:34, 10 March 2013 (UTC)

The lead strongly implies A) that banks lend out deposits and B) that the total money supply is capped by the "money multiplier". Both statements are false, and many super-heavyweight monetary specialists and central bankers would testify that they were false. Indeed, I'd be surprised if you could find any top ranking monetary specialists that would claim that it was true. Indeed I personally know of a monetary specialist (who works for the federal reserve) who once had an anti-money multiplier paper rejected from a journal on the grounds that "everyone already knows that the money multiplier story is nonsense" so his paper was not novel enough! Reissgo (talk) 13:08, 12 March 2013 (UTC)

I don't understand how A can be false, can you explain? And I don't see where the article implies B), regardless of whether we think it's true. Can you point at a specific sentence you object to? Martijn Meijering (talk) 19:34, 12 March 2013 (UTC)

Re "A": Please watch the video on the front page of fractionalreserves.com. Re B: the article implies B because the word "multiplier" is a link to "money multiplier". Reissgo (talk) 16:33, 13 March 2013 (UTC)

This topic is uncontroversial among economists; reflecting this is that few publish research in this area, as the questions have long been answered. As this is a settled issue, it's perfectly appropriate to reference the topic using standard texts and academic handbooks. LK (talk) 07:06, 5 March 2013 (UTC)

How come I can find quotes from two professors who have served on the Bank of England's monetary policy committee that have said that the way money and banking is taught at most universities is wrong?.. not to mention this guy too: http://www.federalreserve.gov/econresdata/seth-b-carpenter.htm and virtually everyone quoted on this page here: http://www.fractionalreserves.com/web.htm you appear to be delusional.Reissgo (talk) 16:52, 5 March 2013 (UTC)

Cherry picking, and quoting out of context. Among mainstream economists, the only 'controversy' if you can call it that is a pedagogical one, 'how should one best present this subject to those who are unfamiliar with it'. Pick up the Handbook of monetary economics. There's no controversy in there. Sure, we have some post-Keynesians who argue that 'endogenous money' is correct and significantly different from the mainstream understanding, but they are pretty WP:FRINGE. LK (talk) 11:02, 8 March 2013 (UTC)

The calibre and qualifications of the economists that disagree with you are stratospheric. Reissgo (talk) 11:57, 9 March 2013 (UTC)

How about this: "One of the most contentious issues in assessing the role of money is the direction of causation between money and demand. Textbooks assume that money is exogenous." ... "In the United Kingdom, money is endogenous" Mervyn King, Bank of England Quarterly Bulletin August 1994 Reissgo (talk) 15:00, 12 March 2013 (UTC)

That's exactly what is meant by "cherry picking" and that is exactly what you are doing. Find a well-reasoned WP:RS that gives a clear and thorough exposition of the content you feel should be added. There are millions of instances of the word "endogenous" in the English language and almost none of them support your agenda. Thanks. SPECIFICO talk 15:10, 12 March 2013 (UTC)

Look up "Endogenous money" in Wikipedia. Reissgo (talk) 16:51, 12 March 2013 (UTC)

My point was that not every use of the word "endogenous" entails that particular theory. Clear enough now? Thanks. SPECIFICO talk 16:59, 12 March 2013 (UTC)

It seems obvious to me what he meant, but it doesn't even matter exactly much what he meant by it. What he is saying is "Textbooks say that money works like X, whereas actually it works like Y". That alone should be enough to make wikipedians insist that references on this subject are of higher quality than textbooks. Reissgo (talk) 17:32, 12 March 2013 (UTC)

You don't seem to have found any support here. Live long and prosper. SPECIFICO talk 19:05, 12 March 2013 (UTC)

To summarise: The current Governor of the Bank of England has stated explicitly that textbooks describe our monetary system incorrectly - and yet this wiki page is full of references to textbooks. Please stop trying to defend the indefensible. Reissgo (talk) 15:09, 12 March 2013 (UTC)

Then let's add a citation of him saying that. Do you have a link? Martijn Meijering (talk) 20:05, 12 March 2013 (UTC)

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/qb940301.pdf Reissgo (talk) 16:36, 13 March 2013 (UTC)

I think we might be moving down a rabbit trail to some extent here. Whether the current Governor of the Bank of England states that the textbooks describe the monetary system incorrectly or not, textbooks used in colleges and universities are as a general rule probably going to be considered to be reliable sources for purposes of Wikipedia. The mere fact that the Governor of the Bank of England asserts that such textbooks are unreliable does not necessarily make them so -- and certainly does not for purposes of Wikipedia. That means that we can use textbooks as sources. In Wikipedia, we find reliable sources that disagree among themselves all the time, and we know how to present conflicting views from reliable sources. For example, the fact that the Governor of the Bank of England finds many or most textbooks to be unreliable (if indeed he or she does hold that view) is something that might be incorporated into the article. Famspear (talk) 22:25, 12 March 2013 (UTC)

Thank you so much - you've given me the perfect quote for my "misinformation hall of shame", here: http://www.fractionalreserves.com/has.htm Reissgo (talk) 12:05, 13 March 2013 (UTC)

Dear Reissgo: Let's clarify something. My statement is not "misinformation." I'm explaining the rules of Wikipedia. Wikipedia is full of material that you and I and many other editors know is incorrect. This article on Fractional Reserve Banking is an example. I do not have the time or the inclination to try to fix everything at once. This is a work in progress.

It is entirely possible for reliable, previously published third party sources to disagree among themselves. It happens all the time.

The rules of Wikipedia are sometimes frustrating. That does not mean that we are not going to follow the rules. Famspear (talk) 14:29, 13 March 2013 (UTC)

Wiki does not stipulate that papers from peer reviewed journals are not allowed. Indeed even in a wikipedian's eyes peer reviewed articles should trump textbooks. So I see no reason whatsoever to resist my call for peer reviewed references... or at least higher quality references. E.g. the writings of an economist that specialises in the workings of the monetary system should trump the writings of one that specialises in a different field. And writing addressed to other professional economists should trump writng aimed at students. Reissgo (talk) 16:33, 13 March 2013 (UTC)

Dear Reissgo: Yes, peer reviewed papers are most definitely allowed -- and used -- in Wikipedia as reliable sources. I have used peer reviewed papers from law reviews in Wikipedia articles on the subject of U.S. Federal taxation, for example. Textbooks are also generally considered reliable sources. In Wikipedia, we do not generally set two reliable sources next to each other and then decide which source "trumps" the other -- with the purpose of deleting the material from the "loser" in the "trump contest." Again, reliable, previously published third party sources often contradict one another, and we reflect that reality in Wikipedia articles. We don't delete material from textbooks even if the governor of a bank in Britain deems them to be incorrect. (Note: I am not talking about comparing material from reliable sources with wacky material from fringe groups promoting fringe positions. For example, I am not saying that in an article on the subject of the composition of moon dust, we should give equal weight to recognized scholarship from scientists and the ravings of the "Hey The Moon Is Made of Green Cheese and All the Scientists Are in a Conspiracy To Hide The Truth From Us Society.")

And, if I haven't said it before, I'll say it here: I might well agree with you (and the governor of the bank) that many textbooks are incorrect on such and such a point (whatever that point is). I haven't been following that part of the discussion here. So, just in case you're not clear on this: I am neither agreeing nor disagreeing with you with respect to whatever it is you're arguing with the other editors about. I am just explaining how Wikipedia works. Famspear (talk) 18:31, 13 March 2013 (UTC)

Dear Reissgo: I would agree that the writings of an economist who specializes in the monetary system might well be more credible than those of an economist who does not specialize in that field. The fact that one source is considered more credible than another does not necessarily make the "other" not acceptable as a reliable source in Wikipedia. The implication (if there is one here) -- that because a peer reviewed paper is aimed at professionals while a textbook is aimed at students, the peer reviewed paper somehow "trumps" the textbook -- is dubious. That would be like saying (in the world of legal scholarship, for example) that because a peer reviewed paper in the Harvard Law Review on some aspect of the law of civil procedure is aimed at legal professionals, the paper therefore trumps the West hornbook on civil procedure by Friedenthal, Kane and Miller. You cannot evaluate texts in that way. Evaluation of the relative credibility of competing sources involves a lot more than just looking to see whether they are peer reviewed papers or textbooks. Famspear (talk) 19:13, 13 March 2013 (UTC)

"Evaluation of the relative credibility of competing sources involves a lot more than just looking to see whether they are peer reviewed papers or textbooks."... ok, so what if textbooks and non-specialists tend to talk about theory A, and peer-reviewed papers and specialists seems to talk about theory B. Which should be given more prominence and credibility in Wikipedia? Reissgo (talk) 14:37, 14 March 2013 (UTC)

How do you make the determination that "textbooks and non-specialists tend to talk about theory A" while "peer-reviewed papers and specialists" talk about theory B?

Here are some of the Wikipedia guidelines:

"Articles should rely on secondary sources whenever possible. For example, a review article, monograph, or textbook is better than a primary research paper. When relying on primary sources, extreme caution is advised: Wikipedians should never interpret the content of primary sources for themselves. See Wikipedia:No original research.

"Material such as an article, book, monograph, or research paper that has been vetted by the scholarly community is regarded as reliable. If the material has been published in reputable peer-reviewed sources or by well-regarded academic presses, generally it has been vetted by one or more other scholars.

"Completed dissertations or theses written as part of the requirements for a PhD, and which are publicly available, are considered publications by scholars and are routinely cited in footnotes. They have been vetted by the scholarly community; most are available via interlibrary loan. Dissertations in progress have not been vetted and are not regarded as published and are thus not reliable sources as a rule. Masters dissertations and theses are only considered reliable if they can be shown to have had significant scholarly influence.

"One can confirm that discussion of the source has entered mainstream academic discourse by checking the scholarly citations it has received in citation indexes. A corollary is that journals not included in a citation index, especially in fields well covered by such indexes, should be used with caution, though whether it is appropriate to use will depend on the context.

"Isolated studies are usually considered tentative and may change in the light of further academic research. The reliability of a single study depends on the field. Studies relating to complex and abstruse fields, such as medicine, are less definitive. Avoid undue weight when using single studies in such fields. Meta-analyses, textbooks, and scholarly review articles are preferred when available, so as to provide proper context.

"Care should be taken with journals that exist mainly to promote a particular point of view. A claim of peer review is not an indication that the journal is respected, or that any meaningful peer review occurs. Journals that are not peer reviewed by the wider academic community should not be considered reliable, except to show the views of the groups represented by those journals."

That's a Wikipedia Content Guideline (footnotes, etc. omitted), from: [6]. I don't think there is a cut-and-dry, easy answer to your questions, Reissgo. Ultimately the structure of a Wikipedia article and the weight afforded to various competing viewpoints is going to be the result of the consensus of the editors. Famspear (talk) 01:34, 15 March 2013 (UTC)

Correct. Which textbooks anyway? Has the Guv read them all? It's a one-man rabbit hole. We could put it on the article on "textbooks" or on Guv's own article if she is lucky enough to have one. This is fringe/silly. SPECIFICO talk 22:44, 12 March 2013 (UTC)

Boy, this article does need some work. The introductory paragraph moves quickly to an example using "$10,000" as an amount, but part of the text of the example that is supposed to introduce that figure appears to be missing.

I have found that the Wikipedia articles on banking-related topics are difficult to keep in good repair. Famspear (talk) 23:13, 12 March 2013 (UTC)

Since this has become a biggish discussion, I guess I should give some background. Mervyn King is probably the biggest name among those who would prefer a different treatment of the relationship between Central bank money creation and wider credit creation in the banking system. He engages in a bit of hyperbole in that source that Ressigo likes to link to, but if you read the whole thing (as I have), you find that he's not saying anything very different at all. Essentially, he argues that central banks by targetting a price for money (interest rates) have given up control over the quantity of money in the economy. There's nothing strange about this, and King's view (although a little more sympathetic to endogenous money than usual) is well within the mainstream. The issue is, how should the secondary (commercial bank) money creation process be presented. Most textbooks, to keep it straight forward, present it as 'the central bank increases money supply by XXX, M2 increases by a multiple of XXX'. King would rather have it that, the commercial banks create credit of XXX, and this causes the central bank (that's keeping interest rates constant) to increase base money by a fraction of XXX. This is essentially a pedagogical issue, and does not affect the understanding or modelling of the money creation process, since everyone knows that in reality, central banks target interest rates, not the quantity of money. For Wikipedia, the question is, how should we present the secondary money creation process, in a way similar to 99.9% of the textbooks out there, or in a way favored by a few (rather outspoken) economists? My view is that we should follow what is in textbooks and other encyclopedias. LK (talk) 09:10, 15 March 2013 (UTC)

Summary: The section "Money creation process" is misleading.

First, FRB doesn't create money, it only stipulates the proportion of deposits a bank must retain while loaning out the rest. There seems to be confusion over the terms "money" and "deposits". FRB certainly increases the amount of loans that can be deposited with other bank/borrowers, that's what it's designed to do, but no money is ever created as all the extra loans made to other banks/borrowers are exactly matched by the deposits received by those other banks/borrowers.

Second, the title "Money multiplier" and the sentence "This number[m] is multiplied by the initial deposit to show the maximum amount of money it can be expanded to" are both incorrect. If anything it shows a "deposit multiplier", and "the maximum amount of deposits it can be expanded to", for example:

Using the formula m = 1 / R

As R tends to zero, m tends to infinity.

If it was the amount of money that could be multiplied or expanded and the reserve ratio was 0%, the amount of money could be expanded to infinity! Whereas instead it's the same initial deposit that could be re-loaned out an infinite number of times, but it would be exactly balanced by the same deposit being received on the other end as a liability an infinite number of times.

The ratio can be useful, but can easily be misinterpreted to give the impression money is being created out of thin air. A more useful ratio to include would be the amount of loans that can be made compared to the total deposits taken as follows:

Loanable percentage = 100% - R

If R is 20%, a bank's loanable percentage would be 80% of it's deposits. If R is 0%, a bank can loan 100% of it's deposits.

That formula has the advantage that it doesn't give any false impressions of money being created out of thin air. — Preceding unsigned comment added by 89.240.190.23 (talk) 10:13, 28 February 2013 (UTC)

But... Money is created out of thin air. "Not that there's anything wrong with that." see here: [7]

I can't find such a statement in the reference? LarsPensjo (talk) 22:10, 29 March 2013 (UTC)

I think the OP is confused between "Money" as understood in layman's terms, i.e. "cash", and "Money" as defined by economists, "means of carrying out transactions". The standard definition of money is currency plus deposits. Hence if deposits go up, money has gone up.Volunteer Marek 22:39, 29 March 2013 (UTC)

"the textbook treatment of money in the transmission mechanism can be rejected"...

...Said by Michael Kumhof, Deputy Division Chief, Modelling Unit, Research Department, International Monetary Fund in his speech to 31st Annual Monetary and Trade Conference 2013. On video here: http://vimeo.com/64807284#at=0 at 1hr:19m:40s in. His talk begins at 1hr:02m. His talk rips the whole "money multiplier" story to shreds. Reissgo (talk) 15:14, 30 April 2013 (UTC)

WP:SOAP. SPECIFICO talk 16:04, 30 April 2013 (UTC)

Money multiplier, and money supply graphs

The money supply graphs are very misleading, showing apparently exponential growth. Could someone please replace them with graphs drawn in proportion to GDP?

Also, why not include a money multiplier graph? http://research.stlouisfed.org/fred2/series/MULT Otherwise this article seems rather alarmist. There's not a hint in the whole article that the money multiplier has been decreasing and is at historical lows. This is true in Europe and Asia as well. 71.212.249.246 (talk) 21:05, 29 March 2013 (UTC)

Fractional reserve banking is an aspect of whats called fixed exchange rate system, which has been gone in all major economies since 1934. A fact not known by many people outside the FRB or the Treasury.

"Fractional-reserve banking is the current form of banking in all countries worldwide"

This is wrong despite most people including politicians believing in it , text books still quoting it, as only Honk Kong and a few tiny countries still use fractional reserve baking and fixed exchange rate banking. All major economies since 1934 no longer use Fractional reserve banking as a part of fixed exchange rate banking that also stopped in 1934 in major economies, including the US. A fact not known by many people outside the FRB or the Treasury or JP morgan. The banks get automatic reserves overdraft, and this completely removes the functional effect of Fractional-reserve banking, this overdraft would normally be maintained by the bank for ever, its a perk of a modern bank. So in current reality bankers say loans create deposits and loans create reserves for their bank at the FRB.

For the simplest explanation please see lecture Modern money and public purpose 2 Columbia university. http://www.youtube.com/watch?v=ba8XdDqZ-Jg 12 minuits in to lecture he refers to the pre 1934 system. ( best to see the whole thing)

Fractional reserve banking as part of fixed exchange rate banking I believe is correctly explained in the wiki.

I know for many people this will be hard to come to terms with, as many political beliefs are rooted in the pre 1934 system, which is now merely a myth in the US in reality. This is serious mistake as it goes to the heart of people believing that "real" money exists. It also means that people avoid the fact that government debt matches total savings by the population every year historically. So if the government runs a surplus it empties our pensions.

Correction should read Since 1934 Fractional reserve banking is no longer used in any major economy." — Preceding unsigned comment added by Rapatan (talk • contribs)

Dear Rapatan: Thank you for sharing your feelings with us. Famspear (talk) 00:24, 12 May 2013 (UTC)

Re: Example of Deposit Creation

I think this table would be improved if the natural extension of line 'K' were made, so the bank doesn't lend the deposit out, and it has more reserves than required.

Table Sources:
Individual Bank	Amount Deposited	Lent Out	Reserves
A	100	80	20
B	80	64	16
C	64	51.20	12.80
D	51.20	40.96	10.24
E	40.96	32.77	8.19
F	32.77	26.21	6.55
G	26.21	20.97	5.24
H	20.97	16.78	4.19
I	16.78	13.42	3.36
J	13.42	10.74	2.68
K	10.74	0.0	10.74

	Total Amount of Deposits:	Total Amount Lent Out:	Total Reserves:
	457.05	357.05	100

By doing this the table seems neater: the original deposit can be seen to reside entirely as bank reserves, and the sum of this column is the original $100. With this being a high-profile page, especially at the moment, I wouldn't want to make the change without some approval.

I also wonder whether a column should be added to the table recording the retained pieces of paper that form the loan agreements. These have a value greater than the amount lent out by the banks, and when these are included, it can be seen that bank assets are greater than their liabilities, and that money has indeed been created through the process of lending at interest?

JBel (talk) 23:08, 11 June 2013 (UTC)

This seems reasonable to me, and at face value I can't foresee any reason to object. John Shandy` • talk 04:26, 12 June 2013 (UTC)

Assets more than liabilities

If creditors doubt the bank's assets are worth more than its liabilities, all demand creditors have an incentive to demand payment immediately, causing a bank run to occur.

Um, shouldn't it be the other way around? Like "If bank's liabilities are more than it's assets"? M.ollivander (talk) 07:49, 6 August 2013 (UTC)

No. If the creditors doubt that the bank's assets are more than its liabilities, the creditors are suspecting that the liabilities exceed the assets. If a debtor's liabilities exceed assets -- or if a creditor suspects that this is the case -- then the creditor is nervous, and is more likely to demand payment. Famspear (talk) 12:15, 6 August 2013 (UTC)

Reverted Kucinich edit

[8] I just attempted to add material related to a bill which Dennis Kucinich introduced. The point was that fractional reserve banking is not just criticized by the far right, but by the left as well. The edit was reverted with the summary: "Bill's status is dead, far too much WP:WEIGHT to include it here"

Should I take that to mean that that any attempt to document the left's criticism of fractional reserve banking will be removed? — goethean 18:14, 13 August 2013 (UTC)

I think something focused on that asked (criticism from the left) would be useful. But it needs more than just a casual mention of a failed bill. Lots of bills get proposed, most of which do die in committee. Given this is a general topic article and that was something US specific, just dropping the name really doesn't add much. Something like why he wants to abolish FRB, sourced to an article or interview would be much, much stronger. I'd be a bit leery about putting the views of profession politician, but we've already got Ron Paul. I'm going to add Kucinich's name to the list opposed to FRB. Ravensfire (talk) 18:28, 13 August 2013 (UTC)

Thanks, but I don't think that Kucinich agrees with Rothbard's goldbuggery. Kucinich's failed bill was inspired by the American Monetary Institute. — goethean 18:45, 13 August 2013 (UTC)

I'd agree with that. The names listed all opposed FRB but do so for different reasons and would change things in different way. Ravensfire (talk) 19:36, 13 August 2013 (UTC)

Does the money multiplier model still apply in the UK ?

Where does money come from? by Andrew Jackson,Richard Werner,Tony Greenham,Josh Ryan-Collins (12 December 2012) produced by the New Economics Foundation (NEF) based on documents supplied by the Bank of England, claims that the growth in money supply in the UK was based on commercial banks willingness to lend up to 2007 (before the start of the financial crisis), and that interest rates and the reserve requirement had little effect in restraining lending between 1997 and 2007. Banks increased their lending and then sought the reserves afterwards. (talk) 23:30, 29 August 2013 (UTC)brandsby

Criticisms - of what?

There are two obvious sets of criticisms. A) Those that criticise how good FRB is for the economy. and B) Those that criticise the Money Multiplier model of FRB. Sticking both criticisms side by side in the main article appears to be a recipe for confusion. I think that criticisms of the MM-model should be more closely attached to the text describing that model. Or at the very least - edit the criticisms text so that it's clear exactly what's being criticised. Reissgo (talk) 16:44, 30 August 2013 (UTC)

I agree Reissgo, I had trouble getting this limited text accepted by user Famspear. Something appearing is better than nothing. brandsby (talk) 19:33, 30 August 2013 (UTC) — Preceding unsigned comment added by 92.22.227.158 (talk)

If you care about this subject, you should find coherent RS discussion which relates your content to the subject of the article. The reference you provide is not RS. I've previously given you policy links to review. SPECIFICO talk 18:51, 30 August 2013 (UTC)

If you cared about producing a good wiki page then you would insist on the highest possible standards of referencing on the main page. But it relies heavily on elementary teaching materials in preference to peer reviewed journal papers. You should be ashamed of yourselves for producing/defending such bu****it. If the contents of the main page is correct - why can't you find peer reviewed papers that support it? Reissgo (talk) 22:09, 30 August 2013 (UTC)

Dear Reissgo: Please refrain from personal attacks.

Here's the material that was removed originally by me, and later by user SPECIFICO:

In Where does money come from?, Andrew Jackson and others critique the model that explains fractional reserve banking and assert that the growth in money supply in the United Kingdom in prior years was based on commercial banks willingness to lend up to the year 2007 (before the start of the financial crisis), and that interest rates and the reserve requirement had little effect in restraining lending between 1997 and 2007. The authors assert that the banks created new money by the act of lending, and then sought to acquire the reserves afterwards. [insert coding for footnote if this is moved back to article] Summary review of Where does money come from? by Andrew Jackson, Richard Werner, Tony Greenham and Josh Ryan-Collins, New Economics Foundation (Dec. 12, 2012), at [9].

I had removed the Jackson material because I mistakenly believed that there was no critique of fractional reserve banking in the article. After examining the material more closely, however, I noticed some passages I had missed. The Jackson material actually does critique, at a minimum, the MODEL that is used to describe fractional reserve banking. Dear Brandsby: As I explained before, the reason you had "trouble" getting this "limited text" accepted by me was that I originally missed the relevant verbiage in the material. My deletion had nothing to do with the validity of what the authors are saying, nor was my deletion based on a disagreement with what they are saying. When I noticed the verbiage I had originally missed, I re-inserted the material.

And, as an aside: As editor Reissgo has noted, there is a difference between (A) a critique of fractional reserve banking itself (e.g., someone stating: "fractional reserve banking is bad"), and (B) a critique of a particular description of how it works (e.g., "such and such a text does not accurately describe what is actually happening when banks create money by making loans", etc.). I agree that we do need to keep that straight.

Now, on to SPECIFICO's comment. He removed the Jackson material, and his objection is that Jackson, et al., do not constitute a reliable source for purposes of Wikipedia. So, that's the objection that we might want to address. Focus on that. Famspear (talk) 03:36, 31 August 2013 (UTC)

Why was the statement on Rothbard's analysis removed? Before editing in the criticism section again, and attempting to remove citations without stated reasons, discuss here, otherwise, this is clearly a NPOV violation.AmourReflection (talk) 04:56, 10 September 2013 (UTC)

To SPECIFICO, it is not name calling, read the reference, it has all the specifics necessary for any interested reader.AmourReflection (talk) 05:31, 10 September 2013 (UTC)

Enigmatic language

I noticed this material in the article:

Fractional-reserve banking permits a bank to make loans against the reserves it takes in as demand deposits. Full-reserve banking would not permit lending from demand deposits.

First of all, I doubt that the cited sources actually support these statements. If the sources do support these statements, then the sources have some problems with clarity.

There is no such thing as "making a loan against reserves" in the ordinary banking sense. For a commercial bank, its "reserves" are generally its vault cash and the balance of its account with the central bank (I'm simplifying here). Most bank loans are made simply by debiting an asset account on the bank's books (called "loans receivable" or some similar label) and by crediting a liability account on its books called a "deposit". The bank's reserves (its vault cash and its account with the central bank) generally are not affected.

There is no such thing as "lending from demand deposits" in the narrow sense. You can't "lend" from a liability. Think of it this way: If you borrow $100 in Federal Reserve notes from your brother, with an agreement that you have to pay your brother back, the $100 in Federal Reserve notes becomes your property. You also have a liability -- a debt owed to your brother. If you think of yourself as the bank and your brother as the bank's customer, you have an almost perfect analogy. You cannot lend from the liability you owe to your brother. What you can do is to go out and lend the actual, physical $100 in Federal Reserve notes that now belong to you. In a sense, you are lending your reserves. You are not lending from a "liability." If you do lend the $100 in Federal Reserve notes, the actual physical notes cease to be yours, and become the property of the person to whom you made the loan. You now have a sort of intangible (I'm using the word in a general sense) asset called a "loan receivable."

One problem with discussions about banking is that the terminology is confusing. The average person thinks of the actual physical dollar bills as the "deposit." But, in banking parlance, once the bank teller takes your "deposit," the money is no longer a "deposit" -- it's just "vault cash" or "currency and coin" in bank parlance. The bank account that is set up -- the liability that the bank owes to you -- is the deposit liability of the bank. You no longer own the actual physical dollar bills. You own a deposit account, which is a liability on the books of the bank.

Now, in my description above, I talked about a bank lending actual physical dollar bills. In reality, that rarely happens. Only rarely do banks actually relinquish ownership and control over an amount of actual, physical vault cash at the instant a loan is made. Generally, banks debit an asset ("loans" or "loans receivable," etc.) and credit "deposit liability" (or, let's say, if a cashier's check is issued, a liability account that reflects the outstanding check).

In summary: the details of fractional reserve banking and banking in general can be confusing in part because of terminology.

So, this article, like all Wikipedia articles, is properly viewed as a work in progress. It needs work. Famspear (talk) 04:19, 31 August 2013 (UTC)

At the expense of appearing to beat a nearly-dead horse, in the rare occasion where a bank does make a loan by actually doling out physical cash from its vault at the instant the transaction is done, I would not call that making a loan "against" reserves. What the bank would be doing there is increasing an asset account (loans) and decreasing another asset account (decreasing reserves, i.e., a particular kind of reserves called "vault cash" or "currency and coin" or some such label). That's not lending against reserves -- that's lending by actually disposing of some reserves.

Now, let's look at the offending language again:

Fractional-reserve banking permits a bank to make loans against the reserves it takes in as demand deposits. Full-reserve banking would not permit lending from demand deposits.

The first and the second sentence are confusing when read together. In the first sentence, the author seems to be implying that a loan is made "against reserves". In the second sentence, the author seems to be implying that loans are made "from demand deposits." That is nonsensical in a very technical accounting sense. The author is confusing the debits and the credits. Here's what I mean.

Any transaction that is properly recorded on the books of a bank must have at least one debit side and one credit side, and the total dollar amount of debits must equal the total dollar amount of credits. If a new customer walks into a bank with $100 in Federal Reserve notes and sets up a checking account, that event affects TWO items, not one. The debit on the bank's books is to an asset account called "currency and coin" or "vault cash" or some such label. The credit on the bank's books is to a liability account (e.g., demand deposit account). The author of the quoted material is really conflating the debit and the credit -- by referring to a loan as being made "against reserves" (against an asset account, with a normal debit balance) in the first sentence and by referring to a loan as being made "from demand deposits" in the second sentence.

There is no such thing as a bank making a loan from demand deposits it owes to its customers. When it comes to a deposit liability, the bank doesn't "have" anything to loan. The bank owes something. You can't loan something you don't have.

What the bank has is reserves (in this example, vault cash). A bank can loan vault cash by relinquishing ownership of that cash and increasing, in exchange, the total balance some other class of asset such as "loans" (although, as I said above, this particular kind of loan is rare), but describing that event as loaning "against" the cash (i.e., against "reserves") is a clumsy use of terminology at best.

Debits and credits. A little basic accounting course might help. Famspear (talk) 04:49, 31 August 2013 (UTC)

I modified the language in the article a bit, but it still needs work. And we still need to make it clear in the article that most bank loans are not made by loaning cash. More later.... Famspear (talk) 04:56, 31 August 2013 (UTC)

I would second 99% of everything you just said. Though you did make one mistake... The sentence "Full-reserve banking would not permit lending from demand deposits." is completely true. In full-RB, banks can only lend from time deposits, not demand deposits. PositiveMoney.org are a UK based think tank that have been campaigning for full reserve banking for years, and they would confirm this. Reissgo (talk) 09:26, 31 August 2013 (UTC)

No, I didn't make a mistake. And no, in a sense you're actually agreeing with me on that point, but for a different reason. The statement you quoted is true in a sense, but the reason it is true is that a bank cannot lend a "deposit" (in the sense of a deposit liability owed by the bank) at all (whether in a full reserve system or a fractional reserve system). The bank doesn't "have" the deposit in the first place. The "deposit", in banking parlance, is what the bank owes, not what the bank has. A bank has assets (reserves, such as vault cash, would be an example of assets). A bank owes liabilities. So, the statement is (in a sense) true, but misleading, because the statement is using terminology incorrectly.

A bank cannot "lend from time deposits." A bank can lend "from" reserves (by parting with a particular kind of reserves, called "vault cash"). But, that kind of bank lending is rare.

Most bank lending is done by creating deposits -- that is, by creating deposit liabilities out of "thin air", or by incurring some other sort of bank liability (such as a cashier's check, etc.).

Again, the problem in part is confusing terminology. The term "deposit" is often used to refer to the actual, physical currency and coin that is "deposited" when a customer walks up to a bank teller and makes the "deposit." But, in banking parlance, those physical items of currency and coin are not a "deposit" once the transaction is completed. On the bank's books, the event of the banks receiving the physical currency and coin is recorded as a debit to an asset account called "vault cash" or "currency and coin" or some such. The simultaneous creation of a liability -- in the form of the creation (or increase) in, say, the customer's checking account, is recorded as a credit to a liability account -- a deposit account.

If the bank lends those same physical currencies and coin to some other customer a few minutes later, that loan is not being made from a deposit in the technical sense. The loan is being made from vault cash. The bank doesn't "have" the deposit. The bank owes the first customer the deposit. What the bank is lending to the second customer is cash that the bank had acquired from the first customer.

Again, bank loans made by doling out vault cash are actually rare. 13:15, 31 August 2013 (UTC)

PS: In the banking and accounting worlds, we are used to being able to use terms like "deposit" in both senses -- to refer (as customers often do) to the actual physical money as the "deposit" AND to refer to the LIABILITY as the "deposit." But we're not confused about it, because we can keep the debits and credits straight.

Technical terms are often used in multiple ways. For example, a lawyer or judge may refer to an actual piece of paper as being a "contract", as in "Did you actually sign the contract?" or "Did you read the contract?". But in another legal sense, a contract isn't a piece of paper -- it's not a physical object. The contract is the promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law recognizes as a duty. The term is used in more than one way. Famspear (talk) 13:27, 31 August 2013 (UTC)

Now, let's look at this language again:

"Fractional-reserve banking permits a bank to make loans against the reserves it takes in as demand deposits."

A more precise, technically correct way to say this would be:

Fractional-reserve banking permits a bank to make loans by disbursing, to a borrower, a portion of the paper currency and current coins the bank previously acquired when a demand deposit liability of the bank was incurred or increased.

Now, let's look this language:

"Full-reserve banking would not permit lending from demand deposits."

A more precise, technically correct way to say this would be:

Full-reserve banking would not permit a bank to make loans by disbursing, to a borrower, a portion of the paper currency and current coins the bank previously acquired when a demand deposit liability of the bank was incurred or increased.

To digress a bit: Depending on how it were to be set up, a full-reserve banking system might essentially treat the physical paper currency and current coins as still being owned by the customer, and not by the bank. If it were set up that way, the bank presumably could not legally use the currency, etc., to make a loan, since the bank wouldn't even own the currency. Under this particular version of a full-reserve system, the bank would be little more than a safekeeper of the customer's money. We already have a version of this in the banking system in the United States: safe deposit boxes. The money you place in a locked safe deposit box at your bank remains your property. It is not the property of the bank, and it does not show up as an asset on the bank's balance sheet. And no liability, no deposit account on the bank's books, is created when you place your money in a safe deposit box inside the bank building. Further, although the safe deposit box is physically located inside a bank vault, the money in the box is not part of "vault cash" as that term is used in U.S. federal banking regulations. It's not part of the bank's "reserves". Famspear (talk) 14:36, 31 August 2013 (UTC)

Indeed, it is enigmatic, it is an obfuscation of 3rd grade mathematics.AmourReflection (talk) 05:23, 10 September 2013 (UTC)

Criticisms section on Fractional Reserve Banking page

First of all, I have better things to do with my life than spend too long on this.

"Commercial banks seek reserves after increasing the money supply by the act of lending In Where does money come from?, Andrew Jackson and others critique the model that explains fractional reserve banking and assert that the growth in money supply in the United Kingdom in prior years was based on commercial banks willingness to lend up to the year 2007 (before the start of the financial crisis), and that interest rates and the reserve requirement had little effect in restraining lending between 1997 and 2007. The authors assert that the banks created new money by the act of lending, and then sought to acquire the reserves afterwards."

Editor Specifico feels that "Where does money come from ?" is not a reliable source. The book is based on research on hundreds of documents from the Bank of England. We are talking about the UK banking system here, not the USA. It is also backed up by these guys, which editor Reissgo mentions further up. Specifico in my view, is discarding a lot of valuable evidence, and his assertion that the book is not a reliable source of information is untrue. Editors Famspear and Specifico may be familiar with the USA banking system, maybe not that of the UK.

Standard & Poor's chief global economist describes the Money Multiplier Model as a "defunct idea": http://2joz611prdme3eogq61h5p3gr08.wpengine.netdna-cdn.com/wp-content/uploads/2013/08/SP-Banks-Cannot-And-Do-Not-Lend-Out-Reserves-aug-2013.pdf

Michael Kumhof, Deputy Division Chief, Modelling Unit, Research Department, International Monetary Fund said "the textbook treatment of money in the transmission mechanism can be rejected”.

Mervyn King, Governor of the Bank of England 2003 to 2013 said “Textbooks assume that money is exogenous.” … “In the United Kingdom, money is endogenous”.

Professor Charles Goodhart CBE, FBA, ex Monetary Policy Committee, Bank of England said of the money multiplier model: “It should be discarded immediately”.

Professor David Miles, Monetary Policy Committee, Bank of England said “The way monetary economics and banking is taught in many, maybe most, universities is very misleading”.

Senior Vice President of the Federal Reserve Bank of New York, 1969, said “In the real world, banks extend credit, creating deposits in the process, and look for reserves later”.

JP Morgan Chase, Global Data Watch: "In spite of being almost totally divorced from reality, the money multiplier is still taught in undergraduate economics textbooks, with much resulting confusion." http://www.stanford.edu/~johntayl/JPM_Global%20Data%20Watch_Money-Multiplier.pdf Reissgo (talk) 19:02, 26 August 2013 (UTC)

Returning to the Criticism heading - It is too vague as editor Reissgo says. We can criticize the money multiplier model of fractional reserve banking- In other words does it reflect the nature of money and banking today or not ? As one notable economist recently said, the money multiplier model amounts to mis-instruction, Charles Goodhart, CBE, FBA is an economist. He was a member of the Bank of England's Monetary Policy Committee from June 1997 – May 2000, and a professor at the London School of Economics. Yet the money multiplier model receives top billing on the Wiki page. In fact I used Wikipedia to research the method by which banks increase the money supply, when I first became interested in "where money comes from ?" It turns out the money multiplier is probably a false and outdated description. We can also criticize fractional reserve banking itself. Is it good, bad or indifferent for the economy and wider society ? These issues need to be explored. I would appreciate it if my original text can be reinstated because it has a lot of supporting evidence, although as editor Reissgo says, the Criticism section is too vague and rather threadbare. I am not going to make any further attempts to improve this page, because I think editor Reissgo and I have made a very good case, and a vindictive approach has been taken against editor Reissgo, despite his genuine attempts to make relevant improvements to the page. brandsby (talk) 18:20, 2 September (UTC)

Reissgo makes some good points, especially about Specifico's editing, hence NPOV violation on criticism section. The continual attempts to quell criticism are an illustration of NPOV fail, especially in the criticism section.AmourReflection (talk) 06:11, 10 September 2013 (UTC)

Define "notable" author. Do not edit criticism section before discussing here. This section is clearly NPOV failure. "When disagreement becomes apparent, one, both, or all participants should cease warring and discuss the issue on the talk." Editors who are editing this section over and over again need to discuss on this talk page, thus far, editors have been editing, but have failed to go to this talk page and constructively discuss why they are continually deleting the reference to "counterfeiting". I will raise this issue further if more edits occur without constructively discussing the edits of the criticism section. Clearly, there is a editor conflict here, but if you are unable to discuss the reasons for removing, then you are not following wikipedia policy. The present criticism with the word "counterfeiting" is what is in question, and I would like to discuss this with the editors wishing to remove it. Thus far the reasoning has not been substantial.AmourReflection (talk) 13:56, 12 September 2013 (UTC)

Per Wikipedia policy, "Considerable leeway is...given to editors reverting to maintain the quality of a featured article while it appears on the main page." I will claim an exception to 3RR to maintain the neutrality of this article, as the sentence for the Rothbard's analysis needs to remain to include the word "counterfeiting" as described in the reference itself. If the other editors wish to remove this, they need to discuss here before removing, otherwise, we will have an edit war, so I am writing in here, to avoid an edit war, per Wikipedia policy. If the criticism section gets edited again before discussing here, I will send a request for administrative involvement. Edit warring is prohibited per Wikipedia policy, as those who are editing the criticism section without discussing here are starting an edit war. This is a a request for discussion on the "offending" word "counterfeiting" that is repeatedly being removed. If non discussion occurs, I will request a formal dispute resolution.AmourReflection (talk) 14:33, 12 September 2013 (UTC)

Modern Money Mechanics should not be used as a reference

In Modern Money Mechanics it gives a health warning on the front page saying: "The relationships shown are based on simplifying assumptions." Please find something better. Something from a peer reviewed journal, or at least aimed at professionals. Reissgo (talk) 15:18, 18 September 2013 (UTC)

Peer reviewed articles are great, but they don't show as easily when an idea has been accepted by the mainstream. You cannot disqualify other RSs because they aren't peer reviewed articles. Martijn Meijering (talk) 19:08, 23 September 2013 (UTC)

The article says at the start that it does not correspond to reality. We don't know what the "simplifying assumptions" are. How can that be used as a reference? — Preceding unsigned comment added by Reissgo (talk • contribs) 12:20, 23 September 2013 (UTC)

The number of economists that believe assertion X

Observing recent edits it appears that SPECIFICO thinks that if an assertion is made on the main page and is supported by n references then that assertion should be prefaced with the words "n economists believe..." This is clearly crazy. Or maybe its me that's crazy to disagree? Maybe I should preface all statements in the article with "n economists believe"... SPECIFICO, would you like me to do that? I could start with "One economist believes that The remainder of customer-deposited funds is used to fund investments or loans that the bank makes to other customers." Reissgo (talk) 23:54, 12 September 2013 (UTC)

I don't know if he believes that, but yes it's crazy and I've deleted it. Martijn Meijering (talk) 00:30, 13 September 2013 (UTC)

I recommend that you read up on WP:FRINGE, particularly the part about majority, minority and fringe views. I think that will explain why SPECIFICO's edits are in line with policy. MilesMoney (talk) 14:49, 13 October 2013 (UTC)

My edit had absolutely nothing to do with WP:FRINGE and SPECIFICO's edit was ridiculous. We have no way of knowing if precisely 3 economists believe something. Martijn Meijering (talk) 15:30, 13 October 2013 (UTC)

Again, this is where secondary and (especially) tertiary sources come in; they're ideal for surveying the range of views found among experts and summarizing what constitutes the majority, minority and fringe views. MilesMoney (talk) 17:42, 13 October 2013 (UTC)

If you think this point of view is given undue attention, or too little, or whatever, go ahead and fix it. Don't come complaining to me. I didn't say it should be given more or less attention than before, all I did was to remove the absurd edit from "some" to "3", when "3" is ridiculous on the face of it, and unsourced too. Martijn Meijering (talk) 18:38, 13 October 2013 (UTC)

Edit Warring

NPOV section tag means talk in the talk section to resolve differences, otherwise, it is edit warring. If you state criticism is "not constructive" then be specific, otherwise, the criticism of the criticism is baseless, without any explicit direction to clarify or correct. Again, if you want to edit a section tagged NPOV, then talk in the talk section until the dispute is resolved, otherwise, you are failing to adhere to Wikipedia policy, specifically outlawing edit warring.70.190.253.77 (talk) 16:12, 15 October 2013 (UTC)

Please see... [10]

Hello? Anybody out there? Anybody know what NPOV tag means? It means talk in here before editing. If you continue to edit without talking, I'll claim a 3RR exception to maintain the quality of the criticism section. If you are unable to talk and resolve the dispute before editing in the criticism section, then you are clearly violating Wikipedia policy, and I will report you, especially those who continue to delete content without discussing, you are starting an edit war.70.190.253.77 (talk) 16:50, 15 October 2013 (UTC)

Please see your talk page. SPECIFICO talk 16:54, 15 October 2013 (UTC)

SPECIFICO, what does my talk page have to do with criticism of fractional reserve banking? You need to discuss here out in the open so that all can see here in talk about why you are starting an edit war. You cannot hide this fact by attempting to privately post on my talk page. This is an open discussion on how to improve the article, not to have private conversations so that you can hide your POV.70.190.253.77 (talk) 17:50, 15 October 2013 (UTC)

Protected

I don't care who started it, or who's participating or not, or who's right, but there is definitely edit warring going on at this article, which has continued despite blocking one of the editors previously involved. I have therefore protected the article for 3 days to encourage a meaningful discussion and to stop the disruption. I suggest starting a new thread to discuss the material which has been the subject of the edit war. —Darkwind (talk) 18:01, 15 October 2013 (UTC)

Thank you Darkwind, this was needed. After multiple continual calls for the editors who have been deleting content in the criticism section marked NPOV failure to come into discussion and talk, none of them would, they just continued to delete content without any regard or any word in talk. Again, thanks for requiring them here to talk constructively on how to improve the criticism section, to talk out in the open, but as of yet, still have not seen them discuss in talk on how to improve the criticism section. I hope they do, but they have shown no desire to thus far. We can make progress if the warring editors can follow Wikipedia policies and have the etiquette to discuss in talk here.70.190.253.77 (talk) 18:36, 15 October 2013 (UTC)

This passage has an NPOV problem:

"Fractional reserve banking is considered effectively legalized counterfeiting due to the recursion of successive deposits and loans ultimately diminishing the value of currency via inflation and a false perception of value."

Wikipedia simply cannot take a position like this. A proper, neutral rendering would be something like this:

"Author [insert author's name] of the [insert name of institution, etc.] argues that fractional reserve banking is effectively legalized counterfeiting due to the recursion of successive deposits and loans ultimately diminishing the value of currency via inflation and a false perception of value."

If the source material is considered to be reliable, etc., etc., for purposes of Wikipedia, the Wikipedia article can report that the author of the source asserts such and such a point (assuming that the source material actually asserts that point). However, the Wikipedia article itself should not be presented in a way that seems to imply that Wikipedia agrees that the author is correct. Famspear (talk) 04:46, 16 October 2013 (UTC)

Yes, not only does the source material assert the point, I can agree to that change, but that is not what is ultimately causing the NPOV problem, as authors continually delete the passage over and over again and fail to talk about it here in talk why they are deleting, or why they are not making the statement as you suggest, Famspear. I suspect, that even if we change it to as you suggest, people will continue to find baseless reasons to remove it, largely because it is strictly their POV and they have no objectivity.70.190.253.77 (talk) 17:34, 17 October 2013 (UTC)

If you'd like a change to be made, use {{edit protected}} and put the exact wording you want inserted, and an admin will make the change. That is, fill in the author's name and details in the quote and provide the {{cite <whatever>}} and everything. —Darkwind (talk) 01:44, 18 October 2013 (UTC)

That particular proposed change has other disqualifying problems. It's simply an assertion of belief by a fringe thinker with no rationale, basis, justification or any other material that ties it to the substance of this article. It's just a statement of sentiment. SPECIFICO talk 01:48, 18 October 2013 (UTC)

So, SPECIFICO, tell me, how does an author with a Ph.D. in economics make this person a fringe thinker of economics, can you please elaborate?70.190.253.77 (talk) 19:14, 18 October 2013 (UTC)

He's well outside the economic mainstream because, as is typical of the LvMI's scholars, he rejects "positivism", which is to say, evidence. MilesMoney (talk) 17:38, 19 October 2013 (UTC)

MilesMoney, you have started an edit war, now provide me with the evidence that he is outside mainstream. I will also request immunity to 3RR, because you are edit warring.70.190.253.77 (talk) 17:43, 19 October 2013 (UTC)

Actually, if you read WP:BRD, you'll understand that you're edit-warring by not accepting the "R" part. If you think that makes you immune to 3RR, you're welcome to violate it and get blocked.

I already explained how he's not mainstream and you said nothing to deny it. Nothing has changed. MilesMoney (talk) 17:59, 19 October 2013 (UTC)

Your explanation, MilesMoney, is wholeheartedly inadequate. I will assert 3RR immunity, as well as request dispute resolution, because I am preserving the quality of the article per Wikipedia policy, you are vandalizing it by continually removing it without any substantial explanation as per "Reverting obvious vandalism—edits that any well-intentioned user would agree constitute vandalism, such as page blanking ..." So again, I am asking you to provide me evidence that someone with a Ph.D. in economics is a fringe economist.70.190.253.77 (talk) —Preceding undated comment added 18:10, 19 October 2013 (UTC)

You can assert that you're Napoleon for all I care, but you do not have the right to edit-war, and you certainly don't get to call me a vandal just for disagreeing with your edits. Please inform all the authorities so that this can WP:BOOMERANG all over you. MilesMoney (talk) 18:18, 19 October 2013 (UTC)

MilesMoney, nor do you have any right to edit war, of which you are clearly page blanking per 3RR(4) or does the word "counterfeiting" offend you? Because if it does, we can discuss that here, and resolve this dispute now. If you are unable to discuss this here, and you continue to page blank as you have already done several times, yes, I will start a dispute, as clearly you are the one who is edit warring via your page blanks. Wonder why this section is tagged for expansion and NPOV fail? Just because you don't like someone who has a Ph.D. in economics does not automatically mean he is incompetent, or fringe. I provided evidence in the section, and I am asking you to constructively provide evidence to the contrary. So far, you have provided no evidence, and you have been page blanking multiple times.70.190.253.77 (talk) 18:32, 19 October 2013 (UTC)

IP 70, I've removed the content you inserted earlier today. It violates WP:RS WP:SYNTH and WP:OR. You're basically conjoining material based on various sources, at least one of which, the Hulsmann, is not RS, to suggest a narrative which they do not state. For example, the material from the GAO study was not used in that study to condemn Fractional Reserve Banking. Please review the relevant policies and try to reformulate your contribution in accordance with policy. SPECIFICO talk 22:55, 19 October 2013 (UTC)

Stop PAGE BLANKING, you are edit warring, and I claim exemption to 3RR(4) due to page blanking. This section is marked NPOV fail for a reason.70.190.253.77 (talk) 23:19, 19 October 2013 (UTC)

Hello IP70. I explained to you as best I can why your text violates WP policy. Have you reviewed those links? If so, please explain why you feel my view is incorrect. Meanwhile, I will place an edit-warring warning on your talk page. Please undo your re-insertion of this text. Thanks. SPECIFICO talk 23:23, 19 October 2013 (UTC)

For WP:RS, what do you need, someone with a degree higher than a PhD. in Economics? Explain?70.190.253.77 (talk) 23:22, 19 October 2013 (UTC)

SPECIFICO, your claim for WP:OR is absolutely baseless, did you even take the time to read the references? How about you do that instead of page blanking and making baseless claims against the material, or at the very least, be more explicit of your baseless claim of WP:OR70.190.253.77 (talk) 23:30, 19 October 2013 (UTC)

I'm quite familiar with the GAO report. It's not a condemnation of Fractional Reserve Banking. Hulsmann is a fringe guy whose English WP article was deleted because he was determined not to be a notable economist. And it's SYNTH. Read the policy then we can discuss. Meanwhile, you should not edit war or you may be blocked, which I presume you don't want. SPECIFICO talk 23:34, 19 October 2013 (UTC)

SPECIFICO, so are you attempting to tell me that all those banks in the GAO audit report are not fractional reserve banks that needed emergency assistance? So you think these banks in the GAO audit are full reserve, or what? How is it not a criticism when even the title of the audit is "needing emergency assistance". Wouldn't you think, if they are in need of emergency assistance that they do not have a critical problem to begin with, is this not obvious to you?70.190.253.77 (talk) 00:05, 20 October 2013 (UTC)

SPECIFICO, "The notability guideline does not determine the content of articles, but only whether the topic should have its own article", your assertion of removing U.S. economist, Dr. Murray Rothbard, and German economist, Dr. Jörg Guido Hülsmann as not notable, is completely baseless and bogus. It does not allow you to determine the content of the article on notability, just because you don't like their NPOV. You and other editors who have continually removed the reference are blatantly failing to have any form of objectivity or a NPOV.AmourReflection (talk) 02:10, 20 October 2013 (UTC)

[1] "Yes, Virginia, Banks Really Do Create Money Out of Thin Air"; Jeremy R. Hammond; August 4th, 2012. http://www.foreignpolicyjournal.com/2012/08/04/yes-virginia-banks-really-do-create-money-out-of-thin-air/4/

[2] "Prof Richard Werner describes credit creation". WWW.the-free-lunch.com.

[3] "Disyatat, P. 2010 The bank lending channel revisited" (PDF). Bank for International Settlements. Page 2. the concept of the money multiplier is flawed and uninformative in terms of analyzing the dynamics of bank lending. Page 7 When a loan is granted, banks in the first instance create a new liability that is issued to the borrower. This can be in the form of deposits or a cheque drawn on the bank, which when redeemed, becomes deposits at another bank. A well functioning interbank market overcomes the asynchronous nature of loan and deposit creation across banks. Thus loans drive deposits rather than the other way around.

[4] "Paul Tucker, Money and credit: Banking and the Macroeconomy" (PDF). Bank of England. banks....in the short run.....lever up their balance sheets and expand credit at will....Subject only but crucially to confidence in their soundness, banks extend credit by simply increasing the borrowing customer's current account.....This 'money creation' process is constrained by their need to manage the liquidity risk from the withdrawal of deposits and the drawdown of backup lines to which it exposes them.

[5] "Glen Stevens, the Australian Economy: Then and now". Reserve Bank of Australia. money multiplier, as an introduction to the theory of fractional reserve banking. I suppose students have to learn that, and it is easy to teach, but most practitioners find it to be a pretty unsatisfactory description of how the monetary and credit system actually works. In large part, this is because it ignores the role of financial prices in the process.

[6] "White, W. Changing views on how best to conduct monetary policy: the last fifty years". Bank for International Settlements. Some decades ago, the academic literature....emphasised the importance of the reserves supplied by the central bank....., and the implications (via the money multiplier) for the growth of money and credit. Today, it is more broadly understood that no industrial country conducts policy in this way under normal circumstances....there has been a decisive shift towards the use of short-term interest rates as the policy instrument [in industrialised countries]. In this framework, cash reserves supplied to the banking system are whatever they have to be to ensure that the desired policy rate is in fact achieved.

[7] "Freedman, C. Reflections on Three Decades at the Bank of Canada" (PDF). Bank of Canada. It used to be that most academic research treated money (or sometimes base) as the exogenous policy instrument under the control of the central bank. This was an irritant to those of us working in central banks, because the instrument of policy had always been the short-term interest rate, and because all monetary aggregates (beyond base) have always been and remain endogenous. In recent years, more and more academics, in specifying their models, have treated the short-term interest rate as the policy instrument, thereby increasing the usefulness of their analyses...

[8] ttp://college.holycross.edu/RePEc/eej/Archive/Volume18/V18N3P305_314.pdf Understanding the Remarkable Survival of Multiplier Models of Money Stock Determination. Eastern Economic Journal, 1992, vol. 18, issue 3, pages 305–314

[9] The economics of money, banking and finance: a European text. Fourth edition. Howells, P. G. A. Baines, K. Page 241. FT Prentice Hall. 2005. ISBN 978-0-273-69339-0.

[10] "(Holmes, 1969 page 73 at the time Senior Vice President of the Federal Reserve Bank of New York responsible for open market operations) I have not seen, cited in Bank and Credit the Scientific Journal of the National Bank of Poland" (PDF). In the real world, banks extend credit, creating deposits in the process, and look for reserves later. The question then becomes one of whether and how the Federal Reserve will accommodate the demand for reserves. In the very short run, the Federal Reserve has little or no choice about accommodating that demand… ...'

[11] "Modern Money Mechanics. Page 37. Money Creation and Reserve Management" (PDF). Federal Reserve Bank of Chicago. Page 7. Of course, they do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers' transaction accounts. Loans (assets) and deposits (liabilities) both rise by $9,000. Reserves are unchanged by the loan transactions. But the deposit credits constitute new additions to the total deposits of the banking system. Page 37. In the real world, a bank's lending is not normally constrained by the amount of excess reserves it has at any given moment. Rather, loans are made, or not made, depending on the bank's credit policies and its expectations about its ability to obtain the funds necessary to pay its customers' checks and maintain required reserves in a timely fashion ...'

[12] "The Transmission of Monetary Policy in Canada" (PDF). Bank of Canada. Required reserves have traditionally been justified by a desire to influence the size of the money multiplier and by prudential concerns. However, central banks' views about money supply determination have for a long time been that the money stock is demand determined

[13] Elements of Banking Made Simple, Hoyle and Whitehead (Oxford: Heinemann, 1989 edition). From preface "specifically designed to meet the requirements of the Institute of Bankers’ Banking Certificate and Foundation Course". Page 22 "Consider a deposit....£1000 in banknotes....(a) We can lend out £700.... This is the simple view of bank lending. (b) It is....possible for us to have deposits of £3333.33. As we only have deposits....of £1000 we can lend out £2333.33, provided we can find borrowers. This is the more sophisticated view of bank lending.

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