Fractional Reserve Banking And Pro

Sticking It to Ron Paul

It's open season on Ron Paul in the so-called "alternative" media, thanks to the Congressman's strong showing in the Iowa straw polls. The venomous tone and absence of policy analysis is remarkably similar to the hatchet job the "alternative" media performed on Ralph Nader in 2004 and 2008. Could this because Paul, like Nader, is taking a strong, explicit stance against the corporate takeover of government?

One particularly malicious rant making the rounds of progressive blogs is by Adele Stan, Washington Bureau Chief for the Alternet . According to Stan, because I'm a progressive seriously considering a vote for Ron Paul, I am part of the "emotionally immature segment of the progressive movement, a wing populated by people with privilege enough to insulate them from the nasty bits of the Paul agenda. (Tough on you blacks! And you, women! And you, queers! And you, old people without money.)"

Name Calling and Identity Politics

There's a lot of name calling elsewhere in the article. According to Stan, Paul is anti-woman, anti-gay, anti-black, anti-senior-citizen, anti-equality, anti-education, and pro-communist witch-hunt. She claims the only two reasons some progressives are ("immaturely") supporting Paul are because he wants to end US military intervention in the Middle East, North Africa, and everywhere else and as payback for a "president" who has let them down.

I'm not sure how other potential Paul supporters reacted to the article, but I really don't like it when people call me names. I'm also sick to death when progressive pundits employ divisive identity politics (i.e. appealing to liberal guilt over disenfranchised minorities) to cloud serious policy issues.  

As with alternative media coverage of Nader's campaigns, Stan offers no serious analysis of Paul's platform or his position on key issues (other than stuff culled from old newsletters written by over zealous supporters). Or to compare and contrast his views with those of Obama and other 2012 candidates. We've come to expect this boycott on policy and substance from corporate media. Sure we have a right to expect some serious analysis from the alternative media.

Steve Horwitz's Pro-Fractional Reserve Arguments | Positive Money

Steve Horwitz is a professor of economics at St. Lawrence University in Canton, New York, and Wikipedia cites him as one of the main defenders of fractional reserve banking. So let’s have a look at his arguments. ( Horwitz's article ,  Wikipedia )

Horwitz’s first claim is that fractional reserve does not create money because any money deposited in one bank must have come from another bank (or indeed from the above mentioned first bank).Thus, while X £ Y deposited in the bank do bank Y to create more than £ X worth the money, which is offset by the fact that the bank where £ X was taken to curb the money.

Horwitz makes this point in the five paragraphs starting "I do not want to repeat ...». And it takes more than 600 words to the point! Talk about hot air!

However point above Horwitz does not stop the expansion of commercial banks in the money supply sharply, or prevent, destroy them and their clients money in a recession, which is deleveraging.In other words the point Horwitz does not destroy one of the leading critics of fractional reserve, that it promotes instability.

As for how the commercial banks to engage in "promotion of instability" above, most opponents of the fractional reserve probably know how this is done, but I will briefly their fate anyway. First, banks do not always make full use of their reserves: witness the current huge excess reserves, they are currently sitting on. In this scenario, it is clearly absurd to suggest that the reserves would be a constraint of a sudden expansion loans bank.

Second, the reality is that central banks to expand the monetary base (reserves for example) to make possible an increased desire by commercial banks to lend. The reason is that if central banks do not do that, they lose control of interest rates. In other words, central banks are monopoly suppliers of bank reserves, and as he explains the economics textbooks, a monopoly can control the price of its product provided or volume, but not both.

Pride and prejudice, a novel in three volumes

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Romeo and Juliet

Crime and punishment

War and Peace