As long as inflation is below 2-3% and fractional reserve banking is outlawed, the currency itself will be very stable.

The banks do provide some service, they use the money from people who save it, evaluate the borrower and charge a proper interest rate. If you borrowed directly from the source (the saver), it’s far more risky for the saver because if you default, they lose the whole sum and the average saver may not know how to properly evaluate credit risk. Small community bankers aren’t all bad, it’s the big banksters I worry about.

The banks charge enough of an interest rate that they become somewhat of an insurance company, if they pay 5-6% savings rate and charge borrowers 10+% interest, they can afford to have some of them go bust and still make a profit, and pay the savers 5-6% interest rates.

The trouble comes when they lend out more money than they have, via fractional reserve banking. This brings down the interest rates for savers, and gives banks even more profit because while they get a lower interest rate, they have a larger amount of loans. 10% against $5,000 is not as good as 5% against $50,000. And if they can borrow from the federal reserve for 0% (or whatever the fed charges), why pay savers more?

Originally the federal reserve was supposed to be a “lender of last resort”, meaning if a bank was borrowing from the fed, it was a bad sign.

“On your point of “band-aid regulation”, I would argue that the Glass-Steagall Act was a simple, clear cut piece of legislation that strengthened the financial system and served the interest of the people by protecting us from dangerous instruments like margin loans, CDSs and CDOs”

Those are only made dangerous in the first place, by fractional reserve banking. Banks were only able to let people buy $1,000 of stock with $100 because the federal governments regulations that they only have to have 10% of their deposits in reserves. If banks can’t lend out more than they have, then they can’t lose more than they have. Right now a bank can lose more money they have in deposits in the event of a bust, like the housing bubble when they needed 700+ billion dollars or the world is going to end.

If a bank has $100 in reserves, they can use that for collateral for $900 of loans (by cascading the loans), bringing it to a total of $1,000 of money in the money supply. When the banks fail, all of this funny money evaporates. The regulations that were passed limited this a bit, but the root of the problem is that they are allowed to lend out more than they have, this absolutely needs to be outlawed, it’s basically legalized counterfeiting.

This also creates even more massive bubbles, if this practice was outlawed, bubbles would not be able to inflate as much as they do, because as the bubble inflates credit will dry up and cause interest rates to skyrocket, popping the bubble before it gets to big. Fractional reserve banking basically allows a bubble to inflate nine to ten times more than it would have ordinary inflated to.

Banks only need 1 regulation. No fractional reserve banking. It’s fraud.

Dolla Dolla Bills, Y’all.

Essentially, I see the financial system as dominated by middlemen who don’t really add any value to the core process. When I want to borrow money at 12%, I borrow from a bank who borrows from a bank who borrows from imaginationland at 0% interest. If I have good credit, why shouldn’t I be able to go right to the source? Such an idea might not have been possible 20 years ago, but it certainly is feasible in the digital age.

On your point of “band-aid regulation”, I would argue that the Glass-Steagall Act was a simple, clear cut piece of legislation that strengthened the financial system and served the interest of the people by protecting us from dangerous instruments like margin loans, CDSs and CDOs. In my understanding, the erosion and ultimate demise of G-S throughout the 80s and 90s can be directly traced as the root cause of the 2008 crisis.

In other words, money never sleeps.

Unless of course they bury it in their backyard, but again, hardly anybody does this.

So that money they save is always being used by someone, creating jobs. You don’t want GDP for the sake of GDP. This is what China is doing and as a result, they have lots of jobs and lots of GDP, but they have entire cities that they have built, empty. They have 67 million apartments that they built, empty. They’ll probably have a nice big crash here soon.

Also, the fractional reserve system destroys the interest rates for savers, by flooding the economy with cheap credit, and it then creates a bunch of hazards that the government needs to pass all these other regulations to fix.

The root problem with banking is the fact that the banksters are allowed to lend out more money then they have.

A lot of regulations they passed were regulations to fix side effects of other regulations previously passed. For example banks gave customers direct access to the fractional reserve benefit by letting customers by $1,000 worth of stocks for $100 during the 20′s that eventually caused the stock market to crash.

Rather than fixing the root of the problem, they applied a band-aid and created all of these new financial regulations.

I’ve recently changed some of my stances on some things, I don’t see 2-3% inflation has a very bad thing, as long as the savings rate is higher. Eliminating fractional reserve banking will boost up interest rates and make inflation pretty much harmless to anyone who has their money in the monetary system.

Also, I no longer support a government mandated gold standard. I see an issue that the same central banksters that control our money today, also control so much gold that they would be able to manipulate a gold standard too. Between banksters and government, I’ll have to go with government. It’s clear to me why the Federal Reserve had the gold confiscated in the 30′s instead of just converting to a fiat currency directly, they wanted control of the gold.

People should be allowed to use whatever they wish for currency, whether it be gold, silver, paper, or salt. A government mandated mandatory gold standard would eventually become corrupted just like the previous gold standard was.

However, your point is well said that “elites” such as bankers and Wall Street traders have gamed the system overwhelmingly in their favor. The revolving door between the Treasury, Fed and Wall Street (Summers, Paulson, Geithner, et. al.) has created a government that funnels wealth to a few hundred rich people while the rest of us must become ever more productive to make ends meet.

It’s very disheartening, but what else can you expect when bankers are allowed to write the rules and government has been actively complicit in destroying regulations (Glass-Steagall) that have protected the public interest for generations?

Bush reinforced the system with the trillion dollar bailouts and Obama lacks the fortitude to make any real changes. Congress is bought and sold more times than the a gallon of gas is on its journey from Saudi Arabia to your tank. Until people start to feel real pain, don’t expect any changes.

It’s not, they are bonds, IOU’s. The money has already been spent by the government. It’s gone.

A ponzi scheme is where older investors are paid from newer investors. Thats exactly what social security does.