This is a story I thought I would never see, but of course we’ve speculated on this at the Mises Institute for years. This women had $120,000 in a Silver State bank in Vegas when the bank failed. She received exactly the amount insured and lost $20,000. This raises an important point about fractional reserves. The question concerns their viability in a free market. Here we have a case of 100% reserves enforced by the FDIC. Fractional reserves are indeed risky, and people in the know do not go there. See the video.
Source link: http://blog.mises.org/8594/100-reserves-and-not-one-penny-more/
100% reserves, and not one penny more
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A story of ignorance. It is not hard to understand the amount an account is insured for. How does this individual case illustrate what actually happend? This is why I don’t bother with FOX or CNN. Their target audience, deliberately, are idiots. I find these broadcasters offensive.
So the question of reserves.. this troubles me. Think of the amount of commerce that is occurring, even nationwide. If we have say a gold reserve just how much gold would be needed to be stored somewhere. Gold is used in many ways in this world, in art, in technology, in jewelry. So it has practical value as well as purely economic value. It is subject to change in value. Could it not get so high in value that I might be wearing say $2M on my finger?
I agree with the concept but, how could it work?
See this FAQ section for answers to yours and the most commonly asked questions…
Gold as Money: FAQ
So Jeffery, I’ve done a little research for you on this subject.
The U.S. Treasury currently holds 8140 metric tons of gold in reserves.
The US mining industry produces 190 metric tons of refined gold last year, 84% of which was used in art and jewelry.
At todays price of $895 an ounce the treasury has real reserves, for all domestic commerce of:
$256,981,322,505.60
As you can see, this is not even close to our national debt, and is only 1.86% of 2007 GDP for this country.
Seems we have a small problem?
Answers anyone?
Huh?! Maybe you should restate your question.
Well, it does have something to do with the idea, as headlined in this article, of %100 reserves. Now as our debt is currently about $9.7 trillion and we can produce gold at a rate of $5,998,335,537 per year at today’s value, and if you add that to current reserves it is still only %2.71 of our debt, what do we do to establish our theoreticaly ideal reserve rate?
If we also want to support any commerce, how by the wildest stretch of imagination are we going to base it on gold reserves? It’s as absurd as this country’s Social Security and Medicare obligations.
M. Martillo
You keep saying “at today’s price.” That is your problem. Of course nothing adds up “at today’s price.”
Another hint. The national debt is in Federal Reserve Notes, not gold at today’s or any day’s price.
8140 metric tons is 261,707,100 troy oz. M3 in 2005 was about $10,000,000,000,000. The US Government, could have theoretically said it would back the $US with gold by paying out 1 troy ounce of gold for every 38,000 Federal Reserve Notes turned over to the treasury. Why not? It sounds piddly, but it is actually a vast improvement on what they are promising to pay out now, which is nothing.
Make of that what you will.
Jay D
Today’s price is not MY problem. I am also not loosing track of the concept of banking reserve by trying to account for the debt. It is an example of proportion of commerce to the physical supply of gold.
To meet the ideal of USING gold as a monetary base, AND calling for %100 reserves, then for 2005′s circulation there would need to be the ten trillion dollar value of gold IN RESERVE. Well then this WOULD change the DEMAND for gold, and either the value or physical amount of gold would need to increase many times.
Then my ring is worth maybe two million or so, etc. etc. Art, industrial utensils and all such then change as well.
So do we melt down all the art, jewelry, plated items and replace it with something that won’t get us killed for having it?
Or WHAT?
Yes the relative value of gold would go up many times, but I don’t know about millions of dollars for a gold ring. I calculated that the $10 trillion was backed up with 100% reserve with just the 8410 metric tons of gold the treasury already has, the price of gold would have to go up to $38,000 a troy oz. (someone can check my math) But there would be more gold in circulation than that. People own gold and they would deposit it in a bank, adding to their reserves. When we export goods we would be getting gold in return. Also, there is nothing to say that just gold needs to be held in reserve. Other metals could be held additionally. Reserves in silver and platinum etc.
M. Martillo,
I don’t understand what you’re worried about. When the dollar goes near zero, one atom of gold will probably be enough to pay back US debt in full….
and obviously when you can still buy a gallon of gas for an ounce of silver, the fact that that gallon is nomally worth 1 trillion USD will not make you more likely to be killed for it than when it was worth 4 USD….
replace “nomally” with “nominally”
Well thanks for the ideas. Division by zero can be lots of fun, but my calculator doesn’t like it. Oh who care how a caculator feels anyway.
There are practical issues in our economy. I totaly agree with Austrian Economics except for one little thing. Hard currency. Here is an example right in these pages. I will read an article extolling the virtues of hard currency, and on the very page is an offer of a book, requesting a credit account number in payment. There appears, a century wide gap between theory and practice.
This nation is ripe for the ascent of Libertarianism. People are sick of two flavor facism. But if we want to be taken seriously we must address, in a practical way, the real economic issues that we all face.
How has money evolved? You are economists, you know this. What is the prefered practice in todays commercial activities? You are engaged in business, you know this. How has it affected behaviours? What you see in the economy tells the story.
Can we move forward while looking backward? It is dangerous at best.
e-commerce is todays reality. It is the future of our economy. We don’t need to undo monetary evolution, we need to undo the federal reserve and move toward more responsible pracitices in economics.
What is the problem? You can put your money in a safety deposit box and it will be there (apart from fire and theft, look at your contract) when you want it.
Or you can lend your money to a bank, i.e. relinquish ownership of that money in exchange for a promise by the bank to pay you back on demand. Maybe the bank won’t pay you back on demand in which case maybe you will have to wait till all its assets are liquidated before it repays its debt to you, or maybe you have insurance against this very thing, forced on you b y the government. Here in Australia the government forces me to have third party insurance before I can legally drive a car. Life is full of compromises and risks. Put your money unner the bed or buy gold bars but stop whining. Or you lovers of freedom, can force the freely entered contract between everybody and the bank to be illegal.
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