A Den of Thieves:
Debt
to the Bank, Summary,
and Some Considerations
Sam Aurelius Milam III
This
is the fourth and final article in a series of articles that I'm presenting
in this newsletter. The first article, A
Den of Thieves: Fractional Reserve Banking, appeared in the December
2006 issue. The second article, A
Den of Thieves: Cash Dollars In Circulation, appeared in the February
2007 issue. The third article, A
Den of Thieves: Deposits, Loans, and Fictional Dollars, appeared
in the April 2007 issue. The articles are based on my essay They
Can Fool Too Many Of The People Too Much Of The Time. Due
to the limited amount of space in this newsletter, I'm eliminating from
the articles a lot of material that's included in the essay. However,
copies of the essay are available upon request. The essay is also
available on Pharos. For the sake of avoiding confusion, I'm
going to retain the table numbers in these articles as they appear in the
essay. Thus, the tables that appear in this article are Tables 5,
6, and 7, not Tables 1, 2, and 3. That's because they're Tables 5,
6, and 7 in the essay.
![Tables 6 and 7](Images/Tables_6_and_7.gif) During
cycles of fractional reserve deposits and loans, an indebtedness to the
bank accumulates. Tables 5, 6, and 7 reveal several interesting features
of that debt. First (Table 5), the fewer dollars that the bank holds
on reserve the greater will be the eventual indebtedness to it. That
gives the bank an incentive to lower the cash reserve requirement.
Second (Table 6), the more times that the bank re-loans the same dollars,
the greater will be the indebtedness to it. That gives the bank an
incentive to make loans. And finally (Table 7), the more of their
cash dollars that the people deposit in the bank, the more they enable
it to make them indebted to it.
A
more subtle feature of the debt is that the dollars used to repay it must
come from some source outside of the fractional reserve deposit and loan
cycle. That is, they must be new dollars in the sense that they are
not a part of the original deposit. There are some good reasons for
this. All cash dollars associated with the original deposit (those
on reserve in the bank and those placed back into circulation by loans)
are not enough to repay the debt. The dollars used to repay the debt
can't have originated as loans themselves. That would only transfer
the debt from one
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June 2007 |
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