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Source link: http://archive.mises.org/11519/ending-central-banking-is-the-only-real-banking-reform/

Ending Central Banking is the Only Real Banking Reform

January 23, 2010 by

President Obama announced on Thursday, January 21 his intention to push for banking reform and new legislation to limit the size of banks to prevent the existence of banks that are “too big to fail,” and to have new regulations instituted that control the type and degree of risks banks can undertake in their investment decisions.

In a new article of mine on, “Real Banking Reform? End the Federal Reserve,” I argue that what is “too big to fail” and what is a reasonable investment risk will now be determined by the same politicians and bureaucrats whose misguided monetary and regulatory policies in the past got us into the financial and economic crisis through which we are passing.

The only real banking reform that can reduce the likelihood of a future cycle of investment and housing booms followed by busted bubbles is real monetary reform. And this requires abolishing central banking and the establishment in its place of free market competitive banking.

And I suggest a six-point plan to move in that direction.

The type of banking reform proposed by the president means only more of the same failed government interventionist policy.

Richard Ebeling

{ 22 comments }

Bruce Koerber January 23, 2010 at 10:46 am

Free banking is definitely the classical liberalism solution to the problems created by the ego-driven interventionists.

Your six points are specific and thorough and exact.

DD January 23, 2010 at 11:11 am

free banking that is subject to the same legal principles of any other business.

A demand deposit for money is no different then a demand deposit for wheat and oil.

If somebody wants to play the Selgin FRB lottery game, then let the contract of the deposit state it as such so that not only the depositor is aware of the terms, but also the 3rd party who may accept such deposits as payment.

Mensa man January 23, 2010 at 11:16 am

Banking needs genuine competiition. The only real competiton is not to add to the cartel of private bankers but to compete with it. In genuine community banking, profits generated would go back to the community that generated them, not to private bankers who use their license to create money for their own benefit.

BB

Magnus January 23, 2010 at 4:53 pm

Free banking is not only the only banking reform that means anything, it is also the only political change of any kind whatsoever that will make lasting, significant changes toward economic freedom generally.

And, it will NEVER happen, not until the United States collapses, like every centralized banking and corporatist state before it.

When I realized this, it was the point when I knew politics does not matter, and I saw it for the trivial game it is.

newspn January 23, 2010 at 5:34 pm

magnus is right. drain the swamp. no water, no crocodiles.

david janello January 23, 2010 at 8:04 pm

Ending the Federal Reserve and imposing a sound banking system and currency is not sufficient in itself to prevent a financial collapse.

A government protected oligarch like Enron or the S&Ls can still steal from a hard-currency system.

Real reform requires an educated and vigilant populace.

Inquisitor January 24, 2010 at 12:36 am

Oh god not this crap again… “cartel of private bankers” ROFL.

What “we” need is to let consumers choose how to do their business. Which may mean… *gasp* private banks…

Paul Revere II January 24, 2010 at 3:52 am

I agree, I think we should give Austrian economics a try, After all most of those guys predicted it and also are telling us that This thing is not even half over yet and is so bad could be permanent.

Remember Green shoots? The Fundamentals are strong and benake saying we are fine.

How is it America is so in debt to the Commuinist Chinese? That alone amounts to treason no matter how they twist it. Those who gave them favored nation trading status should be in a cell with Berne Madoff.

NO INCUMBENTS 2012

NO ONE PUSHED BY MSM

THE MORE YOU WATCH AND READ THE MSM THE LESS YOU KNOW. FOX/CNN/MSNBC ETC

39n119w January 24, 2010 at 7:29 am

free banking that is subject to the same legal principles of any other business.

A demand deposit for money is no different then a demand deposit for wheat and oil.

i dont think the term demand deposit is even used anymore by banks. my wells farge account agreement never even has the term.

since demand deposit isnt used, what would you suggest?

39n119w January 24, 2010 at 7:33 am

when was the last time an account was called a demand deposit??

39n119w January 24, 2010 at 7:38 am

has most of the discussion where the term “demand deposit” has been used been used in a context of what now takes place”

39n119w January 24, 2010 at 9:01 am

how many negative things happened per contract?
gee if only i had better knowledge before contract?
it may be that 100% reserves works better regardless.

Gerry Flaychy January 24, 2010 at 12:18 pm

Who can realize this ‘Real Banking Reform’ ?
Governments.

Who doesn’t want that this ‘Real Banking Reform’ be realized?
Governments and bankers.

This is a stillborn project.

Joe O. January 24, 2010 at 1:39 pm

Obama’s banking regulations will only lead to banks becoming stricter in their lending practices and will do nothing but make matters much worse in the long run for the entire economy.

Besides, going after the banking system, Wall Street, predatory lenders, etc. will solve nothing because they are not the problem. The entire economy was for years like one giant drug addict. The Government right down to the average citizen took full advantage of the easy money and credit that was available. Going after the addicts will do nothing but going after the drug dealer/money manufacturer will. So who is the economic “drug dealer” in all of this? That is right, the Federal Reserve. Ron Paul is right. Abolish the Fed.

drsteelwood January 24, 2010 at 2:54 pm

“Obama’s banking regulations will only lead to banks becoming stricter in their lending practices and will do nothing but make matters much worse…”

“like one giant drug addict. Government right down to the average citizen took full advantage of the easy money and credit that was available. ”

stricter lending practices making things much worse -or- like a giant drug addict, everyone took easy credit that was available?????

so abolishing the fed would make lending stricter so easy addict credit problems wouldnt happen?? or it would make every one a responsible addict?? you dont seem to be making much sense

drsteelwood January 24, 2010 at 3:26 pm

has most of the discussion where the term “demand deposit” has been used been in a context of what now takes place???

has anyone checked their account information to confirm if this is so?

“Power oversteps……it speaks one lie too many. It borrows one dollar too many. It inflates the money supply one demand deposit too many.”
http://www.lewrockwell.com/rozeff/rozeff132.html

i guess he is speaking of current demand deposits?

“Evidence shows that from the beginning of the fourteenth century bankers gradually began to make fraudulent use of a portion of the money on demand deposit…In the face of excessive money, lenders tend to adopt laxer standards for making loans. ……….That is how the subprime crisis began. It then spread to other sorts of securitized loans and to capital losses of investors, including major banks, in all sorts of loans.”
http://www.lewrockwell.com/rozeff/rozeff203.html

does the above article indicate that fraudulent demand deposits are occurring today which lead to the ” face of excessive money”…that lead to the alleged sub prime crises and other loan failures?

AB January 24, 2010 at 3:27 pm

drsteelwood said:

“so abolishing the fed would make lending stricter so easy addict credit problems wouldnt happen?? or it would make every one a responsible addict?? you dont seem to be making much sense”

Well it actually does make sense. Money in the current system is created only as a debt that must be repaid. But the interest on that debt, which also must be paid, is not created when the loan was made. So where does the interest come from to pay back the loan? It must come from more loans which enter the system. It is a ponzi scheme.

So why do we need the fed to loan the treasury money, which becomes the national debt? Why not just have the treasury spend that money into circulation? No debt is then owed. Money SHOULD be just a means of exchange, not a big ponzi game of musical chairs.

drsteelwood January 24, 2010 at 3:55 pm

i thought interest paid on debt came out of the debtors (hopefully) productive income and repayment.

unless somethign is different about personal debt and government debt.

“there is nothing wrong with the public debt because “we owe it to ourselves.”
http://mises.org/daily/1423
and
“The alleged debt is simply an accounting fiction….”

if the govt debt can just be repudiated (i thought the budget part paying on the federal debt was a rather small part of the annual federal budget) then aside form people being taxed in ways that they may not like it doesnt sound like the ponzi scheme is harmful.

from the same link
“…unlike the rest of us, government sells no productive good or service and therefore earns nothing. It can only get money by looting our resources through taxes, or through the hidden tax of legalized counterfeiting known as “inflation.”

unless the combination of these two elements somehow allow the govt to aquire things (lands, resources, etc…i know that the TVA produces about 9K Gw of electricity per year..and recreation lakes) that greatly bid up prices for people far beyond what they know about.

Gerry Flaychy January 24, 2010 at 4:39 pm

Governments need money. Always.

Governments, actually, get the money from 3 principal sources: citizens, banks, and central banks.

Money can also come from the governments themselves when they are themselves the issuers of money. In this case they doesn’t need at all the citizens, the banks and the central banks to get money.

Thus the choice, for a government, is not between central banking and free banking, but between central banking and ‘government banking’.

So lets forget about free banking ! We will never get it.

KingofthePaupers January 24, 2010 at 5:21 pm

Richard Ebeling: “abolishing central banking and the establishment in its place of free market competitive banking.. And I suggest a six-point plan to move in that direction.”
Jct: The Laplace Transform for the present interest-based bank account is 1/(s-i) and the only thing needed to stabilize it, certainly not six things, has nothing to do with centralization, it has to do with making interest = 0.

Gerry Flaychy January 24, 2010 at 5:51 pm

” President Obama announced on January 21 that he will push for legislation that would significantly limit the size of banks to make sure that they are not “too big to fail,” as well limiting their ability to invest in what the president referred to as investments that are “too risky”. “_Richard Ebeling

The first thing that has to be limited, is the size of the governmental support and rescue of the banking and financial system.

ABR January 25, 2010 at 3:26 pm

I’d add to Mr. Ebeling’s six points a modification to the laws governing bankruptcy and corporations.

Currently, a bank can go under and no individual is held responsible. That has to change. Currently, if an individual owes a debt, and cannot pay, he can declare bankruptcy. The debtees are (partially) out of luck.

Current law encourages recklessness. Central banks encourage recklessness. Has to change, one way or the other. Either from within (a change to the State) or a more radical change: anarchy.

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