Sunday, 4 November 2012
People value something that is printed by banks
Fractional reserve banking enables banks to print money out of thin air... primarily because they have deposit insurance and cannot fail. If fiat currency is used then being protected from failure by the state means your institution can print money. This is true not just of banks but for all of the public sector. The difference with banks is that they are vastly insolvent as distinct from other public services which get funded each year from the government by the taxpayer. Because of deposit insurance banks can print money but this privilege is not extended to the rest of the economy. For this reason it seems strange that people would tolerate the bank-printing of money and not demand change. It makes no sense that people would use a bank-inflated currency.
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