[e-gold-list] Re: Gary North Response

[Pete Chown]

Jim Davidson wrote:

> Northern Rock is not a credit card issuer.  Visa, and related companies
> have not experienced such a run, and might not, if Gary's view is
> correct.

If Northern Rock had issued credit cards, would that have protected them 
against the bank run?  How?

> So, er, Pete, do ya support a bail out from the taxpayer?

I think the government was in a difficult position.  You give good 
reasons for not having a bail-out, but it would have been hugely damaging 
if the resulting loss of confidence had caused runs at other banks.  I 
feel that this aspect of fractional-reserve banking is a genuine problem, 
because it ends up putting the government in this kind of no-win 
situation.

> The term "demand deposit" is fraudulent.

Is it fraudulent for me to advertise computer services, given that I 
would be unable to carry out the contract if my house burnt down?

> Your idea that "you don't have to put your money in there" is amusing.
> So, I could open up a banking institution and offer demand deposits,
> right? Wrong.  Not without a license.

If you don't want to do fractional-reserve banking, you shouldn't have a 
problem.  Just advertise safe deposit boxes, and let people keep their 
own cash in them.  You wouldn't need a banking licence for that.

> Not true.  The safe deposit box may be rifled and the assets in there
> seized at any time on a court order, the trivial effort to obtain such
> being a matter of longstanding injustice.

It's still 100% reserve, though.  100% reserve doesn't protect you 
against all risks, as some people found when the government seized their 
e-gold accounts.

> I know this much: Northern Rock got theirs.  The British taxpayers are
> on the hook for that money.  And other banks with more conservative
> practices didn't get to exploit the same opportunities for the same
> level of profit, taking fewer risks proving to be a poor choice.

That's right.  Of course Northern Rock didn't benefit in the end, because 
they are now essentially bust.  But the chance to take risks with other 
people's money was worth something, because the risks might have paid off.

> And how do you feel about that [existing banks having a monopoly]?  You
> don't seem to express any unhappiness about it.

I do see it as a problem, I'm just not sure of the solution.  Removing 
the state guarantee could well make the economy unstable, with a small 
downturn turning into a slump as multiple banks fail.

Presumably you're not suggesting that the government should ban interest-
bearing accounts, provided they make clear that a run could stop the bank 
paying out straight away.  This would allow plenty of scope for bank 
runs, while removing the stabilisation provided by the state guarantee.

> But, of course, governments do use legal measures against alternatives.

Yes -- legal measures which are opposed by me, as I said.

> Yes, sir, there is.  There is a reason not to have state currencies, and
> that is justice.  The state is unworthy of the trust you seem to be
> eager to place in it.

I'm not that keen to trust the government, but some people are.  
Shouldn't they be free to do so, by using a state currency, provided the 
government doesn't skew the market in its own favour?

Pete



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