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Socialism for banks?

 
 
Reply Tue 6 Oct, 2015 12:19 am
When the Federal Reserve expands the money supply to accommodate economic growth, it does so by purchasing Treasury securities on the open market, in the process crediting commercial banks where the sellers have deposit accounts with new reserves in the amount of the purchases. Since banks operate under a fractional reserve system this gives them the wherewithal to create new loans whose total outstanding is much greater than the size of the new reserves.

Since loans are a source of profits for commercial banks, the Fed is in effect funding the salaries of bank officers and the returns of bank owners. Because the long term trajectories of economies is one of growth, the money supply continues to expand. Banks therefore receive continued additional infusions of new reserves and never have to repay the government. (Even if they wanted to where would they get the additional money to continue current operations AND repay the Fed, when the Fed is the only source of systemic growth in the money supply?)

So these new reserves are a gift from the government, which creates them out of thin air.

Doesn't this constitute a kind of inverted socialism, where the government pays the financiers at the top of the pyramid, whence it percolates down into the rest of the economy?
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Type: Question • Score: 0 • Views: 838 • Replies: 5
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Aros97
 
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Reply Sat 10 Oct, 2015 06:32 pm
@puzzledperson,
Sorry this isn't pertaining to your question, but I can't figure out how to post a thread on here. Any tips?
ehBeth
 
  2  
Reply Sat 10 Oct, 2015 06:41 pm
@Aros97,
Aros - if you click on the able2know logo at the top of each page, you're given the option to ask a question or start a discussion.

Once you've made your selection and created your topic/thread, you can then choose to add tags to the thread which identify what you think the thread is about. Do note that everyone on the board can add tags - so while your tags remain they may not always be visible to everyone.

Welcome and good luck!
Aros97
 
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Reply Sat 10 Oct, 2015 06:55 pm
@ehBeth,
Oh, thank you so much.
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andrewjack21
 
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Reply Fri 6 Nov, 2015 10:33 pm
Banks cannot be socialised.They are part of capitalism and will end with the coming of Socialism. Under Socialism the functions performed by the banks will not have to be performed at all.
puzzledperson
 
  1  
Reply Sat 7 Nov, 2015 05:03 am
@andrewjack21,
How will what you call socialism function without banks?

Will there be money in this new system? (Money is anything that allows its owner to obtain goods and services, whether dollars or a running tally of hours worked or simply ration vouchers.)

If there is no money, how will you insure that everyone gets their fair share of a limited number of goods produced by a finite number of workers from finite resources, and how will you determine the distribution of resources as factory inputs to workers in various locations throughout the nation? If anyone can get as much as they want of anything simply by asking for it, how will you prevent shortages in some places as excesses accumulate in others?

Will there still be loans (i.e., purchasing on credit)? If not, how will big projects be possible? What will you exchange, up front, that has already been produced, in trade for the labor and material resources necessary to a project that will take years to finish and which will not itself produce anything of value until it is completed (if then, since just as there are failures under capitalism there must be failures under socialism)?

The last time a barter economy existed in Europe was in the centuries following the collapse of the Roman Empire. There was no coinage, food was locally grown and consumed, and poverty was endemic. There was very little travel and very little trade. Armed groups looking out for no one but themselves roamed the countryside and terrorized villages. Feudalism itself arose from such conditions.

Who will keep track of how much each man can obtain, and how often? Don't say something vague like "the people" because each of them will be busy with his own life, except insofar as individuals running organizations specializing in such matters are appointed to do so. Those organizations will be banks by another name.

Incidentally, you have not really addressed my initial post at all; but since the thread has been inactive and you make a provocative and somewhat interesting statement that at least tangentially touches upon the broad subject of banking, I'm going to encourage further comment from you for the time being.
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