Reply To: Full Employment, Cycles, Etc


1. I’m not sure about the overall losses, but the volatility of cycles has not been lower under the Fed than before the Fed:

2. This seems unlikely because for bank runs to occur the banks must have extended fiduciary media. But extending fiduciary media through credit expansion is what causes the boom-bust cycle.

If banks were 100% reserve, then customers cashing out their checking deposits would affect neither the supply or money nor the supply of credit. It would be trading one form of the medium of exchange (checking deposits) dollar-for-dollar with another form (cash). Banks would only be intermediating credit, borrowing from savers in savings accounts and lending those funds to investors.

3. The Amsterdam banks of the 1600s were 100% reserve for over century. The problem with isolating the consequent Dutch production processes from credit expansion is the existence of world credit market which have fiduciary media.

4. Like no. 2 above, this seems unlikely. There can be no credit expansion without fiduciary issue. Even if money proper increases (say the 1849 gold rush in California), without fiduciary issue there is no credit expansion and therefore, no inter-temporal malinvestments.