Wednesday, March 3, 2010



* This blew me away: Joe Salerno discusses Murray Rothbard's call for anti-statists to pull their money out of the commercial banking system. OK, so let's suppose Austro-libertarians agree that they should stop the inflating Fed in its tracks by boycotting the commercial banks. But what is the free market alternative? (Don't think tax-qualified retirement plans.) It would be nice if it already existed, in a time-tested financial product that Austro-libertarians already have an affinity for. Well we can dream.

* Sometimes even Joe Romm has to backpedal. Debate! Debate!

* Why I read EPJ: The real explanation for the fate of Charlie Rangel.

* Here's the audio of my talk at Jekyll Island, titled, "Only the Austrians Can Explain Depressions." Some jokes in the beginning, and then Scott Sumner bashing in the middle.

* I don't believe in Profile updates and all that jazz, but Vijay Boyapati had a cool Gandhi quote the other day: "The ideally non-violent state will be an ordered anarchy. That State is the best governed which is governed the least."

If I pull cash out of my bank, but then I put it into my whole life policy, that just puts it back into a different bank, doesn't it? How does that stop anything? Even if i buy gold with all of it, the gold dealer deposits the cash in his account, which is then multiplied. The only way to stop the multiplier is to actually hold the cash.

Or what am I missing?
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Re: buying gold, it would depend what the gold dealer did with the cash. But if you put money into a whole life policy, they don't deposit it with a bank; they buy bonds etc. with it.

Now you're right, ultimately that cash presumably will find its way back into a commercial bank deposit unless someone along the way decides to hold a large cash balance. So I was mixing up two (related) things: What Carlos and I are saying is that if you don't take out loans (for your house, cars, business, etc.) from commercial banks, but instead get policy loans from the life insurance company, then you aren't contributing to the problem.
If I write a check for $200k to a whole life company, they buy $200k of bonds, but the bond seller then deposits the $200k in his checking or savings account, which is then multiplied. When the bond seller spends the money his bank must money un-multiply but the recipient deposits the money in his bank, where it is multiplied back to where it was before.

The only way to not have the money multiplied is by holding cash or the bank holding the money as excess reserves at the Fed. Any other place the money can exist it gets multiplied.

Maybe there is something I'm still not getting.
Hi Bob,
Thanks for answering my first post.
Already listened to your talk. Good stuff Bob. And I even got to feel cool for already having read the Scott Sumner material here.

I downloaded all the speeches from Jekyll Island, and am about halfway through them. I did enjoy Peter Klein talking about Hydraulic Keynesianism - and even found a hilarious video of a guy demonstrating the machine. It could have passed for a SNL-type skit, drawing a caricature of Keynesian economics. But this guy is serious:
I love the Gandhi quote!
I'm not saying Infinite Banking isn't a no brainer for other reasons, I just don't yet find this one reason persuasive yet.

You're right, I mixed two things up. There are two necessary components for a commercial bank to engage in fractional reserve banking: People need to first deposit cash, and then the bank has to give out loans pyramided on top of the deposit.

So if a household stops using a commercial bank to finance its home and car purchases, and instead gets loans from an insurance company, then that's one less customer for the banks to use for new loan creation.
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