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Am I in cloud-cuckoo-land? If I am -- please rescue me.
I frankly am a little shaky on my position that a bank can lend an infinite amount of money. On one hand, that position intuitively doesn't make sense -- but on the other hand it makes perfect sense. It is a conundrum. Why should a bank be stopped from making a loan to a reliable borrower who has good collateral and a sensible plan to use the borrowed money to create wealth?
If banks are stopped from making apparently worthwhile loans -- I think the system should be changed to allow them to do just that. What can go wrong if a bank in good standing is allowed to make a loan in the situation described in the previous sentence? Of course the bank manager could go crazy and lend millions of dollars to friends for no good reason - but existing laws and the contracts between the bank and the government entity that issued the bank's charter should make that as unlikely as a bank manager cleaning out his vault and taking all the money home some night.
As I read the law -- The asset that is created on the banks' books when the bank makes a loan is counted as a "reserve" of the bank. If I am wrong on this point -- then my argument is wrong. Can you show me where I am wrong? Copy of the monetary law(s) are on this website. See <<http://www.howto-ville.com/Money%20Section/fdicfrblaw.html>>
Also -- in Canada and England I am under the impression that banks need zero reserves. Doesn't that mean they can make an infinite loan? It is, of course, possible that I am misunderstanding the way "zero reserves" work in those two countries. If I am making a mistake -- please explain my error.
See http://www.howto-ville.com/Money%20Section/reserverequirements.html
The basic question is what are "reserves" for? Are they designed to protect (a) the borrower, (b) the bank, (c) the bank's owners, (d) the banks depositors, (e) the State that issued the bank's charter, (f) The Federal government. (g) the banking system or (h) the public? I can't see how reserves protect anyone. If they don't -- what are they for? If they have no purpose -- it seems like we would not be doing any harm by eliminating them.
Would you agree that there are no laws that restrict the U.S. Federal Government from creating whatever amount of money it thinks is necessary to support sensible programs that are intelligently designed to (a) eliminate poverty within the U.S. and (b) increase the wealth of the country? If that is true -- then it seems that the U.S. Government can, by a system of banking laws, use banks as the functioning entities to generate money to do (a) and (b)? If the Government can't use the banks in that way -- how can they achieve (a) and (b)? I know of no other entities that are charged with the responsibility and given the authority to work on those problems.
I look forward to your response. Use the "contact" address
Marty