Where Keynes Went Wrong by Hunter Lewis

Where Keynes Went Wrong by Hunter Lewis

Author:Hunter Lewis [Lewis, Hunter]
Language: eng
Format: epub, mobi
ISBN: 978-1-60419-017-5
Publisher: Axios Press


iii. What to do about banks.

The most obvious reform would be to increase the reserve requirement. The ideal reserve would be 100%. Banks would then charge for storage, for processing checks and other transactions, and for acting as our loan agent. In the event of a loan, the term of the loan could not be longer than the term of the deposit.†

Most bankers would oppose the concept of 100% reserves. They know they can make much more money in most years with lower reserves. What they do not fully comprehend is that banking, as presently structured, is not truly profitable. The gains of many years are eventually forfeited in a crisis that wipes out the existing shareholders. New shareholders may do well for another generation, only to be wiped out in turn. Any move toward higher reserves would help to establish banking on a sounder footing.

The greatest obstacle to sound banking is government. The US Federal Reserve was established in 1913, in part, to reduce bank reserves. Over the years, it has lowered reserve requirements repeatedly, always seeking in this and other ways to create more

money and pour it into the economy through the banking system.UU In the eyes of politicians, more money is almost always better. It will help the economy look better in the short run, and that will help incumbents get reelected. The idea that the government (in the form of the Federal Reserve) guards us from inflation makes no sense. The record tells us otherwise. The Fed is the source, not the cure, for inflation.



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