I'm a complete n00b when it comes to banking systems and money supplies so what follows will probably be a stupid question. If, as the above article suggests, we limit local banks to loan only on a 1 to 1 ratio of what they had on deposit, wouldn't that result in people and small business having a hard time getting loans, and thus causing the economy to stall?
[Here's the reply]
Alan Hefner
@Jim Miller, if banks are held to lending out only the amount they have on deposit, it would make the credit market tight for a while. It would have the highest impact on the consumer credit market though and THAT isn't such a bad thing.
Another thing that MIGHT happen is that banks would go to greater lengths to get people to establish, maintain and grow, savings accounts.
Also, it would go a long way toward stabilizing our money supply and the value of the dollar.
Last, but not least, the banks would have more real assets to back those loans. In case of wide spread defaults, the bank would have "something" they can use to try and get back some of the outstanding loan amount.
[I'm not yet convinced.]
Another thing that MIGHT happen is that banks would go to greater lengths to get people to establish, maintain and grow, savings accounts.
Also, it would go a long way toward stabilizing our money supply and the value of the dollar.
Last, but not least, the banks would have more real assets to back those loans. In case of wide spread defaults, the bank would have "something" they can use to try and get back some of the outstanding loan amount.
[I'm not yet convinced.]
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