Failing to address the core problem

Draghi wants permanent eurozone bailout fund

boom-bust-cycle-300x248ECB president Mario Draghi wants a 500 billion euro bank bailout fund, as if a one time bailout is all that is needed.  However, the core problem has not been addressed.  Fractional reserve banking means that the banks can pyramid multiple amounts of new lending (creating new money in the process) out of a small increase in reserves.  This “something for nothing” credit expansion causes an unsustainable bubble, and that which cannot be sustained will not be sustained.  The malinvestment must be liquidated, and Draghi assumes that his bailout fund is sufficient to save the banks…just this one time.  But Draghi’s proposed one time bailout will be repeated again and again until we realize that lending must be funded from real savings and not newly printed fiat money, created by the banks’ privilege of fractional reserve lending.  The template for an honest and noninflational banking system can be found in Murray N. Rothbard’s The Mystery of BankingPatrick Barron

This entry was posted in News/ Lessons. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s