Posted: May 18, 2019 10:41 pm
Svartalf wrote:I don't know what fractional lending it, it does not even have a wiki page for me to get the cliff notes.
Fractional lending basically means that only a fraction of the money a bank lends out needs to actually exist. If a bank has a billion dollars worth of liquid assets (chiefly money deposited by its customers in savings and other accounts) it feels entitled to lend 10 billion out to customers. It's a neat way of making a profit out of money that does not even exist.
If you feel uneasy about so much non-existent money being traded, hold on to your hat, for it gets worse than that. Much, much worse. Say, a banker has loaned you $100,000 to buy a house on the basis that the bank has one tenth of that amount in actual funds. Your mortgage now becomes an asset the bank can trade with other financial institutions. In other words, the banker has turned a $10,000 asset into an $100,000 asset. He can now lend out $1,000,000. It's a Ponzi scheme without limits, and it's legal. When people start panicking about the outrageousness and try to retrieve their money from their bank accounts, it'll all come down like a house of cards, of course. The banker will laugh nervously in your face and say something like: "You want your money back? What money? I haven't got it."
So, yeah, JamesT is right about fiat currency; it's mostly fictitious, consisting of little else than more or less unjustified trust. Where JamesT is wrong is in imagining that cryptocurrencies are any different. If anything, they are worse - backed by nothing more substantial than the figment of a programmer's imagination. When the shit hits the fan, the only things of any value at all are things you can use to barter with. I might swap one of my hammers for half a kilo of your nails, two of my chicken's eggs for a litre of your cow's milk, that sort of stuff.