RE: [OPE] Required reserve ratio

From: Paul Cockshott <>
Date: Fri Oct 10 2008 - 11:09:23 EDT


You say "Depositors could withdraw the monies from their demand deposit accounts and then purchase gold or silver or Euros or oil futures or ...."

This of course can only be done by individual investors. For every purchase of silver, there must
be a seller who aquires cash in return.

Paul Cockshott
Dept of Computing Science
University of Glasgow
+44 141 330 1629

-----Original Message-----
From: on behalf of Jurriaan Bendien
Sent: Tue 10/7/2008 9:52 PM
Subject: [OPE] Required reserve ratio

You say "Depositors could withdraw the monies from their demand deposit accounts and then purchase gold or silver or Euros or oil futures or ...."

This is true and it's already happening. However, actually in practice it is often not so easy to do this, and there are caveats - for example, tax imposts and charges on gold sales. The idle capital which exists nominally actually dwarfs the secure physical assets that could easily absorb it, that's the reality. Once you buy a physical asset you also have to be able to secure it durably, you also want some expectation that you could resell it on favourable terms when you need to, and so on. In a global system of fiduciary money, there are few assets of which you can be really sure that they will durably hold their value. New Zealand workers thought for example that they could safeguard their savings via a mortgage, but house prices are likely to decline now by 25% according to press reports. Maybe not such a problem if you still have a house and 75% of the previous value, but, obviously, you cannot capitalize easily anymore on an asset that is declining in value by 25%, and you may indeed want to get rid of your mortgage to mimimize your loss.

Mr Roubini is very concerned with the possibility of a run on the banks in the US, but like I say, I think as soon as this became a real prospect measures would be taken to block that. Paradoxically the financial system can neither easily collapse in total, nor function efficiently, and so I think there's going to be a lot of haranguing and financial wars the world over for years to reorganise credit provision. But as I said in my original posts on this topic, I think (1) the general outcome is a much more conservative financial stance, (2) it's those with the least discretionary or disposable income who will feel the pinch of that first, (3) the main problem isn't really lack of funds, but market confidence - all the resources are there to solve the problem, but if, due to some perception people have, they refuse to trade, it can't be solved.

As some commentators observe, finance is becoming "directly political". It turns out, that different groups of people have very different interests in the situation, and that markets cannot harmonise those interests. It's like, the hidden hand got chopped off. Somehow you have to persuade people to trade (buy and sell), but if they won't do it, it's difficult to force them to do it, and then you've got a humdinger of a problem. Official economics is about prices, and the exchange of goods and services (trade) is presumed to occur as a naturally given fact, hence the category of exchange-value isn't even talked about. But if, for some reason, people do not even exchange things, well then talking about prices is not much use, in fact there is no market. Then if there is no market, there is no economics, only politics. Since politics may not follow any obvious logic, this creates more uncertainty, which feeds back into the propensity to buy and sell, and so the thing goes round in a merry circle.


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Received on Fri Oct 10 11:13:27 2008

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