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The requirement that banks have some level of "hard money" is a regulatory one. It is not a "law" of economics. There is a number of other possible ways to regulate money creation (e.g. by having the central bank clear all interbank transactions and limiting the amount of credit it will clear in any given time frame).

Further, there is a distinction to be made between short-term credit secured by intrinsically valuable stuff (which essentially means the payment clearing system), short term credit that is either unsecured or secured with stuff that has no obvious intrinsic value (e.g. brokers' loans secured by stocks) and long-term credit (whether secured or unsecured).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu May 7th, 2009 at 03:23:41 PM EST
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while engaging themselves, and not a central bank each time (or they would become a subsidiary of the central bank). Hence the capital requirements.

The distinction between law and regulation is interesting in political philosophy. Regulation is mid way between law and interpretation.

Patrice Ayme Patriceayme.com Patriceayme.wordpress.com http://tyranosopher.blogspot.com/

by Patrice Ayme on Thu May 7th, 2009 at 07:08:06 PM EST
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