My experience with Wikipedia

I recently had a go at making a couple of edits of some disingenuous statements in the "Fractional Reserve Banking" section in Wikipedia. Now maybe I need to R.T.F.M., but the F.M. of Wikipedia seems just endless... It seems that after you make an edit you are supposed to explain your changes in a single line of text... which I duly did. But in no time at all someone undid my changes giving no explanation whatsoever. Then I tried to contact him through Wikipedia so that we could perhaps resolve the disagreement between us, but I found that I was barred from doing so because I wasn't a sufficiently established user. I was stumped. So now I have just tried making one of my edits again, stating that I'd like some explanation if anyone wanted to undo it. I wanted to add as part of my explanation that anyone about to undo my change should contact me but it seemed that the space Wikipedia allowed me was not big enough for such a sentence! I'm sure I have something wrong here - if anyone would like to explain to me the error of my ways please do.

One of many flaws in fractional reserve banking

With our current fractional reserve banking system system, if the government want to create P new dollars in order to fund an emergency project, it is inevitable in the long run, whether they like it or not, that the money supply will grow by 10 times P, or should I say M times P, where M is the money multiplier (currently rumored to be around 10 ish). Is this really desirable?

While I'm on the subject, can anyone point me in the direction of a really good argument in support of fractional reserve banking (as opposed to 100% reserve banking)? I've seen all sorts of articles saying "it ain't as bad as people think" in response to criticisms, but I'm struggling to find an article which positively says "its really good and here's why".

Did the Fed double the money supply?

I just watched this YouTube video in which Ron Paul said the the Fed had just doubled the money supply. But (thinking out loud here), I suspect that what the fed have just done is doubled the monetary base, which is not the same thing at all. The money supply can only expand up to is maximum (as allowed by fractional reserve limits) if the banks can find enough people who are both willing to borrow and a good enough bet that they can pay back. Now it strikes me that if there is a sustained period in which people are reluctant to borrow, then we may not get hyperinflation after all. We may instead end up in a situation like Japan with a combination of near zero interest rates combined with close to zero inflation.

The banks would of course hate this scenario with a passion because with no borrowing their profits will dissapear. So they will try every trick in the book to get people to borrow more.

World's biggest financial news story

It seems that this story is being kept quiet. I wonder why?

Stop press: I've just heard an exceptionally good analysis of this story by Max Keiser in this broadcast - its all to do with "Peek-a-boo accounting". Youtube vid here.

UPDATE 21st June: here.

How to improve the study of economics - two ideas.

There is a very marked difference between the progress of most sciences and the progress of economics. In most sciences people come up with assorted theories, they design experiments and then theories either flourish or they get shot down, never to be seen again. The bulk of the ideas in physics for example, are uncontroversial, there are very few "alternative" theories which hang around for long. In economics however things are very different. It is almost impossible to do any meaningful experiments. For this reason bad theories can hang around for ages, perhaps forever.

I'd like to present two ideas for making improved progress in economics:

1. Build computer simulations.

In recent years computers have become comfortably fast enough so that they could run simulations of entire populations. Simulating economies could revolutionize the subject in several ways.

• The process of trying to get a simulation to show all the same patterns as a real economy would, in itself, be an enlightening experience.
  
• Once a working simulation has been built, new theories could be tested within it.
  
• The accuracy of peoples simulations would give bragging rights to the best economists rather than the economists with the most popular ideas.

2. Change the nature of research papers...

I recently saw a short bio-pic about the economist Murry Rothbard in which it was stated that he was a prolific author, apparently he wrote 20 books - I immediately thought to myself - that guarantees that his work will never be properly digested. If I want to learn about his best ideas, which of his 20 books do I read? Do I have to read all of them? How about having the default format for a "paper" being an html document with hyperlinks. Encourage multiple iterations where readers give feedback about sections they found hard to understand or disagreed with. Allow the author to re-write sections, correct errors and add additional documents linked from the original to expand on points that some readers thought needed further detail or thought contentious.

I my time in academia I noticed that scientists were encouraged to write as many papers as possible. This led to a situation where if you had two closely related ideas in a field you would be encouraged to write them up in two separate papers. It also led to a situation where scientists were discouraged from making things too clear in their papers because that meant that others could too easily use your ideas to generate their own papers which may then diminish your opportunities for publishing in that field in the future. This system is a minor handicap in a field with good opportunities for experimentation where bad theories will get thrown out - but in economics its a disaster - a recipe for a never ending stream of repeated errors.

If instead, economists were rewarded for the quality of their work rather than the quantity, then perhaps the field could take a few steps forward.

Pensions casino - supporting articles on the BBC

Back in March I wrote a blog entry The pensions casino - an alternative. Then just today I came across this article and this article both on the BBC news website and which both support my prognosis... they could have just subscribed to my blog instead.

Fractional reserve banking - at last some support!

CORRECTION: THIS ARTICLE IS WRONG - THE COMMENT EXPLAINS WHY. I AM LEAVING THIS BLOG ENTRY HERE FOR REFERENCE.

On the 28th of March 2009 I wrote a blog entry called The most important thing to understand about banks. It was the result of my research in to fractional reserve banking. The key thing that I had worked out was that it was just too easy for bankers to earn money. Or more specifically, if the "money multiplier" was M and the banks could lend money to borrowers with the borrowers paying interest at rate I, then the amount of interest that banks could earn on their starting reserves was effectively (M x I). At the time I felt like I was the only person on the planet to have worked this out because I had never seen anyone else say it. I thought that perhaps I had made some mistake. But then I came across the following, rather long (3.5 hours!), but very good, documentary called The Money Masters - How International Bankers Gained Control of America, and at 19 mins 25 seconds in to the movie they say

"every bank in the U.S. is allowed to loan out at least ten times more money than they actually have, thats why they get rich on charging lets say 8% interest -its not really 8% per year which is their income, its 80%, thats why bank buildings are always the largest in town".

I was right!

So while I am happy to find some support for my conclusions, I am not at all happy with the way the banks are screwing the rest of the economy.