Oh Canadian Banks! March 24th, 2016

All right, so Jason has been as right as rain all week long, but I think there may have been a bit of anti-Canadian bias at play when he discussed what is going on up there at the end of his episode on the 24th. The fact that I am writing about this, or any of his other segments for that matter, does not mean that I think Jason is altogether incompetent. It only means that I hold a different point of view, representing a different school of thought, which I think is worth being heard.

That being said, if you want to be on the same page with me you can tune in at about the 49-minute mark . The source he cited was zero-hedge.

What is at issue is that instead of the taxpayers bailing out banks in the event that they become insolvent, the depositors of the bank will bail out the bank; if I understand correctly, up to 25% of the amount of deposited money with that bank. In exchange, the depositor will receive shares of the bank, which he will presumably be able to sell on the open market at a later date and therefore recoup his money.

Now there is no doubt that this is crooked and deplorable. Jason and I agree on that; however, I think it is important to not just look at where we are, but to keep in mind where we have been. From my perspective, this change in the banking system moves the needle in the direction of liberty, and let me tell you why.

If a bank gets into a bad situation and they get bailed out by the government, the bailout encourages risky behavior. Banks can engage in risky lending to maximize profits, and if all goes bad then the government bails them out and the depositor is in no way affected. Banks win, taxpayers lose, and depositors are oblivious.

Under this new system, depositors have a newfound interest in where their money is. All of a sudden, they are interested in the solvency of the bank where their money is deposited. If they feel that Saskatchewan National Bank is headed down hill, they can take out their money and deposit it elsewhere. That is not good for the bank!  Consequently, the banks have an interest in remaining solvent, as they are in perpetual need of depositors.

Do you think if 25% of the money in your account at Saskatchewan Bank is confiscated, that you will keep the remaining 75% there? Of course not!  Additionally, the bank will lose new depositors.

While it is not my ideal model, it nonetheless creates some accountability within the system, and that is a great improvement!

Of course, I am not in favor of the bill in general, with all its emphasis upon “investments in infrastructure”. Still, I am excited about the banking aspect that Jason highlighted. Again, it is a huge improvement!

If you are interested in learning more about banking, and particularly the pitfalls of fractional reserve banking, I would recommend reading “The Mystery of Banking” by Murray N. Rothbard.

There is also a short article on FRB that I think could be very helpful here, and maybe a better one by Gary North here.

Unfortunately, I do not think “The Mystery of Banking” is available on audio book, but it is a pretty easy read given the subject matter. I remember my pulse actually quickened when I first read it. Do yourself a favor and pick up a copy!