Monday, 4 October 2010

Canada and fractional reserve banking

Steve Horwitz over at the Coordination Problem blog wants to say something nice aboot Canada (no, I can't see the point either).
If you ventured over to the Land of the Tinfoil Hat also known as my Daily Bell interview, you'll have seen many folks there (and elsewhere in the wacky world of libertarianism) arguing that fractional reserve banking is reponsible for everything from bad breath to why the Detroit Lions suck. Okay, those were exaggerations, but they do think, for example, it was responsible for the pre-Fed panics among other things.

The problem with that argument (aside from the fact that it was existing government interventions that caused those panics) is that it ignores the Great White North. During the same period of the late 19th and early 20th century, Canada had no central bank and fractional reserve banking, yet it had none of the panics the US suffered and it got through the 20s and 30s with no bank failures, compared to the 9000 or so that failed in the US.

If fractional reserve banking is the problem, how does one explain the success of the Canadian system? I have asked the question over in the Land of the Tin Foil Hat and will be curious to see what they have to say. Or if I can understand it. Til then.... take off, eh.
Fractional reserve banking working? Oh dear, what would Murray Rothbard say?!

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