Reddit reviews Economics of Money, Banking, and Financial Markets, 10th Edition

I'm honestly super surprised that you bring up Austrian econ and have

>I have a bit of graduate training in economics

considering Austrians are basically a joke in academia. This whole post is borderline /r/badeconomics territory, Fed / Fractional Reserve stuff gets posted there all the time, because people are usually incorrect about it. You keep pointing out things like,

>Because they model the economy without money, as if it were a barter system, mainstream economists fail to realize...that when money is created, it is never distributed evenly throughout the population

That's not even close to remotely true. Honestly, I hate to be that guy but your understanding of the Fed and fractional reserve system is pretty poor.

>If the money is "lent" out 10 times, then you can calculate that the total amount of money created if $500: 5 times more than the original amount that the Fed created when the first bank borrowed from it.

It's actually $457.05, and has a limit at $500 (the more iterations, the closer it gets, but it wont pass it). This is essentially the money multiplier, it's not a bad thing.

>So essentially, the entire system is set up for no good reason, it only serves itself

This is also not remotely true. Have you ever gotten a loan from a bank?

>and it is completely raping the working class.

The only causal link you've made for this is that they experience inflation the worst. I'm curious what metrics your using to measure the raping of the working class, depending on what you're looking at, things are pretty much better than ever for most Americans.

I'd highly recommend you read Economics of Money, Banking, and Financial Markets by Frederic S. Mishkin to get started, it's a good text.

I'd also recommend browsing /r/badeconomics in general for Fed/FRB stuff, as well as /r/asksocialscience. Here are some particularly relevant ones:

How is fractional reserve banking substantially different from a Ponzi scheme?,

Is fractional reserve banking inflationary?,

More Misunderstanding of How Fractional Reserve Banking Works,

Why doesn't the Central Bank give people money directly?,

What's a good book to introduce a layman to the realities of central banking as it's done around the world nowadays?,

"Fractional reserve is fraud. You deposit 100$ into an account you hold with me. I multiply it by 10, and then loan out 900$ of that money created out of thin air." (x-post from /r/bitcoin).,

Income inequality? End the Fed! ,

"There is no "savings" with our system. We have a debt system / fractional reserve where banks make money off of the interest for money they printed out of thin air." ,

"Fed robbing poor and middle class to pay the rich",


When the title is "The Federal Reserve is such a scam," and the link goes to YouTube, you know it's going to be good

For that I recommend Mishkin's Money Banking and Financial markets 100x over a general intro econ textbook. Its understandable by a layman, imo. You can get a fairly recent edition here used hardcover for under $20

Here is the table of contents from an older edition to give you an idea of the type of stuff covered in the book

If I were you I would read the last part of the book (the last few chapters which covers general macroeconomics) before reading the rest, but its up to you

The current understanding of the financial crisis is that a decline in housing prices caused disruptions in the financial system, which showed up in several related but distinct markets, such as derivatives transactions. Most economists would disagree that the recession was caused by derivatives sales. However the story of "what caused what" during the financial crisis is not at all fully settled, and the bigger question of why we have recessions in the first place is fraught with debate.

It's also not the case that the money has to "go somewhere." Suppose I own a house worth $500k, but then housing prices fall by 20%, and my house is only worth $400k. My net worth just decreased, but nobody profited from it.

The general understanding of money is that it can be created and destroyed by the financial system, through a similar mechanism. A very basic example is the
fractional reserve banking model. When things are running smoothly, the financial system is able to lend to businesses to make new investments and expand profitable operations. However when things don't go so well, like when a financial firm enters bankruptcy, they are unable to provide loans, and the real economy is impacted.

A more fruitful question is asking why we saw such a large multiplier effect, where a moderate dip in housing prices precipitated worldwide strain on the financial system. This has to do with the inner workings of financial markets and can get quite complex. For example, turmoil in the repo market is best understood as a classical bank run, and many of the hardest-hit markets, such as the ABCP market, were primarily transacted through the so-called "shadow banking system." I can recommend a good textbook on money and banking if you're interested in learning more.

http://www.amazon.com/Economics-Money-Banking-Financial-Markets/dp/0132770245

I'm generally against the practice of assigning moral blame to the financial system by default. Yes, it is morally reprehensible to sell uninformed individuals financial products they don't understand (subprime) or to sell financial products that you are fully aware are worthless (Abacus). On the other hand, we see bank runs as simply part of the nature of banking. If they occur it doesn't mean bankers were negligent. Instead, we solve the problem through deposit insurance, e.g. the FDIC. Although we don't fully understand the nature of the financial crisis, I expect the biggest problems worth correcting are of the latter type.