In this light, these "people" you speak of must
logically support the anti-Chinese riots in Indonesia in
1998 because the Chinese was exploiting the poor Indonesians
through their control of the economy?
First of all, do you even understand the economic/financial
consequences of full-reserve banking or a public sector banking
system? For the benefit of those that don't, please allow me
explain. The bank-led private credit market exists because of
fractional reserve banking, which means that a bank does not need
to keep all its liabilities (deposits) in its vault. In other
words, a bank holding say $1bln amount of deposits, does not
need to keep $1bln in reserves. So what does it do with the rest of
the money? It lends them out, and the banks makes a profit from the
difference between the interest rate on what the bank gets from its
loans and what it pays its deposit accounts. So a bank can make
housing loans, commercial loans etc. because it does not need to
have 100% reserves for the deposits it holds.
What is the implication of a full-reserve banking system? It
means that the bank cannot lend money because if it must keep 100%
in reserves to cover all its liabilities (deposits), then naturally
the bank cannot make any loans.
Then the question becomes who will do the lending? There are 2
possibilities. One is there is no lending at all, except for loan
sharks. But in my mind, as per my original post on this thread,
only an under-developed agrarian economy where people eat what
they farm and build their own homes can exist in an economic regime
where there is virtually no credit system.
The other possibility is that the government provides the
lending. Now Singaporeans with little knowledge of other countries'
experiences with a full public-banking system might think what's so
bad about this! After all, we have such an efficient and clean
government right! It must be a better and
fairer system than private sector banks!
Anyone who has studied global economics and finance knows full
well the sorry experience with government-controlled banking
systems. If you don't believe me, just read this World Bank study
at
http://info.worldbank.org/etools/docs/library/83775/hanson2%5B1%5D.ppt#1
Slide 6 sums out the general experience of a full public sector
banking system well:
1) Most have done badly
2) High non-performing loans
3) Higher spreads, meaning higher interest rates than from
private sector banks
4) Biased to lend to government officials/companies
Of course, there are some successes, but most countries
following a full public sector banking system have done badly.
There are lots of papers and books written about this, but they are
usually written for people with an economics background.
It is very easy to understand why public sector banking does not
work well. When politicians control a bank, they like to
use it to reward their friends and supporters to ensure their
popularity. Whether the bank is making good loans or not is a
secondary concern. This may be difficult for Singaporeans who have
never experienced any other political system than PAP dominance,
but imagine you live in a country where you cannot take your
political support for granted, where you can bribe people to
support you. Imagine what you would do if you were Suharto or
Thaksin, and could control banks. Naturally, you keep your friends
and supporters happy by giving them cheap loans, and who cares if
they even bother to pay it back.
That is why the consensus of economists worldwide, except for
the occasional crank, is that a fractional reserve private sector
banking system, for all its faults, beats either a full-reserve
system or a public sector banking system. At the very least, one
could easily say that a public sector banking system is no better
than a private sector one, and you simply trade one set
of problems for another.