> twosidedeath wrote:

> i was never exited about suing the banks. in fact most of the effects i described in my first post were about negative long and short term effects versus the one positive reason of proper business terms. and the reason i have said "bank-run" a dozen times now is the exact reason banks SHOULD NOT be handing out money that isnt thiers at least to the extent that you demand. a bank run is simple, a bank loans out cash, the lender, or the original depositors decide they want thier cash elsewhere, oh look the bank cant get that cash, and thats a very lame form of a bank-run. its basically defaulting on a payment.

1: I was only using that statement to point out an inconsistency (Why is $4 billion considered a positive relative to US debt, yet not $1 trillion?  Seems odd...)
2: Bank runs haven't happened since the 1930's, and for good reason.  Ever since the 1930's, the US developed a large banking infrastructure to create safeguards which safeguard a person's assets.  The FDIC insures up to $250,000 (was only $100,000 until 2008) of each depositor's cash, so all the people with small accounts will still have their money in the event of a bank collapse.  The bank reserve requirements are meant to ensure some money is there for depositors.  If those reserves fall below legal levels, banks can obtain short term loans from the Federal Reserve (that's actually the loan referenced when we discuss interest rate changes made by the Federal Reserve).
I'd say the current financial crisis sort of proves that bank runs don't happen in the US anymore.  If there was ever a time in which depositors would be running to a bank to pull out their deposits, it would have been in the fall of 2008, when most every bank was asking the government for a bailout and the government actually failed to pass the first bailout.

> secondly heavy fractional banking creates inflation, which also means thier money is worth less. odd eh? but when a bank loans out cash that is not infact thiers, in the belief that only 10% of thier investors will withdrawn thier cash at any given time, there becomes an excess of cash in the monitary system.

You're right here.  However, for one, that doesn't mean a bank should just be sitting on those massive reserves.  They're still a business which could make profits by expanding their market share within the economy in excess of inflationary trends.

Second, and more important, the US economy could actually use a little inflation.  The Federal Reserve's been doing anything it can to encourage lending, and thus inflation, in our economy.  Interest rates are at historic lows, and Bernanke has said he'll be keeping those rates at those lows for I believe at least a year.  If this was a normal economy with those interest rates, inflation would easily surpass 10%.  The only reason we're not seeing any inflation, and thus any recovery is because so much of the cash the Federal Reserve is injecting into the economy is sitting idly in bank vaults, as mentioned before.

Third, inflation and growth rarely occur on a 1%-1% basis.  In reality, unless the monetary policy is having significant problems, a healthy economy can outpace inflation...

Fourth, this inflationary worry is pretty much inevitable.  The moment the banks start to recover, these funds will inevitably return to the economy... and we'll see an inflationary trend again.  Then it will be the Fed's job to step in and try to prevent too big a price shock.  It's like a bandaid we're inevitably going to have to rip off. 

> last i dont believe that loaning out $1 trillion dollars even creates a GDP of 1 trillion, more likely that whatever return will be simply a fraction of that and even less significant then the possibility of banks collapsing, which would put thousands of companies out of business.

Here's a couple graphs of importance:
http://research.stlouisfed.org/fred2/data/MULT_Max_630_378.png

One more focused on the past decade.
http://images.tradingmarkets.com/2009/Howto/0309Hansen2.jpg

The graph indicates the strength of the money multiplier effect in the US for each period of time, relative to M1 currency.  Okay, so I was slightly off regarding the strength of the multiplier... we're normally at... about 1.7%, not 2%.  Anyway, the multiplier effect is exactly as I described it: that increases or decreases in the M1 supply will pass through the economy in a given year, expanding the economy by that amount.

As you can see, this multiplier completely dropped like a rock with the start of the financial crisis.  The reason is very simple: The most important piece in creating the multiplier effect of currency, the bank distributing the money in the form of loans, just isn't happening.  Once the money gets deposited in a bank... the bank's portion of the multiplier effect doesn't happen.  It just sits there.  Meanwhile, the Federal Reserve's been injecting currency into the money supply to hopefully stimulate growth, to no avail (liquidity trap).  Hence why, on average, there's no multiplier effect in our economy anymore.

EDIT: Oh, right... one final note: If we're in an inflationary period, it's stupid for the banks to be holding those reserves anyway.  With no other reinvestment or lending, that cash doesn't actually produce any growth, which means the only change in value of that currency is inflation.  The result: the bank just ate a net loss in buying power of anywhere from 1-4% for the year.