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Fractional Reserve Banking

Why Should We Care about Fractional Reserve Banking?
Fractional Reserve Banking allows lenders to practice monetary polices that are nothing short of
fraud. What used to be called counterfeiting has now been dressed up by the courts as a legitimate lending practice. In addition, the practice is highly inflationary because it artificially inflates the money supply. At some point in our history, someone decided it was a good idea to perpetrate this fraud upon the entire financial system.

What is Fractional Reserve Banking?
Fractional Reserve Banking is exactly what it says it is – a fraction of the reserves (money) that is said to be available is actually there. The rest is simply not there. The Federal Reserve pretends it is there, but it really is not. Ironically, a bank that practices fractional reserve banking is always inherently bankrupt. Who practices fractional reserve banking? – Every bank in the world.

How Does This Scam Work?
Fractional reserve banking allows banks to issue multiple receipts for the exact same reserve. The bank is taking someone else’s money and lending it out at the same time that the depositor thinks his money is still available for him to redeem. So for every dollar you put in the bank, the bank can lend say 9 dollars that don’t even exist! Similar to the manner in which a ponzi scheme works, banks are allowed to “loan” you money they don’t actually have. As long as you pay it back, who’s to know that it really doesn’t exist?

Frozen Credit Markets
In 2008, America experienced its most recent financial meltdown due primarily to fractional reserve banking. The world had gotten wise to the utter bankrupt state of Americas monetary system and so had begun a worldwide run on Americas lending institutions. One of the consequences of the collapse was that the credit markets tightened. In desperation, Henry Paulson tried to bilk $700 billion from American taxpayers and replenish the reserves of the banking industry. Unfortunately since the entire world had followed the “modern” ways of the American model, one would have to somehow “come up with” ALL of the world’s reserves in order to “restore confidence”. So no amount short of the entire money supply would work. Besides, all he was offering was more fiat printed currency subject to the same fraudulent inflationary rules that had begun the problem in the first place. But America wasn’t the only one playing this shell game, the entire world was. Caught with their pants down politicians heaped mounds of self-praise in their harmonious efforts to “work together” to solve the financial crisis brought on by their own dishonesty (see the European Union).

Fractional Reserve Banking causes Inflation AND Deflation
It is obvious how fractional reserve banking is inflationary. Since it “creates” money that doesn’t really exist, it devalues existing money that really does exist. Unfortunately, it’s a two-edged sword. When people figure out that their deposits aren’t really there and begin to demand their deposits, the bank will stop issuing its fake credit and a credit squeeze will ensue. The money supply of a fiat system will shrink, therefore putting deflationary pressure on prices bringing about a recession. Sound familiar?

The Bogus “Business Cycle”
In school, students of economics are taught that economies sort of “naturally” experience business cycles – the so-called “boom or bust” of capitalism. Turns out to be false, as is most any vague teaching. One of the prime drivers of the business cycle is fractional reserve banking:
“We already see here the outlines of the basic model of the famous and seemingly mysterious business cycle, which has plagued the Western world since the middle or late eighteenth century. For every business cycle is marked, and even ignited, by inflationary expansions of bank credit. The basic model of the business cycle then becomes evident: bank credit expansion raises prices and causes a seeming boom situation, but a boom based on a hidden fraudulent tax on the late receivers of money. The greater the inflation, the more the banks will be sitting ducks, and the more likely will there be a subsequent credit contraction touching off liquidation of credit and investments, bankruptcies, and deflationary price declines. This is only a crude outline of the business cycle, but its relevance to the modern world of the business cycle should already be evident.”
~ MURRAY N. ROTHBARD


Has Capitalism Failed?
Many socialists claim that this failure is an example of the excesses of a capitalist system and that this was an inevitable result. The problem with this conclusion is that what we have seen is not a true free market – recall that it requires a market free of corruption. It is hard to imagine a more corrupt and insidious form of economic terrorism than fractional reserve banking.

Was It Always Like This?
No. Throughout history, various civilizations have fluctuated back and forth between 100% and fractional reserve banking, including America.

What is Wrong With The Courts?
Those who take comfort in the wisdom of the courts should take heed. The courts have consistently upheld the government’s right to counterfeit money (steal from the people) as well as to allow for bribery of public officials as a form of “free speech”. So America is not only under attack from elected representatives, but also from unelected (appointed) judges and career beaurocrats.