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Category Archives: Fractional reserve banking

An English Politician’s View of Central Banks


Is criticism of central banking an idea whose time has come?

video      00:01:55

 

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Our Debt-Based Monetary System


The Rules of a Debt-Based Monetary System [courtesy Google Images]

The Rules for a Debt-Based Monetary System
[courtesy Google Images]

What follows is mostly speculation.

I’m going to explore several premises and, using my version of “logic,” build on those premises.

I’m not claiming that my premises are necessarily true. I’m not claiming that my “logic” is necessarily logical.

I am claiming that these premises and my “logic” lead to some hypothetical conclusions about our debt-based monetary system that are at least interesting and perhaps surprising.

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“Reset” Coming? What’s a “Reset”?


[courtesy Google Images]

[courtesy Google Images]

Greg Hunter (USAwatchdog.com) recently interviewed Rob Kirby (Kirby Analytics) in a 30-minute video. During the interview, Kirby predicted a coming economic and/or monetary “reset”.

According to Kirby,

“Today, we see China, Russia, India and others are moving to protect themselves from the systemic risk of the over-printed dollar. It’s become clear to many that the dollar’s world-reserve-currency status cannot last. It’s just a matter of time before the entire currency system will face a radical reset reflecting today’s reality.”

A “radical reset” is coming. Sounds kinda scary. But, what, exactly, is a “reset”?

Kirby continued:

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Bill Holter: Collapse Any Time; No Later than Election


video    00:31:05

 

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The “Pop” Heard ‘Round the World


Will Somebody Please Turn Off the Bubble Machine? [courtesy Google Images]

Will Somebody Please Turn Off the Bubble Machine?
[courtesy Google Images]

I have no doubt that the cornerstone of the New World Order (N.W.O.) is a debt-based monetary system.  I have no doubt that, if today’s debt-based monetary system were to fail, The Powers That Be would work feverishly to install a second, debt-based monetary system.  If the today’s debt-based monetary system (built on fiat- and/or petro-dollars) failed, the N.W.O. would seek to impose a “new-and-improved” debt-based system that might be built on Special Drawing Rights (SDRs).  These SDRs are nothing more than new debt-instruments issued by the IMF rather than the old debt-instruments currently issued by the Federal Reserve and other central banks.

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Those who live by Fractional Reserve Banking . . . .


Sovereign Debt Crisis [courtesy Google Images]

Sovereign Debt Crisis
[courtesy Google Images]

This article is conjectural.  The conjecture flows from the idea that a monetary system that’s based on debt (mere promises to repay) rather than on assets (actual payments denominated in physical gold or silver) and leads us to some very strange economic implications.

For example, in a debt-based monetary system:

1) Debt is our measure of wealth. I.e., the more debt you have, the wealthier you become (or at least, appear).  Could you enjoy the apparent “wealth” of living in a $250,000 home, if you hadn’t first been able to go into debt for a mortgage?  Could you enjoy the apparent “wealth” of driving a new car, if you couldn’t first go into debt for an auto loan at the bank?  Our apparent wealth is a function of each debtor’s capacity to make promises rather than engage in productive work.  As an extreme example, think “liar’s loans” (people who couldn’t possibly repay their loans were still entitled to move into expensive homes based on mere “promises” to repay).

2) If debt is wealth, then destroying debt (through bankruptcy) destroys wealth and, more, destroys whatever fiat currency that’s based on that debt.

3) The governments and creditors of the world should have a vested interest in restricting debtors’ access to bankruptcy laws.  If debtors can’t file for bankruptcy, they can’t destroy the debt and debt-instruments that support the debt-based monetary system.

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Loss of Savings, Not Size of Debt, Causes Bank Panic


Bank Panic--A.D. 1907 [courtesy Google Images]

Bank Panic–A.D. 1907
[courtesy Google Images]

The Associated Press recently published an article entitled “The Latest:  Will Greek banks have all their money next week?”  That headline hints at the danger in fractional reserve banking.

As I understand it, in the US, the fractional reserve ratio is about 10:1 meaning that out of every ten dollars deposited into bank accounts, the bank holds one dollar in its vault to hand out to depositors and lends the other nine to borrowers.

The advantage and even necessity for fractional reserve banking is that it prevents currency from being hoarded in banks and shrinking the money supply needed to keep the economy growing.  Instead, fractional reserve banking allows 90% of the currency saved to be loaned back into the economy to circulate and stimulate economic activity.

The danger in fractional reserve banking is that if an emergency arises when only 10% of the deposits are actually kept in the bank vault, and more than 10% of US depositors want to simultaneously withdraw all of their currency from their bank accounts, then there’ll be a “bank run”.

If enough depositors join the bank run, the bank will be unable to provide the funds owed to depositors since 90% of their deposits have been loaned out to others.  Once the bank is shown to be unable to meet the depositors’ demands, the bank will be deemed to be insolvent and may be closed.

Although depositors might later be able to regain their deposits, for the immediate future, 90% of depositors will be unable to access any of their savings.  Without access to their bank deposits, bank customers may have no money to buy groceries, pay their mortgages, or get to work.  They’ll tend to panic.  The economy may tend to collapse.

Fractional reserve banking is both necessary to a modern economy and also dangerous.  If a nation’s depositors all try to withdraw their funds at once, they won’t be able to access their funds.  They’ll tend to panic, throw things, riot, light fires and shoot.

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