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MikeMark (29.58)

Case Against the Fed and Fractional Reserve Lending

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May 06, 2009 – Comments (7)

Mish has a great detailing of why we don't want the Fed and why we don't want fractional reserve lending (it's fraud). Check it out.

Here's something to think about and reply about: Can we the people clean up the system and remove the inherent fraud? How long will it take? Is it worth it?

For me the answers are:

We must. Fraud at these levels creates fraud at every level. Those who don't engage in fraud are considered to be lawbreakers in a system like this.

Quite a while, at least 4-7 years maybe much longer (and possibly never completely). One of the big problems is that the government thrives on the money printing ability. It's against the constitution, but that didn't stop them, and now they no longer care.

It's definetly worth it. The economic growth of the 1800s (and up to 1910) proves it. The growing economic slavery from 1913 to the present also proves its value to us. Our middle class is disappearing before our eyes. I really don't want economic slavery for my children and grandchildren. Do you?

7 Comments – Post Your Own

#1) On May 07, 2009 at 2:45 PM, Imperial1964 (97.87) wrote:

Mish is wrong on this one.  Karl Denninger has the rebuttal

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#2) On May 14, 2009 at 12:32 AM, MikeMark (29.58) wrote:

Imperial1964

Sorry about not getting back to you sooner.

Interesting you think that article is a rebuttal. It isn't.

Karl Denninger gives an example of 100% Reserve Lending as a proof that Fractional Reserve Lending is ok. He doesn't seem to even understand what FRL is. His example is about Joe depositing $10k into a bank and the bank loaning out $9k and keeping $1k in the bank available for Joe. That constitutes 100% reserve lending. $1k + $9k = $10k that's 100%. The bank has comitted no fraud because of what we haven't discussed. Joe's deposit would have been into a term account such as a CD with a specific time and rate attached to it. Such is also the case for Jane's borrowing. She has a specific rate and time to pay.

Joe does this because he trusts the bank and he wants to earn interest on his money. If on the other hand Joe put his funds into a demand account, such as a checking account it would be fraudulent for the bank to loan it out. Joe has made an agreement with the bank that these funds are to be available upon demand.

Banks in the US used to work this way (before about 1913), but now if a bank wants to loan out demand account money, it can and does. It can because the Federal Reserve System makes money available to it through a lending process. That's where the fractional reserve part comes in. The Fed is the "money printer", simply by making an entry in it's books. Banks also are allowed to "sweep" money from demand accounts into the money market to earn interest. Which compounds the problem even further, especially if that money is being used for undesirable loans which are not under control of the original bank. So your depositor's money is where? It's in the money market: "We don't know."

The Fed is a "lender of last resort". It guarantees that the money will be there if a bank needs it. In the Fed System, banks are only required to keep about 10% (for most small/normal banks) of total assets on reserve. That's Fractional Reserve Lending! The thing is, when a bank is required to answer to its depositors without a "lender of last resort" to rely on, the bank will use greater caution in lending, which creates stronger banks and a stronger economy. 

So Karl's rebuttal isn't.

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#3) On January 15, 2010 at 5:36 PM, MikeMark (29.58) wrote:

Account keeping in a 100% reserve system would work something like this:

Demand accounts like checking are bank liabilities. The cash comes in and is a bank asset, but there is also a bank liability that is owed to the customer. No net increase in asset value.

Account keeping for Certificates of Deposit and Savings accounts would be different. They are term limit accounts. CDs could only be withdrawn from the bank when they come due. The bank would record an asset at the time of the account opening. The liability occurs when the term is up. So the money could be loaned out until the term limit.

Savings accounts are a semi-demand account. They offer a lower interest rate due to the fact that the money can be withdrawn at any time. Savings accounts normally would have limitations such as quarterly or annual compounding and the bank will issue your money within 30 or 60 or 90 days of the request. Savings account money therby becomes a bank asset also and becomes a liability when you make a withdraw request. That's 100% reserve banking. It's 100% fraud free due to the contracted obligations and expectations of each party.

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#4) On February 05, 2010 at 4:16 PM, MikeMark (29.58) wrote:

Another note:

Fractional Reserve Lending really began in earnest about when the National Bank system began sometime around the 1880s. It took about 10-15 years for some of the banking people to begin to want a "lender of last resort" aka a central bank. The theory was that bank runs couldn't happen in an open-ended monetary system. The people didn't want it. The constitution expressly forbids anything but gold or silver to be used as money. Congress has only one burden regarding money, to make sure the weights are accurate. It took until 1909 to change the thinking of the people enough that they could squeek it through a lame duck session of congress. Viola! The Federal Reserve System was born.

From about the 1870s through the greater part of the 20th century, the USA had the strongest economy in the world.

However, socialism and central banking are a major destroyer of wealth. What happens is that the middle class wealth is removed and concentrated in the hands of fewer and fewer people. This happens because the central bank is controlled by the few who have the ear of the government and are the first receivers of newly created money. So as the banking system creates inflation, they get to use the money in a pre-inflation condition. During crisis, as we have just recently seen, large banks and corporations are seen as too big to fail and are bailed out at the expense of the middle class in taxation. A large wealth transfer takes place. That transfer also steals from the future children of the middle class, those who have no say in what has been forced upon them.

That is why it really must go. Stealing from unborn children is an unspeakable crime.

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#5) On August 23, 2011 at 11:15 PM, mhy729 (30.94) wrote:

Stumbled upon your blogs after noticing your recent comments left elsewhere.  Not sure if you'll be checking back in this one, but let me say "thanks" for the postings on fractional vs full reserve lending...certainly helps to solidify my own thoughts on why fractional-reserve banking is a flawed system.  I'm kinda surprised this only had two recs (just gave +1 for three), considering that there seem to be a lot of Fools here who are against FRB and centralized banking.

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#6) On August 24, 2011 at 12:16 AM, ahemhmm (< 20) wrote:

Please, everybody who wants to learn more about Fractional Reserve banking and how much of a fraud it is, please watch the Money Masters on You tube. A very good documentary.

 

I am always amazed when I hear people defend the Federal Reserve while at the same time the Fed has enough money to buy this country. Where did they get this money/power from? They are not producing anything. They are robbing us blind and we are sitting here like a bunch of ducks.

 

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#7) On August 24, 2011 at 12:32 AM, MikeMark (29.58) wrote:

Hi mhy729,

Never fear. I'll certainly check back here. What's written here is way to important to ignore.

I'm glad you found it, and you are welcome.

If you look at the original post date and consider that there is a learning process that's been happening among people in general, you'll understand why this hasn't received much notice. If you want to learn more, I suggest you start with A few important books.

Be sure to follow the link to David in there.

Now here's what you really need: have faith and patience. The process of what is happening here is a lengthy one that has roots in the way children are taught and who decides what is important. When families decide what is important, then true change happens. And it is.

-MikeMark

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