Fractional Reserve Banking
Let's see how the fractional reserve process works without a central bank.
We set up a Bank, called Unclaimed Booty, and invest $10,000 of cash to get the darn thing going. You regulars would trust me with the loot, right? I now "lend out" $100,000 to some people, for whatever purpose they have in mind. But how can I "lend out" far more than I have? I promise that I understand that four zeros is less than 5 zeros. Honest! Now you see the magic.
It works like this; with my original 10,000 I then open up a checking accounts that add up to $100,000 which I lend out to customers. I can charge a lower rate of interest than savers would charge if they were handing out money that they had worked for. I don't have to save up the money myself, but simply can counterfeit it out of thin air. Before the 20th century, I would have issued bank notes, but the Federal Reserve now has a legal monopoly on the issuing of note issues. Since demand deposits at the Unclaimed Booty Bank function as equivalent to cash, the nation's money supply has just, by magic, increased by $100,000. The inflationary, counterfeiting process is under way.
But without government support there are some severe hitches in this counterfeiting process.
First: why should anyone trust me? Why should anyone accept the checking deposits of the Unclaimed Booty Bank? Why do they not just use RedState Bank instead? Or a bank backed by the Koch Brothers?
But even if I were trusted and able to con my way into the trust of the gullible, there is another severe problem. Since the banking system without a central bank is competitive the people I loaned money to would spend it (why else did they borrow it?) in various places and the bank notes would end up in a competitor's bank. Say RedState Bank had $50,000 of my bank's paper and decided to cash it since they don't want any bank notes from other banks. Now what? I don't have $50,000. I only have my original "reserves" of $10,000 so I am finished. Bankrupt. I am out of the money supply game and should go to jail.
As you can see under free competition without government support and enforcement there is very limited opportunity for fractional-reserve counterfeiting and this is why under "free banking" in the past the reserves were supposed to be 100% and were nearly that at all times in honest, respected banks.
Central Banking
The bankers themselves set out to get the government to cartelize their industry. This was by means of a central bank. Central Banking began with the Bank of England in the 1690s. Central banking came to the United States by the Federal Reserve System of 1913. The FED was greatly welcomed, in particular, by investment bankers such as the Morgans who by this time were moving into commercial banking as well. Banksters were in on this idea from the get-go.
Today the FED, our Central Bank, is granted the monopoly of the issue of bank notes. These bank notes are now identical to the government's paper money and so is money in this country. A bank puts a deposit in the FED and then can issue up to 10 times that amount because we have a fractional reserve system. The FED backs this scheme by law as we saw last time.
By the way, the originally written or printed "bank notes" were, in fact, warehouse receipts for gold or silver kept in a warehouse as opposed to the intangible receipts of bank deposits today. Neat how we bastardized that term is it not?
Who benefits
This system was set up to inflate the money; but who benefits? Why the largest debtor benefits by making a debt smaller in real terms all the time. So who is the largest debtor in our country? Why the US government is. Coincidence? The banksters also benefit by getting the money first before the inflationary effect; plus the effects of the FED scheme discussed last time. But the benefits also include the minions of the central government who are paid by the central government with the looted wealth.
0 comments:
Post a Comment