Fractional Reserve Banking Part 2
In last week’s article we discussed how the goldsmiths became really greedy and brought down their entire system that was based on fractional reserve banking, financially ruining their depositors. If you missed that, please visit Fractional Reserve Banking, Part 1 before continuing here… The goldsmiths resorted to creating far more in notes than double the amount of gold. Highly inflationary of the money supply, prices rose considerably. Soon, the depositors began questioning the legitimacy of the goldsmith’s banking operation and so a mad run was created on the gold deposits. Of course, the gold ran out well before all the claims by depositors and vendors could all be paid. The goldsmiths went bankrupt and the public was horrified that its wealth had been stolen. Fractional reserve banking had deservedly obtained an evil reputation.
Now anyone familiar with our present banking system in the United States understands that fractional reserve banking is a central part of its operations. For every dollar in customer deposits, the U. S. banking system can leverage those funds by a factor of ten (at times, this factor has been even higher). One tenth of the money is backed by customer deposits, and 90 percent is backed by nothing but faith in this crooked system. Magically, as money moves through the banking industry, one dollar becomes ten dollars, one million dollars becomes 100 million dollars. One hundred million dollars, less the ten million in reserves, can now be loaned out with interest. This is newly generated fiat money by the banks and for the banks to loan out at interest, which is why the banks own almost everything that has a loan attached. Such credit expansion is, of course, inflationary. Is it any wonder under such a system that the U. S. dollar has lost 97 percent of its value since this fractional reserve system was implemented in 1913 by the creation of the Federal Reserve? This system is very lucrative to the elite banking families who set up this corrupt system. Since they own the politicians, the banking status quo is likely to continue until the people are drained of their wealth and their dollars becomes worthless. Unlike the bank runs on the goldsmiths that showed the gold was not there and thus bankrupted the goldsmiths, a current day bank run in the U.S. may bankrupt individual banks, but not the banking system as a whole. All the Federal Reserve needs to do is print as much money as needed to cover deposits. However its endpoint transpires, the dollar will eventually be printed into inflationary oblivion. When the dollar is finally destroyed, the U. S. Congress may perhaps grant to a centralized world bank, the political power of coercive law to force a new international fiat currency backed by nothing (such a currency called “special drawing rights” has actually been in place since 1969). Hopefully, this will not happen, but rather gold will return to be honest currency, with strict banking laws requiring that paper is always backed at 100 per cent in gold reserves. May an informed American people arise and make choices to stop the manipulation of money by a banking elite, their complicit politicians, and their ability to rob the country by inflationary fractional reserve banking.
“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property – until their children wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people where it properly belongs.”
– Thomas Jefferson, 1802