Fractional Reserve Banking is sometimes seen as the same as Fiat currency. It is not. Basically, fractional reserve banking is a method of growing the currency. IF loans are made on productive ventures, the money 'created' is real & has value. But if the loans are just created by fiat.. with NO collateral, they dilute the real value of the wealth.
One of the problems of fiat currency, is it makes reserve requirements irrelevant. What is the purpose of a bank holding reserves to cover its liabilities, if they can just get more cash from the central bank?
Reserves are what a bank has in real assets, to cover their loans. Most fiat nations don't even have reserve requirements, because they can just print up more anytime they need it. But as a sentimental nod to past hard currencies, the US currently has a 3% reserve requirement for most banks.
Here are some examples.
Traditional fractional reserve banking:
Bank A has $1m in assets.
'A' loans Farmer $1m for land improvements, seeds, & equipment, with the future years crops as collateral.
'A' loans Storekeeper $1m to build a storefront & to buy inventory, with future earnings as collateral.
'A' loans Widgetmaker $1m to build a factory, raw materials, & hire workers to make widgets, based on future sales as collateral.
'A' loans Homeowner $1m to build a house for himself, paying contractors & material suppliers, based on the future value of the house as collateral.
In this scenario, bank A loaned out $4m, when they only had $1m in assets. The other $3m was 'created' by the central bank, that bank A borrowed from to make their loans. Since all of this money is based on real wealth being created, this is not inflationary, nor does it devalue the currency. As the borrowers make money off of their ventures, they pay back the bank, who pays back the central bank for the 'created' currency. Real wealth is created, & there are no diluting or inflationary pressures on the currency. Even if the currency is fiat, if sound lending practices were followed, there would be HYPOTHETICALLY no inflationary instability.
Regulations come into play in a scenario like this:
'A' loans Nepotist $1m to buy securities, lobby, & make kickbacks to govt officials. The OCC catches them, & puts both banker 'A' & Nepotist in prison. Any remaining monies are returned to the investors & lenders.
But lets look at the current banking practices.
Bank 'A' has no assets.
'A' loans Scoundrel $10m, for donating $1m to Political Crony's campaign.
'A' loans Shyster $10m, who had loaned Scoundrel $2m to lobby.
'A' loans Conman $10m, who got a grant from Political Crony of $1m to study the effects of lobbying on the money supply. (no effect, he concludes)
'A' loans bank 'B' $100m, so they can make loans to Crony, Liar, & Weasel. They are lawyers who put together a trade deal to help impoverished nations, an executive order made by Political Crony, who successfully ran for president.
'B' loans bank 'C' $500m who is the channel in payments made in foreign aid, & military contracts.
'C' loans bank 'A' $1B to buy derivatives & securities.
The fed considers all these valid loans, even though NOTHING of value is created. It is all money shuffling. All the small banks have been swallowed up by the central banking cartels. They have no competition, & shuffle cash between themselves, tapping the FED for more & more. NONE of the 'loans' made were based on the creation of wealth, but mere pyramid scheme parameters. This is inflationary, & dilutes the real value of the currency.
THAT is where the problem lies, by allowing shady loans to 'create' money, when nothing is being created. If the banking regulators put the crooks in prison, like they used to, these kinds of ponzi schemes would not dilute the currency or plunge us to bankruptcy. But our own govt is the worst offender. They make loans to themselves, paying interest on borrowed money, with borrowed money, created by fiat. It is a shell game, using smoke & mirrors to confuse everyone & obscure their crimes.
The treasury spends money that congress has allocated. They issue T-bills to get the cash. The Fed buys the t-bills, & gets interest from the treasury. The treasury sells more t-bills to pay the interest, & the Fed gives some of the interest back to the Treasury. The treasury boasts how they are making money off of the interest on t-bills. It is nothing but a ponzi scheme
The whole system is corrupt, run by money shuffling thieves, with no basis in production. They are driving the currency to collapse.
One of the core concepts of America is that of man's inalienable rights. His right to life & property are paramount, & the ONLY purpose of govt is to protect & secure those rights. FIAT money is at its root a method to plunder the working man & take his property. It is foundationally contrary to the American ideal, & was slipped in by scoundrels & state worshippers to gain control & fleece the producers. It is at the root of statism, & is unamerican at its core. Nothing else we do.. no other reforms or changes will help, as long as the foundational principles of fiat money are in play. It is a redistributionary system employed by statists & oppressors, not a system of self rule. That change, began in 1913, was the turning point of American liberty. Since then, we have increasingly been plundered by a growing ruling class, enabled by the bankers & moneyed elite who also love this system, as they use it to enrich themselves without having to work or produce anything.
How did the stock markets respond to govt managed currency? Did the Federal reserve bring stability & solvency to financial markets? Hardly. They brought the exact opposite:
Since the Fed, we have had wild swings in the markets, with fiat currency & debt used to fleece the producers & working man. This was a progressive, big govt action, to grow & expand the role & power of a central govt. The results have been a decrease in opportunity in America, & a destruction of the middle class, once the hallmark of a prosperous America. Now, the money shuffling elite, who produce NOTHING, live in the lap of luxury on the backs of the working man.
This is just the great fiction that Bastiat wrote about. The delusion that govt can enable people to live off the labors of everybody else. If this delusion becomes a national religion, that society is on a downward spiral. Unless they wake up to the reality of work, production, & the source of wealth, they will collapse upon themselves in a massive dependency orgy.
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