Fractional Reserve Gouging

 

FRACTIONAL RESERVE WITHOUT LEGAL DEONTOLOGY IS THEFT.

People have been going around, suffering, not knowing what truly ails them economically, but being told it had to do with sick banks. Unfortunately, few people know about the real culprit practice, fractional reserve banking (I talked about it exhaustively several times already in the distant past). This is a very serious and deep problem, and it cannot be fixed by just taxing bank bonuses 99%.

The present so called "capitalist free market economies" are not free at all, because most of capital is created as a state mandate, by private individuals profiteering without any democratic supervision. Those exploiters use an artifact called the fractional reserve system (see Annex). The fact bonus bankers are surprised by the outrage they behavior has caused is a revealing slip: bonus bankers are so used to steal through fractional reserve, that they cannot understand that taxpayers have some reservations about paying bonuses directly from taxes.

The most important point about the fractional reserve system is that it allows banks to create most of the money. However weird that sounds…

Indeed are not bankers private individuals operating for profit? So why do they create what everybody uses?

Creating the public’s money ought to be a strict prerogative of the state, because money is a public utility, and it cannot be the reserve of a few unelected, unsupervised private individuals, (be they motivated by their personal profit, or not). Indeed nobody elects bankers. Not only this but they claim to be self regulating (although their old chief, Greenspan, belatedly admitted that this did not work, after the crisis of 2008…).

In 2008, the multiplier reached 50 for some banks, which basically means they could create 50 times the money given to them by the central bank. And who did they give this money to, besides themselves? Well, their friends, of course. And they always have some in the White House.

Conclusion: a strict functional ethic in accord with a deontology and a ferocious supervision and penal system should be created to oversee bankers, because bonus bankers are just, in truth, officers of the state, thus making their present activities akin to corruption (because they use for private profit money that was created for everybody, or then create money out of thin air.)

Really private banking should have a multiplier of one: you invest what you have, not a dime more. (The notion really exists, and is called full reserve banking.)

If it has a multiplier more than one, some of the created money is public money, so the banker is a civil servant, and ought to be treated as such: tough bosses, small salary, strict supervision.

***

Patrice Ayme

***

Annex: Fractional-reserve banking is the practice in which banks keep only a fraction of the money deposited with them in and lend out the remainder, while maintaining simultaneously, and unrealistically the obligation to redeem all these deposits upon demand.

By its nature, the practice of fractional reserve banking expands money supply beyond what it would otherwise be. Because of the prevalence of fractional reserve banking, the broad money supply is a multiple larger than the amount of base money created by the central bank. That multiple (called the money multiplier) is determined by the reserve requirement or other financial ratio requirements imposed by financial regulators.

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4 Responses to “Fractional Reserve Gouging”

  1. Sherry Jarrell Says:

    Patrice: I probably should have clarified that I posted this piece in response to a request from a reader to explain the fractional reserve system. I was not drawing any conclusions or making any inferences.

    In any case, in your comment, you confuse money with profit (or income). Both are measured (in the U.S.) with dollars, but they are not the same thing.

    Income is the value created by labor and capital.

    Money is liquidity. It, too, is denominated in dollars, but that doesn’t make it income.

    The Federal Reserve creates money. It controls the money supply. Individuals, through money demand, and banks, through excess reserves and lending, do have a marginal impact on the equilibrium level of the money supply, but the Fed can offset any and all actions of either group.

    Sherry Jarrell

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    • Patrice Ayme Says:

      December 23, 2009 at 22:15
      Reply
      You say that I “confuse money with profit (or income)”? I really do not see where I did get so confused. I have got to be real stupid.

      Verily, I am not stupid, nor are the banksters. Banksters have been confusing THEIR income with EVERYBODY’s MONEY. thanks for the idea for reformulating this more precisely.

      You say “Income is value”. Then you say it is measured in dollars. So “value” is measured in dollars? I guess, a point I have been trying to make, precisely, is that “value” is greater a concept, and has greater public utility than “income measured in dollars”.

      You say: “The Federal Reserve creates money. It controls the money supply.” True, sure. But the central bank “controls” money only INDIRECTLY.

      The relationship of the central banks to money is just as that of the admiralties to privateers, a little way back.

      Most of the money is created by private banks. Under normal reserve requirements, about 4/5. Central banks (it’s not just the Fed!) control the money supply through the reserve requirements, or, otherwise said the multiplier.

      This is the big dirty secret bonus bankers and the hyper rich do not want the People to know, worldwide. Because, if the People understood this, People would realize that they are not in People-rule (demo-cracy), but in pluto-cracy (Money-rule).

      Thus, I fully expect the upper class and its devoted helpers to absolutely not understand what I am talking about: their income depends upon it. And, of course, they would have little value otherwise… And no money, besides…

      This is getting to be fun… Piercing with mental lances the enormous mammoth of international financial gouging…

      PA

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  2. Patrice Ayme Says:

    Sherry:
    It was of course highly ironical that you informed me that I confused income and money. Verily, this is exactly what I accuse the banks of doing. They create our money, from a government mandate, and they view it, basically, as their income.(After a bit of hiding with a few trivial manipulations.)

    Banks have several ways of doing that. One of the simplest is this. Right now they get money from the Fed at roughly 0% and they buy government bonds with that, at 3.5%… Hallucinatory is the word, gouging is the master concept.

    PA

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  3. RADICAL BANKING FIX « Some of Patrice Ayme’s Thoughts Says:

    […] preceding link, to Wikipedia, does not go in the mathematical details. I have already explained in Fractional Reserve Gouging, and many other essays, that Fractional Reserve Banking (FRB) is intrinsically unjust, and an […]

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