Posts Tagged ‘Fractional Reserve Banking’

Fractional Reserve Gouging

December 23, 2009



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.