Is the fractional reserve system like a religious belief?

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epiphany's picture
epiphany
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Is the fractional reserve system like a religious belief?

Hi, apologies for the strange thread title.

The Federal Reserve's money creation system has attracted attention from two main types of critics - those who believe the self-destructive fetures of the systemhave been ignored by the proprietors of the system, and those who believe there is a conspiracy of sorts, that the people in charge know exactly what they're doing and wish to gradually destroy the real economy and cease all tangible wealth from society. Like pirates obtaining their "booty".

Thing is, I find it difficult to believe that the so-called "experts" who are entrusted in running this system would simply have overlooked the glaring defects, or are simply incompetent. Therefore, what am I supposed to believe? They surely know what they are doing.

BUT

Then I look at the nature of those who follow religion and wonder if the same kind of mindset has infected those who run the monetary system. Do they come from schools of thought that stubbornly believe, or have blind faith in, a system which has been invented by man.

Thoughts?

joe2baba's picture
joe2baba
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Joined: Jun 17 2008
Posts: 807
Re: Is the fractional reserve system like a religious ...

conspiracy theories have gotten an undeserved bad name.

if it smells like sh*& and it looks like sh*& and they force it down your throat

even though 70% say they dont want to eat it .................we already stepped in it

but i sure as sh*& dont want to eat it.

mred's picture
mred
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Posts: 96
Re: Is the fractional reserve system like a religious ...

Fractional reserve banking is really old. Too old to associate it with any sort of "I-want-to-wreck-the-economy" intention. But in asking "who benefits?" you'll see that it only benefits the bankers. This is their mechanism to be able to expand credit way beyond their capital reserves. Since it is with credits that they make their profits, then they have all the incentive to promote this scheme which basically defines a bank as an insolvent institution; hence the need for a central bank. So if a bank is giving credit at, say 7%, and the bank (or the banking system as a whole) can effectively lend 9 times the amount of an original deposit, then the banking system will not be collecting 7% on that original deposit, but over 60%. Note that with money created out of nothing the banker really did not risk his own capital, yet is able to collect interest. Fiat money created like this will dilute the pool of real savings of a society, feed bubble activities and induce economic instability. But hey, if you are a banker that is a small price to pay for collecting interest on nothing! The fortunes amassed this way buy you a lot of power. A LOT. You can even promote the monetary theories that you like by funding endowed chairs in big-name universities, or funding the appropriate think-tanks. Your servants in the educated class will defend your interests because they have internalized the basic value: don't bite the hand that feeds you. This intelligentsia will even come up with bogus reasons why the monetary system must be like this, like the elasticity of money. I say bogus because an elastic monetary system can also exist under a, say 100% gold standard by the use of real bills, or credit extended between producers in the process of bringing a product to the consumer. This stuff has been known since the times of Adam Smith! But these are inconvenient truths because if you are a banker you don't want people to engage in those practices and leave you out of the loop, or heaven forbid,  to have a sufficiently wealthy society that can finance its own ventures through its own savings.

And I forgot, there is another beneficiary of the fiat currency/fractional reserve banking: the government. Because it is quite convenient to socialize the government's debts by an invisible tax called inflation. That is actually how devaluation and fiat currencies came into existence: to socialize the debts of kings. This completes the unholy marriage between bankers and governments (who are owned by the bankers really). How profitable it is to charge interest to the US government (thus to society) on every single dollar in existence! Especially since each was created out of thin air...

 

gyrogearloose's picture
gyrogearloose
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Posts: 549
Re: Is the fractional reserve system like a religious ...
epiphany wrote:

Thing is, I find it difficult to believe that the so-called "experts" who are entrusted in running this system would simply have overlooked the glaring defects, or are simply incompetent.

Difficult for you, but true.

Even how you phrase a problem can change what you believe will fix the problem.

Take inflation. Most of my life inflation has been prices rising, which puts the blame on the businesses.  ( and hyper inflation was just a mad dictator printing stupidly large notes. )

If you view it as CM does as the value of money falling you switch the blame to the government for printing to much money ( and hyperinflation is just normal business taken to a higher level )

Given the 2 above phrasing, how would you think to tackle inflation ? top one, demand a wage price freeze ( simplistic for brevity ) bottom one, demand the govt stop printing money out of thin air.

In another thread a speech by Bernaeke was posted. In it he blamed "speculators" for attacking England's gold reserves by demanding exchange of notes for gold as ( promised on the notes ). When England said no more gold, they turned their attention to US gold and did the same thing. From the tone it was clear he blamed the "speculators" for the problem. But it was the Govt/Central bank issuing the notes that was to blame as they printed more notes than they had gold. They broke their promise so people stopped trusting paper money and asked for the gold ( only the ones who twigged early got their gold, the rest got screwed over... ). He is probably blind to the trust issue because of they way he phrased the argument.

I have been bitten by the phrasing issue enough time to try and remember to take a quirky look at things to phrase the problem another way, and boy, can it solve problems 

 Hamish

stan.chucks's picture
stan.chucks
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Joined: Sep 2 2008
Posts: 21
Re: Is the fractional reserve system like a religious ...

Congratulations mred on a concise description of the root causes of the worldwide mess we are in.

 This could well be the "crash crash course" that should be disseminated as widely as possible.

Ray Hewitt's picture
Ray Hewitt
Status: Gold Member (Offline)
Joined: Apr 5 2008
Posts: 458
Re: Is the fractional reserve system like a religious ...

In simple language, fractional reserve banking is a Pyramid Scheme or a Ponzi Scheme. Get familiar with those two terms and it will be obvious why it can't be sustained. Pyramid Scheme

Just think, this fraud is taught at the highest levels of academia to some of the brightest of the bright without one Phd thesis on why it must collapse. And more frightening, is the thought that these people are considered experts in capitols throughout the world.

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