FRACTIONAL RESERVE BANKING = Creating Money Out Of THIN AIR. Read And Learn.

FRACTIONAL RESERVE BANKING



Usury however is not the only way in which banks can produce money from nothing. Most of new money creation comes from high street banks giving out private loans for anything from a designer suit to a new car; as well as the interest earned on these loans, they also benefit through the practice known as fractional reserve banking. Depending on risk, a bank needs to keep just 8% to 20% of its capital in reserve, the rest, it is allowed by current regulations to lend.

How does this create money out of thin air?

Imagine an individual goes into a bank and deposits £100 (we'll call them person A); from this £100 deposit only 8% needs to be kept by the bank, the remaining 92% can now be lent out to someone else (we'll call this other someone person B).

Person A still has £100 in their account, but person B now has £92 as well. From out of thin air £92 has been created. But the process doesn't have to stop there. If person B wishes to put their £92 into a bank account also, then the money creation cycle will be repeated even further. (This scenario we give is actually generous to the bankers as it doesn't take into account the fact that they can use their own capital, buildings and so on, as reserves, so allowing for an even bigger chunk of deposited cash to be used in their money creating project. The richer the bank gets, the more money they can loan out).

Restricting this practice is paramount if we wish to have more control over the amount of money in circulation. Fractional reserve banking is one of the main reasons for our mounting private debt and this in turn is adding considerably to the economic uncertainties that businesses and individuals are finding themselves at the mercy of.

Remove Usury and fractional reserve banking from the equation and a wide range of alternative economic strategies open up to us, including ones which will free us from the cyclical effects of boom and bust and from the need to collect taxes. From here a more caring economic alternative can be allowed to grow taking in the needs of both people and the environment.