Just don't be one of those "fractional reserve banking" conspiracy nuts. Because once you look into it, the whole reason for that turns out to the the opposite of the claims.
e.g. the usual version is that the government lets banks lend out your money 10 times, through the sneaky "fractional reserve banking" system, and they should only let them lend it out once. This is very common to read but it's fucking dumb. The whole point of fractional reserve is that it limits banks to lending out less than your deposit. It's a restriction on a bank's allowed behaviour, not a "money printing license".
e.g. a fractional reserve of 10% means that if a bank receives $1000 in deposits, they can only lend out $900. e.g. it's already below 1 dollar for each dollar deposited. However, the loan recipient then spends the $900 and someone else deposits that, at which point whichever bank has it is able to lend it out again, but only $810 of it. Following that geometric sequence, a fractional reserve law of 1/x creates x dollars of both loans and deposits per original dollar deposited, through people taking out loans, then the loan money being deposited. Nobody at any stage is lending out more dollars than they actually have in deposits.
Fractional reserve is in fact in place to damp down on repeated lending of the same dollar (through a chain of loans and spending), because by having that mechanism in place, the government can fight inflation through interest rates. Without fractional reserve banking, private banks would completely control the money supply. Or more likely to say, nobody could control the money supply.
Author
Topic: The small random questions thread [WAAAAAAAAAAluigi] (Read 686969 times)