Chapter 5/B-Fractional Reserve Lending
We’re now going to go over how fractional reserve lending works, which is how a majority of the money in use today in the world is created. Money first originates with the central banks, but what happens after it leaves the central banks and goes into the national banking system is pure madness. It is nothing more than a giant pyramid scheme, that if you or I tried to execute, we would be thrown instantly in jail. This isn’t a problem, however, when you literally own and control the government. Fractional reserve lending historically came about in 16th century Europe, but I believe it actually originated with the Knights Templar and I’ll leave it at that. As trade increased dramatically, it became cumbersome, not to mention dangerous, for merchants to lug around large quantities of gold. So, instead they would deposit their gold with a known goldsmith and get a receipt for the gold. These receipts would then be traded around instead of the gold---with the merchants knowing that they could go and get the actual, physical gold whenever they wanted. Here’s how it went awry back then, just as today: The goldsmiths noticed that hardly any merchants ever came to exchange their receipts for the physical gold---they were just using the receipts for their gold to trade with. The goldsmiths caught on to this fact and started loaning out the gold they held for the merchants to other businesses and private parties, and collected interest on the money that they really should have kept locked up in their vault. Not only this, but they began to generate receipts for gold that they didn’t even possess, just like today. This was the start of fractional reserve banking, and it is how the banking system works today. There are many, many, MANY more “receipts” (dollars) than there is anything tangible, such as gold, to back them up with. This is a VERY important method of societal manipulation you need to understand here, and it will be worth reading and re-reading this section on money until the seriousness of this scam sinks in. Fractional-reserve banking is the banking practice in place today, sanctioned by the government, in which banks keep only a fraction of their deposits in reserve as cash and other highly liquid assets, and lend out the remainder. This fraction they keep in the “vault” is usually only about 10% of total deposits. This means if everybody that had money in a particular bank went to withdraw their money, only 10% of the money that is spoken for by the general public would be available for withdrawal…..and that is the truth. Your money is not really there, it exists only as numbers on a piece of paper, a computer screen, or in your mind. By the mechanism of its action, the practice of fractional reserve banking expands the money supply beyond what it would otherwise be---and this creates artificial growth and retraction cycles in the economy, or “bubbles” and “busts”. Because of the prevalence of fractional reserve banking, the broad money supply of most countries is a multiple much larger than the amount of base money created by the country's central bank. That multiple (called the money multiplier) is determined by the reserve requirement or other financial ratio requirements imposed by financial regulators, and by the excess reserves kept by commercial banks. Central banks like our Federal Reserve are the entities that mandate reserve requirements that require banks to keep a minimum fraction of their demand deposits as cash reserves---again, usually 153
