Lesson 13 - Fractional Reserve Insanity

Lesson 13 Fractional Reserve Insanity Alas! it was too late: she went on growing and growing, and very soon had to kneel down: in another minute there was not room even for this, and she tried the effect of lying down, with one elbow against the door, and the other arm curled round her head. Still she went on growing, and as a last resource she put one arm out of the window, and one foot up the chimney, and said to herself "now I can do no more—what will become of me?"   Value and money aren’t trivial topics, especially in today’s times. The process of money creation in our banking system is equally non-trivial, and I can’t shake the feeling that this is deliberately so. What I have previously only encountered in academia and legal texts seems to be common practice in the financial world as well: nothing is explained in simple terms, not because it is truly complex, but because the truth is hidden behind layers and layers of jargon and apparent complexity. “Expansionary monetary policy, quantitative easing, fiscal stimulus to the economy.” The audience nods along in agreement, hypnotized by the fancy words. Fractional reserve banking and quantitative easing are two of those fancy words, obfuscating what is really happening by masking it as complex and difficult to understand. If you would explain them to a five-year-old, the insanity of both will become apparent quickly. Godfrey Bloom, addressing the European Parliament during a joint debate, said it way better than I ever could: “[…] you do not really understand the concept of banking. All the banks are broke. Bank Santander, Deutsche Bank, Royal Bank of Scotland?—?they’re all broke! And why are they broke? It isn’t an act of God. It isn’t some sort of tsunami. They’re broke because we have a system called ‘fractional reserve banking’ which means that banks can lend money that they don’t actually have! It’s a criminal scandal and it’s been going on for too long. […] We have counterfeiting?—?sometimes called quantitative easing?—?but counterfeiting by any other name. The artificial printing of money which, if any ordinary person did, they’d go to prison for a very long time […] and until we start sending bankers?—?and I include central bankers and politicians?—?to prison for this outrage it will continue.”Godfrey Bloom Let me repeat the most important part: banks can lend money that they don’t actually have. Thanks to fractional reserve banking, a bank only has to keep a small fraction of every dollar it gets. It’s somewhere between 0 and 10%, usually at the lower end, which makes things even worse. Let’s use a con