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com/2012/10/04/fractional- reserve- lending/ October 4, 2012

Fractional Reserve Lending
We live in a world of illusion. Ever since we were set in f ront of t he t elevision t o rot in our crap f illed
diapers, we have been sold a bill of goods on nearly everyt hing we t ake f or grant ed, part icularly
wit h regards t o t he very nat ure of money it self . Having been propagandized t o believe t hat money
has value, we come t o f ind t hat such is not t he case wit h t he specif ic currency we have become
ment ally dependent on f or our ent ire way of lif e. Most of our waking hours are spent chasing af t er
it , at t empt ing t o accumulat e more of it , perf orming t asks we would ot herwise pref er t o not do, but
inst ead t olerat e because we have t o somehow pay t he bills.
Fract ional reserve lending is a banking pract ice t hat is not hing more t han legalized mass
count erf eit ing. It is a Common Law of f ense simply due t o t he f act t hat it violat es t he precept s of
nat ural just ice by surrept it iously cheat ing t he populace out of t heir wealt h t hrough f orgery of
sound money, which is given sanct ion by t he government due t o lobbying (more accurat ely, t he
bribery) f rom t he banking cart el. This gaggle of crooks conspired t o inst it ut e a cent ral bank t hat
would be t he hub f or t he ent ire cart el when t hey met on Jekyll Island of f t he coast of Georgia in
1910 t o writ e t he Federal Reserve Act , which was passed in 1913 t hanks t o t he ef f ort s of one of
t heir own members, Senat or Nelson Aldrich. Bef ore explaining precisely how t his ingenious
mechanism works, t he Greenbacker explanat ion (t inged wit h Aust rian economic principles) of how
t he met hod developed hist orically could probably be best demonst rat ed in t he f orm of a broadly
allegorical t ale.
In ye olde t imes, people would engage in direct bart er as a f orm of mut ually benef icial t rade so as
t o increase t heir own wealt h; however, direct bart er suf f ers f rom bot h t he double coincidence of
want s as well as t he prof ound problem of indivisibilit y. This gave rise t o indirect bart er, which
necessit at ed some mediums of exchange in order t o f acilit at e commerce. These init ial mediums
are t he original f orms of money t hat not only have an inherent value as a commodit y in and of
it self , but also as a value measured relat ive t o ot her real goods and services provided by t he f ree
market .
What emerged as t he most usef ul f orms of money were precious met als, part icularly gold and
silver because t hey f unct ioned best in t erms of being a medium of exchange, a unit of account , a
st ore of value, and also possessing t he qualit y of anonymit y; however, t rading gold and silver
direct ly became event ually burdensome due t o t heir weight , ease of t hef t , and addit ional divisibilit y
problems. What people ended up doing was st oring t heir precious met als in t he vault s of t he
goldsmit hs, who earned a f ee f rom t heir secure st orage businesses. When a cust omer deposit ed
t heir gold f or saf ekeeping, t he goldsmit hs would issue IOU paper receipt s, which were redeemable
f or gold at any t ime. Seeing t hat t hese paper receipt s were backed 100% by gold, as well as t he
problems of t rading precious met als direct ly, it didnt t ake t oo long f or people t o st art t rading t he
paper IOUs as if it were gold itself.
The goldsmit hs had anot her business, t hat of lending t heir own gold at int erest . Once t heir
cust omers began t rading in paper money, t hey not iced somet hing else: cust omers rarely came in
t o reclaim t heir gold, and never simult aneously. So t he goldsmit hs (now more bankers t han
art isans) decided t o launch a plot whereby t hey would issue more paper receipt s t han t hey had
act ual gold on deposit in t he vault . This scam worked perf ect ly, just as long as t here was public
conf idence in t he perceived value of t hese paper receipt s. This is t he philosophical basis f or
f ract ional reserve lending.
These f irst bankers were saf e just as long as all of t heir cust omers never lost faith in t he currency
by asking t o reclaim t heir gold simultaneously. Whenever t hey did, t he bankers would go out of
business (t his is known as a run on a bank). Keep in mind t hat if f ract ional reserve lending were
never pract iced, by keeping adherence t o 100% reserves of valuable commodit ies, bank runs
would lit erally become impossible. Thus concluding t his allegorical examinat ion of f ract ional
reserve lendings hist orical development , let us now shif t f ocus ont o t he diabolic t echnique it self
as it is current ly pract iced.
When t he f ederal government needs more money, t hey creat e and sell Treasury bonds t o t he
Federal Reserve Bank, who in t urn creat e Federal Reserve Not es (FRNs) t hat are t hen exchanged
f or t he bonds. Once t he federales deposit t he brand new FRNs in t heir bank account s, t hey
become legal t ender and t hus of f icially part of t he nat ional money supply. Also keep in mind t hat
t hese t ransact ions are complet ely digit al; only 3% of t he t ot al American money supply is in some
f orm of physical money (such as cash). The remaining 97% of t he supply are digit al records of
deposit s on hand (put anot her way, t his would mean t he rest of M1, and by ext ension, M2 and
M3). You must remember t hat government bonds are, by def init ion, inst rument s of debt . These
exchanges are act ually loans given t o t he federales by t he Federal Reserve; t his means t hat t he
ent ire money supply is based on debt; inst ead of on value.
10% of t he deposit , pursuant t o reserve requirement s under st at ut e, must be held as a required
reserve. What t his means is t hat t he remaining 90% is considered an excessive reserve and t hus
can be used as t he basis f or brand new loans. This very same 90% is not creat ed out of t he
original amount , but in addition to it . Myst ically, t he new deposit s immediat ely become part of t he
banks reserves of previously exist ing debt money. Since t here are demands f or loans as well as
required reserves on deposit , new money is creat ed irrespect ive of t he growt h of goods and
services in t he act ual market ; t he Federal Reserve ref ers t o t his as deposit expansion. This is
f ract ional reserve lending at it s core.
This same process can be repeat ed many t imes over, wit h each cycle removing 10% of each new
loan amount as a required reserve wit h t he result ing amount (t he so-called excessive reserve)
serving as t he basis f or yet anot her brand new loan in addition to t he loan t hat it just came f rom.
Because of t his, $90,000,000,000 can be creat ed in addition to t he original $10,000,000,000 t hat
was creat ed by t he federales and t he Fed when t hey swapped bonds f or FRNs. What t his means is
t hat nine t imes any deposit amount can be creat ed f rom less than nothing, t hat is, f rom debt. The
value is provided f rom t he already existing money supply. Each t ime t here is a deposit expansion,
t here is de facto inf lat ion t hat reduces purchasing power, t hereby st ealing t he real wealt h of t he
world f rom t he domest ic populat ion t hat produced it .
An inverse relat ionship exist s bet ween t he purchasing power of t he currency and t he amount of it
in circulat ion via t he money supply. $1 in 1913 (when t he Fed was est ablished) was reduced t o
being wort h $21.60 in 2007 in order t o mat ch value; t his is a 96% devaluation in 94 years. Also
not ice t he compliment ary relat ionship enjoyed bet ween t he money supply and t he nat ional debt ;
t his exist s because t he currency is based on debt . Since t he ent ire money supply is creat ed out of
loans, if all debt s were paid, t hen t here would be no money. Of course, t hat is impossible t o
achieve f or t he very simply reason t hat when t he loans are being paid back, t hey must be done so
wit h t he principle plus the accrued interest, t he lat t er of which does not exist in the money supply
at all. This is t he basis f or a condit ion of perpetual debt t hat is guarant eed by t he banking pract ice
of f ract ional reserve lending.
There was an enlight ening 1968 Minnesot a court case of First National Bank of Montgomery v.
Jerome Daly. Bef ore being overt urned on an appeal, t he init ial ruling of t his case, as det ermined by
t he jury, f ound t hat since t here was no considerat ion (t hat is, real propert y) being exchanged, t he
issuance of FRNs via f ract ional reserve lending was blat ant ly f raudulent ; unf ort unat ely, t his case
cannot be used as legal precedent . We are all st ill forced t o accept their currency in payment of
(genuine) debt , pursuant t o legal t ender st at ut es. This is t he basis f or t he inherent injust ice of
f ract ional reserve lending as it is pract iced t oday, since it is mass count erf eit ing prot ect ed by
government privilege. It is corporat ism at it s f inest , considering t he lit eral monopoly t he bankers
ret ain over t he issuance of currency and credit .
Bank runs, perpet ually accelerat ing debt , impossible t o pay int erest , and t he debasement of t he
currency are all t he inevit able ef f ect s of f ract ional reserve lending. Only t he ridiculously st upid or
insanely evil would ever allow t his. Fract ional reserve lending inherent ly requires government
privilege and prot ect ion, f or wit hout it , t hose who are willing t o compet e in t he f ree market would
event ually beat whomever was pract icing it because t he cust omers would event ually not ice how
t he currency of t he f ract ionally reserved banks st ole t heir wealt h, whereas t he various ot her
privat ely issued currencies do not , since t hey never loan out more t han what t hey have in valuable
t angibles (also known as possessing 100% reserves), and even t hese are not loaned at int erest ,
but inst ead are issued in t he same manner as a redeemable claim check. Once f ract ional reserve
lending enjoys government privilege, t hen t he ent ire banking indust ry is ef f ect ively oligopolized,
since a cent ral bank is needed t o orchest rat e t he f raud, t hereby f irmly ent renching corporat ism,
which dist ort s t he economy in every single ot her indust ry, whet her cart elized it self or st ill relat ively
f ree t o compet it ion wit hin t he remnant s of t he act ual market .
Government s choose t o legalize t his f orm of mass count erf eit ing because it provides cover f or
t hem t o use t he oligopolized banks as scapegoat s, besides t he f act t hat unmit igat ed borrowing
and inf lat ion are less of f ensive t o t he sensibilit ies of t he hapless cit izenry t han t axes whose
ef f ect s are easily observable. The only reason t hat government cont inues t o t ax (above and
beyond benef it ing f rom f ract ionally reserved currency t hat t hey prot ect by fiat) is t o f urt her burden
t he populace wit h draconian social engineering schemes, t ypically on behalf of ot her despot ic
special int erest s. In ot her words, bot h high f inance special int erest s and t he government s t hat
shelt er t hem bot h benef it enormously f rom t his legalized scam t hat is lit erally forced ont o t he
domest ic populat ion f rom t he primary inst it ut ion of a cent ral bank. The government benef it s f rom
having cover f or it s ot her criminal act ivit ies, and t he bankers benef it by st ealing wealt h while not
being at risk f or punishment by t he St at e.
Aust erit y masks t he embezzlement of t he int ernat ional bankers everywhere. Given t hat a bank
can only f acilit at e a loan bet ween t wo ot her part ies, where one is a producer and t he ot her is a
borrower who int ends t o ext inguish t he debt in t he f ut ure, t he borrower backs t he value of t he
money only if he is convinced by t he f acilit at or of t he loan (in t his case, t he bank) t hat he indeed
owes t he debt in t he f irst place. If t he developing count ries of t he world would simply not cont ract
wit h t he duplicit ous World Bank, t hey would never be at risk f or f ailing t o repay t heir loans and t hus
suf f er f rom t he imposed condit ionalit ies, t hereby rendering t hem int o serf s at t he alt ar of
parasit ical imperialism. Thus, cyclical, const ant chaos is needed in order t o maint ain t he grand
illusion, pursuant t o t he Hegelian Dialect ic. This is not hing less t han economic warf are.
Inevit able ret aliat ory act ions by t he St at e must be t aken int o account f or securit y purposes.
Government s are more t han happy t o crackdown on t hose individuals and organizat ions who are
at t empt ing (st rict ly t hrough t he f ree market ) t o issue privat e alt ernat ive currencies. The main claim
t hat t he judiciary uses f or t hese crackdowns is t hat t he privat e issuers were count erf eit ing t he
legal t ender. This is sadly ironic and hypocrit ical, but not all t oo surprising in anot her sense because
t hese very same government agent s (as well as t he mainline public in general) have lit erally no idea
how t he f ract ionally reserved fiat currency is brought int o exist ence in t he f irst place.
It could be said t hat audit ing t he cent ral bank is a necessary precursor t owards abolishment of it .
This is not necessary, especially considering all t he reliable publicly available inf ormat ion t hat
t est if ies t o t heir rampant crimes. The issue really cent ers on repealing legal t ender st at ut es, f or if
t he FRNs had t o act ually compet e wit h ot her currencies, t hey would easily lose (which is why t hey
need government prot ect ion in t he f irst place). If t his goal event ually proves it self t o not be
ef f ect ive, t he only ot her way t o get around it is t o est ablish privat e alt ernat ive currencies, but t hey
must prove t hemselves viable cont enders amongst t hose who oppose cent ral banking on principle.
Lacking t his, t here is no real hope f or vict ory against t he Est ablishement .
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