Fractional Reserve Banking, You Need To Know This

Fractional reserve banking...what is it? Plainly put, fractional reserve banking is the method of a bank loaning cash that it does not have. To comprehend how the process works, we must look straightforwardly into the belly of the monster. All around the globe there are secretive entities known as central banks. Yes, that is accurate, exclusive entities. In the United States, the privately operated central bank is referred to as the Federal Reserve Bank. It is vital to get the picture that this financial institution is not a government body, but has shareholders and is in big business for profits.

When the United States government desires money it makes treasurey notes. These notes hold an interest rate that the government required reimburse on top of the loan balance, just like a mortgage or credit card. The Treasury sends these treasury notes to the Federal Reserve Bank, and the Federal Reserve then "prints" currency and transmits it to the Treasury as payment for the notes. Hold on, it gets worse...

Let's apply an example. Let's pretend the United Sates government is in want of $10,000,000. The Treasury will issue the treasury notes and the Federal Reserve will produce federal reserve notes. The Treasury and the Federal Reserve then swap the notes with one another, in this manner giving the Federal Reserve assets and the government gets debt. The treasury will then place the $10,000,000 into a commercial bank account. No big deal, correct? This is where it gets interesting:

The financial institution storing the funds is obligated to maintain 10% ($1,000,000) of the currency in reserves and can loan out the remaining 90%. So in our illustration, we'll suppose that a contractor borrows $9,000,000 from the financial institution for his project. The $9,000,000 is forwarded into the contractor's account and the bank can now loan 90% of that money, holding the 10% in mandatory reserves and the process replicates itself over and over again (take into account, the contractor's account still shows a balance of $9,000,000 and the government's checking account still shows a balance of $10,000,000). Therefore, extra cash is create and goes into the financial system through lending. Each one of the loans is obligated to be paid back with interest, so even if all of the currency were put back to the financial istitutions, there would still be debt.

Makes you think twice on the subject of using that credit card, doesn't it? Whilst people stop using their credit cards and begin paying them back, there is deflation as the money supply withdrawls from the markets. This triggers the Federal Reserve to panic and they notify the representatives in our government that the money supply has to be inflated to stop a new great depression. So the government borrows, and the Federal Reserve lend. So what comes to pass if too much cash is produced all at once? That is known as inflation, which causes the cost of goods and services to escalate, since the currency is loosing value.

The Federal Reserve has a technique to manipulate inflation, though. They call it the Internal Revenue Service (IRS). The IRS, like the Federal Reserve, is a concealed entity which is mainly the Federal Reserve's debt collector. Once you shell out income tax on your hard earned wages, that cash goes toward the interest on the government debt to the Federal Reserve (consider those treasury notes that we talked about). In the meantime, you get no benefits from your government, your highways and bridges fall apart, and the community schools teach your kids on how to remain competent taxpayers. They educate in nil about fractional reserve banking or economic understanding. Why doesn't the Treasury turn out it's own funds instead of borrowing duplicated money from a undisclosed bank? Or perhaps a superior inquiry is, why doesn't the government be a devotee of the Constitution?