Zero Reserve Banking a True License to Print Money

Fed Chairman Bernenke Wants to Remove the Reserve from Fractional Reserve Banking

James Bond, old 007 had the famous “license to kill” now it appears that Ben Bernanke wants to give banks an equal license to kill the American economy.  Old chairman Ben wants to give banks a license to print money with out even the current 10% reserve standard. Currently a bank my only “loan” up to 90% of its cash on hand. I put loan in quotes because even that is misleading, (Read “The Real Truth About Money” via free download to understand why) as banks quite literally are already creating money out of thin air with each “loan”.  Yet at least until now the fractional reserve system has applied some modicum of control in the otherwise insane “Monopoly Game” we call the US Economy.

Currently banks can loan up to 90% of their deposits out for everything from consumer loans, to credit cards to mortgages. What Bernanke is now proposing is that they be allowed to loan out 100% of deposits if they so choose. Of course almost anyone with a desire for sound money is upset about this and the implications it has for inflation and debt but the elephant in the room is the question no one seems willing to ask, so I will do it here…

How would loaning out 100% of deposits even be possible?  Wouldn’t it make it totally impossible to even run the daily needs of the bank if 100% of the money taken in was loaned out?

I mean just mull it over in your head a bit, could you loan out 100% of your money?  Even at a good interest rate, even if no one defaulted, even if everyone paid you back on time?  The answer is of course no.  You would always have to have something in “reserve” to eat, pay bills and basically function.  So how can a bank do it?

Simple, they DO NOT loan out money they create money when they loan it.  When a bank loans you money to buy a house, say 200,000 dollars they make a journal entry that creates a new 200,000 dollars out of thin air, the mortgage (an account receivable) now becomes a bank asset.    The bank now puts that loan due on the books and receives a monthly cash flow from it even though they paid no real consideration to acquire the loan.

In other words they still have the original 200,000 dollars and now they also have a account receivable for 200,000 new dollars plus interest.  Seriously with banks paying account holders say 1% and loaning money at 5% do you really think that alone would pay for their marble floors and vaults let alone CEO bonuses and jet fuel?

This new proposal simply proves what people like me have been saying for decades, banks do not loan money, they manufacture it, banking today is basically legalized counterfeiting.  I refer you to the Federal Reserve publication called “Putting it Simply” on page 6 it says in very clear language,

“Of course, they (banks) do not really pay out loans from the money they receive as deposits.  If they did this no additional money would be created.”

This latest move by the Fed’s Boy Genius simply proves what many of us already know, the modern banking system is a scam.  A scam where we are used as nothing more then ink and plate to print more of our own debt, debt the banks get to call and use like real money while we pay both for its creation and the interest it carries.

If you really understand this article then this should be a frightening conclusion, if we remove the reserve requirement and keep the current system banks not only could loan out 100% of their reserves, they in theory could loan out 110%, 150% in fact there would be no theoretical limit.    In effect it would turn every bank into a micro version of the Federal Reserve.

For more on this latest lunacy read Michael Snyder’s Article at Business Insider entitled, Now Bernanke Wants to Eliminate Reserve Requirements Completely

3 comments to Zero Reserve Banking a True License to Print Money

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  • John

    Sadly your percentages are wrong the banks at least as far as mortgages etc. are concerned may loan out 9 times so if you say had 100 million in your bank you could loan out one billion in loans. Just like the futures markets it is 1 tenth that is on deposits. We have been on a down hill slide since in that we started loaning out more than we ever had on deposit. Raising the base rate just adds more grease to the slide so that the crash just comes sooner.

  • ModernSurvival

    @John what you are talking about is what happens when the loaned money is redeposited into a new bank. In that way you are correct and this is explained in depth in my book. You should download it as I think you will like it.

    My percentages are based on the money in a single bank at any one time.

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