Monday, January 30, 2012

Is Fraction Reserve Banking a Farce?

I saw this on my Facebook page posted a few times and I would have to say it's mostly true given my experience in talking to people.

Regarding wanting to know about Fractional Reserve Banking:
Ask a Libertarian and they'll tell you...
Ask a Republican and they won't know...
Ask a Democrat and they won't care...

I would recommend taking the time to read the article by Stephen St. Angelo located here:

If you are short on time or attention span, let me simply direct you to this portion of the article: 

Effective December 27, 1990, CD’s, savings accounts, and timed deposits owned by entities other than households were not included in this 10% reserve requirement.  Additionally, in 1994 the Federal Reserve Board passed a “Deposit Reclassification” for financial institutions to help lower reserve requirements even further.  Eric DeCarbonnel explains this in his article “US Banks Operating without Reserve Requirements”:

Deposit reclassification is an accounting trick, used by virtually the entire financial sector, which allows banks to eliminate nearly all their reserve requirements. Deposit Reclassification splits a checking account into two separate subaccounts, a transaction (checking) subaccount and a non-transaction (savings) subaccount. This distinction only exists on the bank's books: you will never see these subaccounts on your bank statements.

 Deposit reclassification means that, at any point in time, most of the money in American checking accounts sits in invisible savings subaccounts. These savings subaccounts pay no interest, but allow banks to avoid reserve requirements. The public is completely unaware of this financial engineering.

It is now apparent that the so-called official 10% fractional reserve ratio of the U.S. banking system is just a mere figure to delude the public into believing it has a working cash reserve ratio, whereas in reality, the system is a complete farce.

The public has no clue just how weak and vulnerable the U.S. banking system has become.  At one time, the United States had a fractional reserve banking system backed by physical gold money.  Today, its financial system is entirely based on a fiat monetary regime with practically no fractional reserve ratio whatsoever.

On a final note, here's a good video explaining Fractional Reserve Banking.

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