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Fractional Reserve Banking is Fraudulent - Ron Paul on CNBC

Forward to 7:47:


A basic truth is that we may only loan what we have. If we have a dollar, we may loan a dollar. Yet, under the fraud of fractional reserve banking, banks loan ten times the money they actually have.

Fractional reserve banking is a Ponzi scheme whereby banks create money out of thin air through fraudulent book keeping, loaning non-existent money out at interest. It is no different than counterfeiting. In collusion, factional reserve banks counterfeit up to 10 times the amount of money that they actually have deposited, and charge interest on it all. Since money represents labor, fractional reserve bankers are effectively robbing the value of everyone's labor through this fraudulent scam.

9 minute video explaining the fraud of fractional reserve banking combined with fiat currency using the Federal Reserve's own documents:


47 minute video explaining the history of fractional reserve banking:


"Bank runs instruct the public in the essential fraudulence of fractional reserve banking, in its essence as a giant Ponzi scheme in which a few people can redeem their deposits only because most depositors do not follow suit."


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Fraud is a civil violation as well as a crime.

The first legal test of fractional reserve lending came in England:

"Thus, in England, the goldsmiths, and the deposit banks which developed subsequently, boldly printed counterfeit warehouse receipts, confident that the law would not deal harshly with them. Oddly enough, no one tested the matter in the courts during the late seventeenth or eighteenth centuries. The first fateful case was decided in 1811, in Carr v. Carr. The court had to decide whether the term “debts” mentioned in a will included a cash balance in a bank deposit account. Unfortunately, Master of the Rolls Sir William Grant ruled that it did. Grant maintained that since the money had been paid generally into the bank, and was not earmarked in a sealed bag, it had become a loan rather than a bailment."

Page 91 of "The Mystery of Banking" by Murray Rothbard.


Rothbard goes on to describe other subsequent cases where Judges made the same ruling. Thanks to case law, the banks have carte blanche.

I tend to agree. Without

I tend to agree. Without flexibility in the manner and level of (fully disclosed) risk that bankers and investment companies may have as options available to them, it quashes innovation and growth. High risk activities should not be eliminated simply because there is the possibility of loss. Our country is being micro-managed and saddled with laws and regulation that are breaking the back of businesses large and small. For goodness sake, let's let high and low rollers propel the economy out of the doldrums. More will be hurt short term, but the dirt must be beaten out of the carpet before we're clean again.

Good Points All

Great point, the banking system allows banks to create credit out of nothing, which is just another inflationary way to inflate the money supply. That's not real savings or real money. Neither is the increased paper money created by the Fed.

Also good points about JP Morgan and bank runs. Bank runs are natural and normal in a free market. It's akin to a business going bankrupt. Poorly run businesses should fail. That's why the Fed is needed to prop up the corrupt fractional reserve system we have in place.

My problem is that some interpret Ron Paul's (and Rothbard's) statements to mean that they would favor making FRB illegal under the law. I've never heard a Rockwell-type Austrian rebut that position. Personally, I don't think any such laws would be necessary under a truly free market. Fraudulent banks could be prosecuted for fraud, but I think that banks who were open about their FRB practices would just survive or not based on market forces. No laws restricting FRB are needed.

I guess it's such a far fetched argument right now that it's not really worth debating, but I think it's interesting nonetheless.

The fraud is not FRB, the fraud is confusing credit and money

Money and credit are two different things. See any dictionary.

For a recent explanation see submission 395 here: http://www.aph.gov.au/senate/committee/corporations_ctte/fps... but be willing to admit if you are confused.

End the fraud - report the Fed and its complicit media to an FBI office near you. For more details go here: http://www.nolanchart.com/article/print.php?ArticleID=5928

Yes, the Fraud is the FRN Federal Reserve Note.....

Good ol' John F Kennedy tried to do the one sane thing government has exemplified in a few hundred years, he ordered the Federal Reserve note be destroyed.

The Federal Reserve Note is the basis of "credit" or borrowed debt as money and that act of fraud means the debt can never be repaid. You are not creating the money, it is being entered as debt to collectors.

Don't tell that to a deflationist!

Confusing money and credit is the very essence of their muddled, misguided and confused arguments! Expect to be attacked, even here, for your common sense, er, heresy!

Oops - my error

Make that Rothbard not Rockwell line.

End the fraud - report the Fed and its complicit media to an FBI office near you. For more details go here: http://www.nolanchart.com/article/print.php?ArticleID=5928

Why am I not attacked?

It would be great to be attacked - even by Ron Paul!

Last year I posted this: http://www.dailypaul.com/node/94309#comment-1032983 but got no responses. I expect the reason I'm not attacked is that those complicit in the fraud depend on suppressing awareness. I just hope DailyPaul and its readers will help spread the truth - even to Dr Paul himself. His constant references to banks creating money from "thin air" suggest he's accepted the Rothwell line.

End the fraud - report the Fed and its complicit media to an FBI office near you. For more details go here: http://www.nolanchart.com/article/print.php?ArticleID=5928

Fraud or no fraud, bank runs are a reality.

The principle "justification" for the creation of central banking regimes is to prevent them.

Didn't J.P. Morgan help to create widespread bank runs in the USA to usher in the Federal Reserve System?

The current legal status of demand deposits is that they are *debts* rather than *bailments*.

If you want full-reserve banking under the current system you would have to literally put cash in a safe deposit box!

If the government decreed that demand deposits could no longer be regarded as debts and were merely bailments, the fiat system would collapse.

While fractional reserve banking can exist *up to a point* with some form of commodity backing, it is an *essential* feature of the fiat system.

No FRB => No fiat system.

Bank Runs are done on a FIAT based currency...

..This is equal to direct THEFT.

You have bank runs, because the banks can not decide the "current" value of your FRN so they decide to manipulate it using fuzzy math.



Definitely not fractional...a real banking institution would not be loaning out debt, by keeping the same amount of money in limbo thus what you have is ....

A dollar that always depreciates.

The first ever "bank runs" occured...

...when too many paper reciepts were issued for HARD currency.

That's clearly fraud, but the fraud was only uncovered AFTER the bank run.

Under the fiat system, the fraud is only "uncovered" when the system collapses.

That means its ILLEGAL....

Banks are CRIMINALS then, and the Bushes, Rothchilds, Netanyahus and Rockefellers should all be rounded up and imprisoned/executed for treason.

Along with ALL the CEOs of these banks because that is ILLEGAL

What about "ILLEGAL" does the population not understand ?

Same reason that Bernie Madoff was popular.

He paid out well to his *earlier* investors.

No one knew that he was a fraud until someone wasn't able to cash out.

If people understand how they are being shafted, then they will get angry.

That's the trouble. They don't have a clue.

I got "goose bumps" from the acolades they gave RP.


And never forget, “Humans, despite our artistic pretensions, our sophistication and many accomplishments, owe the fact of our existence to a six-inch layer of topsoil and the fact that it rains.”

RP: I don't know if I could

RP: I don't know if I could stand you(for 2 hours), I mean. Too Funny.

Ron Paul for TWO Hours!?

He should have accepted that offer on the spot, by saying: "I'll fly out there tonight!"

How about that ending. As

How about that ending. As though Liesman would ever want Ron Paul's views to go unhindered for two hours! Ha!

Things are only impossible until they are not.
-- Jean Luc Picard


Ron Paul is starting to get MAD respect. It's nice to see people treating him like the genius he is.

reedr3v's picture

32,720 VIEWS! The information is

actually getting out, plenty of international comments on YouTube also.

Yes, we're watching the youtube counter on this one.

If it freezes or runs backwards, we'll know that youtube staff are up to their old tricks.

Homework Assignment.

Please read chapter eight ("Free banking and the limits on credit inflation") and chapter nine ("Central Banking: Removing the limits") if you haven't done so already.


Its not rocket science.

I would just like to summarize with a quote from this text:

"Bank runs instruct the public in the essential fraudulence of fractional reserve banking, in its essence as a giant Ponzi scheme in which a few people can redeem their deposits only because most depositors do not follow suit."


But I also like to point out that fraud is illegal, and therefore should never be allowed in any banking situation, including completely free banking. Fraud is a violation of liberty.

Also it's important to realize that bankers greatly benefit from the fraud of fractional reserve banking by collecting interest off 10 times the money that actually exists. This is how the bankers always end up with all the money eventually under a fractional reserve system. It's the same as counterfeiting.

Yes, as Rothbard says, it is a Ponzi Scheme.

Usually, the perpetrators of Ponzi schemes are not prosecuted until the scheme collapses. Prior to that, they are usually hailed as financial messiahs.

What's wrong with Ponzi ?

He was my favorite character on "Happy Days" LOL !!!!!!

Just one last kick in the nuts, then a final deathblow



I hope that was just a bump, or was it an ad for the pump?

I don't get why you are using another deceptive quote, as a sig?

That thing is like a sound bite. If people only read that quote alone, it almost sounds as if fractional reserve banking is a good thing that prevents hyper-inflation.

The truth is that fractional reserve banking actually amplifies fiat inflation ten fold!

So, while current fractional reserve banking does have a limit, the fraud of fractional reserve banking is never a good thing and only results in more inflation.

Only honest banking, at 100% reserves with no fiat currency would not cause any fraudulent inflation.

Deceptive how?

Republicae agrees with your thesis that fractional reserve banking is a FRAUD.

HOWEVER, that fraud is an essential feature of the FIAT system.

What part of that do you dispute?

Well, the way it reads, not necessarily the intent.

I bet many will probably read that quote and actually think that fractional reserve banking is a good thing because without it there would be hyper inflation.

But the whole story is that fractional reserve banking actually contributes to inflation by multiplying the inflation. It only restrains it in the sense that there is usually a limit set to the fractional reserves.

But ultimately fractional reserve banking is a contributing factor to inflation, even if limited.