51 votes

Fractional Reserve Banking Explained

why the world can no longer pay for its debt, and thus, the system can no longer keep going. Here is a fancy-looking graph that shows that our economies are addicted to debt-financing – ie when we can no longer raise and pay for new debt, the economy suffers (ie has no actual cash reserves to carry on)

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Zeitgeist Addendum

Watch it on Youtube...brilliant documentary...

Debt isn't inherently bad

Debt isn't inherently bad, let's remember.

Massive, run-away debt charged to a populace who has no say in the matter, which is then handled by a centralized, privately-owned, un-regulated bank... That's bad.


Knowing where debt comes from is important.

Milk comes from the dairy.
Gas comes from the gas station.
Money comes from the bank (or credit union).

To go to these places, it is clear to see. They offer what folks perceive they need. Ponder, how it is that those things got there.

Who did the milking? What was milked?
Who did the drilling? Where?
Who did the digging? Can you print promissory notes? How is it they are now "legal tender?" What created it? Where was it found? Does money now... seriously now... grow on trees?

How many times have you been told by a bank, "Sir, you have been approved for a loan, but you must wait until more money is mined & minted. When available, we will have it delivered on the next train from California. Please wait." You are left to wonder.

[Victrola: "This Train" - Woodie Guthrie. Lew Dite on his tenor banjo, singing & lyrics.]

    Traditional Folk Song Lyrics and Sound Clip

This train is bound for glory, this train,
This train is bound for glory, this train,
This train is bound for glory,
Don't ride nothin' but the righteous and holy
This train is bound for glory, this train.

This train don't carry no gamblers, this train,
This train don't carry no gamblers, this train,
This train don't carry no gamblers
No hypocrites, no midnight ramblers,
This train is bound for glory, this train.

This train don't carry no liars, this train,
This train don't carry no liars, this train,
This train don't carry no liars,
Truth is what the Lord desires,
This train is bound for glory, this train.

This train is bound for glory, this train,
This train is bound for glory, this train,
This train is bound for glory,
Don't ride nothin' but the righteous and holy
This train is bound for glory, this train.

Disclaimer: Mark Twain (1835-1910-To be continued) is unlicensed. His river pilot's license went delinquent in 1862. Caution advised. Daily Paul

let's just go back to barter.

let's just go back to barter. barter leads to gold and silver trade. gold and silver trade leads to gold and silver in the banks. banks can lend the deposits at their own and the depositor's risk. banks can make bank notes for the depositor's gold/sliver redemption. people can barter the notes, barter the gold, barter the silver, and/or barter anything else.


Thanks for posting.

Excellent video.

Thanks for not trying to convince me to vote for Obama/Romney/GJ. One of the few threads that is not asking me to sell out my morals.

End The Fed

Power Elite Exposed Video:

The Creature from Jekyll Island
The Money Masters
The Secret of Oz
The American Dream
The latest movie,(I just watched) encapsulating all of
the above and more, is entitled:
(Official Movie) THRIVE: What On Earth Will It Take?


itsallaboutbalance's picture

The best ones

The best ones I find are The American Dream and Thrive. In terms of main stream understanding and clear goals of waking people up to the base of all the evil in the world: The central banks and their owners.

Great post TheKnowBuddies.

"All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident."

Solution = 0% RR + 0FDIC +

Solution = 0% RR + 0FDIC + 0TBTF + 0Expansionary/Contractionary Monetary Policy


Solution: End the Fed.

1's & 0's sold separately.

Disclaimer: Mark Twain (1835-1910-To be continued) is unlicensed. His river pilot's license went delinquent in 1862. Caution advised. Daily Paul

It takes all US Tax Revenues to pay the interest on the debt.

That is a fair amount of money to pay for all the "protections" provided such as: Lender of last resort, Elastic currency, Federal deposit insurance and the guaranteed by Congress 6% profit tax free after expenses on each members paid in capital (can we see the bailouts were legal under the law 1913.)

The Controller of the Currency in the Department of Treasury was charged by Congress with the responsibility of keeping the records of the members, their paid in capital and the stocks issued.

Who are the members that can go to the Discount Window?

Who are the companies that are using our money to stifle competition?

The Controller of the Currency knows, and Congress did not hold them to secrecy.

Free includes debt-free!

Why don't we nationalize the banks?

what would be the problem with that?

1) from a moral perspective -

1) from a moral perspective - a horrible affront to indivual liberty and right of contract
2) from an economic perspective - a highly inefficient way to allocate capital, with no profit mechanism and gains and losses completly divorced from successful versus unsuccessful capital allocation decisions
3) from a political perspective - virtually guaranteed to be used by the powers that be for political purposes.
4) from a constitutional perspective - unconstitutional


honestly dude, this is the worst idea i've seen on here in a while. stop and think before knee jerk anti-banking reactionism please.

Nationalize Banks

It’s a great idea! Canadian 12 year old Victoria Jackson’s speech has gone viral. http://www.youtube.com/watch?v=Bx5Sc3vWefE She explains how Canada had a national bank and avoided interest payments (8 trillion for U.S. in the last 25 years) until 1972. All our tax dollars are consumed in interest.
18 states have applied for state banks to avoid having to pay interest for state projects. North Dakota has had a state bank since 1915. Fractional reserve system is the real problem. No reason for taxpayers to pay interest on govt. spending.
Currency creation and regulation is the constitutionally mandated job of Congress b/c they are suppose to be the representatives of the people. Their actions are out in the open as opposed to the Fed. We the people, should be in charge of the creation of currency (Jefferson). Currency should be to facilitate commerce, and not to be a product in itself (Aristotle). If currency is to be created, it should be voted on by the people (through their representatives), and there should be no interest payment. The entire national debt should not exist (Hamilton’s doing ;)).
We need to think outside the box, and avoid jumping to conclusions based on a set paradigm. Your assessment is very well presented. Please consider that the root cause of all problems are b/c currency has been turned into a product that is controlled by the monopoly of the banking sector.

your premise that currency

your premise that currency *should* be created in the first place leads to the rest of yoru faulty reasoning that *if* it is to be created, it should be created by "we the people" not in secret.

Why should currency "be created" above and beyond that which arises naturally in a marketplace that privides currency as it's "use value"?

Simply creating more titles to wealth does not create more wealth.

(e.g.: If a car dealer starts printing more more pink slips, it doesnt create more cars.)

And while 2-hour youtube videos are good for some things, for a topic as serious as currency, I humbly suggest you get your information from sources that are a little more intellectually rigorous:


The best economics book you will ever read. Bar none.

Constitutional, and not Condescending ;)

Currency should be created to facilitate commerce, but should be connected to tangible assets. I understand economics. I’m a teacher, and have studied Austrian economics extensively. So, I agree with you on much. And, have something to offer that extends the discussion to a larger context. Do you have a comment on the premise that interest payments on borrowed money by our government is something that could easily be avoided under the guidelines of the Constitution? This would result in enormous savings to the taxpayer. Indeed, this “system” that exists today of creating money out-of-thin-air means that government should have no debt. Of course there would be inflation, but not inflation AND a massive debt. I would prefer currency not created w/o limits to real tangible commodities. The point is that it's completely absurd to have both govt. debt and inflation (a double whammy, we should have neither). The absurdity of letting banks create money out of nothing, and then loan to our govt., at interest, is quite corrupt. When Victoria explains, it conveys a lot b/c she is 12 years old. Economics is not complicated at all (John Kenneth Galbraith).
Your premise that private banks are “competing” seems to miss the point of fractional reserve and creation of money out-of-thin-air. There is no competing (monopoly), no risk (backed by taxpayers), and it is very political (lobbying money for politicians, bank created inflation to transfer wealth to govt.). “Efficient way to allocate capital” b/c of “profit mechanisms and gains and losses connected to successful versus unsuccessful capital allocation decisions”(Evan42). There is only monopoly and a transfer of real wealth from the middle class, and the working poor to the 1% through inflation (bank created money). That’s #2 and #3 of your criticism. Your #4 says not constitutional. The central bank powers are not constitutional. A bank that is run by Congress for the purpose of the regulation of money (Article 1, Section 8), is quite constitutional. States can constitutionally create their own banks to serve the needs of public spending w/o allowing the middle man (private banks) to take a cut (10th amendment).
Is the negative tone of your posts necessary? It reflects the same mindset of the Republicans and Democrats that bash each other w/o trying to find common ground. That kind of righteousness is what keeps people fighting each other, instead of the government and Wall Street…
Lighten up dude! ;)

"There is no competing

"There is no competing (monopoly), no risk (backed by taxpayers), and it is very political (lobbying money for politicians, bank created inflation to transfer wealth to govt.). "

So if you accuratly diagnose the problem, roughly: lack of competition due to government intervention in the first place

it seems strange that the solution you propose via nationalization is MORE GOVERNMENT INTERVENTION.

Free the banks. remove the current level of government involvenment in the banking industry (Fed, FDIC, legal tender laws, et al). Don't INCREASE it via nationalization.

Note: and while the initial call to nationalize the banks wasn't your post, you have taken up defending the godawful suggestion for some unknown reason.

Changing the form of fascism, still leaves fascism.

There is nothing that government has ever done that has been in the general welfare. Why should anyone believe they will start now?

Free includes debt-free!

Good graphical picture

of how this process works.


This is just a 10 minute

This is just a 10 minute snippet of the documentary "the money masters". the long film covers most if not all of the things you mention.

Be wary of

the film Money Masters and the Greenback movement. The Greenbackers have never had a trained economist to defend their fiat money views. They only have books written by people with no training in economics. They do not have a scholarly journal. They do not have intellectual magazines. They never have -- not since 1874. For more on the Greenbackers - Economist Gary North has written on this and how the movement is actually pro-big government.


Definitely check out that video he has embedded at the very bottom put out by the Mises institute years ago for the most concise yet comprehensive video of the history and role of the Federal Reserve I have ever seen. (added bonus: Ron Paul is in it occasionally and he looks really good!!)

No one can find a safe way out if society is sweeping towards destruction. Everyone,in his own interests, must thrust himself vigorously into the intellectual battle. None can stand aside with unconcern; the interests of everyone hang on the result. - LvM

this is true

The name of the game for Greenbackers is More Government Regulation which can only take us closer in our current direction toward Socialism. Its a easy solution with MANY unintended consequences.

His name is Edward Snowden

What is Capitalism?

Not Zeitgeist 2: Addendum?

Not Zeitgeist 2: Addendum?

Good video as far as it goes.

I think that it should be emphasized that interest is paid by people, businesses, and governments on all this money that is created out of thin air and loaned into circulation. This results in a huge transfer of wealth to the banks from the public as the interest is paid. This is in addition to the transfer of wealth from those holding the existing money supply as it is inflated to a lower purchasing value.

We become indentured servants to the banks; in short, this is a system of slavery enacted by Congress in 1913 for the benefit of commercial banks.

Unfortunately the video does not explain that the fractional reserve banking system creates the boom/bust cycle. When the newly created money is spent, boom follows, but the new money also causes prices to rise (money value to fall), and higher prices dampen the boom because less can be bought with the new money supply at higher prices. And then the loans become due, and money is used to pay the bank debts, sending the money back into the netherworld from whence it came. Boom caused by new money is followed by bust caused by higher prices and debt repayment.

The Federal Reserve Bank manages this scheme, attempting to keep the expansion force of new money ahead of the contraction forces of higher prices and debt repayment. Look at the price levels prior to the 2006-2007 peak of activity, and look at the debt levels achieved then; both were extremes, which finally broke the back of the long term expansion since the end of the last fractional reserve banking caused depression or the 1930's.

Depressions of this ilk are in depth proportional to the debt expansion than preceded them and in length proportional to the attempts of the government to keep the debt in place instead of letting it collapse. Deep and long is what we will experience; we are just at the beginning.

It is time for a revolution that ends this banking scam and returns us to the money of free men, gold and silver coins and 100% reserve requirements for commercial banks against any deposit liabilities. In such a system or real money, debt is limited to the supply of money that people are willing to save instead of spend and loan to borrowers either directly or through savings & loan type institutions. Under such a system, government is limited to what they can tax without causing rebellion and what the market will allow them to borrow from the pool of private savings at market interest rates.

Too bad not 1 in 100,000 understand the present monetary system and its detriment to our lives, or the benefits of a real money system based on gold and silver coins and 100% reserve requirements on bank deposit liabilities.

A further note: There are a few people who think is is a viable alternative for government to print and spend its own paper money. This is insanity. When new money can be printed and spent, it always creates the boom/bust cycle. When government can create and spend its own money, we get unlimited government. The restraint of collecting taxes from a resisting public is bypassed. Wealth is transferred out of the efficient private sector into the inefficient, corrupt government sector. We wind up with a similar disaster as what we now face for the economy.

"Bend over and grab your ankles" should be etched in stone at the entrance to every government building and every government office.

I suggest three crashes since 1914

1921, 1932, 1980 and current. The bigger the bubble blown, the lower the drop. We are heading for the price a the DJI to bottom at about a half an ounce of gold.

DJI priced in gold

S&P priced in gold

US Production wages priced in gold.

Free includes debt-free!

LOST PUPPY ~Answers to the name of "Dow"~ Last seen on Wall St.

_,--' ,/::.; LOST! Answers to the name of "DOW"
,-' ,/::,' `---.___ ___,_
| ,:';:/ ;'"`;"`--./ ,-^.;--.
|: ,:';,' ' `. ;` `-.
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|,' |\__,: ; ; '/O)`. :::`; ' ,'
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::'_ _ :: ,::/:|
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| : _ _ | ' ,::,' ::: Lost way.
| \ O`'O ,', , :,' ;:: Needs good home.
\ `-'`--',:' ,' , ,,' :: Beg, Borrow, Steal.
``:.:.:.. ',-',' ::'
`--.__, ,::. ::'
|: ::::. ::'
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(The Dow'n & Dirty Dozen Industrials)

Here are the original dozen investments averaged into oblivion.



  • American Cotton Oil: Distant ancestor of CPC International
  • American Sugar: Evolved into Amstar Holdings
  • American Tobacco: Broken up in 1911 antitrust action (Anti-Trust)
  • Chicago Gas: Absorbed by Peoples Gas, 1897
  • Distilling and Cattle Feeding: Whiskey trust evolved into Quantum Chemical
  • General Electric: Only original member name left.
  • Laclede Gas: Active, removed from DJIA in 1899
  • National Lead: Today's NL Industries
  • Tennessee Coal & Iron: Absorbed by U.S. Steel in 1907
  • North American Utility: Combine broken up in 1940's
  • U.S. Leather (preferred): Dissolved in 1952
  • U.S. Rubber Became Uniroyal, now part of Michelin, Germany

Been keeping track of this Dow puppy over a century. There is no reward, but if you find him, please send him back to Wall St. The homeless miss him.

Disclaimer: Mark Twain (1835-1910-To be continued) is unlicensed. His river pilot's license went delinquent in 1862. Caution advised. Daily Paul

SteveO24's picture

Thanks for your input... glad

Thanks for your input... glad to contribute.