Comment: Fractional reserve banking

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Fractional reserve banking

Fractional reserve banking was around way before govt. took it up. It is how every single bank operated.

Do you want to get the govt. to ban fractional reserve banking? Because that is the only way it will stop, the genie is out of the bottle and its not going back in.

Suppose I have a vault and someone gives me 1000 bucks for safekeeping on which I'm promising to pay an interest of 1000 in 5 years time. I give him a receipt saying that in 5 years time, he is eligible to receive 2000.

I make one loan of 1000 to another guy by giving him exchangeable promissory notes on the condition that in 2 years I get 2000 back.

Since I know that after two years I will have 2000 in my vault, I lend out that 2000 in promissory notes to another guy on the condition that I am returned 5000 in 5 years.

At the end of 5 years, the depositor comes to get his money. I have 7000 in my bank account, pay him 2000 and keep 5000.

As long as I have managed it in such a way that no one who came for withdrawal of his savings was refused, everyone is satisfied. If I fail to do that then my business will fail, I will go to prison and my old customers will divide my property among them/ suffer losses for bad judgement and move onto other.

I thought the Liberty movement was for less regulations, not more. Now tell me which part violates free market principles and which part violates liberty principles.