The Ultimate Regulatory Reform: Abolish Fractional Reserve Banking!

fractional reserve banking II

The Trump Administration has presented the first part of its plan to overhaul a number of Wall Street financial regulations, many of which were enacted in the wake of the 2008 financial crisis.  The report is in response to Executive Order 13772 in which the US Treasury Department is to provide findings “examining the United States’ financial regulatory system and detailing executive actions and regulatory changes that can be immediately undertaken to provide much-needed relief.”*

In release of the first phase of the report, Treasury Secretary Steven T. Mnuchin stated: “Properly structuring regulation of the U.S. financial system is critical to achieve the administration’s goal of sustained economic growth and to create opportunities for all Americans to benefit from a stronger economy.  We are focused on encouraging a market environment where consumers have more choices, access to capital and safe loan products – while ensuring taxpayer-funded bailouts are truly a thing of the past.”**

Some of its highlights include:

  • Community financial institutions – banks and credit unions – are critically important to serve many Americans
  • Capital, liquidity and leverage rules can be simplified to increase the flow of credit
  • We must ensure our banks are globally competitive
  • Improving market liquidity is critical for the U.S. economy
  • The Consumer Financial Protection Bureau must be reformed
  • Regulations need to be better tailored, more efficient and effective
  • Congress should review the organization and mandates of the independent banking regulators to improve accountability***

 

Not surprisingly, most of the banking industry expressed support for the report, critics (mostly Democrats) pointed out that it would lead to the type of practices that produced the 2008 panic in the first place.  Both opponents and those in favor as well as the clueless financial press fail to grasp the underlying cause of not only the recent crisis, but the majority of those which have occurred for the past century.

Quite simply: the fundamental cause of the 2008 financial crisis was fractional-reserve banking (FRB).  FRB is the practice whereby banks keep a “fraction” of the funds deposited by customers in their vaults lending out the rest at interest and “profit.”  Banks are thus inherently unstable since if all depositors came at once and demanded their money (a “bank run”), banks could not be able to redeem their deposits.  Moreover, FRB encourages banks to engage in exceedingly speculative and risky behavior which creates unsustainable bubbles throughout the economy.

The nation’s central bank, the Federal Reserve, was created by the banksters and politicos to enshrine this immoral and economically ruinous practice into the heart of the American financial landscape.  Any “reform” of Wall Street’s financial practices that does not address FRB by doing away with it and the institution (the Fed) which enables it to exist, is doomed.

The banks in collusion with the Fed are able to expand the money supply through this process while enriching the banksters’ balance sheet.  On the macro level, the creation of money through FRB is the genesis of the destructive boom-bust cycle.

This is why banks and the entire financial system are so prone to reoccurring crisis and no regulation, reform, or Treasury Department “findings,” can make such a system “stable.”  The only true reform is to abolish FRB and establish a monetary order that requires all financial institutions to keep 100% reserves of depositors’ assets.

The Treasury Department’s recommendations are mere window dressing by the very banksters whose opulent livelihoods are predicated on FRB.

The elimination of FRB would go beyond a beneficial financial revolution, but would affect the foreign policy of the USSA.  Without the ability to create money via FRB, the murderous American Empire could simply not exist, nor would the nation’s draconian domestic security state.

With his selection of crony capitalists and members of Goldman Sachs to his economic team, it is apparent that President Trump does not understand the true nature of the nation’s financial woes or what precipitated the last financial crisis and what will assuredly lead to a far bigger mess down the road.  If he did, his next Executive Order would be to implement steps and procedures to eliminate the scourge of fractional reserve banking forever.

*U.S. Department of the Treasury, “A Financial System That Creates Economic Opportunities.”  6 June 2017.  https://www.treasury.gov/press-center/press-releases/Pages/sm0106.aspx

**Ibid.

***Ibid.

Antonius Aquinas@AntoniusAquinas

https://antoniusaquinas.com

26 thoughts on “The Ultimate Regulatory Reform: Abolish Fractional Reserve Banking!

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  2. Sink

    The private owners of the Federal Reserve Bank have raped the US of billions of dollars over the last one hundred years. They are now the wealthiest families on the planet. Insn’t it time to nationalize the Federal Reserve bank and return the assets to the American people from which they were stolen.?

    Reply
    1. E.Dor

      Yes it is.
      However the bankers kill anyone who disrupts their scheme.
      Jesus threw the moneychangers out of teh temple and he wound up on a cross. (Where do you think Judas got the 30 pieces of silver? A roman commander would not have had it but a moneychanger would have.
      President Lincoln introduced the treasury backed Greenback cutting the bankers out of teh loop and he wound up dead.
      President Kenedy introduced the silver certificate and he also wound up dead by the same method.

      Reply
      1. pdxr13

        A small detail: JFK ordered printed “US Notes” that were not redeemable in metal. The Notes were interest-free and an obligation of the US treasury, unlike Federal Reserve Notes.

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  10. Eng

    Hi, not that I’m a huge fan of FRB, but I was wondering, if from what you wrote you are asking for 100% deposits to be backed, how are banks going to work in their purest function to reallocate funds to the most efficient use in the economy (ie. matching depositors to borrowers).

    If $100 is deposited and the bank needs to ensure this $100 can be repaid at any point in time, how are banks able to lend anything out, and therefore to cover the interest costs to be paid on the deposits?

    Reply
    1. big toe

      They could use the money they receive in over draft fees, credit card interest and they could borrow money from the central bank and loan that money out at a higher interest then the fed is charging them.

      Reply
    2. Tim

      If you look into the history of banking you’ll find that deposits used to be divided into two categories; demand, and timed. Timed deposits (certificates of deposit) can be loaned out by the bank since they are not able to be withdrawn until their term is up. Ending FRB will just mean that demand deposits can’t be loaned out as well (Basil Accords allow up to 90% of demand deposits to be loaned out). Banks will still be able to make loans, but the amount of total credit in our system will collapse to less than 10% of what it is now.

      A better question to ask is what will a 90%+ reduction of credit do to our economy?

      Reply
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  14. Milton Friedman

    You are misinformed. “Banks keep a fraction… then lend out the rest” is completely wrong. Banks conjure new money out of nothing. Loans create deposits, not deposits create loans.

    Here is a video by the Bank of England saying exactly this:

    Reply
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  16. tom

    your understanding is flawed. The banks keep 100% of the deposits, then create out of thin air the money they lend. Typically a bank can loan out $9 – $10 for every $1 in deposits. The way a bank fails is if $5 out of $10 deposits are withdrawn and they have $100 loaned out they must raise capital or close.

    Reply
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  18. Timothy Madden

    Here is an excerpt that explains how it works in Canada, but it is essentially the same in almost all other countries. Sorry about the number of quotation marks – most are italics in the original but they don’t copy over into the comment box.
    _______

    The banks don’t generally provide the equity behind an advance of credit – the nominal debtors do through their otherwise gratuitous assumption of debt and hypothecation of their future income to service it.

    That is also why a standard/typical mortgage fraudulently states, as and when issued, that the nominal debtor is already the existing registered owner of the property that they merely intend to purchase, and that they have already received the named Principal Amount from the bank/nominal creditor. The banker then nominally “flips” or converts the falsified receipt as their own and only contribution to the nominal credit transaction (i.e., to underwrite/support their liability to the vendor/seller of the property).

    Metaphorically the bankers arrive at a given credit transaction with “empty pockets” yet walk away the “legal creditors” of the nominal debtors who bring the only things of substance to the financial transaction. The vendor/seller or existing owner of the property brings and contributes the “real credit” (equity) to the transaction in the form of the property itself, and the nominal borrower/purchaser brings and contributes the “financial credit” in the form of their assumption/underwriting of the debt itself and the hypothecation (pledging) of their future income to service it.

    Having arrived with nothing, the banker then walks away from the transaction with legal title to the property in one hand, and a promissory note and mortgage from the nominal debtor in the other, in exchange for his bare agreement that he owes the vendor/seller – an undertaking that does not cost him anything of substance to produce – but which is pretended or deemed by “policy” to be the provision of lawful money of Canada to the other party.

    All “players” in the Canadian system are arranged around (or rather below) the 135 White Lords (banks) of the CPA or Canadian Payments Association (Titled Nobility) whose bare, unsecured, and costless-to-produce undertakings of liability (deposit credits) are pretended to be the provision of lawful money of Canada. Below them are the Coloureds or Mixed-Race-Legal-Persons (Non-bank-transnational corporations). Everyone else is a Black-Legal-Person whose fully secured undertakings of liability are deemed “not to be” the provision of lawful money of Canada, except on and for the purposes of the White Lords’ accounting books.

    One the form and substance of promissory notes

    Consider the nominal promissory note that lies at the heart of the U.S. and U.K.(and global) financial/banking systems. Promissory notes are most often issued by nominal borrowers and debtors in favour of bankers. The purpose of a mortgage is to secure performance on the corresponding promissory note (in Canada and many other countries the promissory note function is often embedded in the mortgage).

    A typical/example U.K. promissory note states: “For value received, I promise to pay the bank the Principal Sum of £100,000 on [Maturity Date] and to pay interest monthly before as after maturity at the rate of 6% per annum.”

    We are conditioned to perceive such a “financial instrument” as having a “face value” of £100,000, when in theory and in fact/practice it is £200,000 plus the monthly interest.

    There are “three” separate and distinct legal/financial undertakings defined by and under the nominal promissory note, and which are acted upon as such:

    1. An immediate undertaking of indebtedness to the bank in the amount of £100,000;
    2. An undertaking of liability to the bank for the stipulated interest charges on the amount of indebtedness so assumed; and
    3. An undertaking to pay the bank (another) £100,000 in lawful money on the named maturity date.

    In practice, as and when the bank receives the promissory note, does it recognise, receive and record the issuer’s undertaking of indebtedness, per se, as a commensurate increase in the banks’ own cash-equivalent/money assets? Yes it does.

    As and when the periodic interest payments are made, does the bank recognise, receive and record same as a commensurate increase in the banks’ own cash-equivalent/money assets? Yes it does.

    As and when the note is nominally repaid (paid again) on the maturity date, does the bank recognise, receive and record the payment as an increase in the banks’ own cash-equivalent/money assets? Yes it does.

    That’s it. They’re done. That’s the whole deal. If those three things are true, then the unearned gain is “crystallized” and everything else reduces to distribution or application of proceeds. That accounts for roughly half the financial value of all broadly-defined labour on Earth. The financial deprivation to the note issuer (borrower or debtor) is real and quantifiable, and the unearned/unjust enrichment of the nominal creditor (bank) is real and quantifiable.

    Put another way, how does a promissory note differentiate between a case where the bank has already made a loan or advance, and one where it has not? Answer: It doesn’t. That’s the point. In the majority of cases, and near always in the case of the original transaction, the words: “For value received” mean “For nothing at all”. An “unconditional promise” to pay is by definition a “gratuitous promise” to pay.

    “History” is simply a great recording of the aggregate amount of labour/real wealth creation that is systemically and systematically rolled over into the accounts of the bookkeeping class acting on behalf of the possessor class. However much new wealth is produced via private (and costless to produce) bank credit has a quietly concealed built-in 50%-of-financial-value-confiscation (plus interest) provision.

    On the meaning of the word “repay”

    A collateral device in the deceptive process is the “counter-sense” word “repay”. If a “lender” makes a “loan”, then the word “repay” means “to pay back”. But when a “creditor” makes an “advance of credit”, then the word “repay” cognitively “flips” to mean “to pay again”.

    Lender versus creditor; loan versus advance

    “Lenders” make “loans”, which they “pay for” by:
    1. pre-existing money/equity already earned and possessed by the lender,
    2. assumption of risk, and
    3. administrative overhead.

    “Creditors” advance “credit”, which they “pay for” by:
    1. assumption of risk, and
    2. administrative overhead.

    It costs at least a billion dollars to “loan” a billion dollars, and the “lender” walks away from the transaction a billion dollars “poorer” in terms of immediate purchasing power, because now the borrower has it, and the lender does not. A “lender” incurs a “net depletion” of its money assets by making a “loan”.

    It costs “at least nothing” to advance a billion dollars of “credit”, and the “creditor” walks away from the transaction a billion dollars “richer” than the instant before, because now they own the debtor’s security, plus the debtor owes them a billion dollars that the creditor did not even possess the instant before. A “creditor” obtains a “net increase” in its money assets by making an advance of “credit”.

    A billion dollar “loan” instantly “costs” a lender a billion dollars.

    A billion dollar “advance” instantly “advances” or “gains” a “creditor” a billion dollars.

    Yet not one man or woman in 10,000 even appreciates that there is a difference; that a loan is vastly more expensive to one of the parties, than an advance of credit, because of the added cost of the money itself. Yet legal documents, securities, mortgages, credit-card contracts, newspapers, TV and radio media, court judgements, all of it – all use the word-pairs lender and creditor; loan and advance, cross-interchangeably for what is objectively the single greatest distinction to be made on Earth. I had done so myself for years without realising it (and on occasion still do – it takes persistent mental discipline to avoid it).

    “Mr. Banker, that $1 billion “transaction” that you just completed – did it “cost” you $1 billion? Or did it “gain” you $1 billion?”

    Banker: “Cost, gain; what’s the difference? You just need to get back to work and leave the complicated philosophical questions to us.”

    Hope it helps. Tim.

    Reply
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  20. merahza

    Reblogged this on Satu Insan – Malaysia and commented:
    Unfortunately, as long as there are central banks, we will be the victims of the monetary central planners who have the monopoly power to control the amount of money and credit in the economy; manipulate interest rates by expanding or contracting bank reserves used for lending purposes; threaten the rollercoaster of business cycle booms and busts; and undermine the soundness of the monetary system through debasement of the currency and price inflation. – Epic Times

    Reply
  21. Tim

    Antonias, you’re on the right track. Don’t let the comments of “creating money out of thin air” discourage you. Yes, the banks create the credit they lend out, but it is merely a semantic argument about how the details of the system function. And, that is missing your larger point: this system is an abomination and shouldn’t exist. On that main point, we agree.

    The modern financial system is governed by the Basil Accords, if they were changed to raise the demand deposit reserve requirement from 10% to 100% it would put commercial banks on a 100% reserve standard of Federal Reserve Notes. Although this would be a positive step towards an honest money system, it would also be a painful one. Available credit would shrink to less than 10% of what is currently in the system, causing a major contraction in the economy. Almost all business is run on bank credit, so you’re talking about crashing the economy, unless you have a slow and predictable transition plan that will allow us the taper down from our credit addiction.

    Are you aware of any transition plans that could be put forward as a solution to this dilemma?

    Reply

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