Chapter 18 Clip 2 Fractional Reserve Banking

In this clip series, I discuss how fractional reserve banking works by looking at an open market operation conducted by the central bank.

Category:

Education

Tags:

• business
• economics

[Naturalhombre]

beating around the bush so much, at the beginning of video 1, the explanation for fractional reserve banking was "only 5 percent of the deposit stays in that bank as a reserve", if the reserve ratio requirement is 5%.

that sounds simple and its brushed over quickly as if that was it,no word on the effect of the other 95% loaned out continually again and again and again.

the value of money evenutally becomes almost nothing.

without this rediculous trick

we would flourish

with no excuses

[Neilio55]

You are absolutely right...the other 95% does eventually lead to a huge explosion in the money supply through a repeated process of deposit creation...and this is generally assumed to follow a geometric series. You are also right that fiat currencies do tend to lose their purchasing power over time due to inflation caused by the rapid growth rate of money.

Please note, that I made these movies for my 18 year old students, so maybe that is why it seems like I beat around the bush.

[007bruclee]

Neilio,

I think this video is great. THank you so much!!Please go to this link and watch the short but very infomative documentary called Meet the Fed. I'll admit the first 7 minutes might not interest you but after that is the Chicago Feds PR representative answering the questions like , is it true the Fed is private? Is it true they create money with a penstroke? ETC.. A must see if you want to know more about the FED.Here's the link.

(ht tp)://MeetTheFED(dot)com