How Fractional Reserve Banking Increases Inflation - HD version

High-definition version of my video about fractional reserve banking, its relationship to inflation, and how it affects our wealth.

Original video: http://www.youtube.com/watch?v=G1Idxps_qEk

Category:

Education

Tags:

• fractional
• reserve
• inflation
• deficit
• economy
• disaster
• recession
• depression
• economic
• one
• trillion
• dollars
• America
• tax

[liberalgamer4]

hang on a sec you won't put the $1000 straight into liabilities of the banking account you would first take it from your personal account then record it in the assets of the bank account.

[shanedk]

@liberalgamer4 Watch the video again. This is from the BANK'S point of view.

[Denon3333]

So, the current deficit is $400 billion a year, which is from 2007 statistics. I am not from USA, but I have watched this 30 minute documentary called IOUSA.

If the fractional reserve is 20%, doesn't that mean that the money would have to increase by $2 trillion? Let's take USA's GDP. In 2007, USA was operating with a GDP of nearly $14 trillion. Suppose that it is the case that ALL of the GDP represents the money in circulation.

[shanedk]

@Denon3333 Oh, wait, didn't read the posts in order.

Yes, your figures sound about right.

[SilentNoMorePubs]

Great topic. One of the simplest, clearest explanations yet is the YouTube video WHY WE ARE IN SO MUCH DEBT. Highly recommended viewing.

[MonkeyThatIsLuminous]

And where does that $90 from the loan go? It's in circulation, the original depositor still has his $100, but now there's an extra $90 in the sysytem.

Assets Liabilities

$R10 $100

$L90

So far so good. But that loan money is going to be deposited back into a bank:

Assets  Liabilities

$R10 $100

$L90

$R90 $90

We've got $190 in the system from nothing but deposits and loans, the amount of "real" money is still $100.

[liberalgamer4]

@shanedk oh ok, sorry I was think from the person view of it, my bad.

[supahsekzy]

@SexyMelon As Milton Friedman once said, it's not noticeble to bankers and customers because the creation of money out of thin air in this manner occurs as a result of transactions between banks, not within any specific single bank

[PositiveMoneyUK]

A biggest public campaign has started to end fractional reserve banking, look at the POSITIVE MONEY website and support the campaign ...and spread the word.

[shanedk]

@MikeLV Cool! And thanks.

[SexyMelon]

@harlingtonstraker "It is not a multiplier"

As shane noted, it's invisible to individual bankers and individual customers because, as far as both are concerned, they're simply taking promissory notes, bits of paper that promise them a certain amount of money from the bank, no matter how much it has in reality.

So it's like a second layer of paper on top of already existing paper money. No one knows any better, and no one's going to refuse an offer of new money.

For as long as people need cash.