Contagion: AWARENESS OF FRACTIONAL RESERVE BANKING (PONZI).
Greater awareness about what fractional reserve banking is, seems to be causing fears about Ponzi schemes, systemic failures and worries about how safe money in “the bank” really is. As contagion spread, bank runs begin. Legacy media (paid by the banking industry is trying to stem fears, but institutional money is leaving the system faster than the elites commandeered lifeboats on the titanic. Grab a lifejacket and ensure you know where you’ve place your money and how safe it is.
Fractional reserve banking is a banking system where banks are only required to keep a fraction of the total amount of money deposited by their customers in reserve. This means that banks are allowed to lend out a significant portion of the money that they receive as deposits to borrowers.
For example, if a bank has a reserve requirement of 10%, then it can lend out 90% of the money deposited with it. So, if a customer deposits $100 in the bank, the bank can keep $10 as a reserve and lend out $90 to other borrowers. This process continues, and banks continue to lend out the money they receive as deposits, keeping only a small portion of it in reserve.
This system creates a multiplier effect where the money supply in the economy is increased. As more loans are made, the money supply expands, and the economy grows. However, there is a risk involved in fractional reserve banking. If a large number of customers suddenly demand their deposits back, the bank may not have enough reserves to cover all the withdrawals, leading to a bank run and potentially a financial crisis.
Fractional reserve banking is a widely accepted system that has been used by banks around the world for many years. It has both advantages and disadvantages, and its impact on people's lives depends on how it is managed and regulated.
One of the main advantages of fractional reserve banking is that it allows banks to make loans and invest in the economy, which can lead to economic growth and job creation. However, if banks are not properly regulated, they may engage in risky lending practices and charge high-interest rates, which can lead to financial hardship for borrowers and potentially ruin their lives.
Usury, or the charging of excessively high-interest rates, is illegal in many countries and is generally considered unethical. However, some lenders may engage in predatory lending practices, taking advantage of vulnerable borrowers who have limited access to credit.
It is important for governments and regulators to monitor and regulate the banking industry to ensure that banks are operating ethically and not engaging in predatory practices. This can include setting maximum interest rates, enforcing transparency in lending practices, and providing consumer protection laws to prevent financial abuse.
The exact amount of physical cash that exists in the UK and USA is difficult to determine as it is constantly changing. However, both countries have a significant amount of physical cash in circulation to meet the demands of bank customers in the event of a bank run.
According to data from the Bank of England, as of June 2021, there was approximately £88.3 billion worth of banknotes in circulation in the UK. In the USA, the Federal Reserve reports that as of May 2021, there was approximately $2.1 trillion worth of currency in circulation.
While this amount may seem large, it is important to note that in the event of a bank run, demand for physical cash could quickly exceed the amount currently in circulation. In such a scenario, central banks may need to print additional money to meet the demand.
It is also worth noting that bank runs are rare events and are unlikely to occur on a large scale in modern banking systems. Banks are required to hold reserves to meet the demands of their customers and central banks have a range of tools at their disposal to manage any liquidity crises.
As of June 2021, the total deposits held by banks in the United Kingdom amounted to approximately £2.7 trillion. This includes deposits held by individuals, businesses, and other financial institutions.
In the United States, the total deposits held by banks as of June 2021 amounted to approximately $17.7 trillion. This includes deposits held by individuals, businesses, and government entities.
It is important to note that these figures can fluctuate regularly as depositors make new deposits, withdraw funds, and transfer money between accounts. The total amount of deposits held by banks is an important indicator of the overall health of the banking system and the level of confidence depositors have in the banks.
The exact amount of physical cash that exists in the UK and USA is difficult to determine as it is constantly changing. However, both countries have a significant amount of physical cash in circulation to meet the demands of bank customers in the event of a bank run.
According to data from the Bank of England, as of June 2021, there was approximately £88.3 billion worth of banknotes in circulation in the UK. In the USA, the Federal Reserve reports that as of May 2021, there was approximately $2.1 trillion worth of currency in circulation.
While this amount may seem large, it is important to note that in the event of a bank run, demand for physical cash could quickly exceed the amount currently in circulation. In such a scenario, central banks may need to print additional money to meet the demand.
It is also worth noting that bank runs are rare events and are unlikely to occur on a large scale in modern banking systems. Banks are required to hold reserves to meet the demands of their customers and central banks have a range of tools at their disposal to manage any liquidity crises.
The physical cash in circulation is only a small fraction of the total deposits held by banks in both the UK and the US. In the event of a widespread bank run where all depositors demand their money back at once, it would be impossible for banks to return all the deposits as physical cash.
This is because banks only hold a fraction of their total deposits as physical cash and maintain the rest as electronic deposits, which are used for lending and investment purposes. In addition, banks rely on the assumption that not all depositors will demand their money back at the same time, allowing them to use the funds to generate profits.
However, in the event of a bank run, central banks and governments have a range of tools at their disposal to manage the situation. This can include injecting liquidity into the banking system, providing emergency loans to banks, and implementing deposit insurance schemes to protect depositors' funds.
In the event of a bank run, the money is typically made safe through a combination of measures aimed at restoring confidence in the banking system and ensuring the availability of funds to meet depositor demands.
One measure is to inject liquidity into the banking system, which can be done by central banks providing emergency loans or by purchasing assets from banks. This increases the availability of funds and can help to calm depositor fears.
Another measure is to implement deposit insurance schemes, which protect depositors' funds up to a certain amount. In the UK, for example, the Financial Services Compensation Scheme (FSCS) protects deposits up to £85,000 per person per bank, while in the US, the Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per depositor per bank.
Printing more money is generally not the preferred solution as it can lead to inflation and undermine the value of existing money. However, in extreme cases, central banks may need to increase the money supply to meet the demand for physical cash.
Overall, the goal is to restore confidence in the banking system and provide depositors with the assurance that their funds are safe and available when they need them.
Deposit insurance schemes like the Financial Services Compensation Scheme (FSCS) in the UK and the Federal Deposit Insurance Corporation (FDIC) in the US are typically funded by the banks themselves, rather than by taxpayers. Banks are required to pay a fee to the deposit insurance scheme, which is used to fund the scheme and pay out claims to depositors in the event of a bank failure.
The level of coverage provided by these schemes, such as the £85,000 or $250,000 limits, is typically set by the government or the regulatory authority overseeing the banking system. These limits are often based on factors such as the average deposit size, the number of depositors, and the level of risk in the banking system.
It is important to note that deposit insurance is not a guarantee that depositors will receive their full funds back in the event of a bank failure. The insurance scheme is designed to provide a certain level of protection to depositors, but there may be limitations on the amount that can be paid out in certain circumstances.
The assumption behind deposit insurance is that most depositors will keep their funds in a bank, and only a small percentage of depositors will require their funds back at any given time. This means that the deposit insurance scheme is designed to protect the vast majority of depositors, rather than all depositors at once.
Overall, deposit insurance is a way to protect depositors and help maintain confidence in the banking system. However, it is important for depositors to understand the limitations of deposit insurance and to diversify their funds across multiple banks if they have large deposits that exceed the insurance limits.
In a fractional reserve banking system, banks are able to create money by lending out more funds than they actually have in reserve. This means that when you deposit money into a bank account, the bank is allowed to lend out a portion of that money to borrowers, while still keeping a fraction of the funds in reserve to meet withdrawal demands from depositors.
This system creates “new money” or monopoly money, by allowing banks to create loans that exceed the amount of funds they have in reserve. When a bank makes a loan, it creates a new deposit for the borrower, which in turn becomes new money that can be spent in the economy. This process is known as credit creation or money creation.
It is important to note that this process is regulated by central banks and subject to various rules and regulations. Banks must maintain a certain level of reserves to meet withdrawal demands from depositors, and they are subject to capital requirements and other regulations aimed at ensuring their stability and safety.
While this system may appear to be based on "pretend funds," it is important to note that the money created through lending is backed by the borrower's promise to repay the loan with interest. Banks earn profits by charging interest on loans and paying interest on deposits, and they are subject to risks associated with lending and borrowing, such as defaults, interest rate fluctuations, and economic shocks.
Overall, while the fractional reserve banking system allows banks to create money through lending, it is subject to regulatory measures and is based on the assumption that borrowers will be able to repay their loans with interest.
Depositors receive low interest rates on their deposits because banks are able to lend out a portion of the deposited funds at a higher interest rate than they pay to depositors. This difference in interest rates is known as the interest rate spread, which is a key source of revenue for banks.
Banks claim that they need to maintain this inequality in order to earn revenue in order to cover their operating costs, such as salaries, rent, and other expenses, and to make a profit for their shareholders. Lending out funds at a higher interest rate than they pay to depositors is one way for banks to generate revenue and profits.
In addition, banks are subject to various costs and risks associated with holding deposits. For example, banks must maintain a certain level of reserves to meet withdrawal demands from depositors, which incurs costs. They are also subject to risks associated with interest rate fluctuations, defaults, and economic shocks, which can impact their profitability.
Overall, the interest rates paid to depositors are largely determined by the market, with banks competing for deposits and borrowers seeking the lowest possible interest rates. While the fractional reserve banking system allows banks to earn a profit through lending, they are also subject to regulatory measures aimed at ensuring their stability and safety.
Banks are able to create money by lending out more funds than they actually have in reserve. This process of credit creation, or money creation, can result in an expansion of the money supply, which can have economic benefits such as stimulating economic growth and facilitating transactions.
Overall, while the fractional reserve banking system has its benefits and drawbacks, it is subject to regulations aimed at ensuring the stability and safety of the banking system, and taxpayers are only used to bail out banks in extreme cases when the stability of the entire banking system is at risk. It must be noted that any measure to extend credit to, or bail out banks is at a cost to the public in some form.
The profits that banks make from money creation through lending can certainly be significant, and there may be valid arguments about the distribution of these profits and their fairness.
