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Debt Collection Category

Thursday, November 28th, 2013

Fractional Reserve Banking, You Need To Know This

Fractional Reserve Banking, You Need To Know This


Mike Pagach

Fractional reserve banking…what is it? Plainly put, fractional reserve banking is the procedure of a depository lending capital that it does not have. To understand how the method works, we must look directly into the stomach of the animal. All around the world there are exclusive enterprises known as central banks. Yes, that is exact, exclusive enterprises. In the United States, the privately held central bank is named the Federal Reserve Bank. It is significant to recognize that this bank is not a government body, but has shareholders and is in business for financial gain.

As soon as the United States government desires cash it produces treasurey notes. These notes hold an interest rate that the government has to shell out on top of the principle, just like a mortgage or credit card. The Treasury sends these treasury notes to the Federal Reserve Bank, and the Federal Reserve then \”issues\” currency and sends it to the Treasury as payment for the notes. Wait, it gets worse…

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Let\’s employ an example. Let\’s pretend the United Sates government is in want of $10,000,000. The Treasury will issue the treasury notes and the Federal Reserve will issue federal reserve notes. The Treasury and the Federal Reserve then swap the notes with each other, thus giving the Federal Reserve assets and the government gets liabilities. The treasury will then deposit the $10,000,000 into a commercial bank account. No big thing, right? This is where it gets wild:

The financial institution retaining the cash is obligated to have 10% ($1,000,000) of the currency in reserves and can lend out the additional 90%. So in our example, we\’ll say that a contractor gets a loan for $9,000,000 from the financial institution for his project. The $9,000,000 is added into the contractor\’s checking account and the financial institution can now loan 90% of that currency, holding the 10% in necessary reserves and the practice replicates itself over and over again (take into account, the contractor\’s bank account nevertheless shows a balance of $9,000,000 and the government\’s bank account still shows a balance of $10,000,000). Consequently, extra cash is create and enter the market through loans. Every one of the loans must be paid in return with interest, so even if all of the currency were returned to the banks, there would still be debt.

Makes you think twice about using that credit card, doesn\’t it? Once folks cease using their credit cards and commence paying them back, there is deflation as the cash supply withdrawls from the markets. This triggers the Federal Reserve to panic and they advise the representatives in our government that the cash supply ought to be increased to avoid another great depression. So the government scrounges, and the Federal Reserve provides. So what takes place if too much currency is made all at once? That is known as inflation, which triggers the cost of goods and services to incline, because the currency is loosing value.

The Federal Reserve has a system to contain inflation, though. They dub it the Internal Revenue Service (IRS). The IRS, like the Federal Reserve, is a undisclosed creature which is ultimately the Federal Reserve\’s debt collector. After you pay income tax on your hard earned wages, that money goes toward the interest on the government debt to the Federal Reserve (think of those treasury notes that we informed you of). In the meantime, you get no services from your government, your roads and bridges fall apart, and the public schools instruct your youngsters on how to remain useful taxpayers. They explain zilch in this area of fractional reserve banking or economic education. Why doesn\’t the Treasury print it\’s own currency instead of borrowing printed money from a secret bank? Or maybe a better inquiry is, why doesn\’t the government be a devotee of the Constitution?

It is imperative to learn more about

fractional reserve banking

and how the system operates within the global economies.

Click here

to protect yourself from the end result of inflation.

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