The Power of Fractional Reserve

The Power of Fractional Reserve by Elvis Manning
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In the opening of the audio for “The Federal Reserve You Haven’t Heard About”, Larry Bates describes the building block of fiat currency, the fractional reserve. Banks in the United States are required to keep ten per cent of deposits in what is called “reserve”. In the audio model, if a bank loans a couple $100,000, 10 per cent of that money loaned must be kept in reserve for bank customers. 90% of that loan or $90,000 is termed as “excess reserves” and can immediately be loaned to another customer. From the $100,000 loan, $90,000 is magically available to be loaned to another customer based on the fractional reserve system. This process can be repeated over and over. The money supply continues to increase with each loan or transaction. Bank loans are made to any individual or business entity that can assure the loaning bank that they have the security and financial stability to pay back the cost of the loan to the bank plus interest. Each loan created is a new asset to the bank loaning the money. 90 per cent of each loan can be loaned again with 10% held in reserve for depositors. Some refer to this situation as a “license to steal”.