🏛 🕵 Fractional Reserve Banking vs Full Reserve Banking | How Do They Work? 

This was a very good break down for laymen like myself,thx for the upload.

@Darius Kang yo shut the fuck up

ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-sJDgUoNyKZo.html

Bro in the video did u mean the 900dollar will be lended 10times. Or u mean the 900dollar will be lent as long as it takes for it to get to its 10times multiplier(9000)

Bro in the video did he mean the 900dollar will be lended 10times. Or u mean the 900dollar will be lent as long as it takes for it to get to its 10times multiplier(9000)

This fraudulent behavior is beneficial to our economy.

It is if you're a criminal..

@@ric6383 fractional reserve banking is perfectly legal. What do you mean??

@@delrealeric Legal it might be, but morally criminal, that's why banksters are protected by law. Making money out of thin air, then charging interest on it. We'll agree to disagree.

@@ric6383 what’s morally criminal? Charging interest? So are you against loans? Like mortgages and student loans? Or are you against making money from thin air? Because that’s literally what fiat currency is. All governments do it. You’re just against banks doing it? You don’t think this power is better controlled by the market vs a command government???

And that would still be their money, working for them. Banking would be a mediator, not a wealth parasite

@@TaurungamesThings like that already exist but let’s face it. A lot of people don’t want to think that much and so there is demand for the way banks are right now.

Good questions. Maybe the bank can have “back up” money fir situations like that as well as collateralize the loans it gives out for better recovery of the funds.

U for real?

@@dominic1722 sounds crazy, but we're feeling the effects lol. Inflation through the roof

Until all your depositors come requesting their money back.

Absolutely. In a free market this phenomenon would collapse & depositers would naturally save.

Remember also that 1- most of the money is being spent on useless disposable items, 2-there is no closed economy money flows out when foreign goods are bought. In the end, useful resources are used to make useless things, resulting in landfills necessitating consumerism just to keep the game going, until China stops buying US bonds or a war is fought to reset the clock.

I thought about this the same way. No new money is created essentially. The real cause of inflation is government printing new notes

I think you’re on the right track but only if one knew when to stop. But continuing to overleverage is what I think makes things work.

@LiuYe Only thing is that the government doesn't print money. The Federal Reserve/Central Bank does, which is an independent organization. The government buys the money from the Federal Reserve then distributes it to commercial lenders.

It’s to grow the economy faster this guy gave examples of lending to people for purchases when most it is to lent to small business if a bank has 1m it can lend 10mill to start small businesses it would be massively harder to get a small business loan without fractional banking.

With the full reserve approach the bank has to hold a lot more money in its vault, enough to cover a run on the bank where every single depositor simultaneously decided they wanted their unloaned money back. With the fractional reserve they just need to hold something statistically likely, where some percentage of the depositors decide they suddenly want the money, and the reserve bank guarantees them against big surprises (which is a way to make it less likely surprises will happen). So anyone who wants to run a bank is going to prefer fractional reserve, so unless it's made illegal (which might be a hideous thing to try to legislate and enforce) it's going to be the bank we have.

Jake Berry yeah and then maybe so many small business owners wouldn’t go into stupid amounts of debt

@@dinterest stop spreading this nonsense that the fed is private. That's a complete myth. It was established by the government, operates under a currency monopolized by the government, has its officials chosen by the government, & it alway finances the governments spending with printed money at low rates. It is somewhat independent, but they're a public institution. They just have no accountability.

To your last sentence, that would just mean people would need to be disciplined and save to buy a house cash. At the same time, if sellers of houses want to sell, they would have to lower their prices or else be stuck unable to sell. So in a sense, it seems to me like the full reserve system could help greatly regulate things and keep everyone for becoming too over leveraged.

To keep it simple… is having your money any CD the same as having your money and a full reserve?

That's not what full reserve is. Actually watch the video.

Fractional Reserve Banking isn't the cause of inflation because bank loan customers produce real goods and services to pay off a loan. What causes inflation is inflated interest rates for credit, which are passed onto consumers. Once prices become higher than what people can afford prices go down. Also the Federal Reserve Board can can reduce the money supply by increasing interest rates and depending on their actions can cause a recession, like it did in the 70's. Prome rates then were in the double digits.

As he said the 1000 dollars can be withdrawn on demand. The 1000 dollars gets lend by other people while taking 10% for fractional reserve ( thats one of the reason to make the bank rich). If the 1000 dollars can be taken on demand, how could they lend the same 1000 dollars to other people? Well my friend, by printing this fake money.

The bank has license to print money.

What's being created are CLAIMS to money. If I have a 100 dollars, and I lend them to you under the condition that I can get them back anytime, no new money has been created because the 100 dollars have simply switched hands. But you now have a debt of 100 dollars to me and I can cash in on the debt whenever I want.

Because both examples in the video are Full Reserve Banking. With the Fractional Reserve Banking system the bank would have kept all of the $1000. But then they would have created $9000 on their banking system and lend out that created money with interest.

but how though? How can the bank lend you something that it doesn't have?

@@luisstar5594 it could legally just put number into your deposit account. and row about your liability(credit) into their balance sheet. If you need cash, bank can legally exchange that number for cash from mint.

No duh dipsh*t. That's what we take issue with. Inflating the money supply is inherently detrimental to productivity as it distorts price signals, misallocates land, labor, & capital, & distorts our time preference thereby dooming projects to failure & incompletion (especially including opportunity cost).

Thinking the same

nothing its the same money being lent out with the knowledge it is not on demand

The key is that none of the people lending the money expect it to be available while it is also being landed out. For example: Guy 1 deposits $100. Guy 2 borrows that $100, turns around to deposit it and loan it out. Guy 3 now has the $100 as he borrowed it. Guy 1 and Guy 2 do not expect the money back yet, so we're still only talking about $100. Fractional reserve banking would tell all three that they could have the $100 at the same time.

He will use already existing money that will gain in that time period.

He will provide what others demand unorder to aquire that scarce currency. And since it's divisible anyone can do this to varying degrees, depending on how much consumption is detered through saving & how demanded their ventures are. They have to compete, work, & provide value to society unorder to get a piece of the pie. That's good for everyone.

The money just sits there in the vault until the owner wants it back. The bank is providing the service of guarding the money for the customer.

The 10% is kept as if it was a full reserve deposit. This is the current lowest reserve rate allowed by US federal law

@@pjrousche1600That is so low.

lets see someone answer this correctly.

There is no answer for it, it does not exist. In a system in which the central bank uses fractional reserve banking, there's always going to be credit defaults and all debts are literally impossible to pay off.

@Jj Chen how is defaulting on bang loan related to interest?Which is the question

@@boots911 I don't get it. Can you explain? Explain like I'm brain dead

​@@TwistersSK8 All current money that exists is technically borrowed from a bank, and is owed back with interest by someone.

I watched 15 minutes and the video quality is awful. The sound and animation. Wtf

@@Walter-mr5hd it was on a budget. Usually people who are searching for and showing the reality of things do not have much of a budget like the mainstream does. Despite the budget, 'money as debt' is really revealing about how the banking system works against everyone.

If that was the case, how would the detective be able to withdraw anything up to $100? Even $20 he wouldn’t be able to withdraw.

Debt like you wouldn't know, but it makes it easier to finance wars and maintain the support infrastructure for mass enslavement.

money is debt

@@austinbyrd4164 so it’s basically debt

@@nikolatesla537 totally 🙄 Either you're a troll or you have no arguments.

@@nikolatesla537 betting on number 2

Oh god

1. Nowadays the money is creatwd continuously. Also, this fraudulent system syphons a lot of wealth from the rest of the economy. It's basically the reason inequality is growing in the west, financial capital is parasiting the econony. 2. Kinda. Deflation is good and there is no historical evidence that it leads to recession. In truth, deflation was the norm when worker's incomes were exploding. There is always metal mining, and new forms of money would come up. I do believe the monetary base would expand to accomodate bigger economies, but it would be done by market logic, which would be much better

@@Taurungames so how would the market expand the money base under a full-reserve system? Who's gonna do the expansion? I don't think you've thought this through enough. Banks can only exist upon fractional reserve systems, that's a fact. Would a capitalist world like ours work without banks? I don't think so, it's kind of the cornerstone of capitalism. So I'm at a loss of how this full-reserve system, which has never been done in the history as far as I know, could work

@@Jaroen66 If you use gold as a currency, by mining gold for example. By using many different currencies. People have used grains, seeds and cloth, they find a way. The cornerstone of a market is private property, and fractional reserve is fraud. Banks can provide two services: storage and mediation between borrower and lender. The first one you pay fees for, the second you get part of the interest. In fact, banks are way more stable under a full reserve because then they aren't bankrupt all the time

@@Taurungames sounds good, doesn't work. 2 problems: 1. Gold is too heavy and cumbersome to be used in a cashless world that we're entering (I mean physical cash in this case) 2. Being able to expand the money supply is actually good for creating large businesses. It actually created modern prosperity as we know it. What was the last time we only used gold coin as cash? More than 1.5 century ago, before the industrial evolution. If you think you can bring that back now and have it work out, you are delusional

@@Jaroen66 You don't need to carry gold coins around. And I like gold, but digital currencies are a reality for that very reason. Perhaps it is good for the money supply to increase, but not at the rate we have and not out of thin air. Gold coins were used in the US until the early 20th century, much after the industrial revolution

They recoup their losses with collateral or other creative methods.

1929

How nice of to call nobel prize winner Paul Krugman an idiot. Please, explain to a mere mortal like me what aspects of his complex research that you disagree with.

@Bernt Engdahl ok 👍 👌 Cheap credit misallocates resources to undemanded/lesser demanded ventures, increases the present consumption & acquisition of goods, distorts our time preference, creates a dependency on continuous overvaluations, & distorts price signals (because of relative price stickiness, unequal velocity within different sectors, & circular demand within scarce demanded goods [assets]). Speculation increases as lesser educated consumers spend & borrow. They have not went through the thorough process of elimination that normally happens in the free market. When these malinvestments inevitably must end & the spigots of cheap credit are cut, a _'deflationary death spiral'_ must ensue. You *have to* allow resources to be freed up, consumption to be detered, & then properly allocate them to where they're demanded. If not, attempting to correct malinvestments within the system will crash the economy. Market set interest rates & a scarce divisible currency naturally fix this. Banks & borrowers must compete for scarce savings. Through interest rates, these funds are allocated to demanded ventures. In direct proportion to how demanded they are & how much consumption is detered through saving. Since there's no inflationary effects, our time preference of consumption & production is balanced, thereby allowing projects to reach their full potential. Artificially cheap inflationary credit interferes with needed corrections & exacerbates structural issues. We need to raise rates, default, & let the market properly restructure. Building up our productive capacity is the only way to viably get demanded goods & services. There's no shortcut. I can cite nobel prize winning economists that agree with me. Mises wrote this theory of money & credit we espouse. He predicted the great depression, lived during the gold standard, & his policies got us out of the 70s stagflation. You don't know know what you're talking about, & neither does krugman. Name a single thing he's ever predicted. I'll wait. He was wrong on the internet & housing bubble, & he's wrong today. Economists vastly disagree. Address our arguments. I know you have none!

@@austinbyrd1703 Thanks for your long respone. But you didn't discuss Krugman's research, which is what I asked about. Instead you went on a long rant with complicated terms like continuous overvaluations and malinvestments, which I was unable to make any sense of. It's not very helpful. You asked me to provide one thing that Krugman has correctly predicted. He predicted that during the great recession, monetary expansion would not be inflationary, and he was right. By the way, Krugman actually made a bet about this against the well known Misesian economist Bob Murphy. And Murphy, being the honest guy that he is, admitted defeat. So there you have it.

@Bernt Engdahl no duh. When you're the reserve currency & a global central banking cartel props up the bond market through fixed exchange rates, of course you can buy an endless amount of imports to prop up your unproductive job market. We export most of our inflation overseas for goods. The world subsidizes our reckless spending at their detriment. We don't produce much of anything, so they just hold huge amounts of worthless reserves. The USD's reserve status is the only thing propping up our terrible service economy. Of course when you change the mechanisms of measuring the cpi, suddenly the cpi doesn't show a substantial increase in prices. Using the same mechanisms we used during the 80s, we have the highest inflation in US history. Second only to maybe the civil war, when lincoln printed green-backs in mass. And you know how that ended? With the crash of 1873. You know how we got out of that? Massive spending cuts & a return to the gold-standard. One look at (scarce) asset, stock, & commodity prices over the past decade will show you the massive inflation this 0 rate environment got us in. That's called overvaluations, & borrowers & lenders are completely dependent upon their continuous artificial appreciation (through cheap inflationary credit). Nobody ever denied that bubbles take time. The great depression took almost a decade of cheap credit & malinvestments before our inevitably painful correction. Mises predicted the great depression, & his theories stand evermore true to this day. His student Hayek won a nobel price for extending his theories. We can both cite notable economists. One side here is obviously better. It's not my fault you don't understand basic terms like "overvaluations" lol. Learn to read, & when you do read mises. You, & Mr. "the internet will reveal itself to be nothing more than the fax machine" krugman, know nothing about what you're talking about. He openly said there was no housing bubble before it came tumbling. He's stupid af.

@@berntengdahl1519 There is no such thing as nobel prize in economics. BTW, Ben Bernanke also got "nobel" prize, the guy with 2008 GFC under his belt, "nobel" prize in economics lost all of its credibility.

Because the tv buyer is most likely working and will pay it off from simply paychecks.

They must provide value to others unorder to aquire that scarce currency. It's divisible, so they accumulate more based on how much they contribute. That's good!

Money is debt. That would be the answer...

Because what needs to be repaid is real value, not nominal. A stable money supply leads to deflation, which means a borrower can repay a smaller nominal quantity while paying real interest. So, for example, if you borrow 100 gold coins to invest in machinery for your bakery and you have to pay real 3% interest over a year, but the inflation rate was -2%, then you would only need to repay 101 coins instead of 103.

They would provide demanded goods & services to *compete* for that scarce currency.

It's not private. That is a complete myth. It was established by the state, the money it prints is monopolized by the state, the officials of the fed are chosen by government officials, & they always monetize government spending. They're not private! They're, somewhat, independent from other branches of government in how they operate, but they're in no way private.

Absolutely true though, they shouldn't exist period.

And it's not economic "growth" either. It's a numerical boom. Supplying demanded goods & services (real growth) is actually hindered in this process. The correction is the cure to the malinvestments within the system.

ScRaS181 no, but more money is lent out than originally existed.

The key issue for Fractional Reserve is that we're told "You can withdraw your deposit at any time". "If the detective deposits his $1,000 in the fractional reserve bank and the bank lends out 900 of it.. he has still parted with the 900." Actually the problem with the Fractional Reserve system is that he HASN'T parted with the $900. Despite the detective's $900 being loaned out by the bank, the detective was promised that all of his $1,000 is available on demand. Which means the detective is most likely spending that money at the same time the TV buyer is spending the money loaned to him. This is how the money supply is expanded. Essentially money is deposited and that deposit is loaned and so that money is in two places at once. Both people are spending that same money. This scenario repeats countless countless times and that's what really drives inflation. Besides the inflation, in the extreme worse case scenarios of this system you get the Bank Runs of the Great Depression. The video didn't do a great job of explaining these implications.

@@joelalonde You seem to understand this better then most people here Joe so can you recommend a video that explains it better?

then his 90% of money would also be locked up

@@NayarJoolfooWhat about at after the length of term ends? Yes I think it does create more money.

"Confession of an Economic Hitman" John Perkins. Type that into youtube and read/listen to the audiobook if you want to know why IMF/World Bank aren't doing that.

Here's some info: The Eight families (Cartel). Starts of with the Federal Reserve, Who owns the banks and then onto the BIS, IMF and World Bank. www.globalresearch.ca/the-federal-reserve-cartel-the-eight-families/25080

The imf and world bank are their to provide structural adjustment loans to 3rd world nation for the purpose of social and political change under the premise of helping the people by provinding food and building their infrastructure and creating jobs. The real reason is to turn those nations into socialist nations in which they can control the puppet they put as a head of the nation. Why? So they can easier create their global government. America is harder to turn because we are not a 3rd world nation but since all those loans are backed up by USA(us that pay taxes) eventually the USA will end up as a 3rd world nation as well. Now the fed is leading loans to nations as well and when they can’t pay we the tax payers have to eat it. 22 trillion in debt and counting. In case you wonder who owns and controls the money global money supply it’s those who you can’t ever criticize or you’ll get told your anti Semitic. A good read would be “the creature at jekell island”as it gives a back ground on how the fed reserve was establish and what its true purpose is.

You can only have as much $$ as you do gold and silver. That wouldnt make you as rich as you could be.

it has problems when the rich hoard their gold. the money supply goes down, economy in permanent stagflation = depression is the norm. it could make sense when human is the most effective producer in pre-industrial societies. no-reserve computer digit bit banking makes most sense when the real producer is automated machinery bcuz the real worker (machine) doesnt even want money. some economy clip said that out of the total productivity of the US 96% is done half to full automatically and 160 million ppl showing up to work counts as 4%. the real worker hasnt been human for a long time. its just that machine productivity is a thousand fold compared to human. and with gold, forget investment in the real producer which is technological productivity. they ditched a metal for something much more valuable = technological progress and the bits dont even need to be real bcuz the worker runs on electricity. gold might have worked when the invention of technology was done in sheds but now its done in a lab with computers and is simply not possible without investments and risk capital. so adopting a gold standard now probably means going back to the horse and cart.

pink toes nah bruh wtf they don’t hold their money in a vault they hold it in deposits in a bank which then makes credit with it

@@DaddyAZTL Wealth is determined by the amount of monetary units. Wealth is determined by the amount of demanded goods & services you have. Money is divisible. There's no benefit to inflating the money supply. It's only a detriment

@pink toes Natual deflation is good. It encourages savings. Saving is good. It frees up land, labor, & capital to be used by demanded ventures through sound lending. You deter consumption today for future production, & thereby more consumption. This stupid idea that nobody would spend has no evidence or logic behind it. People need to spend on necessities. Would you not buy a new game just because it's price will go down in the future? What's the point of money if you never spend it? Each person is at a different point in their lives. The old want to spend the savings they've accumulated over the years, while the youth are encouraged to save. There's still a continuous circular flow of the currency. Necessities are prioritized. This is good. Let's say, for the sake of argument, that nobody ever spent, what do ypu think that does? It hurts business, they're forced to raise prices to have any chance of surviving, & it creates shortages. This encourages people to spend. Even in the most extreme unrealistic scenario it's self correcting. Cheap credit misallocates resources to undemanded/lesser demanded ventures, increases the present consumption & acquisition of goods, distorts our time preference, creates a dependency on continuous overvaluations, & distorts price signals (because of relative price stickiness, unequal velocity within different sectors, & circular demand within scarce demanded goods [assets]). Speculation increases as lesser educated consumers spend & borrow. They have not went through the thorough process of elimination that normally happens in the free market. When these malinvestments inevitably must end & the spigots of cheap credit are cut, a _'deflationary death spiral'_ must ensue. You *have to* allow resources to be freed up, consumption to be detered, & then properly allocate them to where they're demanded. If not, attempting to correct malinvestments within the system will crash the economy. Market set interest rates & a scarce divisible currency naturally fix this. Banks & borrowers must compete for scarce savings. Through interest rates, these funds are allocated to demanded ventures. In direct proportion to how demanded they are & how much consumption is detered through saving. Since there's no inflationary effects, our time preference of consumption & production is balanced, thereby allowing projects to reach their full potential. Artificially cheap inflationary credit interferes with needed corrections & exacerbates structural issues. We need to raise rates, default, & let the market properly restructure. Building up our productive capacity is the only way to viably get demanded goods & services. There's no shortcut.

Dr. Murphy is a good specialist in the subject:)

*@EconClips* yes, especially since he used to support fractional-reserve banking and now supports full-reserve (i.e. he’s well-informed on both sides) and has done debates and written on the issue many times. Plus he’s an affable guy and I find his style of communication both written and verbal to be very clear - he’s good at using plain English to explain complex technical matters. I also like the fact that on this issue and many others he’s very good about not straw-manning other peoples positions or ridiculing them. He seems like a genuinely good person that also happens to be very well-informed in various economic matters.

Free banking team? :)

EconClips Yes. I know that there is some kind of split between Austrian economists on this specific subject. Rothbard and Mises are against FR. I would like to have a decent discussion about this.

Mises wasn't against FR. He writes about it in Human Action - "Indirect exchange" chapter. Especially in the 12 section "The Limitation on the Issuance of Fiduciary Media". We will surely make a video about free banking, but it will take us some time.

EconClips perfect. I was mistaken about Mises. I've read one Mises quote where he explained how banks deposits aren't real loans(economically speaking). I was mistakenly lead to believe he was against FR.

EconClips would you mind making a video about the economic calculation problem? Socialists nowadays claim to have solved the problem

Most of the world is anything but wealthy... fractional reserve banking is parasitic and so is the fiat system.

Wait until the system falls apart because of it.

​@@jjenson2006 It's always falling apart, every now and then everything breaks and countries get closer to starvation and war. It's called economic cycles, and they're caused primirily by this fraudulent fractionary reserve banking.

what gives these private banks the right to create currency? this is helping to maintain the concentration of power with the few elite.

@@popo-lr8gm gold standard.

@@johnathanvale8634 that's irrelevant

Name the purpose then dipsh*t. It's only detrimental to productivity & purchasing power.

Literally just saw this after we wrapped up our conversation today. Too funny.

@@christianldove the bot

Cheap credit misallocates resources to undemanded/lesser demanded ventures, increases the present consumption & acquisition of goods, distorts our time preference, creates a dependency on continuous overvaluations, & distorts price signals (because of relative price stickiness, unequal velocity within different sectors, & circular demand within scarce demanded goods [assets]). Speculation increases as lesser educated consumers spend & borrow. They have not went through the thorough process of elimination that normally happens in the free market. When these malinvestments inevitably must end & the spigots of cheap credit are cut, a _'deflationary death spiral'_ must ensue. You *have to* allow resources to be freed up, consumption to be detered, & then properly allocate them to where they're demanded. If not, attempting to correct malinvestments within the system will crash the economy. Market set interest rates & a scarce divisible currency naturally fix this. Banks & borrowers must compete for scarce savings. Through interest rates, these funds are allocated to demanded ventures. In direct proportion to how demanded they are & how much consumption is detered through saving. Since there's no inflationary effects, our time preference of consumption & production is balanced, thereby allowing projects to reach their full potential. Artificially cheap inflationary credit interferes with needed corrections & exacerbates structural issues. We need to raise rates, default, & let the market properly restructure. Building up our productive capacity is the only way to viably get demanded goods & services. There's no shortcut.

Expanding the money supply inherently hinders productivity.

@@austinbyrd4164 not all loans are malinvestments. If the commercial bank lends short-term, they are coordinating the fact that checking account depositors want final goods in the short-term, not long-term. So, you have to look at the quality of the loans, are those loans bringing final goods on the short or long-term?

You're stupid & have no counter arguments. Willing to destroy you in a debate if you want.

Give an argument. Oh wait, you have none.

My argument is that the central banking system is a cancerous usurious international cartel that snatched away the sovereignty of freemen all throughout the world. It’s inherently inflationary. It’s slavery. It’s a deceitful slave inducing usurious money practice that does nothing but inflate our currency, decease the buying power of our currency, and at the end of the day steals away everything we own

If you want a lesson on reality let me know.

@@Vjl5280 oh, nvm lol, your comment gave the initial impression that you supported the fed & fractional reserve banking. I'm against it.