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Fractional Reserve Banking



New section added to this page. This page will describe the fractional reserve banking system, and explain why our monetary system, and our entire modern society, are 100% dependent on ongoing economic growth.

Many people today do not understand this. And among even those who do have some understanding, it seems that very few are aware of how deep and far-reaching are its implications.

Basically, it works like this:

Fractional Reserve Banking – Step 1.

The banks create new money in the form of debt.

Imagine that you are given a car loan, or home mortgage. Before you took out the loan, generally this money did not “exist” in the ordinary sense (that is, in the way you would naturally imagine it, without thinking about it in detail). That is, it didn’t come from anybody else’s bank account or wallet—it’s not like somebody else originally deposited this money into the bank and then the bank lent it to you.

Only a very small part of the money did once belong to someone in real life. This is the basis of the term fractional reserve. Typically, something like 1/10th of your loan may exist in actual deposits that the bank has in its coffers (or, actually, as numbers in its account records).

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