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The basic issue with Fractional Reserve Banking is that it is based on being able to create multiple claims upon every dollar held in reserve.

There is no doubt the scheme also depends on the law of averages, such that, on average enough dollars are held so that even unusually high demands for dollars in the form of cash can be dealt with. With the bottomless Central Bank (in this case the Federal Reserve) running the printing presses in a support role, the bank cannot “run out” of cash as long as it has sufficient other assets such as performing bank loans, bonds, etc.

However, for a person who wants to be strictly honest, the scheme, when it works in conjunction with other fractional reserve banks, does in fact create money out of thin air, out of nothing, because, at its core, it is lending out the same money multiple times. It is, a “money factory”.

In another context, say that of a bookkeeper for a small business who decides to use the company money for personal use for a few days because it won’t be needed for the payroll until the end of the week, it would be a crime, a form of fraud or theft.

This would all be academic or philosophical except that sometimes shocks occur to the system and the bank is prevented from performing and being able to really honor all demands the account holders place on it to redeem their accounts. It is only a matter of time before only a limited number of claims on the same dollar of deposit can be honored. We really found this out when Roosevelt closed the banks for a “holiday”, to stop withdrawal demands.

If the Federal Reserve ever announces that it will “guarantee liquidity”, which it did during the 9/11 crisis when Wall Street was prevented from functioning due, it is saying that the door is open to any amount of dollars that any financial institution thinks it needs to meet the demands of business to continue to function.

But there is no lender of last resort for the US Federal Reserve.

While I regard the dollar a generally safe (except from deliberate inflation), I would not make the serious mistake of confusing money in the form of paper dollars with wealth. I would also make sure I had at least a little of my wealth in the form of gold bullion coins. Their liquidity is never in question. And I would not keep them in a “safe deposit box”, a place that might be distinctly unsafe during a crisis. Roosevelt issued an order during his bank holiday that all safe deposit boxes could only be opened in the presence of an IRS agent.

Yes, it is called the well known multiplier effect. It's not some conspiratorial scheme.

It would be fraud simply because the bookeeper isn't a bank. You're comparing apples and oranges, and trying to imply there is something morally wrong with banks because they aren't regulated as bookeepers.

We really found this out when Roosevelt closed the banks for a “holiday”, to stop withdrawal demands.

You act as if that happened yesterday. How many bank runs have we had since then? Perhaps the system works better than you think.

But there is no lender of last resort for the US Federal Reserve.

A few paragraphs above you said the Fed is bottomless with a printing press. Put 2 and 2 together.

I would also make sure I had at least a little of my wealth in the form of gold bullion coins. Their liquidity is never in question.

Unless they are chunks of lead made to look like gold.

Thank you Buckwheat, for you clear understanding of the system. Rather than get sidetracked by the waste of time of debating minute details with Todd, I would rather just remind everyone that it's the system itself that is the problem, not the individual statistics.

Despite apologists to the contrary, the system is, in and of itself, unjust as it gives unfair advandtage to the banking business over any other enterprise. There is no "expert", versed in the structure of the global financial system, who would deny that central banks work in concert with privately owned banks to make the process of money creation a profitable business. Rather than being a neutral measure of economic activity, currency yeilds profits to banking institutions through the process which creates it. That profit opportunity stems from the debt based nature of money.

While banks enjoy a virtual monopoly on money creation, allowing them to exponentially increase the over-all supply, government also enjoys a blank check as it's reward for giving that power to banks.

Here is an interesting perspective, from a book called "The Grip of Death, by Michael Rowbotham:

" For example, every country in the world suffers from a massive and constantly increasing national debt. Britain has a national debt that is fast approaching £400 billion. Canada's debt has reached $560 billion and Germany's now exceeds 500 billion deutschmarks. So are these poor countries? No more so than Japan with a debt equivalent to two trillion dollars or America with a national debt now in excess of five trillion dollars. Since the poorer nations are crippled by their indebtedness to international lending institutions and foreign banks, the overall picture is of a world suffering acute and ever worsening insolvency.

But this is really quite illogical and absurd... The question almost asks itself. If all the nations of the world are in debt, who are they in debt to? Rationally, where there is a debtor, there should be someone else who is a creditor. If every nation is in debt, who, precisely, owes whom? In addition to the logical absurdity of all nations being simultaneously insolvent, such escalating national debts are a complete contradiction of the real and obvious wealth of these nations. This is underlined by the fact that the nations which run the largest national debts are those with the most advanced economies. What can we say to the developing nations struggling under the burden of their debt, nations who have copied our economic institutions and aspire to a life free from poverty? 'Work hard, and one day your debt will be as small as America's - a mere five trillion dollars!"

Or this from Stephen Zarlenga, of the American Monetary Institute:

Monetary realities usually affect the citizen’s daily life far more than the Congress, President, or Supreme Court. AMI’s research shows that a main arena of human struggle has been over the monetary control of societies. This control is exercised through monetary theory - in obscure doctrines about the nature of money. If it had to be summarized in one sentence it is that by mis-defining the nature of money, special interests have often been able to control a society’s monetary system, and in turn, the society itself. Describing how this has been done historically, makes these concepts clear and vital and sweeps aside the mystification in which money has been purposely shrouded.