Yes, it is called the well known multiplier effect. It's not some conspiratorial scheme.
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.
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.
The “multiplier effect” is the essence of fractional reserve banking. It is not a “conspiracy” as if it was secret, for it is the subject of many textbooks and an entire regulatory bureaucracy! But that does not make it any less than it really is: a scheme that functions by structuring multiple claims on the same single dollar of deposits.
Just because government allows it, regulates it and licenses it, doesn’t change that simple fact. It is not “apples and oranges” different in effect, operation or risk to the real owner of the money than when a bookkeeper takes from the till on Tuesday for her own personal use because she knows the money won’t be needed by the real owner for the payroll on Friday. Everything runs fine as long as the bookkeeper makes sure that the money she takes is returned before someone else expects to use it. But what if she suddenly falls seriously ill and cannot return the money? The other claim on it cannot be fulfilled and her fraud will be discovered.
If you think there is a difference, the only one is one of legality, for government allows the bank to do this with “demand deposits” (deposits which can be demanded at any moment), yet calls it a crime when the bookkeeper does the same exact thing.
Oh, the system works pretty well, and I said so, but the point is: the system is based on the expectation that nothing will happen in society or the economy to cause too many people from demanding their money back at the same time. Nothing prevents that from happening, especially in an exigent circumstance, say another broad-scale 9/11 attack.
The reason for citing Roosevelt was to show that this is not just pure speculation. It has happened within the memory of some people who are still alive.
Yes, I wrote that the Fed can print money and that there is no lender of last resort for the Fed. I suggest that you carefully, and slowly think your criticism through. If the Fed prints too much money, it becomes worthless, for it is just paper money. Should the Fed attempt to deal with a run on the banks by printing more money, it **cannot create any more wealth**. More money but no more wealth is the exact description of inflation. People who fear inflation tend to not hold their wealth in cash. The use of Fractional Reserve Banking amplifies the effects of a widespread cash withdrawal, causing your favored “multiplier effect” to operate in reverse. That is to say, to multiply the contraction in the money supply, causing a recession, or even worse.
There is no greater central reserve to prop up the value of a highly inflated dollar. The US can bail out Mexico, which it did in my lifetime. Mexico cannot bail out the US. For that matter, the World Bank could not bail out the Federal Reserve simply because US dollars supplied by the Fed are the bulk of the World Bank’s reserves. Should the dollar collapse, it will take the World Bank along with it.