If I have 100 ounces of silver, and you want to borrow it because you need it and can't find a better deal anywhere else, and I'm willing to lend it for a fee, then you can pay me back over time the 100 ounces, plus 5 ounces if that is what we agreed on. There is nothing wrong with this. It is not unreasonable for you to pay interest to me, or me to you if I borrow. I'm being paid for curtailing the use of my savings for a time. But if you go to the bank, and the banker has issued paper promises to pay in gold and silver coin beyond his ability to cover them, then he has promised what he cannot deliver. He has lied to the portion of the population that would be unable to redeem its claims were there a sudden desire of the people to return their paper and get their gold back. A lie in business is fraud. Don't forget, it is their gold, not the bank's. The bank is merely holding it. But why does the bank lie to a portion of the population this way? Because there is money in it for the banker. He can charge interest on money lent that people believe exists, that does not. This is illicit interest. The lending for interest what does not exist. It leads to the eventual wrecking of the economy because once the process gets started, it is hard to stop. And though it feels good for a time, it cannot go on forever. And when it stops, people lose homes, and go hungry.
My suggestion to force lenders to lend the gold and silver coin will ensure that only that which is lent, is that which they have. When they have lent all the gold and silver coin allowable by the depositors' time deposits, the lending will stop until more time deposits are received. This will allow the the economy itself to control lending, and prevent the banker from overlending using paper. Paper can still pass from hand to hand, and can perhaps be lent between non-bank parties. But if a debt is to be paid it must be paid in gold or silver coin, and if a debt is to be created at a bank the principal amount must be delivered to the borrower in the form of gold and silver coin.
Thanks. As I understand your point, fractional reserve banking defrauds immediately - a Ponzi scheme.
I am a partial gold bug, and sound money advocate, but I see a problem with a purely gold coin standard. Since there is only so much gold, and the yearly increase from mines is fairly small, where does the extra money come from to pay the interest? If you agree to pay a 5% return on borrowed mney, then where does the extra 5% of gold coins needed for this interest come from?