FRACTIONAL RESERVE BANKING, WHY YOU ARE ALWAYS THE CREDITOR
The easiest way is to explain Fractional Reserve Banking is the creation of money thru lending. As you know at T.H.O.R., we like to break words down. So that is what we are going to do. Reserves are (your) deposits and any other “real assets” the bank holds. Reserves are the actual value of the bank. The Fraction comes in when lending. Banks are allowed to lend a Fraction of their Reserves. They can lend a part of the bank’s deposits, let’s use ½. So Ted deposits $1000.00 in his bank (Bank A). Bill goes to Bank A and gets a loan for $500.00, because Bank A is allowed to lend ½ of its reserves. Bill deposits the $500.00 loan in Bank B. Ted still has the $1000.00 on deposit and Bill now has $500.00 on deposit. Bank B lends ½ of the $500.00 deposit to Sue, $250.00. She now deposits that amount in Bank C. Bank A created $500.00. Bank B created $250.00. The banks, via lending have now created $750.00 in new money. So that is money creation through lending in its simplest fashion.
It’s gets more complicated when you see that Bank B and Bank C are now using “created” money or “debt” as their reserves,this is how Banks consider “debt” as an asset. Banks that over extend or over leverage themselves with a lopsided ratio between deposits and loans generally are the ones that run into trouble. In our above example the bank had to keep half of the deposit on reserve to cover the loan in case of default. The system is now so far out of whack where it lends $10.00 for every $1.00 it has in reserves. This is over leverage. If most of the banks loans fall into default, there is only $1.00 of reserves to cover $10.00 worth of defaulted loans. Also, most of the reserves are in actuality not money, but money created by debt.Now you see that if Sue defaults on her loan, it affects Bank B and Bank A, because the only real money is Ted’s $1000.00 deposit.
The other part of this equation is the part you play as a borrower. If you see the bank is only using $1.00 of its reserves to lend $10.00, what creates the other $9.00? The answer is simple, a signature. In particular, your signature makes up the $9.00 of credit. Every loan, credit card, loan agreement, or promissory note, has only one signature on it, yours. The bank or credit entity never signs the document. So ask yourself this question. If the banks or credit entities had lent you something, wouldn’t they want to sign the agreement to secure that something? You are always the creditor and Banks charge you interest on the credit you created. They take a fee to assist you in the creation of that credit, but you are the creditor. They would not have a business without you.
As you hopefully can see the world of credit and debt drive the Financial World and its economies. It gets even more complicated when you see the picture clearly, you see you created Credit for yourself, and a “debt” for the bank to use as reserves (always remember the banks books are the opposite of yours) to use to create credit for somebody else. Always remember, you are the CREDITOR, the bank is just the middleman used to facilitate the transaction. You are the energy, and they would not exist without you.
I know it sounds like I don’t believe in banks, but that could not be further from the truth. I believe we need Banks, and we need credit and debt, as well as a safe place to store our money. They do provide a service, and should be compensated for that service. That’s just business. The problem I have is when Banks get greedy. It’s not enough for them to lend, but they start to lend irresponsibly. The problem comes in when they create more debt than they can cover in an effort to generate more revenue for themselves. When they over leverage, over extend, or lend irresponsibly, you again enter the equation. They gamble with your deposits, your credit, and your energy. This is where you, The Man, or The Woman comes in to save the day through bailouts, bail-ins, confiscation and transfer of wealth. The Bankers and Wall Street gamble and when they lose, you lose. It is your credit and wealth that is used to cover their bets and it is simply because you are the only CREDITOR.
This blog in not so much that you understand the system, it is much more complicated as we will explore in later posts. The first step is that you understand you place in the system. You are the center, and without you it all falls down, or stops completely. This is your mind shift moment. All this time you were under the impression that you didn’t have any power over the system, it’s time for you to understand that you are the very power the entire system runs on. You are the CREDITOR!
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