The True Definition of Inflation/The Federal Reserve System

A subject I have become quite passionate about is the Federal Reserve System and how the system has devalued the American people's currency since 1913.

I have noticed this has become quite the controversial subject of late with cryptocurrency skyrocketing to the front of mainstream media and commonly discussed subjects.

To understand how our dollars are devalued we must understand fractional reserve banking.

From the Federal Reserve's own website:
https://www.federalreserve.gov/monetarypolicy/reservereq.htm

Notice the reserve requirements - for amounts over $122.3 million banks only need to hold 10% at a given time.

What does this mean?

This means that if you or I hold say $10,000 in Chase bank for example, the bank can lend/invest anywhere from 90% - 100% of those funds out (depending on how much total the banks truly have on deposit).

We know loans are provided every day, so imagine the following scenario (although unrealistic).

Alice holds $10,000 at Circle Bank. Only $100,000 are in circulation in the economy.

Alice is Circle banks only customer, therefore Circle Bank only has $10,000 on deposit.

Per fractional reserve lending and the table above, Circle Bank can lend 100% of Alice's money out.

Bob takes a loan for $9,000 from Circle Bank.

Now, understand that Alice is still entitled to $10,000 - so where does the $9,000 come from?

Circle bank creates the $9,000 OUT OF NOTHING and gives it to Bob. (I understand this is an extreme scenario but please bear with me).

Now:

Alice has 10,000 at Circle Bank.
Bob has 9,000 at Circle Bank.

This seems mad, yes? This happens every day, many times over and over.

For this example, we assumed that only $100,000 circulates in the economy. Now, we have $109,000 circulating in the economy.

By the true definition of inflation (increase in the money supply) inflation just rose by 9% from a single loan taken out.

Imagine this on a much larger scale and one can understand how the Fed believing in 2% inflation is nonsense.

I am only scratching the surface on this subject but I hope this brief example provides some insights on what I believe is truly one of the most insidious open secrets in our society today.

Cryptocurrency is a potential solution to this problem - to be able to implement a currency where one central authority does not have the power to arbitrarily expand or contract the money supply is a necessary step in the direction of true economic freedom.

That ability can be granted of course, but only at the will of the people and via consensus.