RE: The Mathematics of Fractional Reserve Banking
@complexring Nice analysis. One thing to note about modern banking is that they don't use the money multiplier effect. I know it's taught in all the econ departments in all the schools and even Austrian economists I follow describe the money multiplier effect, but that's not how banks operate. They just create money ex-nihilo. Here is the Bank of England Quarterly Bulletin: Money Creation in the Modern Economy. Yes commercial banking is corrupt and a monopoly, but the money creation process banks use actually make sense. They just create loans from asset collateral (mainly real estate) and use these loans as monetary assets for commerce. It's actually the same as how Bitshares & Steem dollars work. Instead of real estate collateral, Bitshares uses BTS and Steem Dollars use Steem. I do agree banks are monopolistic, the Federal Reserve system is unnecessary and QE is harmful, but I've come to accept money creation via loans on assets as a good way to create monetary liquidity. Took me a decade of study on and off and banging my head against a wall trying to get to the bottom of the Federal Reserve and the money system. For most of that time I considered the whole system a conspiracy and a fraud especially after reading the legal theory of deposit contracts in Jesus Huerta de Soto's book Money, Bank Credit, and Economic Cycles ... I have since changed my perspective. Anyways the Federal Reserve and modern banking is really an esoteric subject. Intentionally so it seems.
@complexring From the title of this post I assumed that you indeed thought "the whole system a conspiracy and a fraud". How would you describe the banking system now that would conflict with that?
My understanding of it basically follows the 'Money as Debt' video below.
The dollar as debt instrument is a hard concept to understand at first
Well, certain countries don't use fractional reserve banking. The UK is one. You'll note that I gave a list of countries that don't have a reserve requirement. Only when a reserve requirement is needed, does the money multiplier effect come into play. Actually, with no reserve requirement, the money multiplier effect is infinite, which is effectively the same as creating money ex nihilo.