Chapter 80 1. The Fractional Reserve System: The Source of Inflation

The (modern) bank was inherently unjust, it was born with sin.The bankers own the earth.Deprive them of everything, but leave them with the power to create savings that they can create enough savings to redeem what they have lost, simply by the stroke of a pen.But if they are deprived of the power to create savings, all fortunes of wealth will disappear, including my own, and they (the power to create savings) should disappear, because it will lead to a happier and better world.But if you are willing to continue to be slaves to the bankers and pay for your enslavement, let them continue to create savings.Josiah.Sir Stamp, Governor of the Bank of England, second richest person in the UK

The earliest goldsmith bankers provided a pure gold coin deposit business. When depositors handed over gold coins to the banker, the banker provided receipts in a standard format. These receipts were bank notes, and the derivatives of these gold coins gradually became social transactions The medium is called currency. At this time, the bank is under the full reserve fund system, and it can convert bank notes into gold coins at any time.Its main income is the custody fee paid by depositors. Over time, the clever goldsmith banker found that usually only a few depositors came to ask for bank notes to be exchanged for gold coins. Seeing the gold in the gold cellar lying there sleeping, the banker couldn't help but start to feel itchy. How can he be active? What about these sleeping assets?

There are always some people in the society who are in urgent need of money, so the banker tells them that they can go to the bank to borrow money, as long as they repay the principal within the specified time limit and pay some interest.When a borrower comes to the bank, the banker uses the method of issuing more receipts, issuing additional bank notes to carry out the loan and collect interest.As long as the additional issuance is not too excessive, it will generally not arouse the suspicion of depositors.Long-term experience shows that it is safe to issue more bank notes, such as ten times.Since loan interest income is a windfall that comes out of nothing, of course the more the better, so bankers began to attract depositors everywhere. In order to attract people, they began to pay interest on the deposit and custody business that was originally charged.

When a goldsmith banker engaged in gold coin storage started lending business, he actually provided two completely different service products to the original depositors, the first was pure gold coin deposit, and the second was investment savings.The essential difference between the two lies in the ownership of gold coins.In the first case, the depositor has absolute ownership of the gold coins deposited with the banker, and the banker must promise that the depositor can exchange the receipt for gold coins at any time.The second is that the depositor loses the ownership of the gold coins stored for a period of time, and the banker conducts risky investment. After the investment is recovered, the depositor can regain the ownership.

The bank notes corresponding to the first type of gold coin deposit are facts and are full reserves, while the bank notes corresponding to the second type of investment savings are IOUs + promises. The number of bank notes issued is more than the actual amount of gold coins owned by the bank. partial reserve.And this kind of IOU + promised bank note is inherently risky and inflationary, which makes this kind of bank note very unsuitable as a medium of exchange for social products and services. Fractional reserve systems have an inherent impulse to blur the line between the two banking service products.Bankers promoted standardization in the design of bank notes, making it difficult for ordinary people to distinguish the essential differences between the two bank notes. For hundreds of years, the Anglo-Saxon countries have caused a lot of legal proceedings.When angry depositors sued bankers for lending what depositors believed to be escrow gold coins without permission, bankers claimed they had the right to dispose of depositors' gold coins.The most famous of these is the case of Frey v. Hill and others in 1848:

When money (of a depositor) is deposited in a bank, it ceases to belong to the depositor at all; at this point, the money belongs to the banker, who is obliged to return the corresponding amount of money when the depositor demands it.The money deposited in the bank and managed by the banker is, in all senses and connotations, the banker's money, which he has the right to do with.He is under no obligation to answer to the depositor whether the money is in jeopardy, whether he is speculating harmfully, he is under no obligation to preserve and treat it as other people's property; bound by the contract.

Under the Anglo-American legal system, the judgment of the British judge undoubtedly became an important turning point in financial history. The depositors’ hard-earned money deposited in the bank suddenly lost legal protection, which seriously violated citizens’ property rights.After that, the banks in the Anglo-Saxon countries completely refused to recognize the legitimacy of deposit custody, the full reserve fund lost its legal status, and all savings became venture capital.Legally established the monopoly of the fractional reserve system. During the Battle of Waterloo in 1815, the Rothschild family bank learned the outcome of the war 24 hours earlier than the official British time difference, thus mastering the British treasury market in one fell swoop and controlling the currency issuance of the British Empire. Shortly thereafter, He successively controlled the currency issuance of France, Austria, Prussia, Italy and other countries, and held the pricing power of the world gold market for nearly two hundred years.The banking networks established by Rothschild, Schaefer, Warburg and other Jewish banking families in various countries actually formed the earliest international financial system and world settlement center. Only by joining their settlement network, can checks from other banks be transnational Circulation, they gradually formed a cartel of bankers.The banking standards of these families have become the international practice of the financial industry in the world today.

The banking cartel was the most important driver of fractional reserve requirements and its biggest beneficiary.When the power of such financial special interest groups reaches a considerable scale, they will inevitably support and even directly establish political and judicial rules of the game that are most beneficial to themselves. In 1913, when the international banking cartel finally succeeded in establishing the model of the fractional reserve system in the United States, the Federal Reserve, the currency of the full reserve system was gradually driven out by inferior currencies in the competition.The silver certificates and gold certificates issued by the U.S. government at that time were the survivors of the full reserve system. Behind the two banknotes, there were 100% real gold and silver from the U.S. government as collateral, and one ounce of gold and silver corresponded to the Even if all the debts of the banking system were repaid at the same time, there would still be a full reserve of gold and silver dollars circulating in the market, and the economy would still be able to develop, just as it was before the Fed existed in 1913.

Since 1913, the Fed’s low-quality U.S. dollars with partial reserves have gradually driven out the real gold, silver, and high-quality U.S. dollars with full reserves in the market. International bankers want to create a partial reserve system that monopolizes the modern financial world. The government was completely kicked out of the currency world, so they pulled out all the stops to demonize gold and silver, and finally succeeded in abolishing the silver dollar in the 1960s, and cutting off gold and silver in 1971. The final link of the dollar, henceforth, the fractional reserve system has finally completed its monopoly.