Borrowing from Peter to Pay Paul: The Wall Street Ponzi Scheme Called Fractional Reserve Banking

Bernie Madoff showed us how it was done, but his Ponzi scheme was small compared to one that has been perpetrated for hundreds of years by the banking system itself. What distinguishes the legal scheme known as “fractional reserve” lending from the illegal schemes of Madoff and his ilk is that the bankers’ scheme is protected by government charter and backstopped with government funds. The sheer size of the bailout efforts today, however, indicates that the banking scheme has reached its mathematical limits and needs to be superseded by something more sustainable.

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37 Responses

  1. Some years ago I read that when the gold standard was rescinded in the 1930s, the literal labor of the U.S. taxpayer was substituted as collateral.
    So. This some trillions being bandied about to the wealthy will show up on our backs soon enough.

  2. tensordyne –

    Jump over to Steve Keen’s and read his papers on endogenous money creation. You can set up the equation systems on a spreadsheet. The money flows are a 5 equation system of first order ordinary differential equations. The variables considered are the firm loan, the firm deposit, the bank deposit, the household deposit and the bank unlent reserves.

    Until you do some simulations, you can just go around in circles trying to define the money flows. With these simulations, you can vary initial conditions to reflect realistic economic conditions.

    Steve Keen’s Debtwatch

  3. Rather than just econometric mathematical ideas, and projections a far more advanced approach would be to have direct electronic data of the economy via identified transmissions of money in the economy as understood in my evolving project of TRANSFINANCIAL ECONOMICS.

    With such data it would be possible to know exactly as far as is possible the amount of new money to be injected, or rather transmitted into the economy without fear of any serious inflation.

    See the basics of TFE by clicking on my name to get to grips with the ABC of this subject..

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