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Fractional-Reserve Banking is Pure Fraud, Part III
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Fractional-Reserve Banking is Pure Fraud, Part III
Written by Jeff Nielson (CLICK FOR ORIGINAL)
In Part I , readers were presented with the inherent criminality and fraud of the crime-euphemism known as “fractional-reserve banking.” In Part II , readers saw how the banking crime syndicate has exploited the opportunities that this institutionalized fraud presents and turned our entire financial system into a teetering Ponzi scheme about to suffer its final collapse.
Yet despite the inherent criminality of fractional-reserve fraud and the overwhelming evidence of the economic carnage that it has produced, there are still legions of Apologists who will argue to their dying breath that we need all of this institutionalized fraud and the inevitable boom/bust-collapses it produces. These sycophants and zealots have been brainwashed with the economic mythology, produced by the banksters themselves, that such institutionalized fraud is somehow necessary for a healthy economy.
This will be the subject of Part III. First we will explore the implications of this mythology and expose its absurdity. Then readers will be presented with a model of economic sanity in order to compare and contrast the difference between the paradigm of economic fraud created by the Big Bank crime syndicate and true “economic health.”
It is tempting to equate fractional-reserve fraud with being “a financial system on steroids.” The one similarity is obvious: it is a form of cheating to obtain a result that the Cheater could not obtain via any legitimate means. However, there is one, crucial difference between a person using/abusing steroids and fractional-reserve fraud.
With the steroid-user, it is not a certainty that the user will suffer some catastrophic adverse outcome. There is merely a high probability of such an outcome. With fractional-reserve fraud, as with all Ponzi schemes, the probability of catastrophic implosion is a 100% certainty. We opt to have a juiced-up economy today at the cost of a guaranteed financial Armageddon for our children (or grandchildren).
This one reality alone totally negates any possible legitimacy for fractional-reserve fraud. No sane society would ever doom its children or grandchildren to such a fate simply to “have more” for itself today. Rather, we have been deluded into believing (like the chumps of all Ponzi schemes) that this extreme fraud can somehow continue forever.
However, we do not need to focus solely on the approaching Armageddon to disprove the mythology that fractional-reserve fraud helps our economies more than it hurts them. To do this, we need merely look at what the banking crime syndicate does with all of the funny money that they are allowed to conjure out of thin air.
For readers who require a reminder: our present system of fractional-reserve fraud supposedly limits the fraud-ratio of these banks to “merely” somewhere between 16:1 and 24:1. Unofficially (as explained in Part II), fractional-reserve fraud has become no-reserve fraud. The Big Banks can practice virtually infinite “leverage” (i.e., fraud), and thus potentially conjure virtually infinite amounts of funny money. The magnitude of this fraud will become fully apparent in the concluding installment of this series.
With infinite amounts of their own funny money to play with, what do the banksters do with their gigantic mountains of virtual paper? They either “lend it” (lending what does not exist), or they gamble with it. That’s it. We allow a financial crime syndicate to manufacture near-infinite amounts of worthless funny money (every penny of which goes into their own vaults), and with all this funny money, they only do two things: gamble and lend.
Here we have enormous mountains of empirical evidence to show what has been produced from near-infinite lending and gambling. From the near-infinite lending we have acquired near-infinite debt, and thus (as a product of arithmetic) near-infinite interest payments on that debt: i.e., Debt Slavery.
Want historical proof that fractional-reserve fraud always ends in financial Armageddon? It’s called “Debt Jubilee”: 2,000+ years of empirical evidence showing that whenever we allow these parasite-bankers to perpetrate their fractional-reserve fraud, it results first in enslaving the population in parasitic debt, and then in Jubilee, as the Slaves rise up and demand their freedom from the Parasites.
The global economy is now drowning in at least $200 trillion in official debt (and much more unofficial debt), while generating total GDP of less than one-third of that amount. It is no longer a question of “if” the global economy (and particularly the West) implodes/defaults on that debt, it is only a question of when. Again, no sane society could ever believe that it “needs” to be placed on a financial treadmill of fraud, which carries it to only one possible destination: Debt Slavery, and then repudiation of that debt as the economy collapses in debt-default.
However, this is only one side of the insanity of fractional-reserve fraud and has been covered in many previous commentaries. The other half of the inevitable insanity is the gambling. Here the empirical evidence is far more overwhelming.
Freed from the slightest constraints of legitimacy, how much gambling have the banksters done via their fractional-reserve fraud? Here we only need to look at one category of their gambling – the largest. This is what the banking crime syndicate calls “the derivatives market.”
The derivatives market is a totally illegal bookmaking operation, which the banking crime syndicate operates without any (effectual) outside supervision/regulation. Once again, the banksters were granted legal immunity to pursue this crime, as the laws that were previously in place to prevent such gambling (for nearly a hundred years) were torn up to allow the Big Banks to gamble even more rapaciously than they lend.
How much illegal gambling?
While the lending operations of the Big Bank crime syndicate total roughly three times the global GDP, their mountains of illegal gambling exceed twenty times the size of the global economy. The Big Bank’s bets on the global economy exceed the size of that economy by a 20:1 margin – at least.
We no longer even have access to precise statistics on this illegal casino of fraud. When the “derivatives market” had already swollen to a cesspool of gambling that exceeded $1 quadrillion ($1,000 trillion), the crime syndicate simply changed its “definition” of this casino. Overnight, the derivatives market officially shrank by roughly 50%. This illegal casino is now also cloaked in secrecy.
We need this? How?
Again, as with the unsustainable mountains of debt, even the Perpetrators themselves know that their casino of fraud is yet another terminal Ponzi scheme. Indeed, we already saw this market completely implode in 2011, when the government of Greece defaulted on $300 billion of bond debts.
Those debts were all (supposedly) “insured” via the Big Bank’s credit-default swaps: default insurance. The heavily-leveraged payouts on that $300 billion of bad debt would have totaled in the many trillions of dollars, completely vaporizing the Big Bank crime syndicate, which carries virtually zero collateral to “back” this supposed insurance.
How did the banksters avoid their own, complete annihilation in 2011? They simply refused to pay out on their credit default contracts. The “House” refuses to pay when it loses. How many times can they get away with such overt fraud before their illegal casino simply collapses due to a collapse in confidence?
This is the world we have reaped from listening to the bankers and allowing them to map out the course of our economies. We have ridiculously unsustainable mountains of debts, which must end in Debt Jubilee. We have ridiculously unsustainable mountains of bets, which can only end in an even larger and more catastrophic implosion.
Is financial/economic suicide our only option in choosing an “optimal” economic system? Obviously this is what the banking crime syndicate wants us to believe, and it has drowned us in propaganda that asserts such insanity. It is equally obvious, however, that we can do better than suicide.
How do you improve upon a system that is hopelessly and obviously unsustainable? The question could not be more elementary. We create a sustainable system . We “create” what we used to have before these financial snake oil salesmen deluded us into believing they could give us something better.
What did we have before we had the bankers’ unlimited fractional-reserve fraud? We had a gold standard: honest money, and thus an honest and sustainable financial system. Why was it abandoned? Because this financial crime syndicate did everything in its power to undermine our previous monetary system.
They deliberately created financial “shocks” to the system, as frequently and severely as possible, to attempt to frighten/bully us into abandoning our honest money system. It worked. But here it must be noted that no matter how much the banking crime syndicate schemed against the previous (honest) system, the “problems” produced by such sabotage were microscopic in comparison to the carnage they have created since we abandoned the gold standard.
Under a gold standard, the “Golden Handcuffs” function to prevent both the excessive money-printing produced by fractional-reserve fraud and the extreme debt-levels (Debt Slavery) of our governments. Indeed, a true gold standard is totally incompatible with fractional-reserve “banking.” With a proper gold standard, if a bank wants to “lend” capital, that capital must actually exist. What a concept!
To say that the bankers’ “cure” (fractional-reserve fraud and fiat currencies) was worse than the “disease” (their sabotage of the gold standard) is one of history’s greatest understatements. With our gold standard, our economies never came close to being bankrupted. Our “money” was real money, which preserved its value, not the worthless paper confetti produced by fractional-reserve fraud.
The previous problems that our governments encountered in administering the gold standard were never “proof” that the gold standard was flawed. Instead, such “problems” were conclusive evidence that this Big Bank crime syndicate (which readers know as “the One Bank”) had already grown much too large and much too powerful.
We do need a gold standard. We do need honest, sustainable economies. What we don’t need, and have never needed, and could never need, are Big Banks. If this was not already totally apparent to those reading this series, it will become apparent in Part IV. In the conclusion of series, we will see the ultimate insanity of today’s fractional-reserve “banking”: literally infinite financial fraud.
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Fractional-Reserve Banking is Pure Fraud, Part III
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If Putin is serious about defeating the Rothschild hegemon, he ought to consider setting up an "Assassination Pool", a fund the people of the world could contribute to anonymously for the purpose of hiring assassins to hunt down these jackals.
Putin could even give the assassins immunity in Russia. https://en.wikipedia.org/wiki/Jim_Bell
Sneaky backroom BS is how we got here. We should walk in or out thru the front door. Cuz we aint slimeballs.
At first it was suprizing to me that the big boys dont post much on this topic. Turns out they dont because? lol. They are busy dancing around it.
That tells me we should have the debate without them. After all they got nothing to bring but a pile of BS. lol
Dear ZH this should be a front page topic before ww3 starts.
Yes fractional reserve banking was fraud. The thing is, FRB is no longer applicable. Banks simply do not lend on reserves - they lend on confidence and the reserves are sought afterwards in multilateral settlement.
The erroneous belief in the money multiplier theory propagated by economic textbooks has I believe led to many of our current economic problems. It assumes that the central bank controls the quantity of money. This is simply not the case. Private banks control the quantity of money in the economy by lending money into existence. LOANS CREATE DEPOSITS. The Bank of England explains this here..
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/...
The central bank as lender of last resort has no option but to supply reserves should a bank not be able to borrow them on the interbank market. Failure to do so could result in collapse of the banking system.
So Banks are NOT RESERVE CONSTRAINED. It's much worse - they lend based on perceived credit worthiness of people. There is also a huge moral hazard given the knowledge that they will be bailed out by the public and won't face any criminal charge.
As for capital asset ratios (which we use in the UK ) they are a weak tool in regulating bank lending. Here is a good video by the campaign group positive money explaining why. Well worth a watch..
http://positivemoney.org/how-money-works/banking-101-video-course/how-mu...
As for gold. I'm not in favour of that at all, it causes even greater constraints on money than government today through their erroneous beliefs. The wealth is still centred on a chosen few and it would create a real scarcity of money rather than the artificial constraints we have today.
The Most democratic form of money I can think in history of is that of lincoln's greenbacks. This was non-debt based money issued by the govt and circulated around the economy. Understandably the banks were up in arms because it took away their great power. Of course the banks won in the end.
Non-debt-based money could be issued by our central bank or govt tomorrow and would act as a real economic catalyst. It only has to be exercised to create full employment. Studies have shown this type of funding to be non-inflationary. Here is one such study..
http://positivemoney.org/2015/11/can-public-money-creation-work-some-ans...
The other advantage with this type of money is that it doesn't disappear out of the Economy when loans are repaid.
This incredible power held by the banking sector has caused massive hardship and human suffering. It's time to take the power back.
As VWA and LoP (many times) assert, a gold standard is NOT the answer.
Are Sprott and Nielsen unaware that the very concept of banking- and soon after fractional reserve banking- originated with the goldsmiths? I doubt it.
That said, I can't name a system that can't be gamed. As long as humans exhibit the very human trait of desiring more material goods than they can produce for consumption/trade, there will be fraud.
OTOH, I'll bet that the considerable intellect of the collective voluntarily assembled here at fight club could develop some sort of system of exchange that's based on productivity instead of usury.
Can't be worse than what we've got.
P.S.: Bitcoin is way too fragile to fill this bill. Sorry, coinheads ;)
"creating" infinite virtual currency really isn't a problem until you absolute need to come up with infinite assets of real value.
That goes right to the meat of it dont it. The banks credit is no good. The farmers/producers credit on the other hand is.
the vietnam war was financed by money printng not backed by gold under a gold standard
A gold standard still has some problems. We need to look at the coin from every point of view. Set aside all the dogmatic crap. A great debate needs to take place. How should a monetary system work and how to keep it working on a honest basis. A coin that does not need force is a great start. I want more. A coin with a measurable value is going to be way more stable. An energy backed coin gives every one of us the ability to spot any trickery as soon as it happens. Thats the real trick. The actual buying power of the coin is the part that matters most. Sorry boys and girls a gold standard wont secure a stable coin value without force.
"How should a monetary system work and how to keep it working on a honest basis."
Ding, we have a winner.....
You answered your own question.
Like Jeffereson and Madison, you have to assume DISHONESTY is the norm. As such, you use GOLD and SILVER only. No paper certificates, no 'gold backing', none of that shit.
Physical gold and silver ony.
If you depend on the state or bankers to do anything honest, you get what we have today.
Squid
The thing about gold and silver is savers hoarding up the metals influence on the values of all other things. The amount of coin does need to be expandable to match actual real production/population. Sorry exponenetns are a bitch and multi generational wealth stored in gold and silver screw it up. Thats part of why they end up goin fiat the scarcity of coin to trade with.
Thanks for the nice post Squid.
The only thing that needs to be done to fix the currency problem is to remove the monopoly "governments" maintain on creating it. The market will fix the rest.
Governments can't create money, they can only create currency and forbid the use of true money. That is the issue.
Agreed. The force aspect needs to be addressed and the sooner the better.
A coin issued by producers backed by their actual production would seem to me to be a more balanced system. Simply because of the competition between the various producers. This might also result in products that get better over time.
"Banking" is pure fraud, period. We do not need "banks"; they are tools of plunder.
Smooth a silk since 1913, the time and energy of The People has been plundered, served up by c.ress.
Look back over banking history of the last 200-300 years and you'll find collapses of banks and currency from over-printing of their gold backed reserve. In our brave new world they have gotten rid of the gold base, which allows them to do any damned anything want. They have gone well beyond anything that has come before and the implosion will take the entire world down this time.......
Fractional reserve banking is illegal conversion of assets: a crime. We either have rule of law or we don't. I know which society I would like to live in. Allowing fraud in the money system is the worst form of treason. We do not need check kiting on the national scale - we need honesty. When the government colludes with the criminal banking system to commit fraud, they set an example which percolates down through society, contaminating everything it touches. And since money is involved in every economic transaction, that means it contaminates everything. Once that contamination begins, that society is condemned to rot.
Fishhawk
Unfortunately re your first sentence it isnt true at law - courts dont consider it conversion because there was no bailment, only a promise to return with interest on demand.
Nope. Fractional reserve banking in itself is not fraud. What is fraud is when there are no reservers and it is still called "fractional RESERVE banking." When they can lever 25-1, and that "1" consists of re-hypothecated sub-prime mortgage debt instruments its not really fractional reserve banking. Four or five to one leverage with gold backing and the rest in honestly-marked investments that one can trade for gold in a pinch is fractional reserve banking that could work. If you can't diagnose the real problem, you are not going to find the real solution. Anyone interested in doing that www.amazon.com/dp/B00B0GACAQ
They dont lever on securitized debt - the frac reserve is having 1 dollar cash on book for every 9 created as debt money by the act of lending.
The reserve can not be accounts receivable, they have to have cash on hand. Not sure what you mean apologies if misunderstanding
And government absolutely should be creating the public currency without interest attached. Does not need to be backed if you have a government that can avoid printing excessively. Of course the constitution doesnt take this for granted and mandates the use of gold and silver only by the states.
Oddly, the constitution mentions the fed coining but not printing paper and certainly not fiat. Given the structure of the constitution this means doing so is unlawful.
The federal reserve act of 1913 gave the issuing power to private banks ultimately owned by Jewish European banking dynasties - of course the fed REFUSES to be audited and REFUSES to divulge ownership of the 12 banks' shares.
This is unequivocally not constitutional irrespective of what the scotus declared. They can claim 2+2 =5, too.
Right now a concerted legal effort to void the fra might work.
Heritage and Mises ought to swing the bat. Force the government to resume creating money as it is supposed to, the economists be damned.
When hillary gets in she will have 2 appointments and will appoint batshit crazy leftists to 'interpret' awaythe plain meaning of unambiguous text.
When you deposit money it is fraud depending on how the transaction is defined.
Money is fungible. If you want a bank to literally keep your actual dollars, a bailment, get a deposit box. Otherwise you are not defrauded unless and until you can not get the equivalent value back.
But - because the average person has no idea that the bank never has nearly the funds to cover anyone they are party to an agreement they do not understand. But there is no fraud typically unless and until there is actual harm.
Without harm, there is no fraud, only inchoate fraud so far as i know.
This said it is sure dishonest and the law *should* recognize the system as a fraud upon the public or the class of all depositiors, rather.
Thats interesting actually - has anyone sued for fraud on a class action basis? One might say a single depositor has not been harmed and his deposit not in danger not divulged by the bank BUT the class of depositors have maybe, anyway, a better argument that even if their deposits ate construed by the courts as a promise to return money on demand and not a bailment (odc since no depositor agreed to these terms and ** the contracts clause** arguably precludes the govt, including the judiciary, from meddling in contracts - ANYONE HAVE THOUGHTS ON THAT IT JUST OCCURRED TO ME))... But the *class* of all the banks depositors could not possibly get a full return of their money which violates the 'promise to repay' - the caselaw on inchoate harm should not allow the bank to continue to put the depositors funds in danger merely because they are betting on no bank run.
They promise to repay on demand and yet for the class of all depositors their business practice makes this impossible meaning fraud on the contract created when I deposited my cash.
Its fraud. They just dont call it that.
Further I agree with the posters that say we should get government force out of the money business, except to enforce contracts as to the weight and purity of whatever is used for money. When government issues their own money, they invariably attempt to default on their obligation to back it, and when government is a party to such a contract, where do you go when they break it?
Excellent series, Jeff. Keep it up.
Like the pic.
Thanks, it's how I plan on feeding my catfish farm after the fall.