How the Fractional Reserve Banking System Works

How the Fractional Reserve Banking System Works

The U.S uses a special system to make their money called the Fractional Reserve Banking system. This system is responsible for the creation of the money in the U.S. The cycle begins with the U.S. government asking the FED to make some money. In exchange for the money, the government gives the FED the amount of money's worth in treasury bonds. Then they give the money that was created to the banks. For this system to work there must be at least 10% of all the money in the bank at all time. The rest of the money goes to loans for people that need them. When a person gets a loan they always need to pay it back with interest, so it goes from being the governments debt, to the the banks debt, now to your debt. In this system money equals debt. 

When the banks run out of money to loan, the government gets the FED to print them more money in exchange of treasury bonds. The new money gets its value from the current money that was already in circulation. This causes a devaluation of the money better known as inflation. The more money there is, the more inflation there is, and the more debt there is. The debt will never be paid because the there is more debt than there is actual money. The amount of real money in the U.S. is only 3%. The other 97% is a bunch of numbers in a computer. If this system is not improved then the U.S. dollar will become like the money in Germany after the great war; it will be worth nothing. 

Work Cited

- Unknown, unknown. Fractional Reserve Banking System. N.d. Photograph. n.p. Web. 4 Apr 2014. <http://cynic.me/wp-content/uploads/2012/05/Fractional-reserve-banking-infographic-HORIZONTAL.png>.&s=web&p=1