Trust the Banks with Your Money

Far from being a simple medium of exchange money has evolved into a form of social control. Wherever people are unable to grow their own food, or barter something in order to get food, they are likely to use some form of money to buy what they need in order to survive. For many people in large cities there's a strong element of coercion behind the drive for to get paid employment in order to survive.

Bankers, Soldiers, Politicians, and Priests work together as a team

[1] I don't suggest that the above comment from a Lawrence R Spencer poem should be taken seriously, but it is a perceptive thought that directs our attention to the network of people working in white collar organisations that either exploit people or suck taxes from them. His observation should make us wonder whether a world without 'the team' might be a more pleasant place than the world we currently have.

Money as Credit

Actually the money that we try to create and use to buy things doesn't really exist in terms of real wealth. It's largely a credit based system that depends on everyone turning up for work and using 'money' or credit in exchange for food and the other things that they need.

Most people probably know that the banks that deal with the public borrow money from others with the agreement that when they want their money back it will be available. What their may not know is that much of the deposited money that people save in banks is tied up in long-term commercial lending contracts, various types of bonds, and house loans to individuals. They may also not know much about fractional reserve limits.

Fractional Reserve Limit

A lot of ordinary people could lose their bank savings!

There are restrictions on what banks are allowed by law to do. For example, the amount of money that banks can lend to their customers varies from country to country but is decided by each country's Fractional Reserve requirement. If a country has, say a 10% fractional reserve requirement then the local banks can lend quite large sums of money to borrowers, but must retain 10% of the total amount as a cash reserve.

Are Bank Saving Safe?

Normally money held in bank is reasonably safe, but in the case of a fractional reserve limit of say 10%, if bank depositors decided to withdraw their savings all at the same time, or over a very short time, there will only be 10% of total depositor's funds available for payment. That is far less than is required to repay the depositors all their savings money!

So if banks become stressed, as they have at various times in the past when the people who borrowed bank money were unable to repay what they had agreed to repay, then a lot of people are likely to want to withdraw their savings but will find that have very restricted access to their money!

[1]Acknowledgement: Lawrence R Spencer

james9spot James

'Fractional Reserve Banking'.

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