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The fractional-reserve fraud
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What's another $500 billion between friends?
Senate Banking Committee Chairman Christopher Dodd is moving to allow the Federal Deposit Insurance Corp. to temporarily borrow as much as $500 billion from the Treasury Department.
Unless the Treasury has half a trillion dollars in gold lying around in its vaults (hint: it doesn't), it doesn't have the means to lend the FDIC this money. So my question is, why not make it a cool trillion? Or 10 trillion? Heck, maybe the Treasury can just mint an actual gazillion-dollar note!
The reason the FDIC is seeking this extra "insurance" is because banks only keep a few cents (a fraction) on every dollar in their reserves in the first place; the rest is loaned out by the banks or invested elsewhere in financial markets.
This constitutes fraud. If you pay for a happy meal, you expect to get a burger, fries, and soft drink; if you're only given half a bag of fries, you've been defrauded.
As Murray Rothbard remarked, fractional-reserve banking is "a giant Ponzi scheme in which a few people can redeem their deposits only because most depositors do not follow suit."
As soon as the majority of depositors realize their deposits are backed by little more than the government's empty promises, we will see the return of the bank run. And there's no amount of fiat paper that will save the banks then.
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