Tuesday, January 3, 2023



Joe has an old leather wallet in his pocket. It has enough notes to buy a new wallet of a better model than the one I saw in a magazine. This purchasing power is specific to him, who alone can use those bills to buy something. Similarly, if he transfers them to someone else, only this other person will own their purchasing power instead.

However, although the person transferring his banknote can always transfer what is under their control, it may not be transferred with their entire property, which is not just his. The bill, as much as it is without their purchasing power, is not theirs alone. For example, they have no right to create or destroy: they are public. Either he or he who controls such notes has purchasing power, hence private ownership.

Indeed, having always only personally owned his banknotes, he could sell them independently of his purchasing power, which he could not represent. However, selling them this way will at least temporarily prevent them from using the same bill to buy anything. Then, recognizing their lost purchasing power as a monetary value for which they must represent it, one can conclude:

All financial values must be personal.

All representations of this must be public or non-public.

Yet, if not, who else can sell, buy, create or destroy its equivalent bank notes? This question should be insignificant if he has the bills instead of their monetary value. However, since the purchasing power of each bill may change when people sell, buy, create or destroy such bills, the same question becomes important. In fact, part of the answer is that commercial banks now sell most of what they create in the money supply, a process called fractional-reserve banking.

Commercial Commission

According to the Federal Reserve Bank of Chicago, [1] fractional-reserve banking originated from:

Then, bankers found that they could make loans to borrowers promising to pay them, or with bank notes. This is how banks start making money.

Bankers were also required, but - and still required - to have sufficient money to meet expected withdrawals, at any given time: "sufficient metallic money to be kept on hand, regardless of the amount of the ticket" paid to redeem it.

Hence the name "fractional-reserve banking": commercial banks must hold as a reserve a fraction of the deposited money - which legally (since 1971) is no longer "metallic money" but simply a public loan - to meet withdrawal requirements. "Under current regulations, the requirement for most business accounts is 10%."

In the fractional-reserve banking system on which much of today's international economy depends, commercial banks make money by lending it, so in the form of a personal loan.

Transaction deposits are the modern equivalent of bank notes. It was a short step from printing notes to creating book entries that accumulated borrowers' deposits, which borrowers could "spend" by writing checks, thereby "printing" their own money.

For example, when a commercial bank accepts a new deposit of $10,000.00, 10% of this new deposit becomes the bank's reserve to lend up to $9,000.00 (90% with savings) to the account, without taking back the money borrowed from the source, at interest. Similarly, if that maximum $9,000.00 loan occurs and the borrower deposits it into another account, either at the same bank or not, 10% of that is reserved for loans up to $8,100.00 at the next bank (now 90% in excess stock). As usual, even if the money is not withdrawn from the source account, the bank charges interest on the loan. This process can continue indefinitely, adding $90,000.00 to the money supply, valued only as loans received from their borrowers: after countless repeated loans of 90% fractions from the $10,000.00 original deposit, that same deposit will eventually return to itself. 10% becomes the reserve totaling $100,000.00. [2]

Thus in each phase of expansion, "money" can increase by a total of 10 times the amount of new reserves supplied to the banking system, as new deposits created by credit in each phase exceed and add to those created in all previous phases. For deposits provided. Creates an initial reserve.

Yet how can credit alone create new money? How can a loan reverse its outstanding balance? Something else has to happen here besides just debt. What else is going on in the entire commercial banking system? First, there is a deposit. Then, up to a fraction (90%) of this deposit is loaned on interest, which the bank never recovers from the source account. Finally, the borrower can transfer the loan to another account in the same or another bank. Suddenly, trillion-dollar

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