Fractional v Transactional Banking

 Guest Post by Martin Armstrong

shell-game

A lot of people are now jumping on board to claim the problem is fractional banking and the creation of money is private that somehow is wrong and it should be handed to government. Money has ALWAYS been private for it is an agreement between two people to exchange whatever for some common item everyone else agrees to accept. That has been sea shells to gold. It has always been the people who decide. Even paper currency cannot circulate without the consent of the people.

Fractional banking has been around for hundreds of years. So why is it only now that this is the great evil? The answer is simply – it is a diversion and not the problem. Fractional banking is taking $1 in deposits and lending it out many times. The new rage is to tout this as the creation of money by banks. Yet banks cannot create this type of money to pay their bills or taxes because it is not really creating money out of thin air – it is merely leverage.

Being dispassionate always leads to the answer. If fractional banking was the problem, then why do banks have well over $2 trillion parked at the Fed in EXCESS RESERVES? That means, they could lend that money out multiple times and leverage it into even $10 trillion. So why are they not lending?

Glass-Steagall Signing-Repeal

Welcome to the dawn of TRANSACTIONAL BANKING. If there is anything that I would be assassinated for it is trying to refocus the public attention to this new development that is post-1991. Robert Rubin of Goldman Sachs sold the idea of TRANSACTIONAL BANKING would make the banks stronger for they would generate the loans, but then package them and sell them to someone else – i.e. 2007. This was the pitch to repeal Glass Steagall in 1999. If the banks didn’t have these loans on their books then they would not have the risk when the business cycle turned down. That meant the END OF FRACTIONAL BANKING.

The banks would rather trade with your money (repeal of the Volcker Rule) than lend money out to create jobs (Fractional Banking). So while they have no problem if the people as in Iceland demand that the credit decisions be handed to government, for from their perspective, they do not give a shit. This is now about trading not lending.

Of course the small regional banks will be wiped out in this manner. The big banks that profit from proprietary trading are the ones behind this disinformation. End fractional banking and you will not solve any problems and are more likely than not going to make it much worse. If we do not deal with the real issue, the wrongful repeal of Glass-Steagall, then we are only going to make the future darker and not more secure.

J.P. Morgan Chase wants to charge fees to keep money in your account. They have become traders, first and foremost. Open your eyes and pick up the rug. That is where the dirt hides.

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m111ark
m111ark

Another one bites the dust so scratch MA from the list of people who get it. Hence his words mean nothing anymore… just another shill for the banksters.

m111ark
m111ark
acjitsu
acjitsu

@m111ark: Yup, he’s either clueless or a shill. FRB is the root cause of all problems. Although he’s an interesting guy who’s cycle work happens to be spot on.

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