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Frackin Reserve The Mechanics of Fractional Reserve
Banking (1/6)
The issue which has swept down the centuries and which will have to be f ought sooner or later is the
people versus the banks. Lord Acton
I published Frackin Reserve, a f ractional reserve banking simulator (desktop version here, web version
here), with the promise to f ollow-up with another article explaining it. Af ter hitting 5,000 words, I realized
that I needed to do a series.
Part 1 explains the basic mechanics of f ractional reserve banking in very simple terms with examples. Part 2
answers "What is Money?" f or the purposes of the discussion. Part 3 illustrates how and why f ractional
reserve banking is f raudulent. Part 4 shows how the system can f all apart, and 2 attacks that the banksters
can use to steal wealth f rom people. Part 5 examines usury and compound interest as f orms of invisible
slavery. Part 6 is a quick summary with links to other resources. Each part builds on the previous, so it is
strongly recommended to read through in order. Even if you have a solid understanding of f ractional
reserve banking, there are a f ew new twists that I add to the traditional understanding of it that could be
missed.
The 3 Factors in Fractional Reserve Banking
While f ractional reserve banking mechanics are surprisingly simple, the implications of the system are not.
Mechanically, f ractional reserve banking depends on 3 f actors:
Initial deposit: The amount of the initial deposit
Reserve requirement: The f ractional reserve requirement (also called "reserve requirement", "cash
reserve requirement", or "reserve ratio") is a number between 0 and 1
Iterations: The number of times that money is deposited or cycled through the system
The initial deposit into the f ractional reserve banking system comes f rom the government when they issue
bonds and deliver them to the bank. These bonds are I.O.U.s f rom the government as a promise to pay the
amount of the bond back with interest.
The reserve requirement is a number between 0 and 1, and sets the ratio of the amount of money that they
bank can "print" to loan out. For example, if the reserve requirement is 0.1 (10%), and the bank receives
$100 in government bonds, then the bank can loan out $100 (1 0.1) = $100 0.9 = $90.
So the basic mathematics of the system are extremely simple. Stated in general:
Loan = Deposit ( 1 Reserve Requirement )
e.g. $90 = $100 ( 1 0.1 )
Or, in terms of what the bank must keep in reserves, i.e. the amount of money that it cannot loan out:
Reserve = Deposit Reserve Requirement
e.g. $10 = $100 0.1
But it doesnt stop there. Once a loan is made, the person that receives the loaned money goes out and
spends it to obtain some f orm of wealth in the real world. That could be a house, a car, a guitar, groceries,
a meal at a restaurant, or anything that can be purchased. The seller of the product or service then takes
that money, goes back to the bank, and deposits it. That deposit is then subject to the same reserve
requirement with the remainder being made available f or the bank to loan out again.
The Fractional Reserve Banking Cycle
Breaking the whole thing down into a simple ordered list, f ractional reserve banking f ollows this pattern:
1. The government issues bonds to the bank.
2. The bank loans out 90% of the money.
3. The borrower spends the money.
4. The seller deposits the money into the bank.
5. Go to 2 where the bank then lends out the money again.
Step 1 kick-starts the system the same way that you would kick-start a motorcycle. The government can
always inject more money into the system, but everytime it does, it starts this f ractional reserve banking
process over again with that money.
Step 2 is where the "magic" of f ractional reserve banking happens. The legal requirement to keep only a
small portion of a deposit gives the bank the "right" to print money out of nothing. This is explained in detail
in Part 3.
Step 5 is nothing more than running through steps 2~4 again f or the entire cycle to start over again. This is
the second "magic" of f ractional reserve banking because it creates a an iterative f eedback loop f or money
to multiply itself . Aristotle called the process of money multiplying itself "the most unnatural".
For money was intended to be used in exchange, but not to increase at interest. And this term
interest, which means the birth of money from money, is applied to the breeding of money
because the offspring resembles the parent. Wherefore of all modes of getting wealth this is the
most unnatural. Aristotle
While he was speaking of interest, and not f ractional reserve banking, the principle "the birth of money
f rom money" is still the same.
If you view the banks keeping a reserve as an independent step in the process, then the cycle looks like
this:
The people spend and deposit, while the bank loans out the money, less the reserve requirement.
The f ollowing graphic illustrates the process of f ractional reserve banking as described above. (Click to
zoom.)
Putting that into a table so that you can visualize it dif f erently:
Iteration # Deposited = Reserves + Available to Lend
Bank
Lends to
1. Adam 1,000.00 = 100.00 + 900.00 Anne
2. Brian 900.00 = 90.00 + 810.00 Brenda
3. Chris 810.00 = 81.00 + 729.00 Cathy
4. David 729.00 = 72.90 + 656.10 Dale
And the cycle continues
Fractional Reserve Banking Limits
As the cycle continues, the amount of money that the bank has loaned out approaches a limit:
Loans = ( Initial Deposit Reserve Requirement ) Initial Deposit
$9,000 = ( $1,000
0.1 ) $1,000 = $10,000 $1,000
Also, the total amount of money that people have deposited into the bank approaches a limit (this is
f ormally called the "money multiplier"):
Deposits = ( Initial Deposit Reserve Requirment )
$10,000 =
( $1,000
0.1 )
And, the amount of money that the bank holds in reserve approaches a limit:
Reserves = Initial Deposit
$1,000 = $1,000
The f ollowing table illustrates how this happens over many iterations in the f ractional reserve banking
system:
Iteration # Deposited
Held
in Reserve Loan from Deposit Loans Reserves Deposits
1 1,000.00 100.00 900.00 0.00 100.00 1,000.00
2 900.00 90.00 810.00 900.00 190.00 1,900.00
3 810.00 81.00 729.00 1,710.00 271.00 2,710.00
4 729.00 72.90 656.10 2,439.00 343.90 3,439.00
And a little while later (87% there)
19 150.09 15.01 135.09 7,649.15 864.91 8,649.15
20 135.09 13.51 121.58 7,784.23 878.42 8,784.23
Closer towards those limits (97.5% there)
34 30.90 3.09 27.81 8,721.87 972.19 9,721.87
35 27.81 2.78 25.03 8,749.68 974.97 9,749.68
36 25.03 2.50 22.53 8,774.72 977.47 9,774.72
And closer towards those limits
115 0.01 0.00 0.01 8,999.95 999.99 9,999.95
116 0.01 0.00 0.00 8,999.95 1,000.00 9,999.95
And we hit those limits!
137 0.00 0.00 0.00 8,999.99 1,000.00 9,999.99
138 0.00 0.00 0.00 9,000.00 1,000.00 10,000.00
2 decimal places displayed accurate to 28 decimal places
The examples above all use a 0.1 (10%) reserve requirement, but dif f erent countries can have dif f erent
reserve requirements.
Looking at some of the equations above again:
Loans = ( Initial Deposit Reserve Requirment ) Initial Deposit
Deposits = ( Initial Deposit Reserve Requirment )
The second equation there is f ormally called the "money multiplier". As the reserve requirement approaches
zero, "Deposits" approaches inf inity. Heres a graph that shows reserve requirements f rom 0.1 up to 1:
Notice that as the reserve requirement becomes lower, the amount of money that a deposit can generate
becomes higher and higher.
And remembering back to what the "Reserve Requirement" is:
A number between 0 and 1.
What happens when the reserve requirement is zero? Any idiot can tell you that you cannot divide by zero.
Dividing by zero results in an inf inity, which is absurd (f or mathematical purposes like this). You just cannot
do it.
Those who can make you believe absurdities, can make you commit atrocities. Voltaire
You cannot divide by zero Unless you live in Canada, Australia, New Zealand, or Sweden where the
reserve requirements are all ZERO! Apparently the Canucks, Ozzies, Kiwis, and Swedes have all f orgotten
about this little thing we call sanity. (Hmmm Perhaps that explains me)
Frackin Reserve only allows very low values f or reserve requirements because no computer can process "1
0".
The Speed of Fractional Reserve Banking
The last thing to mention about f ractional reserve banking mechanics is that it only happens when money is
deposited into a bank. That is if I buy a guitar pedal f rom Adam f or $100, and he uses that money to buy
$100 of marijuana f rom Brian, who buys $100 of raw milk f rom Chris, the f ractional reserve system never
comes into play, and the banks cannot f abricate any money out of thin air.
HOWEVER If all money is made digital, and all transactions are electronic, such as through NFC (Near
Field Communications) (read my article on "How You Are Being Indoctrinated f or NFC" here), then ALL money
f or ALL transactions goes through the banks and thus through the f ractional reserve banking system. This
accelerates the pace of f ractional reserve banking f ar above the state that it is in now. It is a massive
power transf er to the banks. Is it any wonder the bankster criminals, corrupt politicians, and corporatists
are urging us towards electronic money? (The objection to this is that a money transf er also transf ers
reserve requirements. However, this is quite beside the point when it comes to the digital velocity of
money.)
So that is the mechanics of f ractional reserve banking in a nutshell.
Money is the most important subject intellectual persons can investigate and ref lect upon. It is so important
that our present civilization may collapse unless it is widely understood and its def ects remedied very soon.
Robert H. Hemphill, Federal Reserve Bank of Atlanta
Read Part 2 What is money?
Part 1 The Mechanics of Fractional Reserve Banking
Part 3 How Fractional Reserve Banking Creates Money and Why it is Fraudulent
Part 4 Run on the Banks? Or Run on the People?
Part 5 Compound Interest as Invisible Slavery
Part 6 Summary & Additional Resources
cynic.me http://cynic.me/2012/05/28/frackin-reserve-what-is-money-2-6/
Frackin Reserve What is Money? (2/6)
We have a system called, "money", which is based on money that has never, does not, and will never
exist We have become so divorced f rom the world that we live in, that most people never ask the simple
question, "What is money?" David Icke
For the purpose of discussing f ractional reserve banking, the f ollowing is roughly how we need to answer
the question, "what is money?" There are plenty of perspectives f or a more general answer, but f or
f ractional reserve, we need to choose an appropriate way to view money. The reasons f or this view will
become clear in parts 3, 4 and 5.
Money vs. Wealth
Money is an artif icial thing. It doesnt really exist in reality. You cant go out and f ind "money" anywhere in
the physical, non-artif icial world. That is to say, money doesnt grow on trees. It comes out of the mind and
is a purely artif icial concept. Its only legitimate purpose is to f acilitate trade and commerce, or in the words
of Aristotle, "
Money was intended to be used in exchange."
Wealth on the other hand dif f ers in that you can f ind "wealth" in the natural world. Wealth is something that
you can touch. It has existence on its own with no reliance on the existence of humanity or any "ideas".
Wealth has utility in and of itself , and is not reliant on any external acceptance of it f or it to have utility.
The Free Dictionary def ines money as (source):
1. A medium that can be exchanged f or goods and services and is used as a measure of their values on the
market, including among its f orms a commodity such as gold, an of f icially issued coin or note, or a deposit
in a checking account or other readily liquef iable account.
2. The of f icial currency, coins, and negotiable paper notes issued by a government.
It def ines wealth as (source):
1. a. An abundance of valuable material possessions or resources; riches. / b. The state of being rich;
af f luence.
2. All goods and resources having value in terms of exchange or use.
(I loathe resorting to dictionary def initions, and only point it out as it they are trivial, and trivial inf ormation
of ten goes unnoticed.)
Note that money is def ined up f ront as a "medium", while wealth is def ined as "material". Money is no more
than an abstract representation of wealth.
The Ent ire Value of Planet Eart h
You can imagine how this is true (that money is an abstract representation of wealth) by writing down on a
piece of paper, "The Entire Value of Planet Earth". And there you have all the wealth in the world, well, as
you imagined it to be.
Now, write "The Entire Value of Planet Earth" down on a second piece of paper. You now have twice the
value. Heck, do it again, but write, "10x The Entire Value of Planet Earth". With that third piece of paper, you
now have 12x the value of the entire planet. This is clearly ridiculous. Even if you could redeem that, you
could only redeem the f irst one. You would then have to redeem the others f rom yourself , but how can you
get f rom yourself that which you already own? This illustrates just how silly money can become when it is
"imagined into existence" the way the money f rom f ractional reserve banking "manuf actures" or "breeds"
money. It does not manuf acture wealth. It is only an "idea" that can either be accepted or rejected. My bet is
that if you try to cash that on the rest of the world, it will be rejected.
Money Behaves Like a Voucher
Money is only a conceptual/abstract representation of real wealth. We "use" money by "redeeming" it f or
wealth, much in the same way you would redeem a voucher f or a product or service at a store. Merchants
issue vouchers that are only good when used at their shops. You cannot use a voucher f rom Merchant A to
redeem the same product f rom Merchant B. What does this tell us? Money is only as good as the level of
its acceptance. If nobody accepted money f or their labor, products, or services anymore, all money would
be worthless. Well, except perhaps f or use as toilet paper
Hopef ully that clears up the dif f erence between the "idea" of money and physical "wealth".
Paper money eventually returns to its intrinsic value zero. Voltaire
Read Part 3 "How" Fractional Reserve Banking Creates Money and "Why" it is Fraudulent
Part 1 The Mechanics of Fractional Reserve Banking
Part 2 What is Money?
Part 4 Run on the Banks? Or Run on the People?
Part 5 Compound Interest as Invisible Slavery
Part 6 Summary & Additional Resources
cynic.me
http://cynic.me/2012/05/28/frackin-reserve-how-fractional-reserve-banking-creates-money-and-why-it-is-fraudulent-3-6/
Frackin Reserve How Fractional Reserve Banking Creates
Money and Why it is Fraudulent (3/6)
When plunder becomes a way of lif e f or a group of men living together in society, they create f or
themselves in the course of time a legal system that authorizes it and a moral code that glorif ies it.
Frederic Bastiat
In Part 1 we looked at the mechanics of f ractional reserve banking and the mathematics behind it. We also
saw how absurd it could be when trying to divide by zero. Then in part 2 we looked at one perspective of
"what is money" and def ined it in terms of its relationship to wealth.
It is now time to turn out attention to discovering "how" f ractional reserve banking creates money. Once we
understand the "how", we can answer the question, "Why is f ractional reserve banking f raudulent?"
If you recall the basic f ractional reserve banking cycle, it went like this:
Putting that in a table, we can see that the total amount of money that people have very quickly grows f rom
an initial deposit of $1,000 to much, much more.
Depositor Deposited Loans Deposits Borrower
1. Adam 1,000.00 0.00 1,000.00 Anne
2. Brian 900.00 900.00 1,900.00 Brenda
3. Chris 810.00 1,710.00 2,710.00 Cathy
4. David 729.00 2,439.00 3,439.00 Dale
5. Earl 656.10 3,095.10 4,095.10 Edna
6. Frank 590.49 3,685.59 4,685.59 Francine
7. George 531.44 4,217.03 5,217.03 Gwen
8. Harry 478.30 4,695.33 5,695.33 Helen
9. Ian 430.47 5,125.80 6,125.80 Iona
10. Jef f 387.42 5,513.22 6,513.22 Jennif er
By the 35th iteration, the system has reached about 97% of its limit. But where does it come f rom? We
understand the mathematics, but the mathematics are merely a model f or whats actually going on.
To understand where the money appears, we need to walk through the cycle again. The most important
thing to be aware of is the TIMELINE of events.
Adam deposits $1,000. Now, the bank OWES Adam $1,000. And the bank, by law, can give out $900 of
Adams money to Anne. And that is it right there. That is how f ractional reserve banking manuf actures
money in the f orm of debt. That is, it creates money as debt.
When you or I write a check there must be suf f icient f unds in our account to cover that check, but when the
Federal Reserve writes a check, it is creating money. Boston Federal Reserve Bank
Fraudulent Abuse of Money
Looking at this f rom a slightly dif f erent angle, Adam gave the bank his money f or saf e keeping. But, instead
of keeping Adams money saf e, the bank used it. Where the bank was entrusted to protect the money, they
abused it. When you give your children to the baby-sitter to watch over and protect while you go out f or a
quiet dinner, you dont expect the baby-sitter to rape and abuse your children. This is what banksters do.
They rape your money.
This is the f irst way in which f ractional reserve banking is a crime. It is a f raudulent abuse.
The Mainspring Metaphor
So weve seen how as iterations are added in the
f ractional reserve cycle, the money supply expands as
debt.
The behaviour here is very much like a mainspring, that
with each twist becomes tighter and tighter, gaining
energy. Hold the spring in your hand and release it, and
youll likely hurt yourself as it very quickly expends its
stored energy. In f ractional reserve banking, the cycle of a
deposit and loan adds to the energy in the system.
They key concepts to understand here are the energy, and most importantly, the time involved. A slowly
unwinding spring wont rip open your hand. The spring needs to whip open, lightning f ast to make you
scream in pain as you run f or a bandage and drip blood all over the f loor. Similarly, when the f ractional
reserve process quickly "unwinds", pain f ollows. Without understanding how time af f ects f ractional reserve
banking is to miss a great deal of what it is and what it implies.
Float Time
When the bank loans that $900 to Anne, that money "has never, does not, and will never exist". It is a
f iction. Complete f antasy. Imaginary. Heres how that works
There is a time gap between when Adam deposits his money, and the time Adam withdraws his money. This
is called the "f loat time". Heres what it looks like on a timeline:
It is during this period that the bank must loan out $900 of Adams money, and receive back that $900 f rom
the borrower. Heres what happens when Anne comes along to borrow that $900:
Since Anne has borrowed money, she must repay it bef ore Adam can get his money back.
But, Anne buys a guitar f or $900 f rom Brian, who deposits his new $900. Heres what that looks like:
The process continues on and on, with the amounts of money becoming smaller as def ined by the reserve
requirement. However
Notice how the f loat time keeps getting smaller. If we represent the f loat times f rom many iterations, those
f loat times would look like this:
Can we say, "pyramid scheme"?
Fractional Reserve Banking is a Pyramid Scheme
Yes. Fractional reserve banking is a temporal pyramid scheme. (The same basic structure as a Ponzi
scheme.) Temporally, it is f raud. It is f raudulent because the banks are lending out money that does not
belong to them. When you deposit your money in a bank, you f ully expect to be able to withdraw the f ull
amount at any time. You do not expect to wait.
However, this is exactly what happens when there is a "run on the banks". En masse, people withdraw their
money, but the bank doesnt have it because they have given that money away to someone else in the f orm
of a loan. Banks then shut their doors and ref use to return peoples money to them.
A run on the bank is exactly the same thing that happens in a pyramid scheme when the bottom f alls out.
The entire system collapses. They are not dif f erent in any signif icant way. Pyramid schemes collapse
because there arent enough people lef t to buy into the con, and f ractional reserve banking collapses
through a run on the banks because there isnt enough time to manage the con.
This is the second way in which f ractional reserve banking is criminal f raud.
Fractional Reserve Banking vs. Check Kiting
When money is created as debt, the process of f ractional reserve banking very closely resembles check
kiting, where the "f loat time" in check kiting is analogous to the time between a customer depositing and
withdrawing money. Indeed, all f ractionally reserve created debt money can be viewed as "f loat" money.
Floated money is simply money that is duplicated in the system between the time it takes for it to
be deducted from one account and deposited in another account.
In the f irst iteration in the Frackin Reserve examples above, the time between Adam depositing and
withdrawing his initial $1,000 is the "float time". During the f loat time, the bank takes advantage and loans
out $900 of Adams money. This is not signif icantly dif f erent than the way in which a check kiter writes a
check to take advantage of the f loat time. The kiters check is exactly equivalent to a bank loan, i.e. it is
"debt".
In both situations, the bank and kiter are taking advantage of the float time in order to "create"
money. This is "how" fractional reserve banking fraudulently counterfeits money.
Commercial banks create checkbook money whenever they grant a loan, simply by adding new deposit
dollars in accounts on their books in exchange f or a borrowers IOU. Federal Reserve Bank of New York
Part 4 Run on the Banks? Or Run on the People?
Part 1 The Mechanics of Fractional Reserve Banking
Part 2 What is Money?
Part 3 How Fractional Reserve Banking Creates Money and Why it is Fraudulent
Part 5 Compound Interest as Invisible Slavery
Part 6 Summary & Additional Resources
cynic.me http://cynic.me/2012/05/28/frackin-reserve-run-on-the-banks-or-run-on-the-people-4-6/
Frackin Reserve Run on the Banks? Or Run on the People?
(4/6)
Thus, our national circulating medium is now at the mercy of loan transactions of banks, which lend, not
money, but promises to supply money they do not possess. Irving Fisher
In the last part we saw how f loat time was f radulently used in f ractional reserve banking by banksters the
same way that check kiters used to use f loat time, and we also looked at how f loat time builds a temporal
pyramid structure analogous to a traditional pyramid scheme. If you havent already, make certain to read
the previous sections as they are built upon here.
Part 4 examines how a run on the bank works, and how banks "run on the people" to cause recessions and
depressions.
Remember back to the pyramid in float time and the mainspring metaphor. In the mainspring metaphor,
f ractional reserve banking gains energy through interations the same way that a mainspring gains energy
when wound. Conversely, the unwinding of a mainspring releases that energy, and the same holds f or
f ractional reserve banking; when f ractional reserve works in "reverse", it loses energy. That can be
visualized on our temporal pyramid:
In normal operation, the speed at which depositing and lending happens keeps the system more or less
balanced. However, energy can be drawn of f of the system in a f ew dif f erent ways, and if the rate that the
energy builds is less than the released energy, the result is chaos, pandemonium, bedlam, dogs sleeping
with cats, etc., etc.
A Run on the Banks
A run on the bank happens when depositors show up en masse to withdraw their deposits. That is to say,
when the people demand their money f rom the bank. From the Frackin Reserve simulator, we see
something like this:
Iteration # Loans Reserves Deposits
1 0.00 100.00 1,000.00
2 900.00 190.00 1,900.00
3 1,710.00 271.00 2,710.00
4 2,439.00 343.90 3,439.00
5 3,095.10 409.51 4,095.10
6 3,685.59 468.56 4,685.59
7 4,217.03 521.70 5,217.03
8 4,695.33 569.53 5,695.33
9 5,125.80 612.58 6,125.80
10 5,513.22 651.32 6,513.22
The amount of money that the bank has available at any given time is its "Reserves". The amount that it
owes to depositors is "Deposits", and the amount of loans that it has given out is "Loans". Remember that
this is a cycle, so Reserves + Deposits = Loans in the next row. Addition does not work across rows there.
So at iteration 10, if enough people come to the bank to ask f or more than $651.32, then there is a run on
the bank. But at that stage, people have deposited $6,513.22, which is f ar more than the meager reserves
that the bank has. The system relies on people keeping 90%+ of their money in the bank. If people decide
to withdraw more than 10% of their deposits, we have a run on the bank. That number is the same as the
reserve requirement. i.e. 10% = 0.1 in this example.
Keep in mind that a number of European banks were just urged to raise their reserves to 8%.
Going back to the pyramid illustration, the double-ended f loat time arrows alternately represent depositors
and borrowers. The run on the bank happens when the borrowers withdraw their money, so highlighting the
arrow-heads in red where money is withdrawn f rom the system looks like this:
When a run on the bank happens, typically the bank closes its doors, tells people to piss of f , then goes
whining like a little bitch to the government that they have already bought and paid f or. The government in
turn starts wailing about the woes of the economy, blames some BS cause, and turns around and bails out
the banks with billions or trillions of dollars.
Those billions/trillions of dollars come f rom the people through government issued bonds that are to be
repaid through taxes, tarrif f s, duties, and other instruments of government thef t of peoples wealth, labor
and property.
A Run on the People
But thats not the only way that the banksters steal f rom people. They can also induce a "run on the
people". That is to say, when the banks demand/entice money f rom the people. This is a two-pronged
attack by the banks where they accept deposits without loaning them out, and start to call in loans. The
result is a contracted money supply. This results in recessions and depressions, unemployment,
f oreclosures on homes, chaos, pandemonium, bedlam, and dogs sleeping with cats.
Ref erring back to the pyramid illustration, this is where the banksters attack happens:
The red arrow tips show where the bank accepts deposits with no new loans, and the hot pink arrow tips
show where the bank begins calling in loans. Keep in mind that this is just a simple illustration, and while the
reality is somewhat more complex, this is suf f icient to illustrate the basic concept.
With a shortage of money, people are f orced to sell of f assests (real wealth) f or less than the normal
market value because the demand f or money is high, while the relative supply of real wealth is high, i.e. a
glut of wealth on the market, and a scarcity of money (see part 2 f or "Money vs. Wealth"). The banks, who
just so happen to have money, then buy up real assets f or pennies on the dollar.
A typical example is the $500,000 home selling f or $350,000. In Detroit, homes sell f or less than $200 (two
hundred dollars). That wasnt a typo. With a completely random search on "detroit real estate", my f irst
result turns up a 4 bedroom, 2,000 sqf t home selling f or $8,000.
Sorting by price gives results like this (source):
While the problems in Detroit have been caused by more than just
the f ractional reserve banking system, the point should be clear
enough. A house like the f irst one in other parts of the world, e.g.
Melbourne, Australia, can cost between $1~2 million, while Sydney,
Vancouver, and Hong Kong are all still yet more expensive.
Those are 2 ways that the banksters can launch an attack on the
people, but they are also f ar f rom being the complete sum total of
attacks. The banksters have many other ways as well, not the least
of which is usury or interest.
So f ar in this series of articles we have not looked at interest or
the role it plays in banking, other than a quick quote f rom Aristotle
about how unnatural it is. Part 5 looks at usury and compound
interest.
In the current context of f orcing a "run on the people", banks can
raise interest rates. This encourages savings and discourages
loans. Where the attack above describes banks ref using to loan
out money, the raising of interest rates causes people to
voluntarily not borrow money. With a higher rate of savings, and
less money being created as debt and put into circulation, the
money supply, as available, again contracts.
Endless money f orms the sinews of war. Marcus Tullius Cicero
Read Part 5 Compound Interest as Invisible Slavery
Part 1 The Mechanics of Fractional Reserve Banking
Part 2 What is Money?
Part 3 How Fractional Reserve Banking Creates Money and Why it is Fraudulent
Part 4 Run on the Banks? Or Run on the People?
Part 6 Summary & Additional Resources
cynic.me http://cynic.me/2012/05/28/frackin-reserve-compound-interest-as-invisible-slavery-5-6/
Frackin Reserve Compound Interest as Invisible Slavery
(5/6)
But if you want to continue to be slaves of the banks and pay the cost of your own slavery, then let
bankers continue to create money and control credit. Josiah Stamp
In Part 1 we looked at the mechanics of f ractional reserve banking. In Part 2, we looked at money vs. wealth.
Part 3 looked at how and why f ractional reserve banking is f raudulent, and illustrated how it is structured
like a pyramid scheme. Part 4 looked at 2 basic ways in which the system f alls apart, either through a run on
the banks, or the banks f orcing depressions on the people and then stealing their wealth. Here in Part 5, we
look at compound interest and how it is an invisible f orm of slavery.
Compound Interest Mechanics
In addition to simulating f ractional reserve banking, the Frackin Reserve program also illustrates simple and
compound interest. Simple interest is calculated by setting the interest periods to 1, and the compounded
method to "Annually". Setting "Compounded" to any other option shows compounded interest, the f ormula
f or which is:
Where:
Amount = the f inal amount to calculate
Principal = the initial, borrowed principal
Rate = the interest rate as a decimal (not a percentage)
Periods = the number of times to calculate the compounded interest in f or the term (e.g. 12 f or a term of 1
year when compounding monthly, or 365 if compounding daily)
Term = the total length of time f or the loan in years
Interest is an Invention of Satan Thomas Edison
While Thomas Edison may have pioneered douchebaggery, he was at least smart enough to know just how
sinister interest was. And this is another predatory hallmark of f ractional reserve banking.
While a state may issue its own currency at zero interest, banks do not. Rather, they artif icially inf late the
money supply through f ractional reserve banking as illustrated in part 1 and through the Frackin Reserve
programs. The key point to understand here is that states have no reason to operate a f ractional reserve
banking system because they can legitimately print money whenever they wish to (which leads to
hyperinf lation if too much money is printed, e.g. Zimbabwe). Fractional reserve banking is exclusively
for private banks.
In that process, they charge interest on other peoples money, not their own money. That is, when you
deposit money, the bank makes money with it by lending out your money to other people. (And dont f orget
the f ees you pay the bank to take your money, but thats just one more way f or the banksters to prey on
people.)
The f ollowing table illustrates how the banks charge interest on money that they do not own:
Iteration # Deposited Loans Deposits
Interest:
10 years @ 5.0%
CAN NEVER
BE REPAID! Bank Lends to
1. Adam 1,000.00 0.00 1,000.00 0.00 Anne
2. Brian 900.00 900.00 1,900.00 582.31 Brenda
3. Chris 810.00 1,710.00 2,710.00 1,106.39 Cathy
4. David 729.00 2,439.00 3,439.00 1,578.06 Dale
5. Earl 656.10 3,095.10 4,095.10 2,002.56 Edna
6. Frank 590.49 3,685.59 4,685.59 2,384.61 Francine
7. George 531.44 4,217.03 5,217.03 2,728.46 Gwen
8. Harry 478.30 4,695.33 5,695.33 3,037.92 Helen
9. Ian 430.47 5,125.80 6,125.80 3,316.44 Iona
10. Jef f 387.42 5,513.22 6,513.22 3,567.10 Jennif er
If you live in Canada, Australia, New Zealand, or Sweden where there is no reserve requirement at all
(apparently it is possible to divide by zero there), then that table looks like this:
Iteration # Deposited Loans Deposits
Interest:
10 years @ 5.0%
CAN NEVER
BE REPAID! Bank Lends to
1. Adam 1,000.00 0.00 1,000.00 0.00 Anne
2. Brian 1,000.00 1,000.00 2,000.00 647.01 Brenda
3. Chris 1,000.00 2,000.00 3,000.00 1,294.02 Cathy
4. David 1,000.00 3,000.00 4,000.00 1,941.03 Dale
5. Earl 1,000.00 4,000.00 5,000.00 2,588.04 Edna
6. Frank 1,000.00 5,000.00 6,000.00 3,235.05 Francine
7. George 1,000.00 6,000.00 7,000.00 3,882.06 Gwen
8. Harry 1,000.00 7,000.00 8,000.00 4,529.07 Helen
9. Ian 1,000.00 8,000.00 9,000.00 5,176.08 Iona
10. Jef f 1,000.00 9,000.00 10,000.00 5,823.09 Jennif er
Without interest, the f ractional reserve banking can be "rewound" or undone, and eventually everyone can
get their money, as long as it is done in reverse sequence and with enough time f or people to properly
comply. Theoretically that is. In practice, its virtually impossible to unwind as you can borrow money and
deposit money in a matter of seconds, but loans can take many years to repay. (Remember back to the
pyramid structure and "f loat time" f rom part 3.) So while the f irst 10 iterations in the 2 tables above could
happen in less than a week, the repayment of the loans could take years or decades. Remember, the core
problem with a "run on the banks" or a "run on the people" is the time involved, which is a determining f actor
f or interest.
However, with interest, that money cannot be paid back. Ever. Interest ef f ectively prevents "unwinding" the
f ractional reserve banking. The interest is purely imaginary and has no basis in the real world. For it to be
given "reality", real wealth in the real world must be surrendered.
If you take the def ault values in Frackin Reserve, then change the "Interest periods (in years)" value to 15
or 16, you will see that the interest is then greater than the value of all deposits ("What customers think
they have"). A higher iteration value only exacerbates the problem. Going back to the def ault values and
entering an interest rate of 0.08 (8%) similarly eats up all the deposits, with more iterations of the
f ractional reserve system again making the situation worse f or people. Is it any wonder than that banks
love to of f er 30 year mortgages?
Play around with the values in Frackin Reserve, and you will quickly see how compounded interest very
quickly eclipses the value of all deposits in the system. This is f unctionally equivalent to the bank gaining
control of all assets or wealth.
Interest then acts as a vampire, draining wealth f rom the people as a vampire sucks the blood f rom its
victim. It f orces people to labor to produce wealth f or its repayment. Interest is invisible slavery.
The rich rule over the poor, and the borrower is the slave of the lender. Proverbs 22:7
For money was intended to be used in exchange, but not to increase at interest. And this term interest,
which means the birth of money f rom money, is applied to the breeding of money because the of f spring
resembles the parent. Wheref ore of all modes of getting wealth this is the most unnatural. Aristotle
The most powerf ul f orce in the universe is compound interest. Attributed to Albert Einstein
The true insidious nature of interest lies in the f act that it is compounded. If interest were simple in nature,
i.e. at 5% on $100, the total interest being $5, then it would be less insidous, and it would be possible to
reduce debt much more reasonably. However, as interest compounds, it grows ever larger at an ever
increasing rate.
For example:
The interest at 5% interest on $1,000 af ter 1 year of simple interest is $50
The interest at 5% interest on $1,000 af ter 1 year of compound interest is $51.16
The interest at 5% interest on $1,000 af ter 10 years of simple interest is $500
The interest at 5% interest on $1,000 af ter 10 years of compound interest is $647.01
$647.01 is certainly much more than 10$51.16. Its $135.41 more. The compounding and exponential
nature of interest virtually guarantees that the interest alone will eventually engulf and consume the entire
world.
This same exponentially increasing rate of growth isnt realistically possible f or the growth of real wealth
as real wealth relies on human labor f or its production. i.e. If you are a waitress, you can hardly expect that
your wages and tips will grow exponentially over time as compounded interest does. The same goes f or
almost any occupation wages (or productivity) do not increase exponentially. Well, except f or banksters
that is
The question then is whether or not the production of new wealth by people is greater or less than the rate
at which interest accrues, and whether or not at any point in the f uture it is possible f or the rate at which
interest accrues to outstrip the pace of the production of new wealth.
Now, it is possible for productivity to accelerate, however, this acceleration of productivity
invariably leads to price reductions, which implies that no increase in production can ever meet
the exponential growth of interest.
In other words, the law of supply and demand f or real wealth in the marketplace dictates that as the supply
increases, prices drop. The key f actor in increasing supply is productivity. Productivity has skyrocketed
since the advent of the industrial revolution, and has only accelerated in many areas. The consequence is
that prices f or "wealth" drop.
While this does not hold true f or everything, e.g. precious metals and real estate, it holds true f or virtually
all consumer products, e.g. computers and cars. While previous cars were available, Henry Ford rolled the
Model T of f his assembly production lines at the low-low price of $825 at a time when the average
household pulled in about $574 (source), or 144% of the average household annual income. Today a new
car that outperf orms the Model T in every way imaginable can be easily purchased f or under $10,000, with
the Tata Nano costing around $2,000 to $3,000 at a time when the average household income in the US is
around $50,000 per year. There are countless numbers of similar examples where market, workf orce, and
technological productivity have skyrocketed over the last century, and even when looking at just the last
decade. e.g. Compare storage prices per GB or TB in hard drives and f lash NAND memory.
In other words, while peoples productivity may increase linearly, exponentially, or even geometrically, the
prices of the products of their labor do not increase at that rate, and in f act, tend to decrease.
This does not happen in banking. The compounding nature of compound interest guarantees that the price
of money will always accelerate upwards. This stand in stark contrast to virtually all other products and
services in the market where the price comes down.
A Touch of Modern Cynicism
Where all virtually all industries, except f or f inancial industries such as banking and insurance, make
incredible advances in productivity and generate new wealth virtually beyond imagination, the f inance
industries create nothing and add no value. They are purely administrative in nature. They are overhead.
Nothing more.
Rather than actually create any kind of wealth, produce anything of value, or of f er a genuine service, they
opt to simply manipulate the instruments of trade, i.e. money. Through the manipulation of money, and
primarily through compound interest, they ef f ectively swindle the rest of the world into surrendering
everything they have, including their labor, and the promise of f uture labor.
What is the job of the insurance industry? To get money f rom people, and then f igure out ways not to pay
it out.
What is the job of f und managers? To gamble with other peoples money, and pay them back a small
portion of the prof its if they win. And tough luck if the f und managers lose their money. i.e. Let me gamble
with your money and assume no risk, and you pay me f or gambling, and I take a portion of any prof its.
Wow! What a deal! Where do I sign up?
What is the job of f inance in general? To manipulate money in order to swindle people out of their wealth.
It is reasonable to assume that compounding interest will always outstrip the production of new wealth, and
will eventually engulf and consume the entire wealth of the world. Indeed, this is a mathematical certainty.
One need only look at the growth of the f inancial sector to see that it is slowly engulf ing more and more of
the economy. In 2010, the US f inancial sector was responsible f or a third of all prof it among US
corporations (source, source).
Money is a new f orm of slavery, and distinguishable f rom the old simply by the f act that it is impersonal
that there is no human relation between master and slave. Leo Nikolaevich Tolstoy
Read Part 6 Summary & Additional Resources
Part 1 The Mechanics of Fractional Reserve Banking
Part 2 What is Money?
Part 3 How Fractional Reserve Banking Creates Money and Why it is Fraudulent
Part 4 Run on the Banks? Or Run on the People?
Part 5 Compound Interest as Invisible Slavery
cynic.me http://cynic.me/2012/05/28/frackin-reserve-summary-and-additional-resources-6-6/
Frackin Reserve Summary & Additional Resources (6/6)
This series of articles on f ractional reserve banking started with an introduction to the mechanics of
f ractional reserve banking. The important points were:
The simple nature of the mathematics and the f actors involved
The iterative nature of the process as a continuing cycle
The process has mathematical limits, except in Canada, Australia, New Zealand, and Sweden
The limits are drastically af f ected by the reserve requirement
We then looked at one perspective on the dif f erence between money and wealth, and def ined money as an
instrument to f acilitate trade and commerce.
Part 3 accelerated by explaining the exact mechanism by which f ractional reserve banking works, and
exposed it f or the f raud that it is. It illustrated that by taking advantage of f loat time, in the same way as
check kiting, fractional reserve banking is a temporal pyramid scheme.
Part 4 examined ways in which the pyramidal structure of f ractional reserve banking collapses. It explained
how a "run on the banks" collapses the temporal pyramid, and how the banks can use a two-pronged attack
to cause depressions, unemployment, chaos, pandemonium, bedlam, dogs sleeping with cats, and
ultimately use that to steal real wealth f rom people, e.g. home f oreclosures.
Up until Part 5, interest was never addressed. Af ter a brief introduction to the exponential nature of
compounded interest, we looked at the ef f ects of compounded interest, and illustrated that the nature of
its exponential growth necessarily dictates that it must eventually overcome all other considerations in the
marketplace, and deliver all wealth in the world to its controllers.
My Contribution to the Topic
Over the course of these articles, much of what I have explained has been said bef ore, and much of it in
the same way. For that I can take no credit.
However, I have tried to explain things f rom a dif f erent perspective as much as possible, and in a dif f erent
way in the hopes that it might help clarif y what people may not have f ully understood f rom other
explanations. (We all understand things f rom our own perspective, and many of us learn easier with
dif f erent teaching techniques.) I have provided a f ew very simple sof tware tools, some metaphor, and some
basic diagrams to help people visualize what happens inside of the f ractional reserve banking cycle.
However, I have introduced a couple new concepts f or understanding f ractional reserve banking, as f ar as I
am aware (I have not heard them anywhere else, and I have done extensive research on the topic).
1. That f ractional reserve banking abuses f loat time
2. That f ractional reserve banking is a temporal pyramid scheme similar to a Ponzi scheme
I used these to explain how a run on the bank works, and how banksters use the temporal nature of their
pyramid scheme to rape the economy and steal wealth f rom people.
It is my sincere hope that I have contributed back to humanity and the resistance against the tyranny of the
banksters, and helped build some greater awareness and understanding of the f undamental issues
involved with f ractional reserve banking.
I have countless sources to thank f or helping to educate me on what is going on. As such, I can only
mention a f ew here. I wont say that I agree with everything in every source, but thats OK because we cant
always agree on everything. Without f urther adieu, may I humbly recommend some f urther resources f or
your f urther investigation, eduation, and growth.
Additional Resources f or Fractional Reserve Inf ormation
The f ollowing are all f antastic resources f or f urther education on the topic, with most exploring the bigger
picture behind f ractional reserve banking.
The Money Mast ers
URL: http://www.themoneymasters.com/
Rating: Must watch
Video: http://vimeo.com/8757743 or http://www.youtube.com/watch?v=JXt1cayx0hs
Description: Filmed in 1996, this is still a brilliant explanation that is well worth watching. It f ollows a great
deal of history and through that explains the roots of f ractional reserve banking as well as many other
related issues. Not only does this f ilm put f ractional reserve banking in perspective, it also shows how
much of history has been def ined by it. Af ter watching this documentary, you will hate your high school
history teachers f or their negligence in not telling you about this part of history.
The Secret of Oz
URL: http://www.secretof oz.com/
Rating: Must watch
Video: http://vimeo.com/14924997 or http://www.youtube.com/watch?v=swkq2E8mswI
Description: This f ilm can in many ways be viewed as an update to The Money Masters, and while of f ering
much of the same history and exegesis, it adds in an updated perspective and metaphors f rom "The
Wonderf ul Wizard of Oz". I would recommend watching The Money Masters f irst, though it really doesnt
make much of a dif f erence. But f or heavens sake, watch it!
Money as Debt
URL: http://www.moneyasdebt.net/
Rating: Must watch
Video: http://vimeo.com/2244372 of http://www.youtube.com/watch?v=KyDU4X8GSmE
(part 1)
Description: A f antastic animated documentary that is well worth watching. In particular, watch f or "The
Goldsmiths Tale". There are 2 sequels to this documentary.
The American Dream
URL: http://theamericandreamf ilm.com/
Rating: Must watch
Video: http://vimeo.com/18568828 or http://www.youtube.com/watch?v=ZPWH5TlbloU
Description: A very entertaining and educational animated f ilm by The Provocateur Network.
Thrive
URL: http://www.thrivemovement.com/
Rating: Must watch
Video: http://vimeo.com/channels/thrivemovie or http://www.youtube.com/watch?
v=lEV5AFFcZ-s
Description: A brilliantly done documentary that has every single f act backed up with ref erences available
at its web site. I would recommend watching this while simultaneously checking the f acts at the web site if
you are somewhat skeptical. Everything is meticulously ref erenced. If you were a skeptic bef ore watching
this documentary, you wont be af ter.
Lect ure by G. Edward Grif f in
URL: http://www.gedwardgrif f in.com/
Rating:
Video: http://www.youtube.com/watch?v=lu_VqX6J93k
Description: This is an excellent lecture that I highly recommend. While it was f ilmed in 1994, none of the
basic f acts have changed. G. Edward Grif f in argues in this video that the US Federal Reserve should be
abolished f or 7 reasons:
1. It is incapable of accomplishing its stated objectives.
2. It is a Cartel operating against the public interest.
3. It is the supreme intrument of usury.
4. It generates our most unf air tax.
5. It encourages war.
6. It destabilized the economy.
7. It is an instrument of totalitarianism.
I would f urther recommend searching f or more videos with G. Edward Grif f in in them, or simply keeping your
eye out f or him in other videos. Hes one of the smartest people around on the topic.
Money A Brief Hist ory of t he American Dollar
URL: http://www.youtube.com/user/JohnFromChicago
Rating:
Video: http://vimeo.com/31413624
Description: While not strictly about f ractional reserve, it is still worth watching f or a quick history lesson.
This video advocates gold & silver as money.
Web of Debt Lect ure
URL: http://www.webof debt.com/
Rating:
Video: http://www.youtube.com/watch?v=QU0XiklHPMc (part 1 of 5)
Description: While this isnt a video version of the book ("Web of Debt"), the author, Ellen Brown, lectures
on the topic with graphs and charts. This is an excellent presentation, and highly recommended.
Zeit geist Addendum
URL: http://www.zeitgeistmovie.com/
Rating:
Video: http://www.youtube.com/watch?v=W3hLKpKv3ME (segment)
Description: This documentary goes into many other areas, but includes a section on f ractional reserve
banking. Much of "Zeitgeist" advocates a resource based economy, and sounds rather socialist in nature.
Judge f or yourself . The treatment on f ractional reserve banking is very good.
Your Choice Here!
URL: Go search!
Rating: Unknown
Video: This you need to f ind!
Description: I encourage you to f ind more on the topic. There are many excellent documentaries, web
sites, articles, and tutorials on f ractional reserve banking. The ones above are simply a f ew that I f elt were
worth sharing. There are many more that I could list, but at some point I need to stop.
Thank you to everyone who has taken the time to read through this rather long series of articles on
f ractional reserve banking. Please pass this on, and let others know about how the money in their wallets
and purses is being used to enslave them.
The "Frackin Reserve" articles are f ree to share and distribute. They are licensed f or f reedom under the
GNU Free Documentation License or the Creative Commons Attribution-ShareAlike 3.0 Unported License.
The aim is to give you maximum f reedom to help spread the word of f reedom.
Cheers, and be f ree,
Ryan
Permit me to issue and control the money of a nation, and I care not who makes its laws. Mayer Amschel
Rothschild
Part 1 The Mechanics of Fractional Reserve Banking
Part 2 What is Money?
Part 3 How Fractional Reserve Banking Creates Money and Why it is Fraudulent
Part 4 Run on the Banks? Or Run on the People?
Part 5 Compound Interest as Invisible Slavery
Part 6 Summary & Additional Resources