

Best analysis of fractional reserve banking ever - lisper
http://www.youtube.com/user/khanacademy?blend=1&ob=4#p/c/CECDA315A8848B99/23/8SAMey9Gl5I

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stretchwithme
I understand the argument against government insurance of banking and the
problems with telling people they can withdraw their money any time. But don't
I understand why the phrase "fractional reserve banking" is used to describe
the problem.

The term "fractional reserve" refers to what percent of total deposits the
bank is required by the government to keep on hand. 0% reserve banking is not
less risky than fractional reserve. And 100% reserve banking is clearly just
putting paper in a vault so you're renting vault space in such a system.

So maybe people should stop using this term when they complain about banking.
Their real problem is with government insurance and demand deposits.

The speaker asserts that this system could not exist without the FDIC but
clearly it did exist before the FDIC.

I'm against government insurance too, but these kinds of unsubstantiated
statements provide people with reasons to dismiss the sound things being said.

