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Article posted Mar 18 2010, 3:35 PM Category: Economy Source: The Economic Collapse Print

Money Out Of Thin Air: Now Federal Reserve Chairman Ben Bernanke Wants To Eliminate Reserve Requirements Completely?


Related: Yes, Virginia, There Are No Reserve RequirementsUp until now, the United States has operated under a "fractional reserve" banking system.  Banks have always been required to keep a small fraction of the money deposited with them for a reserve, but were allowed to loan out the rest.  But now it turns out that Federal Reserve Chairman Ben Bernanke wants to completely eliminate minimum reserve requirements, which he says "impose costs and distortions on the banking system". At least that is what a footnote to his testimony before the U.S. House of Representatives Committee on Financial Services on February 10th says. So is Bernanke actually proposing that banks should be allowed to have no reserves at all?

That simply does not make any sense. But it is right there in black and white on the Federal Reserve's own website....

The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system.

If there were no minimum reserve requirements, what kind of chaos would that lead to in our financial system?  Not that we are operating with sound money now, but is the solution to have no restrictions at all?  Of course not.

What in the world is Bernanke thinking?

But of course he is Time Magazine's "Person Of The Year", so shouldn't we all just shut up and trust his expertise?

Hardly.

The truth is that Bernanke is making a mess of the U.S. financial system.

Fortunately there are a few members of Congress that realize this.  One of them is Republican Congressman Ron Paul from Texas.  He has created a firestorm by introducing legislation that would subject the Federal Reserve to a comprehensive audit for the first time since it was created.  Ron Paul understands that creating money out of thin air is only going to create massive problems.  The following is an excerpt from Ron Paul's remarks to Federal Reserve Chairman Ben Bernanke at a recent Congressional hearing....

"The Federal Reserve in collaboration with the giant banks has created the greatest financial crisis the world has ever seen. The foolish notion that unlimited amounts of money and credit created out of thin air can provide sustainable economic growth has delivered this crisis to us. Instead of economic growth and stable prices, (The Fed) has given us a system of government and finance that now threatens the world financial and political institutions. Pursuing the same policy of excessive spending, debt expansion and monetary inflation can only compound the problems that prevent the required corrections. Doubling the money supply didn't work, quadrupling it won't work either. Buying up the bad debt of privileged institutions and dumping worthless assets on the American people is morally wrong and economically futile."

The truth is that the financial system that we have created makes inflation inevitable.  The U.S. dollar has lost more than 95 percent of the value that it had when the Federal Reserve was created.  During this decade the value of the dollar will decline a whole lot more.

That doesn't sound like a very good investment.

But that is what happens when you give bankers power to make money up out of thin air.

And things are only going to get worse.

Especially if Bernanke gets his way and reserve requirements are eliminated entirely.

The U.S. economy is a giant mess already, and we have got a guy at the controls who simply does not have a clue.

It's going to be a rough ride.





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Comments 1 - 5 of 5 Add Comment Page 1 of 1
Patriot From Ohio

Posted: Mar 19 2010, 1:31 PM

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174130 Damn. Bernanke must be out of his mind. We need to be going in the other direction, not towards less reserves!

But this is just more proof we can't afford to have these people in charge anymore...
Anonymous

Posted: Mar 19 2010, 2:44 PM

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72158 This is what happens when the "loonies" run the asylum!

I remember a post on this site that said that Ron Paul was "dangerous"...I'm glad people are waking up to how brave a man he is...
Anonymous

Posted: Mar 22 2010, 9:33 PM

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99230 Imagine this scenario in the real world, You give your friend Bob your life savings for safe keeping because he has a very secure vault in his house. In exchange for his safe keeping service you agree to pay him a monthly service charge. You go Bob one day and ask to withdraw some of your money and he tells you "Sorry I lent all of your money to Neil in exchange for a 30 year promissary note". You would probably go to the authorities...except under a no reserve policy no crime has been committed.
Anonymous

Posted: Mar 22 2010, 9:46 PM

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99230 I wonder when the people are gonna wise up and take the federal reserve bolshevik style.
Nick

Posted: Feb 26 2013, 12:36 PM

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86169 Good, reserve ratios are completely irrelevant now, capital ratios are far more important. Those who argue that this crisis is a liquidity crisis are insane, it is a solvency crisis, the assets banks invest in are far more important and there equity distribution.
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