[0x4f3759df]

You left out the reserve requirements, wiki has a nice chart on how reserves affect expansion. https://en.wikipedia.org/wiki/File:Fractional-reserve_bankin...

I've heard people say that the fractional reserve system causes the boom and bust cycle, because when banks lend money, the create the principal not the interest which leads to a shortfall at some point. Not sure if this is right tho.

[mkstowegnv]

Money has a very long history and discussions about money are deeply entangled in bitter and fanatical battles between political/ religious/ philosophical viewpoints. Many of those viewpoints ignore the counterintuitive ways that money and banking actually work. For the most part, bankers and economists have a vested interest in keeping as many outsiders as possible from understanding how it really works.

For all its flaws and strange history, the first Money as Debt video [1] still makes the most sense to me and I have yet to find an economist at a dinner party who refutes the disturbing conclusion that modern monetary policy is inherently unstable and depends on continuous economic growth. I welcome any links to any counterarguments that are not a confusing morass of obfuscating terminology. Show me a crystal clear model, or a common sense presentation like this video, that argues that the current monetary system is not a Ponzi scheme.

1 https://www.youtube.com/watch?v=4AC6RSau7r8

[nickik]

> I've heard people say that the fractional reserve system causes the boom and bust cycle

That is only with Austrian Economics and even there its not the majority position. Its actually only the position of a subgroup called 'Rothbardians'.

In a real market for banks the reserve ratio was determined by relative demand to hold money. Meaning if demand to hold money was high (low monetary velocity) banks could reduce their reserves. The elegance is that the profit motive makes banks automatically conduct policy like that and it leads to overall stability (at least most of the time).

The western world has spent a lot of time destroying these mechanism and replacing them with layers of regulation that are impossible to understand and get influenced by what the banks want.