[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.