Understanding Fractional Banking System

The fundamental part of money, which is called fractionalized banking.

And fractionalized banking is something that finance people

understand, and the

people on the street, and when I say people on the street,

that's where I was when

I started on Wall Street, would find it impossible

to believe.

Impossible.

Why?

Bannon Bank,

I give you

$1,

just one single dollar.

In our system of banking,

I would say, "Okay, Steve, I gave you a dollar.

How much can you lend out to your friends?"

And your natural reaction would be probably something less than a dollar

because I

wanna keep something in my pocket.

The way our system works is if I, you as a bank are holding my

dollar,

you can lend out an additional

eight or $9. "No, it's impossible.

I only have a dollar, Jeffrey."

We have something called fractionalized reserves, which is if you have one,

you can

lend out nine.

That's the way our system works. And so not only do world leaders

not understand banking, but the man on the street,

my father worked in the park

department, it, it would be beyond his imagination

that people

could lend out more money than they actually had in their pocket.

If the public understood that the bank really doesn't have

their money

at any one time, there's ... One of the things during the Depression,

there were

runs on the bank. The reason the banks don't keep much money

in the actual bank is they assume that not everyone's gonna want their money

on the

same day. So that's not really the fear of

inflation.

The fear is a run on the bank. Everybody wants to take out something

that doesn't really exist.