@Paouky Yes. I use “fractional reserve banking” synonymously with “printing credit out of thin air”. Perhaps that is a mistake.
The connection between central bank printing money and private banks printing credit really isn’t there. Private banks automatically create new credit with every new loan someone takes: the money pops into existence there and then, and importantly as an interest-bearing debt. Remember my Rule of Three story? There was no central bank there: it is not necessary.
With practically all of the money supply consisting of private interest-bearing debts (as is the case today), the banks have two options at any given point in time:
- inflate the pyramid (increased debt and/or lowered interest; postponing recession or bull market)
- deflate the pyramid (contracting money supply; recession or depression)
Regardless of the two options, there is a constant interest burden on the whole circulating money supply that the citizens are paying to the private banks. That’s where all the economic growth is funneled.
This practice has existed for millennia; long before banks, let alone central banks.
Exactly, and that’s what the commercial banks have today. A monopoly on creating IOUs of central bank dollars. The amount of IOUs (digital numbers in bank accounts) dwarf that of the actual central bank dollars. Dollars and IOUs of dollars are both what we call “money”, included in M3. In fact, if the amount of dollars were limited, the IOUs would achieve domination far more easily: the limit achieves absolutely nothing.
There are numerous historical examples to demonstrate precisely this. I’ll gladly share if you’re interested.