Forget Fractional Reserve Banking

If there was ever evidence of what Wall Street's ambitions are its here.

http://www.federalreserve.gov/newsevents/testimony/bernanke20100210a.htm#fn9

"The authority to pay interest on reserves is likely to be an important component of the future operating framework for monetary policy. For example, one approach is for the Federal Reserve to bracket its target for the federal funds rate with the discount rate above and the interest rate on excess reserves below. Under this so-called corridor system, the ability of banks to borrow at the discount rate would tend to limit upward spikes in the federal funds rate, and the ability of banks to earn interest at the excess reserves rate would tend to contain downward movements. Other approaches are also possible. Given the very high level of reserve balances currently in the banking system, the Federal Reserve has ample time to consider the best long-run framework for policy implementation. 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"

What Ben Bernanke is actually proposing is to end all reserve requirements for depository institutions. He seems to believe that having a cushion to insure depositors would "impose costs and distortions on the banking system." Lets forget for the moment that Bear Stearns, Lehman, And Wamu were taken to the woodshed because of bank runs. This happened in a fractional reserve system. What do you think can happen in a zero reserve system?

Everybody knows that banks create money out of thin air. Bernanke wants to make them more insanely rich by eliminating any reserve requirement. This would allow unlimited leverage for banks to speculate with customer deposits. They would speculate with client deposits and let the government sort out the mess. This is of course after the Fed gets full resolution authority as proposed by the Dodd Bil. The Fed would allow Banks to lever up to any level without oversight and look away at any speculation. If in the event of a crisis they will just print more money to mask the real problems.

If you don't believe me read this.

http://www.newyorkfed.org/newsevents/speeches/2009/dud090729.html

"Based on how monetary policy has been conducted for several decades, banks have always had the ability to expand credit whenever they like. They don’t need a pile of “dry tinder” in the form of excess reserves to do so. That is because the Federal Reserve has committed itself to supply sufficient reserves to keep the fed funds rate at its target. If banks want to expand credit and that drives up the demand for reserves, the Fed automatically meets that demand in its conduct of monetary policy. In terms of the ability to expand credit rapidly, it makes no difference."

What William Dudley is saying in this piece is that the banks do create money out of thin air. If there ever was a problem and or crisis the Fed would come in and rescue the banks. Of course the spin here is that they are doing this for the public's benefit.

Both Dudley and Bernanke are in full power grab mode. They know they have royally screwed up the finances of the country and need to claim back lost ground. Even with a fractional reserve system they are fearful of losing power. So their main objective is not to fix whats wrong but to make it worse by moving to a zero reserve system. This will insure their power over monetary matters and it ultimately makes the banks even more powerful. The commercial banks run the Federal Reserve Banking System. They own the most powerful Regional Fed Bank the FRBNY.

The one way to reduce or eliminate bank runs and leverage is to move to a full reserve banking system. This unfortunately for the FED eliminates the need for a lender of last resort. The FED wants a zero reserve system so that they can keep the perpetual fear of crisis so that they can keep their jobs.

The only reason we don't have a full reserve system is because of Wall Street. They need financial intermediation to run their business and pay out billions in bonus money. Also a full reserve system would not allow exponential debt explosion that again pads the bank accounts of bankers.

The single reason central banks were create was because of the fractional reserve system. Its the only thing that sustains both entities.

We have just witnessed the worst credit crisis of our lifetimes. Instead of prudent regulations and thoughtful reforms we get these type of proposals from policymakers because after all the Banks and Wall Street own the policy makers and they obscure the obvious to get what they want which is unlimited leverage, zero transparency, and even less accountability. Their number one concern that they use to strike fear into over leveraged debt consumed Americans? If you regulate us there will be no more financial engineering or innovation needed to create more credit for already credit drowned Americans.