It is simply not necessary to have an FDIC or a fractional reserve bank, despite what we may think.

[originalpckelly]

Herein I will describe a simple system by which all reserves in a bank are kept instead of being lent out, and how the banks can still make profitable loans. It is well known that when you make a deposit at any modern bank, even credit unions, only a small amount of the money in your account is actually in the possession of the bank at any one time. Most of it is loaned out, so that the bank can make money off the interest.

1. Instead of lending out deposits, banks would be legally required to keep the full amount in a person's account on hand.

2. Banks would receive money from a central bank, which may or may not be a part of the government. This central bank would loan money to the banks, but would create the money out of thin air rather than using loans from banks as the federal reserve does.

3. Banks would then loan these loans out to the people, still charging interest, and still making money.

For the banks, there is absolutely no different whatsoever in their profit margins, and from that perspective there should be no opposition from them.
For the people, there should be absolutely no reason to oppose this system, as it means knowing that one's bank account is guaranteed to be secure, as traditional bank panics would be totally eliminated. Even if everyone pulled their money out of a bank, the banks would not have to shut down.

This system I propose would be an earthshaking improvement in banking. Even if the system is completely private, or a mix of government and private industry, it would mean that we all have banking security.

The house of cards that is the American banking system could be shored up and made solid as concrete. Why not?

[leftstreet]

1. But...how could anyone make money gambling on your system?

Where's the risk? Where's the incentive?

:sarcasm:

:hi:

[originalpckelly]

2. Actually, there is absolutely no difference moneywise with this system.

They make as much as they did before. There is NO DIFFERENCE IN PROFITS! It can even be controlled the same way. Just no FDIC and no unfunded liabilities.

The money is already made out of thin air as of right now, it's created when they loan deposits to the fed or to everyday people. If the bank needs more money the Fed will loan bank to the banks multiplying the amount of money in the system. It's out of thin air, just like this system I propose.

[readmoreoften]

3. The only problem with the solidity of this formula is the "making currency out of thin air" part.

Are you suggesting a set amount of fiat currency created within a particular time period? Perhaps something tied to the value of US treasury bonds? Maybe that would work. But there would need to be a check on such a system because if money was printed with no limit, then we'd end up in a hyperinflationary scenario with a completely diluted currency.

But I'm all for getting rid of the money-as-debt system.