Fractional reserve banking/ fiat money- do you realize that money doesn't actually exist?
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Fractional reserve banking/ fiat money- do you realize that money doesn't actually exist?That's the good news/bad news of a monetary system that is not based on a scarce commodity, such as gold.
The ability to grow money supply is controlled by the Federal Reserve which can adjust the reserve ratio that banks must have on deposit.
Banks and lenders set interest rates based on market conditions (supply demand) and risk factors of the borrower. If you take out a loan on your house, both you and the bank were willing to take that risk - you agreed to the terms of the loan contract and the bank agree to lend you the money. If the bank forecloses on you because you didn't make the payments, that is not the fault of the fractional money system.
A country's monetary system, in the absence of a gold or other commodity standard to back it up, is 'guaranteed' by the borrowing and taxation power of the government making the guarantee. The words "the full faith and credit of the United States" ultimately means the borrowing and taxation ability of the federal gov't.
Ultimately, money represents confidence that other people have in the quality of your monetary system. Lack of confidence drives down the value of your money, relative to other currencies.
Fractional reserve banking/ fiat money- do you realize that money doesn't actually exist?I can't say it better than MD did. This is all really and illusion. Everything you save, everything you spend, every material item you hold precious to you...none of it matters because it is all an illusion. Saving, Spending, Collecting are all forms of keeping you in line and keeping you tied to the "dream"...but the dream is really a nightmare in which we are on a hamster wheel, waiting for our treat.
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