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Why fractional reserve banking is way more messed up than you think

Fractional reserve banking is way more messed up than we think. Let's break it down: you toss $10 into the bank, and guess what? They can lend out $9 of that to someone else, keeping only $1 in reserve. The $9 goes bouncing around the economy, ends up back in the bank, and the cycle repeats. Now, this isn't just a one-time thing. The $8.1 can be lent out again, and so on. This means that from your original $10, the bank could potentially create $90 in debt

And it gets worse. You think you've got $10 in the bank, but in reality, you only have a buck. Now, add interest to the mix. That $90 floating around in the economy as debt? Slap a 5% interest rate on it, and after two years, you've got a whopping $100 owed. If everybody decides at this point to just pay back their debts, we all would be 10 dollars short. It's interest on money that never really existed in the first place, like some kind of ghost money is created.

Now, imagine this scheme playing out for a while. At some point, the debt racked up is waaay more than the "real" money in circulation. Cue a crisis – maybe a war or a housing meltdown. Some companies can't pay back their debt to the bank, and boom, liquidity crisis hits. The bank can't collect enough money, and suddenly everyone's in a race for "real" money to cover their debts. But because there's way more debt than actual cash, the whole economy grinds to a halt. The only fix? Pump some real money into the system and watch the cycle restart.

This is how the system is supposed to work. Financial crises aren't just the fault of Wall Street hotshots (though they play a role); they're baked into fractional reserve banking, along with good old inflation.

Now, I find it hard to believe that those smart guys and galls at the central banks don't know about this mess. They might be aware, but they're definitely not being straight about it. So, next time someone tells you Bitcoin won't cut it because we "need" to be able to print money during a crisis, hit them with this reality check.

Peace, and stack sats. submitted by /u/Bureaugewas
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