If you watched the video of the speech by G. Edward Griffin (I know, it was lengthy) which I posted in an earlier blog, you may have heard him mention fractional reserve banking.

When I first heard about this myself it shocked me how easy it is for money to be created out of nothing. The fact that money is no longer backed by precious metals such as gold or silver but instead is simply conjured up, was actually quite hard for me to grasp. Most people are totally unaware this is going on; they are not educated about finance.

For those who didn't watch the whole thing, or have not read Griffin's book 'The Creature from Jekyll Island' then I'll attempt to explain the fractional reserve system.

Essentially, a bank which has, say, $100 deposited in it from a customer, can then loan out a multiple of that $100 to other customers. The limit it can loan out is determined by how much it holds in its vault; so if, say, the amount it can loan out is at a ratio of 9 to 1, it can loan out $900 for every $100 it actually holds. The animated short I am posting here is a simplifed history of how banking started, and it also explains fractional reserve banking:

The last part I found particularly interesting: in the event of a run on a bank, the central bank would support them with emergency infusions of gold. The United States is no longer on the gold standard, so what do the central banks support the smaller member banks with now? Bailouts? Ultimately they're paid for by the taxpayer. So whenever a bank fails, the taxpayer picks up the tab to replenish it. Marvellous (!)

For an eye-opening documentary on the conspiracy against your money, please click the image.