The Banking Fractional Reserve Requirement is Zero

Simon Johnson seems to know something about money.  He has an something of huge impact to say recently:  Geithner's Gamble

"It is a deeply disturbing vision, one that amounts to a huge, uninformed gamble with the future of the American economy – and that suggests that Geithner remains the senior public official worldwide who is most in thrall to the self-serving ideology of big banks."


Disturbing indeed!  Geithner is a dangerous man.  Karl Denninger, who seems to know something about money and is not hesitant to say it, has much more, less kinder comments about Geithner.  That link is just a sample. 

I recall recently that Geithner said that the banking reserve ratio should be zero.  I don't know much and thought it was 10 percent.  It is Zero and has been zero for some time.  If he is calling for it to be zero now, what negative number below zero does he really want?  A bank's reserve is a hedge against a potential need to pay out to depositors.  Banks do not have to do that anymore.  The government will do it.  To Geithner it makes sense that the banks can therefore have a negative reserve ratio.

Fractional Reserve Banking is a cornerstone of the banking system.  Wikipedia is a source knowledge for the unsophisticated.  A real economist would scoff at anything it said but it usually gets the basics right. 

Wikipedia:  Fractional-reserve banking is the banking practice in which only a fraction of a bank's deposits are kept as reserves (cash and other highly liquid assets) available for withdrawal.^[1][2][3][4]

Many call fractional reserve banking a fraud.  More cautious observers ask if it is a fraud but conclude it is.  I think only bankers would defend it.

If a cornerstone of the banking system is not there then it seems to be on shaky ground.

Zero Hedge seems to have its ear to the ground and is good at telling what it hears from other sources.  Today it has an article from Tipping Points.  Gordon T. Long makes a first and last statement that sandwiches excellent tipping point indicators related in between.

Beginning Statement:

Throughout my 2010 article series "Extend & Pretend" and "Sultans of Swap" I stressed that we were rapidly moving from the Financial Crisis of 2008, through the Economic Fallout of 2009 -2010, towards a Political Crisis in 2011 -2012. We are now clearly beginning to see the early emergence of the final part of this continuum.  From North Africa to Wisconsin all are fundamentally based on the single insidious underlying problem - excessive global debt and credit levels.

Ending Statement:

The public will soon wake up to the magnitude of money printing that is going on to support the economic recovery fallacy. When the public does become aware, “Money Velocity” will accelerate. When this happens, the likelihood is that the markets will dramatically rise, not because economic conditions are improving, but rather because of a depreciating US dollar.  We believe this expectation is presently being priced into the market. We are truly exposed to the potential of a “Minsky Melt-Up” or more correctly from an Austrian perspective, a Von Mises “Crack-up Boom”. 

The risks are presently towards a SHORT TERM corrective consolidation. The Intermediate Term calls for higher market highs into June 2011 - then it gets ugly - fast!