Federal Reserve Banking System
The Fedral Reserve published a document entitled "Modern Money Mechanics" which details the practice of money creation as utilized by the Federal Reserve and its web of global commercial banks it supports. on the opening page it states "the purpose of this booklet is to describe the basic process of money creation in a fractional reserve banking system." they then use various banking terminology to describe this process. a translation of which goes like this.
The U.S. Government decides it needs some money so they will consult with the federal reserve a.k.a. the U.S. central bank.
An agreement will be made upon for an exchange. Our Government will print off Treasury bonds in the amount of the sum needed while the Federal Reserve will print
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"In fact, economists estimate that only 8 percent of the world's currency exists as physical cash. The rest exists only on a computer hard drive, in electronic bank accounts around the world."
According to Modern Money Mechanics, "A bank must maintain legally required reserves equal to a prescribed percentage of its deposits." which means legally all banks that operate under this fractional reserve banking system have to keep a set percentage of any deposit and to use the remainder known as the excessive reserve for different types of loans.
Modern Money Mechanics states that "under current regulations, the reserve requirement against most transaction accounts is ten percent." Most people would assume that this nine billion is coming out of the already existing ten billion deposit.
However in reality this is not the case at all. What is really taking place is that the nine billion is being created on top of the existing ten billion. Modern Money Mechanics states, "Of course they (the banks) do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do
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