Gunner Quinn
I’ll begin with some history: Beginning in the 1500s, goldsmiths began issuing paper receipts or notes for gold that was held in safekeeping for their customers. Each note represented a specified amount of gold that they held in their vaults. Any note could be used to have the goldsmith repay the depositor, or later anyone holding that piece of paper, handing over a like amount upon demand. These receipts were locally traded for goods and services because they could be freely redeemed for gold. So people believed that these receipts were almost as good as gold. The goldsmiths soon realized that only a small number of these receipts would be redeemed each year. So they succumbed to their greed and gradually began to issue more and more receipts for their essentially static supply of deposited gold. Thus, “fractional reserve banking” was born.
As modern banking developed, governments began issuing their own currencies. Initially, these too were redeemable for gold or silver. The centuries rolled by and the “reserves” of banks changed from gold and silver coins to paper money, and eventually to mostly just electronic bookkeeping entries.
In 1913, the Federal Reserve was created as a central bank for the United States. This was just a year before the outbreak of the First World War. The Federal Reserve (or “Fed”) is not a government agency. It is a private banking cartel that was handed a very profitable charter by Congress. Not surprisingly, the Fed makes money in both boom and bust cycles of the economy. They pull the strings on America’s financial system. The bottom line: The Federal Reserve is not Federal and there are no Reserves.
As an institutionalized fractional reserve banking system with centralized control (the Fed’s Board of Governors), the Fed sets interest rates, and thereby they can expand or contract the money supply at will. Modern-day money is loaned into existence. It is effectively created out of thin air.
To their advantage, and also to the advantage of the U.S. Treasury, the Fed embarked on a gradual campaign of general currency inflation, ever since 1913. In fact, from 1913 to 2025, the Dollar has lost 98% of its purchasing power. As I’ve explained before in SurvivalBlog many times, inflation is a hidden form of taxation.
Enter The FDIC
In 1933, the Federal Deposit Insurance Corporation (FDIC) was created. With the FDIC system in place, just small reserves could be maintained, maximizing bank profits. The FDIC insurance scheme is there ostensibly to protect depositors from bank failures and bank runs. It works well with isolated bank failures, but it would collapse spectacularly, in the event of a full-scale nationwide banking crisis.
An Aside: I must mention that the logic and terminology of the banking world is essentially inverted. To explain: To any accountant, there are five types of accounts: Asset, Liability, Capital, Income, and Expense. The meanings of those terms are almost self-explanatory. But the banking world lives in its own little Twilight Zone. To a banker, generally, money that is loaned out is considered an “asset” while cash on hand is treated more like a liability, because it represents “idle” (unproductive) funds.
By 1992, cash (and cash equivalent) reserves represented just $23.5 billion of “idle funds” in the entire FDIC system. As of 2002, the Federal Reserve Bank of New York summarized:
“The Federal Reserve requires banks and other depository institutions to hold a minimum level of reserves against their liabilities. Currently, the marginal reserve requirement equals 10 percent of a bank’s demand and checking deposits. Banks can meet this requirement with vault cash and with balances in their Federal Reserve accounts.“
Then, in 2018, the St. Louis Fed reported:
“Have you ever wondered how much cash sits in a bank vault? Even if you’re not planning a robbery, you may still be interested in how much liquidity is out there. (In other words, whether your bank is capable of providing you with all the cash for your deposits.) We can’t give details about your bank specifically, but we do have statistics for the banking system as a whole. The graph shows that banks hold about $75 billion in their vaults at any moment, which translates to about $230 for each U.S. resident. This doesn’t seem like a lot, as many people have more than that deposited in an account.”
Even then, the $75 billion figure was laughable. Total bank deposits grew from roughly $13 trillion in 2016 to nearly $20 trillion in 2022. Let that sink in: just $75,000,000,000 in cash (and cash equivalents) on hand versus $20,000,000,000,000 on deposit. That is a miniscule fraction. If even just a few large banks were to fail in a short period, that $75 billion would be fully expended in just a couple of days. But, of course, every banker and politician will say reassuringly, “The FDIC is backed by the Full Faith and Credit of the United States Government.” So, in the end, they could just print (or electronically create) all of the cash needed to cover the bank runs in a major banking crisis.
As of 2021, there were 4,236 FDIC-insured commercial banks in the United States. Do you see the problem that would exist if there was a major banking crisis? Here is a little math exercise: Divide $75 billion by 4,236. That is (on average), how much paper cash is on hand at each bank to cover a big run on the banks. That might cover the first or second guy in line who wanted to withdraw his savings. But what about the third guy in line? And the 20th in the queue?
COVID: Reserves Dropped to Zero
As announced on March 15, 2020 (just four days after COVID was declared a global pandemic), the Federal Reserve reduced reserve requirement ratios to zero percent, effective March 26, 2020. This action eliminated reserve requirements for all depository institutions. That change was not given much publicity by the mass media, which was by then giving wall-to-wall coverage of the pandemic. What a convenient distraction. “Whoopee!” said the banksters. Henceforth they could continue banking with NO reserves!
Gold Backing?
Many people falsely assume that the U.S. “Dollar” is somehow still backed by gold. Anyone who believes that myth is self-deluded. “Dollars” haven’t been domestically redeemable for gold since 1933, and they haven’t been redeemable for silver since 1964.
Recently, it has been suggested that revaluing the US gold reserves from the antiquated $42.22 pegged back in 1973 to somewhere north of $3,000 per ounce would provide an extra $750 billion in liquidity. For example, without any Federal Reserve involvement, the U.S. Treasury could issue $750 billion in gold-backed bonds. However, revaluing the Fort Knox and West Point gold reserves would also shine a light on two very uncomfortable facts:
1.) That currency inflation has destroyed 98% of the purchasing power of the so-called Dollar. It is now worthless unredeemable scrap paper.
2.) That the nation’s gold reserves (8,133.5 metric tons) wouldn’t even begin to provide backing for the gargantuan U.S money supply of $21.53 Trillion Dollars. ($21,530,000,000,000. Yes, that is a lot of zeroes — an almost unfathomable number.) The world’s entire aboveground gold supply — that is every ounce that has ever been mined and that is still out there in various forms, including the ring on your finger and the gold in your teeth is 216,265 tons. Collectively, all the gold in the world is only worth around $20.25 Trillion USD, if it was valued at $3,000 per Troy ounce. So, clearly, there is a lot of paper money (and bookkeeping entry equivalents) in circulation by national governments, with hardly any practical backing.
And In Europe…
The European Central Bank (ECB) is roughly analogous to the Federal Reserve, but it plays a balancing act with banks in multiple countries. This summary is from Wikipedia:
“The European Central Bank (ECB) is the central component of the Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union It is one of the world’s most important central banks with a balance sheet total of around 7 trillion. The ECB Governing Council makes monetary policy for the Eurozone and the European Union, administers the foreign exchange reserves of EU member states, engages in foreign exchange operations, and defines the intermediate monetary objectives and key interest rate of the EU. The ECB Executive Board enforces the policies and decisions of the Governing Council, and may direct the national central banks when doing so. The ECB has the exclusive right to authorize the issuance of euro banknotes. Member states can issue euro coins, but the volume must be approved by the ECB beforehand. The bank also operates the T2 (RTGS) payments system. The ECB was established by the Treaty of Amsterdam in May 1999 with the purpose of guaranteeing and maintaining price stability.”
On March 19, 2025, it was announced that the European Union, via the ECB and its member banks, plans to create a new Savings and Investment Union (SIU). With the SIU, they plan on a grand “investment” in bolstering the defense of Western Europe. It remains to be seen how this will play out, but some have suggested that this will require either a huge increase in taxes or legalizing some “borrowing” from private bank deposits. To my readers in Europe: Beware.
Conclusion
Most people do not understand fractional reserve banking schemes and how modern-day money is loaned into existence. Nor do they realize that their “money” has no real substance and that it has no genuine gold backing. And there is also very little understanding by the Generally Dumb Public (GDP) that they are being gradually being robbed by inflation.
We are living in financially perilous times. I recommend that you protect yourself by hedging into tangibles. That includes productive land, precious metals, and practical barterable tools, including guns and ammunition. Tangibles represent your only real protection from the ravages of inflation.
I will leave the entire topic of Central Bank Digital Currencies (CBDCs) for a future article. – JWR
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