Season 1
EP01 - Fractional Banking
Learn how fractional reserve banking works. Understand how banks create money through lending, money multipliers, and the fractional banking system that powers modern finance.
I want this phone, but I only have $200 in my account…
...But my credit card says $3,000 limit! I can actually pay for this!
The Day I Bought a $3,000 Phone on Credit… and Discovered the Money Never Existed
But who paid for this? It feels too good to be true…
People are buying houses, cars, vacations, phones… all on credit.
But where does all that money come from? There can't be that much saved in the world!
You just discovered the greatest magic trick in history.
It's called fractional-reserve banking.
You deposit $100. The law says the bank only needs to keep $10 as reserve.
That $90 becomes someone else's deposit.
The process repeats. Your original $100 magically supports $1,000 in total money.
One deposit → ten loans → a thousand dollars circulating
The bank created $900 out of thin air with a few keystrokes.
So when I swiped my card… the $1000 never existed before I signed?!
Exactly. The bank never actually had the deposit to lend you that money.
They are *allowed* to lend you that money under fractional reserve laws
Your promise to pay is the only backing. The bank just types the numbers into existence.
You mean people can keep going into debt indefinitely and the system will still be OK?
They already do. When banks are legally allowed to lend more money than they own, people try to get as much of it for themselves.
People borrow those money to create business, buy houses and assets.
This creates the malls full of inventories you can buy, but also means house prices get bid up even more.
Every new loan increases the money supply.
More money chases the same goods → prices rise → asset bubbles.
So the central bank lowering rates is just… encouraging commercial banks to lend more fake money?
How is that legal? How did we all come to agree to this?
History lesson: 1600s goldsmiths noticed people rarely withdrew all at once.
Protection fees are not enough to fund my security...
Instead of charging deposits for protection fees...
W-What if I start lending the same gold ten times over?!
Thus, fractional-reserve banking was born.
If the money I'm borrowing is fake, how is it fair they are charging me interest on that?!
Sounds like you are starting to get it...
The principal they lent you adjusts with inflation.
But the interest you pay? That's real goods and services — your actual labor.
Even if you never pay back the principal, the lenders already collected 10–30 years of your work.
They win either way.
This is nothing like the accounting we learned in school!
We were taught there is supposed to be a ledger!
A balance sheet!
A budget we are allowed to spend according to our incomes!
Conveniently so. Modern civilization runs on this 400-year-old trick.
Stop the train and everything collapses.
But surely people know what is going on? What if everyone wants back their money and the bank can't honor all of them?
If everyone withdraws at once? Bank run.
The bank never had all the money. They just bet you wouldn't all ask together.
And even if people try, authorities from the past stops them.
Surely we can slow it down?
If we can lower reserve requirements, we can also slowly raise it back to 100%!
Raise reserve requirements → money supply shrinks → asset prices crash → people who felt rich suddenly aren't.
It is not that your idea is bad...
It is that most people wouldn't want it
D-Don't want? What do you mean?!
People are getting robbed by the system under broad daylight!
*I don't think you understand~*
When people's wealth grew due to relaxed money supply, their increased confidence already let them made all sorts of promises to other people.
Asking people to revoke their promises to other people because their asset prices crashed...
You might as well be telling people to get unemployed.
We dont have a choice. We just have to live with it
You're telling me we have a corrupted accounting system that people just agree to?!
Yeah. Fractional-reserve banking and money printing are functionally the same thing.
Only the branding is different.
So our entire life is built on… confidence?
Now you know the rules of the game.
Teach me how to play instead of being played.
Of course.
