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Fractional-reserve banking is the banking practice in which banks keep only a fraction of their deposits in reserve (as cash and other highly liquid assets) and lend out the remainder, while maintaining the simultaneous obligation to redeem all these deposits upon demand.
Fractional reserve banking necessarily occurs when banks lend out any fraction of the funds received from deposit accounts. This practice is universal in modern banking.
In essence, when granting loans, banks create money out of thin air. This is all legal.
The downside is, of course, that more and more money is needed to cover the amount of debt that is always larger than the money supply because of interest. This leads to foreclosures and bankruptcies, i.e. some people have to fail.
Other downside is inflation, i.e. you get less for your money.
Third, the system calls for continuous growth, i.e. turning natural resources into products that go obsolete soon enough so you can buy more.
Money as we know it is an obsolete man-made idea. There is an alternative.
www.thezeitgeistmovement.com
