Can anyone explain if this video on the national reserve, debt and the banking system is misleading or incorrect?

I'm out and about atm and i don't wanna eat up my data with a 30 min video, but I've seen these before and they usually bring up the same misguided points. If you guys remember the "documentary" Zeitgeist, that's an excellent point.

I'm guessing the video will mostly revolve around two points;

  • That money is loaned at an interest when it is created. He'll probably use redundant phrases like "endless spiral" and "impossible to ever pay back (!!)"
  • That money is "created out of thin air" by the evil bankers via fractal reserve banking.

Both betray a deep misunderstanding of what currency, and more importantly, fiat currency actually is. Inflation is built into our monetary systems by lending put created currency at interest (causing debt to exceed monetary base) because circulation of currency induces growth. Deflation is much harder to deal with, and thats why all nations have a posted inflation target larger than zero. The system is designed to encourage inflation.

The wide public misunderstanding of fractal banking is more worrisome. In my native country of Iceland there are currently several poloticians trying to advocate for a new monetary system (they have a video very similar to what i imagine this is) that among other stupid things proposes to abolish fravtal reserve banking. How they propose banks would be able to lend money is beyond me, and their "answers" are outlandishly stupid.

Anyway, the typical rhetoric is that the evil banks can, via fractal reserve banking, create money out of thin air and and then prey on the common man by binding him into unfair contracts and making money off the monay they themselves created.

As mentioned, this system allows banks to lend money in the first place and fain on the spread. More importantly, the central bank sets the reserve fraction, thereby indirectly controlling monetary base, which is one of their tools to maintain moderately positive inflation and thus growth.

The problem isn't fractal reserve banking or debt > monetary base, it's that banks are allowed to take proprietary risks with commercial reserves, i.e. too big to fail. I like Nassim Taleb's solution: if a financial institution wants to be eligible for a federal bail-out they can't pay salaries about a government employee rate. The risk seekers would soon break rank to stay competitive. Also, hedge funds are great, let's loosen up regulations on them. They fail and so what, rich people lose their investment, no structural harm (as long as they're not allowed to get too big).

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