Fractional Reserve System (How Banks Print Money)

It is important to look at the world of money from the banker's side of the table.

For your banker to make money, he must find someone who wants to borrow your money at a higher interest rate than the bank pays you. For example, if the banker pays you 5 percent interest (for your savings), he needs to find someone who will pay him 10 percent interest or more to borrow your money. If no one borrows your money, your money costs the banker his money.

But don't weep for the banker.

There are two different types of bank robbers. One robs banks from the outside, and the other robs banks from the inside, such as the Federal Reserve Chairman Ben Bernanke, who does it legally.

The way the bank robs you of your money legally is via the fractional reserve system.

Simply put, the fractional reserve system allows the banker to lend your money out many times over.

For example, if you put $100 in the bank, with a fractional reserve of 10, which is about average, the banker can lend out your $100 ten times and at a higher interest rate than he pays you. For example, your $100 becomes $1,000 to the banker. The banker pays you 5 percent for your $100 and can charge 20 percent or more for the $1,000 he lends out.

As you can tell, from the banker's side of the table, banking is a good business. It truly is the business of printing money.

While this seems innocent, this fractional reserve system robs you of your wealth by creating inflation, which is a form of tax.

In simple terms, the fractional reserve system causes prices to rise, which decreases the purchasing power of your savings.