USA Reduces Reserve Lending Requirement to ZERO

In 2020 during the Corona crisis, the USA simply reduced the reserve lending requirement to zero, giving banks the power to issue new money with interest added, without any savings in the bank to back it up. The media response in reporting this incredible, never-seen-before, financial act?


Well, virtually zilch. that was the only mainstream clip I found mentioning it.

How it Began

In 2006-07, originally as a hobby project, I wrote my first book, imaginatively entitled “How to Invest in Gold and Silver.” It was meant just to be a self-published work, distributed to a few friends and relatives, no further than that. However, in late 2007 and early 2008, strange things began to occur in world financial markets again, culminating with the BBC showing footage of people queueing outside Northern Rock, a UK-based bank, patiently waiting their turn to withdraw their savings from the bank in cash. These scenes looked exactly like something being replayed from history, familiar, common even. They were well-documented from a 1907 financial crisis in the USA when the imaginatively-named Knickerbocker Trust got into trouble, and history books tell us decisive action by the financier James Pierpont (J.P.) Morgan saved the day and more commonly-known, the 1930s in the aftermath of the 1929 Wall Street Crash. Only, whereas the BBC was subtly mocking them as fools and playing lots of footage of experts saying they were silly to worry, history showed something written in the book.

“Contrary to Popular opinion, banks do go bust.”

― Alan Dunwiddie, 2007

Bank Holidays

Fractional Reserve Banking is responsible for something we all nowadays take as a positive thing because it means we get a day off work. Bank Holidays. The origin of bank holidays is historically based on banks taking a holiday from paying out to customers. They could tally the books during this holiday and ensure that they weren’t technically insolvent from having lent out too much money against deposits. The idea is that, if the bank was insolvent, they could call in a few favours during the day off and be in a position to continue the business, as usual, the next day of opening. If it sounds like something ancient, think again. The whole USA even had an eight-day bank holiday in 1933, after an emergency law was passed to stop more banks from going bust.

Mary Poppins Bank Run

The 1964 Disney film “Mary Poppins”, starring Julie Andrews and Dick van Dyke, also demonstrates how a run on a fractional reserve bank works. In one scene, the bank manager sings about funding imperial projects like ‘railways in Africa’ and ‘dams in Egypt.’ The bank then snatches tuppence from a young boy who then shouts, “Give me my money back!” This prompts other bank customers to be concerned about why the bank manager won’t give his money back, and they begin demanding theirs, too, leading to the bank closing the withdrawal counters.

With the withdrawal counters closed, the bank accidentally spills a huge pile of gold coins on the floor, a subtle suggestion, perhaps, to help you realise they do have your money really. As long as all depositors don’t want their money back simultaneously, banks are fine. Trust is key.

The timing of this film is in itself interesting, if one digs a bit deeper. 1964 was a time when the public was beginning to have doubts about American superiority and dominance and with just reason. In 1963, the USA has 93 million silver dollars as security against silver certificates, but by 1964, it had dropped to 22 million. Also, the death of a president in 1963, one who had opposed the selling off of the nation’s silver reserves at $1.29 an ounce (it would be $50 an ounce 16 years later), was another factor in monetary change. In 1965, Lyndon Johnson signed the coinage act, reducing silver content in coins to 40% for half dollars and making the smaller coins, nickels and dimes, an inferior cupro-nickel alloy. Coin collectors and hoarders may be blamed, but we can guess the truth.

In reality, this story is little different to how the Roman Empire and countless others effected their thefts from the populace. Whereas once the bread and circus charade probably involved Gladiators wearing banners proclaiming the newly-debased copper solidus was “as good as gold”, we now have direct imagery hitting the brain. Disney certainly has a chequered history with possible abuse of it’s power that is worthy of special investigation. Then do you remember how 3 is the Magic Number? It seems it is for Disney too.

It’s a Wonderful Life

Fractional Reserve Banking got a large mention in the 1947 film, “It’s a Wonderful Life.” In the film, worried depositors are seen turning up at the local private bank in a panic to withdraw their money. They also turn up to the small Savings and Loan institution run by James Stewart and try to withdraw their money.  He makes an impassioned speech explaining that their savings are loaned out to other members of his institution, reminding them that the private bank is not so generous or fair. Customers are unaware of behind the scenes machinations, where the large private bank is trying to put him out of business. He eventually backs up trust in the business with his own money and manages to survive.

There are clear messages in this film, also regarding Usury, large corporations, and community. The USA had suffered many bank runs in the 1930s, as worried depositors took out their dollars to pay for emergencies, or just to retain them as physical savings in their house. It’s estimated that by 1933, 9,000 banks had collapsed, so there’s no doubt this film would’ve meant a lot more to that generation watching it than us today. When it was released, the film was regarded suspiciously by the authorities, even as communist and subversive. It’s still as relevant, though, and well worth watching at least this clip.