Back to the Rabbit Hole
Your Money Isn’t Safe in the Banks: They Don’t Have It
Here’s a fun fact: When you deposit money in a bank, it doesn’t just sit there waiting for you. Thanks to fractional reserve banking, the bank only keeps a fraction (usually between 3% to 10%) of your deposit on hand, lending out the rest. This system works on the assumption that not everyone will want to withdraw their money at the same time. Recognizing the fragility of this system, Central Banks were created to act as the "lender of last resort" during crises. When banks find themselves short on reserves and unable to meet the withdrawal demands of their customers, central banks like the Federal Reserve step in to provide liquidity—essentially printing money or making loans to ensure that banks don't crumble under the pressure. This is the system we are supposed to trust with our life savings? It’s time to start questioning the idea of keeping your money in a system that’s running on borrowed time—quite literally.
The Never Ending Debt Cycle: Why do we keep printing money?
The U.S. government runs a budget deficit when its spending exceeds its revenues, so to cover the gap, it borrows money by issuing debt in the form of Treasury bonds, notes, and bills. Investors—ranging from individuals to foreign governments—buy this debt, providing the government with the funds it needs to keep running. However, as the debt piles up, the government’s interest costs on this outstanding debt begin to rise, increasing the burden on the federal budget. This drives up the deficit even further, creating a need to issue more debt just to cover both ongoing spending and the growing interest payments.
As the government issues more debt, the market starts to demand higher interest rates. Investors want better returns to compensate for the increased risk associated with holding more government debt, especially if they perceive higher inflation or potential fiscal instability. To attract these buyers, the government agrees to pay higher interest rates on new debt, which leads to even higher interest costs, perpetuating the vicious cycle.
At some point, the situation escalates to where the government needs to continuously issue debt just to service the existing debt. But here’s the kicker: the Federal Reserve can step in, create new money, and use it to buy this very debt—essentially allowing the government to pay back its loans with money it just created. Because, after all, why not solve a debt problem by conjuring up more money out of thin air?