The Broken Fractional Reserve Banking System: Consolidation, Greed, Mismanagement and the Rise of CBDCs

The fractional reserve #banking system has been the primary mode of banking for centuries, but it is widely considered to be broken. This system is based on the idea that banks only need to hold a fraction of their customers' deposits in reserve and can lend out the remaining funds to other borrowers. However, this system is not without its flaws, which have become increasingly apparent in recent years.

How does the Fractional Reserve System work?

To understand why the fractional reserve banking system is broken, it's necessary to understand how it works. When a customer deposits money into their bank account, the bank holds onto a portion of that #money , known as the reserve, and can then lend out the rest of the funds to other customers. This lending process creates new money, as the borrowers will then deposit that money into their own bank accounts, which the bank can then lend out again. This process continues, with banks creating new money through lending and deposits, with only a portion of the original deposit being held in reserve.

The problem with this system is that it can lead to a situation where banks are overextended and do not have enough reserves to cover withdrawals. If too many customers try to withdraw their funds at once, the bank may not have enough cash on hand to meet their needs, which can result in a bank run. This scenario can quickly escalate, as more and more customers try to withdraw their funds, leading to the bank's collapse.

Bank Consolidation, Greed and Mismanagement

There seems to be a coordinated effort to consolidate the regional #banks . This consolidation would lead to a more concentrated banking system, with fewer banks controlling a larger share of the market. While this may provide some benefits, such as increased efficiency and reduced costs, it also creates systemic risk, as the failure of one of these large banks could have a significant impact on the entire financial system as a whole.

Banks have long been known for their ability to make money by investing in various financial instruments, including bonds. One of the most attractive features of bonds is that they offer a fixed rate of interest over a set period, making them a relatively low-risk investment option. However, when interest rates are low, banks can effectively buy bonds at a discount, creating what many have called "free money."

This phenomenon occurred in the aftermath of the 2008 financial crisis when the Federal Reserve implemented a series of quantitative easing programs to stimulate the economy. These programs involved the Fed buying large amounts of government bonds and other securities, driving down interest rates across the board. Banks were able to take advantage of these low rates by purchasing bonds at a discount and earning a guaranteed return over the life of the bond.

However, as the economy began to recover, the Federal Reserve began to raise interest rates, causing the value of these low-interest bonds to decline. In other words, the bonds that banks had purchased at a discount were turned into shit. This put banks in a tough situation, as they were now holding onto assets that were worth less than what they had paid for them.

To make matters worse, banks are required to hold a certain amount of capital in reserve to protect against potential losses. When the value of their bond investments began to decline, many banks found themselves in danger of breaching these capital requirements. This forced them to sell off other assets or raise additional capital to meet these requirements (even at a loss), putting further pressure on their balance sheets. This serves as a reminder that even seemingly safe investments like bonds can carry risks, particularly when interest rates are in flux.

Paving a Path Towards a Central Bank Digital Currency

All of this bank consolidation that seems to be occurring could be an effort to orchestrate the rise of Central Bank Digital Currencies (CBDCs). While CBDCs are often touted as a way to modernize the financial system and increase financial inclusion, there are several reasons why #CBDCs are a bad idea, especially when paired with a social credit system.

A Central Bank Digital Currency would certainly undermine the existing "legacy" banking system, leading to further contraction of the banking sector and potentially harming financial stability. If consumers were to switch to using CBDCs instead of traditional bank accounts, it would lead to a significant decline in the demand for traditional banking services entirely.

This would basically destroy the traditional banking system as we know it. There would no longer be a need, because everyone's "new" CDBC account would be directly plugged into the FED.

CBDC + Social Credit System = Terrifying

Now, this gets even more ridiculous when combined with a social credit system, where people's economic and social behavior is closely monitored and judged, it could also lead to the exclusion of certain individuals from the financial system, creating further inequality. This would become a significant threat to individual privacy, especially when combined with a social credit system.

Unlike #cash , which can be used anonymously, CBDCs would be entirely digital and traceable. This means that central banks could potentially monitor every transaction you make. The amplification of government surveillance and the erosion of individual privacy would become the standard.

What's the Potential Solution?

Become your own bank! Self custody your assets in a hardware wallet and embrace Decentralized Finance (Defi).

Defi is a better financial system than fractional reserve banking and CBDCs for several reasons.

Decentralized finance platforms operate on blockchain technology, which is a decentralized and transparent system that is not controlled by any central authority. This means that Defi is more resilient and secure, as it's not vulnerable to the same risks as traditional banking systems that rely on central authorities and intermediaries. Defi allows users to have more control over their financial assets and provides greater transparency, accountability, and security in transactions.

Defi is more inclusive than traditional banking systems. It's accessible to anyone with an internet connection and does not require users to have a bank account or credit history. This means that people who are unbanked or underbanked can participate in the financial system and access financial services that were previously unavailable to them.

It offers greater flexibility and customization compared to traditional banking systems. Users can tailor their financial services to their specific needs and preferences, which is not possible with a one-size-fits-all approach in traditional banking systems.

Overall, I think we need to really consider alternative options. Money should not be controlled by the state or a cartel of central bankers. Money should be controlled by the people. Defi is a fair path forward that offers a more decentralized, inclusive, innovative, and secure financial system than fractional reserve banking or the implementation of a "CBDC".