Menckens Ghost

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The dishonesty and fraud of fractional-reserve banking and fractional-reserve Social Security

The dishonesty and fraud of fractional-reserve banking and fractional-reserve Social Security


By Mencken’s Ghost

March 11, 2011


I recently visited my local Bank of America branch to speak with a so-called personal banker about something.  After the matter at hand was taken care of, the following conversation took place:


Me:  I’m a writer working on an article about fractional-reserve banking and would appreciate a few minutes of your time to talk about the subject.  Do you know what fractional-reserve banking is?


Banker:  No.


Me:  In simple terms, it’s when a bank takes money deposited by a customer and loans the same money nine times to other people.  It’s essentially the reason that banks get into financial difficulty and why the Federal Deposit Insurance Corporation came into being.


Banker:  Oh, I think I’ve heard about that.


Me:  My question is this:  When someone opens an account at your bank, does he sign a contract saying that it’s okay to loan his money nine times to other people?


Banker:  I don’t think so.


Me:  Well, is it spelled out somewhere in the official papers that he is given?


Banker:  I don’t know, but I can give you a set of everything we give to customers when they open new accounts.


Me.  That’d be great.  Thanks a lot.


When I returned home, I read everything that she had given to me, including the 45-page “Deposit Agreement and Disclosures.”  There was no mention of the bank loaning out a depositor’s money multiple times, but there was plenty of information about privacy rights, account security, overdrafts, fees, and the FDIC.


Does this strike you as odd?  It strikes me as odd, even though I am well-versed in the history of banking and the inner-workings of banks and the Federal Reserve system.  Heck, I even understand such arcana as the different ways of measuring the money supply and the velocity of money. 


The failure of banks to disclose what they do with your money would be akin to a long-term parking garage at the airport not telling you that they are going to loan your car to nine other people while you’re away.  It also would be like a drycleaners not telling you that they’re going to let other people borrow your clothes in between the time you drop them off and pick them up.


But these are hypothetical examples.  The best analogy is not hypothetical.   It’s the real-life example of the government taking your FICA contributions during your working years and giving the money to other people, without disclosing that your deposits are not held in reserve in your own account.  Amazingly, the U.S. Supreme Court has ruled that the government is under no legal obligation to uphold its promised Social Security benefits or return your contributions.  As with banking, Social Security is a fractional-reserve system.


At best, these systems are dishonest; at worst, they are fraudulent.   Yet both banking and Social Security are run by the same government that recently established a new Consumer Financial Protection Bureau, which will be headed by Elizabeth Warren, a Harvard professor appointed by President Obama.


Her first action should be to blow the whistle on the dishonesty and fraud of the president, Congress, and Federal Reserve Chairman Ben Bernanke.



“Mencken’s Ghost” is the nom de plume of an Arizona writer who can be reached at


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