Holter explains, "The idea behind lowering the reserve requirement is basically making it easier for banks to lend. In the later part of March, they went to 0% to make it easier for banks to lend. . . . With zero reserve requirement, it could create unlimited lending. . . . The Fed will raise the reserve requirement when it wants to tighten credit, and they will lower it when they try to loosen credit. Getting rid of it all together means the reverse of zero is infinity. So, they are trying to reflate again."
What could go wrong? Holter contends, "All sorts of things could go wrong. You could have banks lending to any type of project. What it does is it opens the door to more fraud. It opens the door to fraudulent lending and fraudulent borrowing. The bank could be basically busted, and it still won't matter because they could still lend. If a bank has zero reserve requirement, that does not preclude them to lend."
So, the bank can never go out of business? Holter says, "Yes, in essence, that's what the reserve requirement says. They are not required to have any reserves backing your account and your deposits. They can lend as much as they want to with no reserve requirement backing it. I'll go one step further and say look at what the Fed is doing buying junk bonds. It is putting junk bonds on their balance sheet, and the next thing is they will be buying stocks. . . . So, what's backing the money itself? It is no longer pristine credit. It is anything and everything in the credit market. The next step is the Fed is probably going to be buying stock."
Is zero reserve requirement at the banks a sign we are getting close to the end of the Ponzi scheme we have been living through? Holter says, "I'll answer this with a familiar saying, and that is 'desperate people do desperate things,' and that's pretty desperate. How safe is a banking system that has no requirement for reserves?"
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