My interaction with the author of the article I linked to in my previous post, Stock Market Collapse: More Goldman Market Rigging?, has been very instructive.

She responded to my criticisms of her understanding of fractional reserve banking with a link to a blog whose authors’ credentials are not apparent.

This did inspire me to look for what authoritative sources had to say.

I did find this link on the Federal Reserve Board web site to a speech by one of the Fed governors, Laurence H. Meyer at the Distinguished Lecture Program, Swarthmore College, Swarthmore, Pennsylvania .  It does basically confirm my view of the meaning of fractional reserve banking, but it has a lot of information about this subject in a more modern context than when I first learned of it in the early 1960s.

In the United States, depository institutions hold reserves either in the form of currency–so-called vault cash–or balances at Federal Reserve Banks. Banks are required to hold reserves against their transactions deposits (required reserves), and they voluntarily hold a small amount of excess reserves.

I am going back to the Federal Reserve article to read the item more carefully and digest what it has to say about e-money.

I also had found a nice article in WikiPedia (with references).

So now, if you see any references to speeches by Ron Paul, you can come back here to find the link to the real story, as opposed to the Ron Paul fictional story.

I should say that a huge amount of the money flow is not through banks that come under reserve requirements.

Investment banks are an example. Other examples include hedge funds, derivatives, and perhaps even e-money.

Maybe my argument with the likes of Ron Paul is that he blames fractional reserve banking as the cause of our problems when in fact the problems occurred outside the system of regulated fractional reserve banking. The problem is not with the Federal Reserve system as he likes to say. It is with the entities that are outside the control of the Federal Reserve system.

I don’t see why the focus of the solution should be on doing away with the Federal Reserve system, when the answer might be bringing more things under its control.

As I think it is Barney Frank likes to say, “We should regulate not on what an entity is called, but on what it does.”