Banking and its effects on the money supply and asset bubbles: Part 1
What is banking at its core?
Dear Reader,
Fractional reserve banking is likely to be one of the least understood yet important drivers of the economy. But, before we can delve into what it is, how it influences the money supply and asset bubbles, we need to first understand what banking fundamentally is.
The banking universe in a nutshell: the first layer.
Imagine I own a building with a large vault and that you have some coins that you want to keep safe. I approach you and say that you can store your coins in my vault in exchange for a small fee. I get paid for storing your coins safely and you sleep easy knowing that your coins are safe. Happy days!
Over time, you tell your friends about my storage facility and they bring me their coins too. Pretty soon everyone in the town has their coins stored in my bank and I have assigned you all ledgers that detail how many coins you have stored with me. I buy additional vaults across the country to do the same there, and my banking system grows.
You decide to go on holiday anβ¦