Fractional Reserve Banking Creates Inflation: Infinite Banking is the Solution

Inflation causes everything to feel more expensive, so what do you do to protect your money from inflation? Today, we’ll explore the link between inflation and fractional reserve banking and how Infinite Banking is the sound money solution.

A thought-provoking journey through inflation, fractional reserve banking, and the revolutionary concept of infinite banking. This episode promises to demystify how the traditional banking system and increased currency supply fuel inflation, challenging widespread misconceptions. 

You’ll gain a deeper understanding of inflation’s root causes by contrasting liberal views with Austrian economic theories, and learn how your everyday choices can influence market prices and how they relate to the average rate of return on your money.

Next, we shift gears to tackle the often-overlooked topic of healthcare pricing elasticity. Hear real-life stories about how informed consumer decisions can lead to significant savings on prescriptions and medical procedures. 

Discover practical strategies for price negotiation without confrontation, and understand the ripple effects of increased money circulation on the economy. We’ll also discuss the impact of government policies like minimum wage hikes on business expenses and overall market pricing.

Finally, explore a smarter financial strategy that sidesteps the pitfalls of fractional reserve banking. By leveraging whole life insurance policies, you can protect your assets from inflation and achieve greater financial security. 

Rachel and Bruce explain the benefits of mutual insurance companies, which maintain robust reserves, and how these practices can create a more stable personal economy. 

This episode is packed with insights into what fractional reserve banking does and actionable advice to help you take control of your financial destiny and build a prosperous future.

So, if you want to learn how to ensure more economic stability and prosperity, tune in today!

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What You’ll Learn

• What fractional reserve banking is and how it quietly affects your financial stability
• Why the fractional reserve system contributes to rising prices and weaker dollars
• How inflation is created—and why it punishes savers the most
• The surprising connection between bank loans and money creation
• What fractional reserve banking does to your purchasing power over time
• How government policies and circulating currency impact market prices

Why Infinite Banking may offer a safer, more predictable alternative

What Is Inflation in a Fractional Reserve Banking System?

We all feel the effects of inflation, but what is it really? Inflation is when a dollar becomes less valuable. This is why bread used to cost a couple of nickels and now costs more than a couple of dollars. One of the major reasons for inflation is that our banks continue to pump more dollars into the banking system, decreasing the overall value of a single dollar. 

Our current banking system, fractional reserve banking, allows banks to keep only a fraction of their customers’ money in reserves. This means that banks can do more business than they actually have available. 

While this can stimulate the economy on some level, this also means that money is being created out of thin air. This is what the fractional reserve system does: it expands the money supply far beyond what actually exists in deposits, and when this happens en masse, it can create major instability. After all, the more money in circulation, the more prices begin to creep up to match.

This system quietly penalizes savers. As the purchasing power of your money erodes, saving in traditional bank accounts means losing value year after year. To that end, understanding what fractional reserve banking does to your long-term financial position is key to protecting your wealth.

➡️ To learn more about how inflation connects to alternative strategies, check out our article on inflation and PrivatizedInflation and Privatized Banking.

The Nature of Banking Under the Fractional Reserve System

Let’s look more closely at how banking, as most people know it, works. If you deposit $1,000 in the bank, your institution is not required to have that exact amount in a vault somewhere just for you. In fact, they’re not even required to have that $1,000 at all. They’re only required to have a fraction of that on hand, and right now, it’s somewhere in the ballpark of a 1 to 10 ratio. So of the $1,000 you’ve deposited, the banks only have to keep $100 on hand. 

When you take a loan from the bank, they’re “creating” that loan out of dollars that do not exist in their reserves. This is a key part of how banks create money from loans—by expanding credit beyond actual deposits, and then you’re paying it back with dollars that do exist. Just the actions of taking loans with our banking institutions are inflating the money supply. This is the fractional reserve system explained in practice: a structure that allows for credit expansion without a matching reserve base. Then what happens if you want to liquidate your account, if the banks only have 10% on hand at a given time?

Avoiding the Risks of Fractional Reserve Banking

These are all things that can make banking tenuous. And yet, by taking control of the banking function with whole life insurance, you can mitigate much of this harm. When you take policy loans, for example, you’re borrowing money that does exist (because life insurance companies have to keep full reserves), and backing it with your cash value as collateral.

And what if you could make private loans to friends and businesses in need of capital? Wouldn’t that prevent an inflationary event, because you’re loaning them real money backed by collateral? While this isn’t going to reverse inflation, it can significantly help, while also making sure that you’re not at the mercy of banks to get money. 

Ultimately, what is fractional reserve banking if not a system built on instability? Opting out means choosing a model backed by real reserves instead.

[39:32] “The reason why Infinite Banking is different is because you’re not creating an inflationary event by creating additional dollars when you are using your life insurance policy. And the value of that is that on… a moral basis, on a personal basis, you are saying, ‘I am not choosing to create this inflationary environment or the rest of the economy.’”

Resources:

• Khan Academy
  • (More specifically, here’s the Inflation unit)

Book a Strategy Call: Explore Alternatives to Fractional Reserve Banking

Do you want to coordinate your finances so that everything works together to improve your life today, accelerate time and money freedom, and leave the greatest legacy? We can help!  

Talk to an advisor about alternatives to the fractional reserve system – book an Introductory Call with our team today, and find out how Privatized Banking, alternative investments, or cash flow strategies can help you accomplish your goals better and faster. 

That being said, if you want to find out more about how Privatized Banking gives you the most safety, liquidity, and growth… plus boosts your investment returns, and guarantees a legacy, check out our free Privatized Banking guide to learn more.

FAQs About Fractional Reserve Banking