The Federal Reserve claims they are necessary to provide the lending of the last resort. That when people make runs on the banks, due to panics, FDIC insurance and the fed will always provide the funds such thus everyone feels safe and no longer take money out during panics. By lowering the interest rates, they can increase lending and thus the economy improves. Businesses will have more money to hire people, pay bills, and make improvements to their businesses. Unfortunately it all is wrong.

When people work and put money in the bank it is their money. It is not suppose to be lent out unless the depositors are fully aware and take the risks of losing the money but reap the gains if they invest wisely. There is no need for FDIC insurance unless to protect for fraud of banks themselves and bank robbers. If people want to take risks within the bank they can opt for CDs or mutual funds the bank owns.

Banks were meant to be full reserve, that is how people think about them. That is how bitcoin works. When you put money there, they are not suppose to touch it. Instead today not only do they touch it, they lend it to extremely shady characters. When the loans go bad and if the banks can't make up interest elsewhere, they come looking for the FDIC or the fed to pay their differences. They get to lend money with no risks to themselves. By 22, Marriner Eccles had amassed a large collection of productive assets, not by his own work, but by using other peoples money via banking - he owned the bank.

Today we have a large collection of money managers, mortgage reit managers, private equity leaders, CEOs with law and business degrees, hedge fund managers, politicians and real estate empires who don't make money from their own invention, but have access to banks and stocks. The banks and the stockholders provide the money and accept the risk. The engineers, salesman, and workers get a few crumbs.

The Dutch Golden Age, Dutch Golden Age of Art, and Bank of Amersterdam was the only period I can find in the history of the world when the main bank operated as full reserve. The new Dutch Republic was the most prosperous nation in Europe, and led European trade, science, and art. IMHO, the sole reason was the bank of Amesterdam operated as full reserve. As today when you open a brokerage account, you are mostly opening a full reserve account (unless some ass at M.F. Global decides invest your cash for his gain). The rich today have the brokers accounts, while the politicans use every means to take it.

In summary, Eccles and Keynes, did not need to be praised, they needed to be locked up. When you watch Shark Tank, do they make loans or do they take equity? They take equity! All these actions do is not help trade, economy, or the poor, but to take from the poor by reducing the value of their bank accounts and reducing the value of existing debt. End the Fed and end banks (fractional reserve) and you will turn the economy from lead to gold, alchemy by allowing the workers and capitalists keep their labor. While the present bankers, money managers, and politicans will have to get a job.

http://www.dianamuirappelbaum.com/?p=583#.Vo4aInUrL0o

Having a zerp policy in many ways is a pseudo full reserve bank. A bank will have all the options to earn interest on the bank accounts and money they can borrow from the discount window. Thus, if they borrow at 0% and loan out at 5% and there are 3% losses, they still earn 2%. Below is the interest on the national debt. The interest is not much different than in 1998. Presently the 30-year bond yield is about 2.9%. Despite the low rate a bank can buy bonds and earn a 2.9% spread on the money. This only works as long as people decide to buy bonds or keep their money in the bank. However the government has an ace up the sleeve, the fed loans money to the primary dealers and they buy bonds and then they sell them or the fed buys them.

2015 $402,435,356,075.49
2014 $430,812,121,372.05
2013 $415,688,781,248.40
2012 $359,796,008,919.49
2011 $454,393,280,417.03
2010 $413,954,825,362.17
2009 $383,071,060,815.42
2008 $451,154,049,950.63
2007 $429,977,998,108.20
2006 $405,872,109,315.83
2005 $352,350,252,507.90
2004 $321,566,323,971.29
2003 $318,148,529,151.51
2002 $332,536,958,599.42
2001 $359,507,635,242.41
2000 $361,997,734,302.36
1999 $353,511,471,722.87
1998 $363,823,722,920.26
1997 $355,795,834,214.66
1996 $343,955,076,695.15
1995 $332,413,555,030.62
1994 $296,277,764,246.26
1993 $292,502,219,484.25
1992 $292,361,073,070.74
1991 $286,021,921,181.04
1990 $264,852,544,615.90
1989 $240,863,231,535.71
1988 $214,145,028,847.73

The m2 money supply has been increasing by about 7% annually. In the long run m2 inflation equals real inflation. Thus, you need to earn 7% plus taxes or about 10% to keep up with inflation. This is why 50% have chose not to save anymore and live paycheck to paycheck.

Steelhouse, what do you think of Peter Schiff?

He has some good insights and like his dedication. He gives something to watch on youtube. The only problem is that he is a gold dealer, thus in 2011 he tells people to sell a home to buy gold, when in reality they both are real assets. There are 10,000s of commodities other than gold, they all become under and overvalued. Lately he has been getting too deep in the details and talks about Yellen and the fed too much. His general views on the stock market are wrong, but he does say buy global dividend paying stocks.

Looking at his mutual funds
EuroPac International Dividend Income A (EPDPX)
40% are in 10 stocks and 4 of those are telecom. The fund has also lost money. His flagship EPIVX has also lost money 30% since 2010, if it was a global fund and he invested in some U.S. conglomerates he would have done better. You lost a lot of money investing with his ideas over 5 years.

His general solution of going back to gold standard makes sense. But congress has much more power than the fed, the fed only plays the cards they are dealt. It is also a persons choice to put money in a bank that pays zero interest. ZERP is not the problem. Too much debt, money supply, and deficits are the problem.

Good post and thanks for responding.

Yes, but people should have an option to put money in a bank not being meddled with by the fed, right? I mean, for the average american drawing a paycheck I think there should be reasonable market driven incentives to take whatever they can, put it in the bank, and decide at some later date how they want to invest/use that.

Looking at table above in 1990, the government had about 1 trillion in revenues. Today the government has about 3.250 trillion in revenues. 1 trillion of that is social security. So the debt burden was like 40% of the budget in 1990, while today it is 15% (not including social security).

Looking at the balance sheets of the banks with the zerp policy, every large bank has been getting stronger every year.

I noticed Switzerland is having a vote on fractional reserve lending. But, an alternative is zerp (zero interest rate policy for bank checking accounts) as long as balance sheet approves. If you are upset at your banks low interest rates, consider buying their stock.