It is possible to conceive of a world where fractional reserve banking is understood by both banker and depositor and involves no deception or fraud. But in that world, deposits cease to be money and become complex credit securities.
Contrary to what many modern economists say, increased saving is not a problem for the economy. The real problem stems from declines in production and saving, and these often result from central banks' monetary policy.
The current bust has been made worse by previous periods of easy money, which destroyed the wealth creation that is critical to sustaining a growing economy.
The new Fed policy proposals being floated carry significant political risk, because they enjoy support not just from the redistributionist left, but also “business conservatives” happy to raid our future to make their pain stop.
As the debt bombs in Italy and Spain and France get worse, it increasingly looks like the eurozone will have to bail out a huge portion of the European economy. Either that, or break up the EU, provoking a new crisis.
When governments and central banks announce massive stimulus packages at the very beginning of a crisis, they bet on a speedy recovery and a return to normal as if nothing had happened. This is far from the case.
With each passing recession, the Fed finds it harder to refuel the last bubble, but the market moves on to the new bubble as the Fed keeps interest rates artificially low.
Can the US dollar lose its global reserve position? Sure it can, but not to a country that decides to commit the same monetary follies as the Fed. Most countries are trying to out-inflate the Fed. And that's good for the Fed.
