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November 25, 2009

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Letter: Economic oligarchy the cause of our crisis

Saturday, Oct. 1, 2005 | 9:11 a.m.

After studying basic economics, I also found out that the Federal Reserve itself isn't the only source of inflation. An additional expansion of the currency supply takes place through the commercial banking system. It is worth mentioning how this works. The Fed makes banking rules, and by requiring banks to put aside only a fraction of depositors' funds as reserves (say 10 percent), a bank can loan out $900 for every $1,000 deposited. The $900 loan is spent and the recipient deposits the $900 in a bank. The bank reserves $90 and loans out $810. The original $1,000 may enable dozens of banks to issue a total of $9,000 in new loans.

This may come as a shock to those who believe that inflation can take place only through the Federal Reserve monetizing the debt.

If enough people had known about this generations ago, it wouldn't have happened. Where do we go from here?

Ken Hovey Las Vegas

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