In the footnotes of a speech U.S. Federal Reserve Bank Chairman Ben Bernanke would have given to the House Financial Services Committee on Feb. 10, lies a unique and startling disclosure.Hosted on the Federal Reserve’s own servers, the written testimony of the bank’s chairman explains in plain text what expanding the Fed’s powers will do.“The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system,” footnote number nine, at the bottom of the page, explains without additional qualification.
The current system expects banks to have some money. Recent events suggest they didn’t have enough to justify their actions. Bernanke uses this as an opportunity to argue they eventually should be lending & investing on the basis of jack squat…
Looking on the bright side, at least there’s one efficiency that could be gained from such a shift: this list can be done away with, to be replaced with a single line saying “all of ’em, screw it…”.
(cross-posted to FreedomDemocrats)
Psychopolitik 
Holy smokes!
I’ve long thought that the hard-money folks go too far in imagining that fractional reserve would be impossible or banned in a truly free market. But this seems completely out of left field.
Or maybe not. To some degree, the function of a particular money is tied up with its reputation, be the money gold coin stamped with a particular set of marks or fair paper slave-tax points. If the systems of control for collecting slave-tax points are strong enough, then the fiat paper really does acquire intrinsic value for those who don’t want to be killed by the state for non-compliance.
So, maybe zero-reserve banking does lie in our future. Our dark, angry future.
s/fair/fiat/ me hands run away from me!
My view of the hard money critique of the current system has been for awhile now that they have a point — a very good one even — though not a workable solution. With floating values so common, not to mention how deep the correction would be (though, there will be one anyway, just not a complete correction), reversing that would be like trying to reseal Pandora’s Box. Besides, full-reserve seems to me beside the point of banking at all: why not just get a safe & stick it in there yourself then? The 3rd party handling savings looks redundant if that’s all they do.
In terms of manipulation of the money supply, these days I think the problem is less movement itself than why it moves. The ostensible point is supposed to be to track economic growth, but it’s been to give a never ending stroke job to the investment class instead, meanwhile wages sit flat (and the U.S. gov’t barks at China to roundabout undermine dollars further).
I’m no expert, so I don’t know how this could be approached even in an ideal scenario, but based on what I’ve seen my view of a “correct” currency would be one MUCH more tied to labor than capital, to the point of having a money supply system that took the Labor Theory of Value as a fact. Without the state I’d assume the alt-currencies that came up would head that direction to varying degrees by necessity, just to keep things honest.