Forum Post: History of Banking in 150 words

Its the Federal Reserve that sets the fractional lending reserve. The Fed has, for the most part, been a corrupt arm of the biggest western banks.

This practice goes back to the dark age goldsmiths (who were also asked to store their clients gold) who quickly realized that on any one day only a small percentage of clients would ever ask for their gold. So they would illegally lend out the money that wasn't theirs. They gained remarkable power until the Church and the Monarchies clamped down. But it never went away. The entire history of western civilization can be seen as a constant struggle between money lenders and the public. By the 1800's the banks became so powerful they were, essentially, the real rulers of the world - controlling the fate of nations through management of their money supplies. Nations that sought a different route, independent from the lending establishment, were mercilessly pounded into submission by debt-generating war and even assassination. The problem only seemed to vanish when the media - which used to be more neutral and often sided with the public, switched sides in the 1920s. There's no inherent law of nature why a nation should pay interest on its own money