All banks -with the arguable exception of Moslem banks, and just 2 others- do it Yabby; including your poor old Westpac.
http://en.wikipedia.org/wiki/Fractional_Banking
Fractional reserve banking is universal throughout the western world.
The real crime is that a large percentage of tax dollars recently donated to banks to bolster the system has simply allowed banks to increase their reserves.

Grim, it seems to be that you suffer the same misunderstanding as
Arjay, which I have been patiently explaining to him on another
thread. So I will explain it for you too.

If I had 1000$ and put it in a bank vault for safekeeping, ie they
were not allowed to lend it out, it would be there waiting for me,
to spend when I want. If you wanted to borrow, you would have to
pay cash. Banks have the right to lend out my money, so in that
sense I still have it, can still go and get it at any time, but
if you borrowed it from the bank, you too have 1000$ in your pocket.
The money supply has effectively doubled, my 1000$ and your 1000$.
That does not mean that banks do not pay interest on money which
they borrowed, or have it for free.

I even did some homework for Arjay, delving into the Westpac
financials.

http://info.westpac.com.au/Sites/1/pdf/WBC08AR_Financials.xls

Go along the bottom of the spreadsheet to "Fin data", it shows
interest received and interest paid. Based on those, even you
can figure out that there is no magic money, as you seem to think.

Its simply the same money, circulating over and over.

Yabby and others,

Banks do increase the money supply even if the money they create gets removed from the system when the borrower pays back the money. Some call this money that the bank creates bank money. I would too except it is Australian Dollars not bank dollars. The fact that the money the bank creates is put back into a bank and the bank pays interest on it in no way removes the fact that the money was not there before the loan was made- the bank created it and the person receiving the money put it back in the bank.

The fact is that a bank can lend out money at zero interest if it was prepared to take deposits at zero interest. If the fractional reserve is say 10% then it can have $100 of "real money" on deposit and in effect lend out another $900 in Australian currency. The fact that the $900 will "go away" when the money is repaid and the fact that the bank pays interest on the $900 if it is deposited in no alters the fact that there is $1000 in circulation whereas once there was $100.

I say there are other ways of increasing the money supply than through the loan mechanism - however I know that I will not win that idea until people truly understand money so I am approaching banks with a system to take money on deposit at zero interest and give people who make zero interest deposits of $100, loans of $900 at zero interest. There will be a few other restrictions on the loans but the loans will be paid back from the returns on investments. This of course is Islamic banking so it can be done and we can do it in Australia and so get us out of this current liquidity mess without increasing government debt.

This thread is starting to drown in misunderstandings, one following another like dogs in heat.

Fickle Pickle, what you describe is frankly farcical...

>>a system to take money on deposit at zero interest and give people who make zero interest deposits of $100, loans of $900 at zero interest.<<

Why would you need to make a deposit of $100, if you are borrowing $900? Why not just borrow $800 in the first place?

I suspect it is because you are confusing the fractional system, in which a Bank needs to maintain a level of assets in order to underpin its lending, with Sharia banking, that disallows interest (usury), and investment in any disallowed (haram) venture.

http://www.islamic-banking.com/aom/ibanking/sh_siddiqui.php

You will quickly notice that although interest per se is forbidden, there are multiple methods that ensure a return on any investment.

What you fail to point out is exactly how this will...

>>...get us out of this current liquidity mess without increasing government debt.

Any ideas?

And Grim, I'm afraid that you too have been totally misled on the process of fractional banking.

It does not, as you seem to imagine, remove the need to borrow the money before you are able to lend it out. It simply governs the volume that you are permitted to lend.

You also have become somewhat confused about the relationship between currency-in-circulation, and money...

>>governments print money now, as you know. The point is, the amount of money the government prints, is only about 3% of all the money in circulation.<<

The fact that money doesn't exist as notes does not automatically make it debt, as you seem to think:

>>That 97% of the money in circulation which is credit, is a debt we force on our children and grandchildren. <<

We simply have found more convenient, electronic means to keep track of it, that's all.

Pericles,

Getting a $800 interest free loan makes good sense to me as it does to most. Paying back more than $800 after the loan has earned money rather than interest before the loan makes money also makes good sense for both borrowers and lenders.

The critical idea that few understand or bother to think through is that the system I am proposing will keep very close track of how loans are spent and the lender as well as the borrower will know how each dollar is spent. By knowing exactly how each dollar is spent lenders and borrowers can work together to get value - and the lender can be assured of getting back the loan when the investment starts to earn money. The important issue is how money is spent not how we get it to spend.

A problem with today's financial systems is that they were designed for pen and quills. Double entry bookkeeping is unnecessary in this day and age as it was invented to make sure that arithmetic clerical errors were picked up. Fractional Reserve Banking was invented to limit how much credit (and hence money) banks created. Computers do not make errors of addition. We can keep track of each dollar printed if we so wish. To bring finance out of the middle ages we need to start to rethink some of these antiquated methods.

People in finance think that the tools that they have are the way it has to be. It doesn't. There are better ways

dagget,

The banks of the American colonies operated largely as a monopoly and were essentially free to gouge the clients at will.

The reason modern western governments don't run banks is because they have almost always been a mess dreamt up by socialists that have to be disposed of later. Perhaps you could provide an example in recent times?

There are many better things to do with state money.