Are you serious, Arjay?

>>OK Pericles since you seem to be so well versed,tell us how the mechanism of fractional reserve banking works<<

OK, here goes.

I'm a Bank, I have three basic tools of trade.

Deposits: these are Liabilities. I have to pay them back

Loans: these are Assets. I grade them according to when I am allowed to "call" them (term of loan) and the quality of the borrower. Governments are good risks. My business loan would not be quite so highly regarded

Shareholder Capital: it is important to recognize that on the Bank's balance sheet, this is recorded on the same side as the Liabilities

If more people want to borrow from me than I have cash in the vault, I can borrow from "the market", which might be other Banks here or overseas. This is recorded the same way as the deposit above, (i.e. as a liability), and I use that to lend out to my customers.

However, I am restricted by law from lending out more than what is regarded as a "safe" amount. The calculation involves working out the ratio between my Capital (not deposits, please note) and the total of my loan book.

This is known generically as the capital adequacy ratio, which is the ratio between my "Tier 1" Capital - shareholder funds plus accumulated reserves - and the total of my loan book.

This ratio is in the region of 10-12% or so - which gives you your "9 to 1 multiplier". Here is the NAB's:

http://annualreports.nabgroup.com/afr/page151

There's whole lot of regulation on "what is capital" (Basel II refers), and a whole lot of discussion on asset quality.

But basically, that's it.

Remember that my assets (cash, plus what I have lent out) will always equal my liabilities (deposits, plus borrowings, plus Capital).

Give or take a few derivative instruments...

No small furry animals were harmed in this process.

Nor is there a secret stash of loot. The "new money" has been lent to businesses like mine, on the basis that I am, with some qualifications, "good for it"

Thank you Pericles that explains much.Some have then mistakenly called the multiplier the ratio.This is what did not make sense to me because a ration of 9:1 would put enormous sums of money into the economy.

It also explains why our banks then borrow OS increasing our debt.Now what restrictions are on the Global Reserve Banks in their creation of new money?

It still does not make it any less true about increases in GDP belonging to all Australians nor the fact that the creation of inflationary money dilutes the values of all our wealth.The RBA should produce this money, $ 78 billion pa,thus lowering all our taxes and greatly reducing our debt.

You are welcome, Arjay.

The next part should now be fairly straightforward, now that you have the fundamentals.

>>Now what restrictions are on the Global Reserve Banks in their creation of new money?<<

Since the "new money" is essentially created by the demand from the marketplace - that is, you, or my business, or BHP, asking for a loan - the principle mechanism for managing money growth is the interest rate.

The Reserve Bank is given this task, here in Australia. If the economy needs a boost (e.g. "fiscal stimulus") the interest rate goes down. When the RBA determines that the economy is running too hot, it will dampen demand by raising the interest rate.

Meanwhile - still thinking "fiscal stimulus" - the government is borrowing a ton of money to inject into the economy via the BER etc.

But if you look at the numbers, "our" debt is far, far higher than the government's.

http://www.stubbornmule.net/2010/03/where-is-debt-headed-now/

Which brings us right back to your opening post on this thread.

>>Australians now have one of the highest credit card debts on the planet.<<

You can look at this two ways. One view is that "this is a dangerously high level of debt for us to carry". Which, given that it is about a year's salary, is a fair point to make.

Another will say "this is a sign of a country confident in its future, convinced that it will be able to pay it off". Since we still have relatively low unemployment, this is also a reasonable stance.

Both are "right", given that each is simply a value judgment.

I think you can now see a little more clearly how your proposed solution, which is to restrict the money supply "at source", as it were, can only be achieved through raising interest rates (see above).

While it will certainly dampen demand, it will also make paying off that massive debt significantly more difficult.