The banks cause market bubbles, too

I plan to review Richard Duncan's book "The Dollar Crisis" soon - it's not just time constraints that are the problem, but trying to condense his arguments.

Essentially, Duncan sees the unlimited creation of credit as the mischief-maker in economics. Since the dollar is not restricted by valuation against gold, the government can print as much money as it wants.

But even when there was a gold standard, credit could still be multiplied, because banks lend out many times more cash than they've been given to look after. Banks only retain whatever fraction they (and the regulators) feel is essential to deal with likely withdrawals by depositors.

Then when bad times come, they multiply the problems by cutting back on credit - remember the old saying, "Banks lend you an umbrella when the sun shines and want it back when it starts raining"? I recall hearing (in the recession of the early 90s) of a businessman with a big turnover and a £3.25 million overdraft facility, who received a payment from a customer for £3 million. Acting on head office orders, the bank manager promptly reduced the overdraft to £250,000 and hurriedly left for the day, while the now-ruined businessman grabbed a shotgun and went looking for him at his office.

Have a look at this article by Wladimir Kraus in the archive of the Luwig von Mises Institute, criticising "fractional reserve banking".