Fractional reserve banking is a banking system in which only a fraction of bank deposits are backed by actual cash. They lend, and charge interest on lending, with money they don't have... and this is legal!
Call me crazy but if I am going to borrow money from you, it should be considered crucial that you first have something to lend but the US Federal Reserve disagrees with me. Who can blame them though, this is the modern financial system, not just in America, but all over the world.
This is how insurance companies, banks and governments operate. Is it safe and is it sustainable in the long term? Who cares!
This is done to expand the economy by freeing up capital that can be loaned out to other parties, aka "stimulate" the economy. Does it work? Depends who you ask. Ask the richest 1% and they will tell you it works great! Ask the bottom 99...
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