Part 6/14:
Further, they highlight that most US community banks held mere cents in cash relative to their deposit base, making them highly susceptible to bank runs. Larger banks, while better hedged, are still exposed to the fragility inherent in a fractional reserve framework.
The Role of Central Banks and Money Supply Manipulation
The role of money creation is scrutinized. The speakers lament that, historically, rapid extensions of credit—especially during crises—inevitably lead to inflation unless effectively managed. Interestingly, they note that despite printing trillions during COVID, the dollar has remained resilient, partly due to the enormous “equity cushion” built up over decades, which they compare to the U.S. economy's evolution from an equity-based to a debt-financed one since 1968.