The Bank Pyramid Scheme | Inching Closer To Toppling?


The banking system is pretty much like a pyramid scheme in my view. A pyramid scheme that’s deceptively legal. Although if you or I, or any business tried this, we would be jailed for fraud!

If you ever wondered how the bank system works (in layman’s terms), here’s one explanation…

The banks count on the following assumption:
That most people won’t figure out the apparent Pyramid/ Ponzi scheme.

While you might think that after you’ve deposited your money, that your money remains in the bank – you would be wrong…

Fractional Reserve Banking

The bank begins the pyramid scheme by taking your deposit (which you might think goes into the vault), but they loan most of it out. In fact, generally, with some variation, for every $1 dollar that you deposit, the bank may loan out approximately $10!

In other words, the bank uses your deposits to loan out more (way more) than they have in reserves, in order to make big profits. This is ‘Fractional Reserve Banking’. The banks only keep a fraction of the overall money on hand.

An effect of loaning out ten times more than the bank has in reserves, the money supply is increased – created out of thin air. Poof.

This scheme works only so long as people don’t start asking for their money back!

Oh by the way, the money you deposit in the bank is technically no longer yours anyway. During the recent G20 meeting of NOV-2014, apparently the member nations decided that your bank deposits will become property of the bank if a crisis takes it down (a bail-in).

Upside-Down Pyramid

To visualize Fractional Reserve Banking, think of a pyramid upside-down, with bank assets being a small point at the bottom while all the debt and loans are piled on top.

How easy might it be to fall over? It needs to be very balanced!

I wonder how much of a financial ‘breeze’ to tip it over?


Central Banks

The ‘Federal Reserve’ is the Central Bank of the United States. It is at the center of our financial system. They (actually the US Treasury) prints money (currency). The Federal Reserve controls interest rates, and they loan money to commercial banks.

The Federal Reserve vs. US Treasury

The way it works: The 12 Federal Reserve Banks place orders with the Comptroller of the Currency (of the US Treasury). After reviewing the requests, the Comptroller forwards them to the Bureau of Engraving and Printing. The Federal Reserve Banks then distributes the new currency for the U.S. Treasury Department.

Low Interest Rates

Today’s interest rates for such transactions are very low (given the perpetual state of boosting our current economy and the apparent necessity for near ZIRP – zero interest rate policies).

By the way, today’s ‘money’ (currency) is actually called ‘Fiat’. A fiat money system is one of paper/digital-digits with zero backing except the government’s promise to pay (vs. no gold backing up the system).

The Central Bank (The Fed) lowers the interest rate when the economy is slow, with the intent to stimulate more borrowing (the system always NEEDS MORE DEBT to stay afloat).

Today’s low interest rates and easy credit (easy money) have resulted in more speculative risks (bubbles) than even before the 2008 ‘crash’. In other words the pyramid is even more top heavy than ever before…


Sitting on top of the inverted pyramid of the banking system are the Derivatives. Similar to Fractional Reserve Banking, it is yet another scheme in which bankers gamble huge amounts of ‘money’ with only tiny (fractional) underlying assets.

I read a description once which stated, “Think of a dollar bill in a Hall of Mirrors. There is only one dollar, yet there appears to be hundreds more. Bankers can use these hundreds of dollar bills, even though they are not really there.”


When you think about today’s ‘dollar’, the unit in which we are required to trade and exchange our work and productivity for, it is interesting to realize how we are actually exchanging a piece of essentially valueless paper.

I read this comment recently which I found interesting:

I’m a Banker. For those of you that haven’t yet figured out the scam, let me explain it to you.

Let’s say I have some sand I can loan you with interest. But I won’t accept the interest payments (sand) from any other source than mine, because all other sand is counterfeit under my laws. Only my sand will be acceptable as interest payment. Which means you will have to borrow even more of my sand, in order to pay me back the interest (in sand).

You don’t have to be a genius to figure out that it basically means you will never be able to get out of debt, unless of course, you forfeit something of value of yours in exchange for my sand.

Which is my intention all along – to steal your land, resources, your labor, your flesh and all your assets. Oh, and to pay me rent. And taxes.

Given the (likelihood?) of eventual or impending toppling of the pyramid (it’s inevitable, isn’t it?), I personally feel safer by eliminating debt, and exchanging some amount of fiat currency for hard tangible assets. Assets which will help in self reliance, self sufficiency, and sustainability.

Though I hope the system doesn’t crash in my lifetime, I’m not counting on it ‘not crashing’. I’ve made adjustments to my lifestyle, assets, and other areas for just-in-case…

This article has been updated and re-posted for your interest. It’s still valid today, and we’re in even more debt (and apparent systemic risk) than ever before…


  1. Damn good article explaining the banking system/fiat currency schemes in the most simple layman’s terms.
    The day of reckoning will inevitably come…
    Thanks Ken.

  2. Yes, the article is indeed correct. Now, by law, banks are supposed to be at a 10-1 asset to loan ration, in other words,they can lend out $10 for every $1 dollar “on deposit”. However, according to my next door neighbor, who works seizing the assets of underwater banks, most banks are at least doing the 20 to 1 ration. this means we are far more screwed than even the Federal Reserve is willing to admit.

    So, by his count, most banks are hopelessly under capitalized for their FDIC “insurance requirements”,. Also, the FDIC is indeed under-capitalized itself, so that in effect, only the Congress can authorize further printing of money to “insure” those deposits “lost” or at risk, in under capitalized institutions.
    Gee, it’s a good time to keep cash and your real assets OUT of the banks and financial institutions.

  3. Excellent information. People really need to take off the blinders. Our government has sold us out again. Once again I invest in precious metals, both lead and brass.

  4. I place more value on old baseball cards than on the US dollar :)
    What to do?
    Soundest advice is get out of debt and stay out.
    Buy and store food and supplies as insurance against rising prices.
    Join with others that you can trust.
    Pray and obey the God our nation used to trust in!

  5. Henry Ford once said this:

    “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

    1. Try making a withdrawl from your bank for say $25,000.00 dollars.
      They won’t have that much and will tell you that they must order the cash
      so come back in 2-3 days.
      Also you will be asked why you want the money and what will you be doing with the money.
      They get pissed if say “nun ya”. This is no joke.It happened to us.
      When I first became concerned about long term power outages I ask the bank manager if they had a plan for customer access to their safe deposit boxes.
      They reply was a snotty”we have a plan but it’s confidential”.

    2. Great article Ken. I Try my best to diversify. My employer does a 401k match up to six percent so I do that. They also have a stock purchase plan that gives me 15% off the lowest beginning or ending quarterly price, so I take an additional 3-5% a paycheck and put it towards that. After the year required minimum maturity date, I will take a lump some and invest it into hands on materials including supplies and metal currencies. My point is, don’t depend on but take advantage of the current system. I make it a point to live my below my current means and prepare for the future.

  6. I just woke up to realize how big of a Ponzi scheme the banking system is. It’s a debt driven society perpetrated by the federal reserve. It’s design is to keep the government and individuals in debt forever. So the government gets money from the federal reserve that it has to pay back with interest, then in order to pay back the original interest it has to borrow more. Sounds just like the payday loan schemes. Then there is fractional banking so the banks lend out money it don’t have.

    I say F the elite and let WE THE PEOPLE withdraw the money from the banks and watch this diseased corrupt temple fall to its knees. Since 90% of the money in the bank actually does not exist. And NO there will be no borrowing money to bail out the banks for money that never existed. As if no I am filing chapter 7 and will never go in debt again.

    1. If we were to all withdraw the money and the system crashed then the money would be useless so what would be the point. You can only buy so much food,guns ect without needing a warehouse to store them in. You could buy PM’s but I believe they will be worthless in the beginning of a crash ( though I do own them) as I know I won’t be trading food guns ammo or anything else for them. We are all screwed I agree but pushing to make it happen sooner doesn’t make sense. Those elite you speak of are and will always be covered while the poor people like us will be the one’s to suffer in a crash

      1. poorman every day you can do something to improve your situation is good.

        Trusted friends, skills, tools, reputation as a trusted worker, a well developed garden, fruit trees and bushes, small animal production (Or if you cannot because of location developing a business relationship with someone who you trust to work your investments in feed and small livestock 4H’ers spring to mind). All will be worth far more than money in the Bank.

        Fiat money comes, Fiat money goes, crashes happen THIS one was postponed by Billions (some say trillions) of DEBT created dollars dumped into the banking system over the years.

        When THAT CRASH occurs it will be far worse. Your right the Rich will not suffer, their Paid For Politicians will guarantee that. We the People will PAY for this Bail IN.

        1. Fully agree me2 skills and knowledge don’t cost much ( usually ) they don’t need room to store and can’t be taken away from you. I was just making a point that while banks are not to be trusted they ARE unfortunately the only game in town. For anyone on the site old enough to remember Ma Bell and the show laugh In remember Lilly Tomlin as the operator? ” we don’t care we don’t have to we’re the phone company ” don’t like our service use 2 cans and a piece of string. Well the banks are in that same situation.

  7. Being debit free is the best prep in my opinion. Debit free allows you to be more aggressive in purchasing at a bargain or sudden opportunity. The two main ways to loose your property are debit and taxes. No debit means a little more security.

    1. No one will ever be debt free in this nation. No one owns their property and people will always have to pay their rent,”property taxes” to the government, unless they plan to be homeless. Few preppers think of this, and it could become a, “do or die” moment if not planned for.

  8. A very timely and informative article. To the best of my knowledge I am not aware of a fiat currency that has ever been successful . That, to me, means our money system will die, and probably a very painful death at that.We will all feel the pain from it.
    Banks are not our friends. Do not use a safe deposit box, do not invest with a bank, do not have a large cash balance in a bank and use as few bank services as possible. As painful as it may be for you , get out of debt .
    We all have heard it before and it is still true, invest in tangible items. Have cash set aside. Use wisdom in the way that you spend your money. Discern between a “want” and a “need”. Live on a budget.
    A good book about how we got the money system that we are saddled with is written by G. Edward Griffen , The Creature From Jekyll Island .
    Interesting times indeed.

    1. I agree with not keeping assets in a safe deposit box but you say don’t keep large amounts of money in a bank so where would you suggest to keep it? Are we supposed to keep hundreds of thousands of dollars in a jar in the backyard if we have that in a retirement account? Keeping a few thousand in cash in a safe at home may be a good idea for short term problems but unfortunately if you have any kind of significant savings then you are forced to keep it in a bank.

      1. poorman
        My friends father refused to keep money in a bank (1960-70’s). This was during the time our money was still back by gold before the raiding happened on nations the assets.
        WHY, because his parents lost all that they had in a bank when the “CRASH” hit this nation. He would put his money into canning jars then bury it on his property. Most thought he was digging holes out in his yard in the middle of the night, when in actuality it putting those jars into his rose & vegetable garden. Day to day operations of the house hold he kept in a shoe back in the back of his closet.

      2. If you feel that you have no choice but keep your money in the bank then you must be comfortable with the fact that that when the crash comes the bank will keep your money.FOREVER!!!!!
        It doesn’t matter if it’s ten dollars or several hundred thousand dollars
        of retirement money.

        1. NormlChuck
          Ive told people close to me this so many times with no action that im done, dont care if they lose every freakin dime, all ill have for them is I TOLD YA SO!

        2. The bank I worked for for 40 years use the standard accounting system assets equal liabilities plus capital. It could never lend out more money than what the assists and liabilities added up to. Our average loans to asset ratio was 50%. 50% of the deposits(checking accounts, savings accounts, and certificates of deposit) where loaned out and the remainder was held in reserve to payout to depositors.

        3. Yes, think about what happened in Greece a little while back. If I remember correctly, the govt was not able to borrow more money until they got some things in order. Since no money coming in means it has to come from somewhere. Then hey, there is a bunch of money people have in the banks. So, we will prevent people from emptying their accounts by only being able to withdraw a small amount every day. That gives up more to take. If I remember correctly, that’s kind of how it went. The system didn’t crash amazingly.

        4. INPrepper from talking with some of my friends from Greece the Official Story is after 8 miserable years (2008-2016) the crisis is resolved.

          Facts on the ground say Greece is still a dead man walking after selling most of it’s sea ports, railways, and anything else of value to “European Banks” to pay JUST for INTEREST on the ongoing debts. Greek families have returned to the Bad Old Days of multi-generational families living under the same roof just to prevent Grandmother from starving-homelessness. Well over half of the well educated professionals like Doctors and Nurses have LEFT and have not returned.

          How that affects the Healthcare system well….

          Every attempt to vote themselves OUT of the EU has been politically stomped into the ground as the EU banks KNOW that Greece would simply inflate their drachma just like Weimer Germany did the mark to make the debt worthless.

          The Eagles said it best in song Hotel California “You can check out anytime you like But you can NEVER leave”….

          EU Socialist Paradise. Just ask the French Yellow Vests while they are being beaten and water cannoned by the Police.

          Coming soon to America once the Socialists sweep away that pesky Constitution.

      3. poorman,
        As to not keeping large amounts of money in a bank I think there are other places such as purchasing real estate, especially farmable land. For example you could buy 200 acres and lease it to a farmer for crops and you get a percentage of the profit and not do any work. You could buy timberland and sell the timber and do the same thing. In other words you could put your money to work for you and probably earn more interest than a bank would give you.
        A fireproof box(s) can be had for less than $ 50.00 and could be hidden in your home or shop.
        Cash in a jar earns no interest , so I think we need to get creative to put our $$$ to work for us.

        1. At .01% (or even 1%) interest might as well keep it in a jar. Inflation makes it lose value.

          Making your money work for you can be as simple as buying food on sale. Not everyone has 50k to drop on land..

        2. Lauren

          I agree totally. There are many ways to use your money wisely even if you don’t have a lot to spare.

  9. The Fed is pretty upfront about how they make up money out of thin air. It’s all on their website. The sad part is that people have been taught this is normal and acceptable.

  10. Good book on this topic: “The Creature from Jekyll Island, A Second Look at the Federal Reserve”

  11. Every time I read an article like this one, I get strong anxiety attacks.
    I have been searching for a long time to put my savings-not in the bank at this time (or ever)-into property, but there is just nothing out there I can afford.
    I am ready to down-size but want to live in my house here until my husband dies, then move into the other house I pay for with my SS check.
    The houses listed that I can afford just need too much work or are not really what I call comfortable living.

    1. JJ unless you can purchase the house in cash you are right back where you started. The property unless paid off will be come an asset of the bank in a crash

  12. The INVERTED PYRAMID scheme is exceptionally corrupt and WE take the hit.

    What’s going on with the Fed’s bailout of the Repo market? The Fed was forced into the bailout because the players (generally NOT banks) were essentially shut out from earning their ‘easy money’ through the Repo high-risk, speculative investments. The Repo market isn’t a safe or well understood method to earn money — these players use the short-term Repo market to fund their long-term leveraged investments….It’s very risky, but their strategy (another bet to hedge) is that they know the Fed will bail them out when the risk becomes a contagion.

    This kind of shenanigan isn’t from the little banks, but from the big banks and the bigger players in the finance industry (Hedge funds, REITs). The money made isn’t about real investment, or the real economy — jobs, production, consumption, etc — it’s about money-moving and making high risk bets. The big problem is that if/when there is a forced effort to keep certain players from getting those quick returns, the players take losses. Why? Because they use their quick-method of earning money with high-risk bets that will fund their longer-term investments. If the losses they suffer are too much (or too much too quickly), the INVERTED PYRAMID wobbles. And the Fed can’t have that so they prop up those players, again and again.

    The game is so corrupt, and so rigged.

  13. Will the Banks crash in our lifetime? I’m beginning to think so. And what about this NOT QE4? Dutchebank? (Did I spell that right?) Countries and Banks buying up gold? Trade war? The fed printing money like a drunken sailor? Billions of “thin air” money going to prop up the stock market? Blah, Blah, Blah, please, stop me from talking. Good Lord. Anyway, try to be your own banker as much as is reasonable, quietly, discreetly. Keep some in P.M.s. Of course you’ll most likely have some in banks, such as checking, savings, etc. Stay alert, have a plan. Watch your money carefully, because yes, the banks think it’s theirs. No fiat money in history has ever lasted, and if their pyramid scheme does collapse, most likely along with the dollar, well, I’m at a loss for words.

    1. If you don’t hold it you don’t own it. It’s just that simple.

  14. Good evening,
    I posted above about spreading out your money and taking advantage of the system. I just wanted to add another two cents. Is it possible the economic system or a world wide event will occur and change our lives in a real drastic way? ABSOLUTELY. That’s why you should always hope for the best but prepare for the worst. Now, there is chance that nothing dramatic happens anytime soon. Just make sure that your also taking care of your self so that your squared away come retirement so that your not a burden on a loved one. Just food for thought per my name sake.

  15. While cleaning I came across a large zip lock bag full of currency. Not US currency but from some several different countries. It was currency that we found cleaning out my in-laws house after they passed. They had family in Europe and visited them some 30 years ago.
    That currency estimated value around $100 roughly at the time. Today the value is $0, as all of those Countries switched to the EURO. If you really think your cash will hold any value, you are wrong. ALL FIAT money eventually loses its value. Convert it to real hard assets while you still can.

    1. Lonely Peanut
      That ‘worthless’ money is actually a collectors item!!!! Hope you did not toss them out, check on line the values for each denomination.

  16. The community always talks about PMs. But how do I know what a maple leaf of a kurgerand is worth? Or even what they are or if they are real.
    I know what a chicken is worth. I know what a gallon of lamp oil is worth.

    1. There’s a line from Lonesome Dove where Clara says to July Johnson
      “ya ain’t stupid are ya? ya kin learn caint ya?
      Don’t discard anything because you don’t understand it right now.
      It matters very little if an ounce of gold is an Eagle,a Maple Leaf,or a Harmonic.
      Get a test kit and start with tenth and quarters ounces.
      When the paper becomes worthless folks with some metals will be in a little better shape than most

  17. As corrupt as the pyramid banking scheme is, can you imagine the abuse our government would do if they could control the currency supply? Take Illinois for example, they can’t even run a state lottery without going broke. The private bank of the Federal Reserve has managed to export the risk and inflation to China. The system of debt will collapse, but it would have collapsed long ago if the government controlled banking.

  18. This is generally alarmist nonsense. Yes government is evil and the police state is detrimental to fundamental principles of freedom. Democracy is just tyranny of the majority and not some honorable system that should be exported nor continued in the West. All modern institutions whether academic, military, police, media, corporate, publishing, governmental or even medical should be viewed with suspicion.

    However fractional reserve banking is not some pyramid scheme or big issue. Banks only take deposits because they can lend it out to make money. Deposits don’t just disappear into thin air but are lent out in
    the form of credit cards, mortgages, auto loans, personal loans, business loans, etc. They don’t have deposits sitting in a vault but are backed by assets with stringent risk management and controls. Sure, situations like 2008 happened because some of those assets were overstated in value and risks were too high but that is really an issue for shareholders and bond holders. FDIC provides insurance coverage on deposits so unless you have millions in the bank 99.7% of the people in this country don’t have a problem. Nowadays 2008 for shareholders and bond holders can’t happen because of higher capital and higher quality capital requirements (Basel 3).

    The word currency means for current use. Money isn’t supposed to be hoarded for years and years but used to purchase goods and services now or invested in income producing assets like businesses, stock in public companies, farm land or rental properties. Buying gold or silver sounds nice but if you look at the returns compared to the S&P 500, they are much lower. That is because a chunk of metal is not an income producing asset. Total reserve banking makes no sense for the banks unless they charge you 2% to keep the money in a vault. In the same way holding gold and silver means you are charging yourself the opportunity cost and are risking it being stolen.

    As for inflation, it is the price we pay for a modern economy and currency system. If you invest in index funds you will make big money 30-50 years while if you hold currency you will have decreased purchasing power. It is not something nefarious. Holding silver or gold in which huge ores can be discovered means it is a risk to hold as well. Silver was $50 an ounce in 2011 and now is $17 in 2019. In a regional shtf situation sure having gold and silver is great. But in a global shtf situation, ammunition and food are going to be worth a lot while no one is going to trade for pieces of metal.

    I am more worried about government taking 50% every year (federal, state, city, sales, property, excise, etc. tax) by force to pay for things I abhor and violate my morals and help my enemies and condemn my family instead of 2% inflation because I choose to use a money supply in a modern economy instead of barter.

    1. Finally a well thought out rational non boogie man post.
      A year ago these same folks and the media were screaming as loud as they could “recession” and yet…

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