Therefore the fractional-reserve banking system generates an extremely elastic money supply, which “stretches” with ease but then must contract just as effortlessly, producing the corresponding effects on economic activity, which is repeatedly buffeted by successive stages of boom and recession. “Manic-depressive” economic activity, with all of its heavy, painful social costs, is undoubtedly the most severe, damaging effect the current banking system (based on a fractional reserve, in violation of universal legal principles) has on society.
Jesús Huerta de Soto,
Money, Bank Credit, and Economic Cycles, 3rd ed.
