Avoiding fractional reserve banking

The trouble with Fractional Reserve banking, what all central banks of the entire world are based upon, is that it leads to booms and bust. The bigger the pyramid, the bigger the booms and bust.
The US dollar is at the bottom of this pyramid, since it is the world reserve (at least for now).

Fractional Reserve Banking is the case where, say a bank is allowed to lend up to 90% of their customers deposit. Since, with credit cards today, most of the money stays in banks, this means this inverse pyramid can grow the money supply by a factor of 10.
To illustrate:

• You deposit $1000
• The bank can lend $900 to someone else, which will end up in another bank or your bank (but lets look at all the banks as an aggregate).
• So, your bank can lend $810 of that $900 to a 2ND borrower which spends it and gets back into the bank.
• Again, this $810 can be lend again .... (90% of it which is $729)

If you add up $900+$810+$729... you end up at a max theoretical value of $10,000

This inverse pyramid leads to all sorts of problems, including why we got the FDIC in the USA to protect depositors. But this FDIC is flawed as all banks pay the same fee to get the insurance, regardless if they make dangerous silly loans or not. To be competitive, better make silly loans :-)

So, under planet gold, what would be an ideal system is something modeled from the Danish. When you get a loan or a mortgage, the bank has to sell a bond for the same amount. The bank is responsible for this bond. Your loan might be at a higher interest rate than this bond.

So, this means your gold that is deposited, has never been lent to anybody else. It is always available. Of course, you now have to pay to have it stored. However, if you buy a bond, you make some interest which could pay for the storage of the rest of your gold. But then, this means you have chosen the amount you are willing to lend and the amount you have chosen to keep.

The market will chose the rate. If there is a lack of money, the interest will go up which will then attract savers to jump on the bond market and lend part of their money.

Of course, as in any market, booms and bust will still occur but those will be smaller in comparison with what we experience with central banking.

On top of that, the market decides of everything - interest rates, etc. That is what free market and capitalism should be.