Since gox split its fractional-reserve right down the center, it probably didn't have the money to obtain all the BTC to pay that side back, or doing so would be ridiculously expensive, considering slippage & the fact that GoxUSD holders would probably respond to a gox-only increase with a panic buy.
There is no fractional-reserve happening here, because nobody is borrowing bitcoin form MtGox, and even if they do, MtGox has no reason to issue promise-to-pay-bitcoin in place of real coins, since real coins are equally trasnferrable and easily-validated. (Or maybe you meant something else with 'fractional-reserve', will you kindly explaind that?)
MtGox is an exchange. For every coin someone withdraw, some other one deposited the exactly same amount of coins into MtGox. At least this is what an exchange supposed to do. There could be no shortage of coins for MtGox for customer withdraw if they sticked to the game rule. If they are short of operational cost, they may sell some of the coins that they took as trading fee, but that happens on the Asset side, not on the Debt side, user withdraw should not be affected.
Following is my reading of the current event:
The most likely cause, if a shortage of bitcoins really happened, is that they have lost coins to other means (larceny), and can't compensate with their profit. But current evidence doesn't support that
fully, because it can be reasoned that having detected larceny is a event strong enough to force close withdraw until the hole is fixed, even if you have more than enough to cover the stolen coins. On the other hand, the second announcement following weekend crash evinces larceny, almost
fully.
The theft took away coins, and (in the spirite of western law) MtGox need to compensate with their profit. Since it is necessary to stop withdraw until the holes are fixed, they suddenly face an opportunity to short-buy coins and make a huge profit - an insider trade, and they probably seized this opportunity (not necessarily "if they don't do the insider deal they would be insolvent"). Since they irreversibly damaged their reputation and their position will be lost, their future profit will be short-lived, and they are more motivated to make a profit with insider-trade, once for all, even if they are far from insolvent. They could have missed the insider trade opportunity as well, amist the mess shit happening.
I am afraid that this game can't be explained with inflation / deflation and fraction-reserve concepts. It is a business story, not an economical one.
And this is my speculation advice:
For the worried and for the brave soul, now is the time to short-sell. The Friday announcement resulted a 2-day crash that eventually dropped 30% of the price, the current job is not that much yet, there is space to short. I did so yesterday when the price was 600USD in MtGox, but a bug in my home-made bot made me bought all these back at 620USD a few minutes later. When I realized this in GMT 0:00 11th Feb 2014, it was too late for a bolder move to short sell it again, worrying a sudden return of bitcoin withdraw would trap me there.
Since everyone wish to hold fiat in MtGox for now, and many did so, when bitcoin withdraw recovers, people rush to buy bitcoins for a quick exit away from the buggy market, causing a spike, and bringing other exchanges up too. If you bet that, you should have your hands full in coins now. If your hands are tied in MtGox, you should worry about the half-year long cash-withdraw of MtGox, so you would buy coins back later when the spike is over, and quit gracefully. This of course carries the risk if MtGox go insolvent.
