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> When they give (say) a $1 million loan to a business they're writing $1 million of new money into existence in their account, money which is just as good as p

> When they give (say) a $1 million loan to a business they're writing $1 million of new money into existence in their account, money which is just as good as printed cash. Actually, it's exactly the cash from the depositor, loaned out. What the depositor gets in return for his cash is a "bank account": a freshly printed promise from the bank that, at a later date, he will be able to extract his cash. So the depositor takes a risk and makes an investment, and is rewarded with an interest. When you are insisting on 100% reserve banking, you are denying the bank the option to lend out your money. I assure you institutional investors, like large corporations, pension and investment funds and which provide the bulk of the funds, very much vote with their wallet. They are not protected against bank failures and it's not like they can cash out billions and keep then under mattresses. The mere threat of a liquidity problem will make the bank very risk averse and focus on improving it's position at the expense of it's market share. So banks don't need to fail for the banking market to work, the diligent bankers will be those providing liquidity.

makomk 11y ago
> a freshly printed promise from the bank that, at a later date, he will be able to extract his cash That's not really what they're offering. Physical money is incredibly inconvenient compared to bank accounts, so much so that the only reason to use it for large amounts is if you or the other party don't trust the banking system. The banks rely on this because they can't actually handle more than a tiny amount of people withdrawing their money. In effect what they're doing is offering to exchange your physical cash for bank-account cash that's more convenient and is treated by everyone as having the same value as the physical cash, plus a promise that so long as everyone continues to treat it that way you'll be able to convert it back to physical cash. The promise is essentially worthless because it's conditional on something that means you'd be able to do so anyway. (It's only worth something in full-reserve banking which we don't do anymore.)
stefantalpalaru 11y ago
> Actually, it's exactly the cash from the depositor, loaned out. It's not, because it doesn't show on the depositor's ledger. The bank will not tell you that you have $10,000 left in your checking account because the remaining $90,000 have been loaned. It will tell you that you have the full $100,000 available to you at any time, relying on the fact that on average more than 90% of their depositors' money is extremely likely to remain unsolicited by them.
- rhino369 11y ago
  You are just describing how they are lending out deposits.
  - stefantalpalaru 11y ago
    Let me simplify this for you: if I loan you $10, do I still have those $10 to spend on something else?

makomk 11y ago

> a freshly printed promise from the bank that, at a later date, he will be able to extract his cash That's not really what they're offering. Physical money is incredibly inconvenient compared to bank accounts, so much so that the only reason to use it for large amounts is if you or the other party don't trust the banking system. The banks rely on this because they can't actually handle more than a tiny amount of people withdrawing their money. In effect what they're doing is offering to exchange your physical cash for bank-account cash that's more convenient and is treated by everyone as having the same value as the physical cash, plus a promise that so long as everyone continues to treat it that way you'll be able to convert it back to physical cash. The promise is essentially worthless because it's conditional on something that means you'd be able to do so anyway. (It's only worth something in full-reserve banking which we don't do anymore.)

stefantalpalaru 11y ago

> Actually, it's exactly the cash from the depositor, loaned out. It's not, because it doesn't show on the depositor's ledger. The bank will not tell you that you have $10,000 left in your checking account because the remaining $90,000 have been loaned. It will tell you that you have the full $100,000 available to you at any time, relying on the fact that on average more than 90% of their depositors' money is extremely likely to remain unsolicited by them.

rhino369 11y ago
You are just describing how they are lending out deposits.
- stefantalpalaru 11y ago
  Let me simplify this for you: if I loan you $10, do I still have those $10 to spend on something else?