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Once the money is free of the bank, it's out there in the wild, even if the borrower defaults. If it's deposited into a different bank, it could be fractionally
by xyzzy4 11y ago
Once the money is free of the bank, it's out there in the wild, even if the borrower defaults. If it's deposited into a different bank, it could be fractionally lended and the money supply would increase. So at the worst, a loan default is money supply neutral.
- neffy 11y agoCash asset money != liability deposit money. FRB creates liability deposit money, not cash. Also these days, central bank reserve requirements don't really have much impact, it's more about the Basel capital controls when it comes down to control over lending and the resulting money creation.