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> Even 'cash on deposit' is invested in that the bank loans it out. If you combine this with the fact that banks work on fractional reserves, then there'd end

by rtpg 10y ago

> Even 'cash on deposit' is invested in that the bank loans it out. If you combine this with the fact that banks work on fractional reserves, then there'd end up being infinite money... but there isn't because it's not true. Of course banks _do_ give out loans, but they're not at 100%. And there are capital limits and the like... Look at Japan. Why do you think the central bank is at negative interest rates is because banks aren't loaning out money. Or they are but companies aren't spending the money, which basically comes out to the same thing, minus a credit subsidy. I think if you dig deeper into this problem, you'll find both that there's a decent inflow into banks that don't have corresponding outflow.

WalterBright 10y ago
I do know about fractional reserve banking, and know that the government requires a minimum reserve percentage. The banks holding a percentage required by law is not an instance of corporations hoarding cash. The reason banks offer free checking is so they can get your money on deposit and then make money loaning it out back into the economy. They aren't offering free checking because they are being charitable.
gozur88 10y ago
>If you combine this with the fact that banks work on fractional reserves, then there'd end up being infinite money... but there isn't because it's not true. In practical terms the only limit to the amount of new money is the amount qualified borrowers are willing to borrow. Banks that don't have enough reserves typically borrow from other banks or from the central bank. The central bank (in the US, at least) isn't bound by reserve limits at all and can create money by changing a number in a computer. The lack of lending by banks isn't a problem in and of itself. It's a symptom of the underlying problem, which is a lack of economic activity that would require borrowing.

by rtpg 10y ago

WalterBright 10y ago

I do know about fractional reserve banking, and know that the government requires a minimum reserve percentage. The banks holding a percentage required by law is not an instance of corporations hoarding cash. The reason banks offer free checking is so they can get your money on deposit and then make money loaning it out back into the economy. They aren't offering free checking because they are being charitable.

gozur88 10y ago

>If you combine this with the fact that banks work on fractional reserves, then there'd end up being infinite money... but there isn't because it's not true. In practical terms the only limit to the amount of new money is the amount qualified borrowers are willing to borrow. Banks that don't have enough reserves typically borrow from other banks or from the central bank. The central bank (in the US, at least) isn't bound by reserve limits at all and can create money by changing a number in a computer. The lack of lending by banks isn't a problem in and of itself. It's a symptom of the underlying problem, which is a lack of economic activity that would require borrowing.