Not quite how it works. Ted deposits $100. The bank lends it out up to the multiple allowed by the fractional reserve system[0] to the businessman for the store

Not quite how it works. Ted deposits $100. The bank lends it out up to the multiple allowed by the fractional reserve system[0] to the businessman for the store, who has to pay interest on that mortgage, and interest must also be paid to Ted by the bank. Bob deposits the $100 himself back into the bank, which is loanable at a different fraction so that the series of additional deposits eventually converges. Presumably, the bank has set a base rate, adjusted for the lenders based on their risk, that will allow everyone to profit from this transaction. They do this many times over: Ted's deposit is a sliver of the overall money they lend into circulation if the store is only worth $100. There is only one store now, but had better be X times more wealth measured in stores by the time all of the loans are settled. [0] http://www.investopedia.com/terms/f/fractionalreservebanking.asp http://www.investopedia.com/terms/f/fractionalreservebanking...