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No, the loan is the actual source of inflation. When more loans are made than there is actual economic growth, inflation occurs.

by gte910h 16y ago

randallsquared 16y ago
I feel like we're going round and round, here. You said, "Not person to person loans as you are talking about". This is the same as saying it's not the loan, since the loan is the same in these cases. The difference is that when the bank loans money (at least in the US), they don't loan money they have most of the time, but money they're allowed to create to loan. I don't remember what the multiplier is offhand.
dedward 16y ago
for the next poster (randallsquared) - banks don't loan money they don't have - or at least we have to be very careful with the terminology here. They cannot create money out of nothing - they can only loan out a percentage of hte money they have on deposit. The key is they have to have it on deposit in the first place. This effect compounds itself across multiple accounts and banks and does end up inflating the money supply by a factor of about 10 (assuming the reserve percentage is 10%) - but this is subtly but importnatly different than the bank being magically able to create money it doesn't have. (the bank can't lend me $90 if it does't have $100 on deposit - it will have to keep the $10 in reserve. OTOH - if someone simply deposits $10, the bank can't possibly lend me $90, because they just don't have it.)
- randallsquared 16y ago
  But this only works if they can count money as loaned and deposited at the same time. That is, if the system were sound, if they loaned out 80% of the money on deposit, that money couldn't be counted as still on deposit, but they do count it that way. A neat chart that shows this is: http://en.wikipedia.org/wiki/Money_creation#Money_creation_through_the_fractional_reserve_system http://en.wikipedia.org/wiki/Money_creation#Money_creation_t...

No, the loan is the actual source of inflation. When more loans are made than there is actual economic growth, inflation occurs.

by gte910h 16y ago

No, the loan is the actual source of inflation. When more loans are made than there is actual economic growth, inflation occurs.

randallsquared 16y ago

I feel like we're going round and round, here. You said, "Not person to person loans as you are talking about". This is the same as saying it's not the loan, since the loan is the same in these cases. The difference is that when the bank loans money (at least in the US), they don't loan money they have most of the time, but money they're allowed to create to loan. I don't remember what the multiplier is offhand.

dedward 16y ago

for the next poster (randallsquared) - banks don't loan money they don't have - or at least we have to be very careful with the terminology here. They cannot create money out of nothing - they can only loan out a percentage of hte money they have on deposit. The key is they have to have it on deposit in the first place. This effect compounds itself across multiple accounts and banks and does end up inflating the money supply by a factor of about 10 (assuming the reserve percentage is 10%) - but this is subtly but importnatly different than the bank being magically able to create money it doesn't have. (the bank can't lend me $90 if it does't have $100 on deposit - it will have to keep the $10 in reserve. OTOH - if someone simply deposits $10, the bank can't possibly lend me $90, because they just don't have it.)

randallsquared 16y ago
But this only works if they can count money as loaned and deposited at the same time. That is, if the system were sound, if they loaned out 80% of the money on deposit, that money couldn't be counted as still on deposit, but they do count it that way. A neat chart that shows this is: http://en.wikipedia.org/wiki/Money_creation#Money_creation_through_the_fractional_reserve_system http://en.wikipedia.org/wiki/Money_creation#Money_creation_t...