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 c

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.)