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The flip side of this, of course, is that the boom/bust cycle is amplified by fractional reserve banking - banks create and destroy money by changing their lend
by makomk 9y ago
The flip side of this, of course, is that the boom/bust cycle is amplified by fractional reserve banking - banks create and destroy money by changing their lending policies in response to the current global financial situation, and this makes both the booms and the busts bigger. (Apparently, many economists missed this because their model of bank lending is wrong. Some Bank of England staff did a paper on it a while back, if I recall correctly.)
- nhaehnle 9y agoWhile it sounds plausible on the surface, this is not at all supported empirically. There have never been economies without fractional reserve banking that one could reasonably compare with ours. There are also plausible-sounding arguments to be made in the opposite direction: Fractional reserve banking allows money to be created and destroyed adaptively to support the economy, which makes the economy run more smoothly overall.