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"There are now 1.90$ credited to both me and Bob, where before there was only 1$ credited to me. The 90 extra cents are now part of the money supply. They appea
by qaq 8y ago
"There are now 1.90$ credited to both me and Bob, where before there was only 1$ credited to me. The 90 extra cents are now part of the money supply. They appeared out of thin air." I think you are confusing money supply and record keeping. The only spendable money is what bank actually has so if you and Bob where the only customers of that bank and bank loaned 90c of your 1 dollar to Bob the only money you could spend would be 10c. The only bank that creates money out of thin air is FED.
- thinkmassive 8y agoThe Fed is not the only bank who can loan funds at a fractional reserve. You might want to read a bit more about how banking works.
- Zarath 8y agoThat isn't true. You might want to take a look at this: https://en.wikipedia.org/wiki/Money_creation#Fractional_reserve_theory_of_money_creation https://en.wikipedia.org/wiki/Money_creation#Fractional_rese...
- qaq 8y agoYou might want to take a look at types of calculations that theory is applied to. It's used to model macro economic effects which has very little to do with what people imagine this means.
- b_tterc_p 8y agoThis is not true. You can spend up to a dollar, because you’re spending from your bank account and everyone trusts that you’re allowed to take up to a dollar. Dollars a fungible, so you’ll be taking someone else’s dollar, but that’s ok, because not everyone needs their dollar at once. Bob can spend 90 cents because he has 90 cents, though he is obligated to pay it back later. The bank can loan out (in this example) 81 cents of the 90 cent deposit from bob.
- qaq 8y agoDo you understand what run on the bank is ? Do you understand a difference between physical world and a theory that is used for macro economic modeling? Because majority of people are under FDIC limits and basically attribute 0 counterparty risk when dealing with their own bank the net economic effect can be modeled using a theory that you are quoting in very simplified terms. Any given bank can only operate using deposits they have not loaned out if they run out of that FDIC will take over (greatly simplifying obviously banks can borrow money against their assets, loan portfolio etc.). So in real world terms the only bank that creates money out of thin air is FED.