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> Dude, check your damn math! The bank owes me a dollar. At the time of the loan, it has 10 cents and Bob has 90 cents plus an obligation to pay it back with in

> Dude, check your damn math! The bank owes me a dollar. At the time of the loan, it has 10 cents and Bob has 90 cents plus an obligation to pay it back with interest. At the end of the loan, the bank has the 90 cents back plus some amount of interest nowhere near enough to make the total add up to $1.90 (that would be a ridiculously high APR). Assume that “the bank” in question represents all banks. And so depositing in any bank counts as depositing in “the bank” because this is illustrative. You give a dollar. The bank loans out 90 cents to bob. Bob buys something (I skipped over this) from Joe. Joe puts 90 cents in the bank. Bob pays back 90 cents he earned using the purchase from Joe. The bank now has $1.90. You’re right that the system would collapse if it stopped. But so would, say, the entirety of the national economy stop if we decided to just stop making loans. We like loans because loans enable growth. So you can, idk, buy better GPUs to mine poopcoins

gridlockd 7y ago
> Assume that “the bank” in question represents all banks. "The bank" can't simultaneously be "all banks". Sure, if we consider "all banks" then $1 paid into the system can "magically" turn into $1.90 (and far more) without even considering interest. That's my original point! Money is being created by fractional reserve banking. https://en.wikipedia.org/wiki/Money_multiplier https://en.wikipedia.org/wiki/Money_multiplier
- b_tterc_p 7y ago
  It doesn’t matter which bank the loan is deposited into. That doesn’t affect what’s happening here. I’m saying one bank because it’s easier to understand. If you really want to be pedantic, sure, maybe bank 1 has $1 + interest and bank 2 has $0.90. That’s also possible But it’s important to get that money is not blindly created. It’s done because value is created at a faster rate than physical dollars. You can view banks as a service that invests your dollars. You give them money to loan out and receive some of the interest in compensation. You yourself can create “new money” by making a loan yourself. The new money is just the result of value creation.
  - gridlockd 7y ago
    > It’s done because value is created at a faster rate than physical dollars. [citation desperately needed] I think you're just letting your imagination run wild on how things work and why that makes sense. > You yourself can create “new money” by making a loan yourself. No I can't. If I make a loan to myself, there is no new money to circulate. If a bank makes a loan on fractional reserves it is new money than can circulate and that can itself be the basis for new money creation. > The new money is just the result of value creation. The new money is the result of fractional reserve lending, period. Whether "value" is created along the way is absolutely not a given.
    - b_tterc_p 7y ago
      > I think you're just letting your imagination run wild on how things work and why that makes sense. If value were not being created fast enough, then people wouldn’t be able to payoff the loans. The loans are made either to enable value creation (business loans) or to fund a purchase and the loan taker agrees to funnel their value creation (salary) back into it. > No I can't. If I make a loan to myself, there is no new money to circulate. If a bank makes a loan on fractional reserves it is new money than can circulate and that can itself be the basis for new money creation. Obviously I meant to someone else. Though perhaps this one is too hand wavey to be useful
    - perl4ever 7y ago
      "No I can't. If I make a loan to myself, there is no new money to circulate. If a bank makes a loan on fractional reserves it is new money" If that was true, that every loan by a bank was multiplying assets by 10, because they're required to hold 10% in reserves, then we would instantly have runaway unimaginably huge inflation and everything would collapse. So even if you don't understand why it's not true, common sense should make you pause and look for that understanding.
      - gridlockd 7y ago
        > If that was true, that every loan by a bank was multiplying assets by 10, because they're required to hold 10% in reserves... It is true. Assuming that banks are exerting their full capacity for lending, banks would be multiplying the money supply by 10. https://en.wikipedia.org/wiki/Fractional-reserve_banking#Money_creation_process https://en.wikipedia.org/wiki/Fractional-reserve_banking#Mon... > ... then we would instantly have runaway unimaginably huge inflation and everything would collapse. That isn't true. If you get loan to buy something, that isn't free money. You're going to have to not buy other things to pay back the loan.

gridlockd 7y ago

> Assume that “the bank” in question represents all banks. "The bank" can't simultaneously be "all banks". Sure, if we consider "all banks" then $1 paid into the system can "magically" turn into $1.90 (and far more) without even considering interest. That's my original point! Money is being created by fractional reserve banking. https://en.wikipedia.org/wiki/Money_multiplier https://en.wikipedia.org/wiki/Money_multiplier

b_tterc_p 7y ago
It doesn’t matter which bank the loan is deposited into. That doesn’t affect what’s happening here. I’m saying one bank because it’s easier to understand. If you really want to be pedantic, sure, maybe bank 1 has $1 + interest and bank 2 has $0.90. That’s also possible But it’s important to get that money is not blindly created. It’s done because value is created at a faster rate than physical dollars. You can view banks as a service that invests your dollars. You give them money to loan out and receive some of the interest in compensation. You yourself can create “new money” by making a loan yourself. The new money is just the result of value creation.
- gridlockd 7y ago
  > It’s done because value is created at a faster rate than physical dollars. [citation desperately needed] I think you're just letting your imagination run wild on how things work and why that makes sense. > You yourself can create “new money” by making a loan yourself. No I can't. If I make a loan to myself, there is no new money to circulate. If a bank makes a loan on fractional reserves it is new money than can circulate and that can itself be the basis for new money creation. > The new money is just the result of value creation. The new money is the result of fractional reserve lending, period. Whether "value" is created along the way is absolutely not a given.
  - b_tterc_p 7y ago
    > I think you're just letting your imagination run wild on how things work and why that makes sense. If value were not being created fast enough, then people wouldn’t be able to payoff the loans. The loans are made either to enable value creation (business loans) or to fund a purchase and the loan taker agrees to funnel their value creation (salary) back into it. > No I can't. If I make a loan to myself, there is no new money to circulate. If a bank makes a loan on fractional reserves it is new money than can circulate and that can itself be the basis for new money creation. Obviously I meant to someone else. Though perhaps this one is too hand wavey to be useful
  - perl4ever 7y ago
    "No I can't. If I make a loan to myself, there is no new money to circulate. If a bank makes a loan on fractional reserves it is new money" If that was true, that every loan by a bank was multiplying assets by 10, because they're required to hold 10% in reserves, then we would instantly have runaway unimaginably huge inflation and everything would collapse. So even if you don't understand why it's not true, common sense should make you pause and look for that understanding.
    - gridlockd 7y ago
      > If that was true, that every loan by a bank was multiplying assets by 10, because they're required to hold 10% in reserves... It is true. Assuming that banks are exerting their full capacity for lending, banks would be multiplying the money supply by 10. https://en.wikipedia.org/wiki/Fractional-reserve_banking#Money_creation_process https://en.wikipedia.org/wiki/Fractional-reserve_banking#Mon... > ... then we would instantly have runaway unimaginably huge inflation and everything would collapse. That isn't true. If you get loan to buy something, that isn't free money. You're going to have to not buy other things to pay back the loan.