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I think the poster is talking about re-deposits and how, recycled, that can end up being a multiple of what is deposited. Example: you deposit $1000 in a bank
by patrickgzill 16y ago
I think the poster is talking about re-deposits and how, recycled, that can end up being a multiple of what is deposited.
Example: you deposit $1000 in a bank with 10% reserve policy ($100 set aside as capital reserve of the bank).
Bank loans out $900 to customer for new office furniture; then that money is used to pay the office store, which is another depositor at the bank - which then counts as another deposit, 10% of which is set aside as reserve ($90). Another loan of $810 is then made, etc.
- xenophanes 16y agoIf I lend 20 bucks to my friend, then he lends it to his friend, who lends it to his friend, that's the same kind of multiplier. The total outstanding loans is $60. I really don't get what people make a big deal out of this. I guess it's b/c they aren't economists.
- edmccaffrey 16y agoExcept that's not the same kind of multiplier at all. I don't understand why you would make a comment without doing any research. I guess you're not an economist.
- xenophanes 16y agoThe total loans in existence is a multiple of the starting money. Same thing. And also the same is refusing to subtract the total debt for some reason. Unless you have some kind of, you know, argument?
- patrickgzill 16y agoIt would only be the same if you then were convinced you had assets in the form of outstanding loans, of $60. As a bank would do such accounting.
- fleitz 16y agoExactly, this is why M2 & M3 are an order of magnitude greater than the monetary base. http://en.wikipedia.org/wiki/File:Components_of_US_Money_supply.svg http://en.wikipedia.org/wiki/File:Components_of_US_Money_sup...