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Under fractional banking, almost all money is created via debt. Government issues debt which is bought up buy banks which allows the government to issue new mon
by sifar 7y ago
Under fractional banking, almost all money is created via debt. Government issues debt which is bought up buy banks which allows the government to issue new money including cash. It is purely created from thin air.
The asset I put in bank as deposits are too derived via this mechanism. It is an asset to the bank because they have lent it to the government. Part of it is a liability to them because i have lent it to them to further loan it out in multiples which become their assets ..... infinite recursion.
It is turtles all the way.
- spiralx 7y ago> Under fractional banking, almost all money is created via debt. Government issues debt which is bought up buy banks which allows the government to issue new money including cash. It is purely created from thin air. Except fractional reserve banking isn't an accurate model of how money works today. Money is created by bank loans, not deposits - a bank with zero deposits could still lend money.
- sifar 7y agoAgreed, still it needs some base reserve to not run afoul of regulation - the initial capitalization based on which it could lend out that first loan. Even for a central bank, the government has to capitalize it first with some amount to kickstart the process so that it can borrow more from it.