4 ms·
What? Isn’t the money supply irreversibly expanded when a loan is created? How does paying of the loan decrease the amount of money there exists? When I loan
by wodenokoto 6y ago
What? Isn’t the money supply irreversibly expanded when a loan is created?
How does paying of the loan decrease the amount of money there exists?
When I loan 1000 the bank basically just writes a check for 1000 that is not attached to any money what so ever. When I’ve payed off my debt, the bank will have received 1100 and my understanding is not that they will simply delete the original 1000 and keep the change.
- User23 6y agoPaying off a loan contracts the bank’s balance sheet and the liability side thereof is what most private persons use as money.
- WalterBright 6y agoThey do just delete the original 1000. Otherwise they wouldn't be able to loan it out again, due to the reserve requirement.