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I like to use the analogy of malloc() and free() to communicate the concept to programmers. Commercial banks malloc() and free() deposits and the Treasury/Fed t
by User23 6y ago
I like to use the analogy of malloc() and free() to communicate the concept to programmers. Commercial banks malloc() and free() deposits and the Treasury/Fed tag team malloc() and free() reserves.
- User23 6y agoTo elaborate, it's interesting to observe that a non-zero interest rate effectively creates a resource leak. Since the deposits created are equal to the loan's face value and don't include interest payments, in aggregate there are not enough deposits available for every borrower to pay off their loans with interest. In other words, interest makes a non-zero bankruptcy rate a mathematical certainty.