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> If I deposit $1,000 into my local bank, and they turn around and lend $900 of that back out, that creates money. While you are right about fractional reserve
by nine_zeros 4y ago
> If I deposit $1,000 into my local bank, and they turn around and lend $900 of that back out, that creates money.
While you are right about fractional reserve creating money, this example is a common misconception. When you deposit $1000, the bank assumes a reserve of $1000 and lends out $9000. This, is assuming the bank has enough reserves on hand. And reserves for the bank is either central bank money (given by fed) or treasury bonds (bought from your $1000 deposit) or MBS (bought from your deposit).
- qeternity 4y agoI’m not sure you understand how this works. It’s not a common misconception, it’s literally FRB. The bank might turn around and borrow from the Fed and use the deposits as reserves, but that has more to do with rates markets and nothing to do with FRB.
- nine_zeros 4y agoThis video series might help more: https://www.youtube.com/watch?v=KvpbQlQwl0A https://www.youtube.com/watch?v=KvpbQlQwl0A