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> From what I understand, when someone takes out a loan, a bank doesn't lend out depositors' money. Instead money is "created" by the bank Nah it’s simpler. Y
by meh8881 4y ago
> From what I understand, when someone takes out a loan, a bank doesn't lend out depositors' money. Instead money is "created" by the bank
Nah it’s simpler.
You put a dollar in the bank. The bank loans 80 cents to Bob. Bob puts 50 cents of that 80 cents in the bank. The bank loans out some of that.
Even without going beyond Bob, the same dollar is now in the bank twice. That’s what people mean by money being created.
- deleted 4y ago[deleted]
- bannedbybros 4y ago[dead]
- bombcar 4y agoAnd this cannot be "controlled" for because money is fungible, and if you do try to "prevent" it Bob just puts his 80 cents in another bank which does the same thing, and it all loops around. Certificates of Deposit are supposed to be the thing that "helps" a bank balance the "short duration" deposits with "long duration" loans - but when interest rates are so low the CDs are not worth bothering with. I wonder if we'll see a maximum interest rate on "cash accounts" or something in the near future to try to balance it.
- marcosdumay 4y agoIt can absolutely be controlled. That's what reserve requirements do. It's just out of fashion for central banks to control it. (For several reasons that exist, but I'm not sure are good ones.)
- bombcar 4y agoReserve requirements (unless they go to 100%, but then you can't loan at all off deposit accounts) don't prevent the bank from "loaning out money already loaned" but they do help reduce the chance of a run.
- marcosdumay 4y agoThey don't prevent money multiplication, they control money multiplication. If a country has reserve requirements that are larger than the banks safety margins, the central bank has complete control on the size of M1.