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This is actually a very common misunderstanding. Fractional reserve banking, as commonly learned, doesn't apply to most countries. The amount of money in the s

This is actually a very common misunderstanding. Fractional reserve banking, as commonly learned, doesn't apply to most countries. The amount of money in the system made up of currency deposited into a bank is less than 10% of overall money in the system (I think it was 7% in the UK last I checked). The rest is money (deposits) created from thin air at the moment that a loan is granted. The Bank of England website actually has some very good articles on these subjects. Loans literally create money. Paying off a loan destroys it, minus the interest paid to the lender, that stays in the system. Banks do have a minimum reserve amount that they have to hold with the central bank, in the US and the UK this reserve percentage is currently 0 (zero). I have a few downvotes it seems. I'd be very interested in where the gaps are in my knowledge as it's something I've been learning a lot about recently.

s1artibartfast 3y ago
>Money (deposits) are created at the point that loans are made >The rest is money (deposits) created from thin air at the moment that a loan is granted. You are conflaiting deposits and money in cirulation but they are not interchangable. Deposits refer specifically to cash held with a bank, not debt. As such, deposits do not change when loans are granted or repayed. >Money is destroyed when these loans are repaid. Similarly, Money is not destroyed when loans are repaid. Loans are repaid with real money, which remains in circulation.
- have_faith 3y ago
  > deposits refer specifically to cash held in a bank, not debt > money is not destroyed My understanding from my research is that this is exactly how it does work: https://www.bankofengland.co.uk/explainers/how-is-money-created https://www.bankofengland.co.uk/explainers/how-is-money-crea...
  - s1artibartfast 3y ago
    Your link is completely unrelated to what we're discussing. Think about what you're saying for a second. If you take $100 loan from a bank to go to the pub and repaid $200 for the principal and interest, do you think they delete the full $200? Of course not. Do you think they delete the $100 you spent at the pub? Of course not. The bank keeps $100 profit on the loan and the barkeeper keeps $100. You now have $200 in circulation, the total loan repayment amount. Your research on how Banks calculate their total deposits is incorrect and your research is insufficient. Take a look at this link and scroll down to the real world example[1]. Deposits are the some total of money people have deposited in the bank. It is not marked down by the loans a bank has made. The total deposits held by a bank minus the total loans the bank has made is called the net worth of the bank.[2] https://courses.lumenlearning.com/wm-macroeconomics/chapter/banking-profits-and-losses-name/ https://courses.lumenlearning.com/wm-macroeconomics/chapter/... https://www.investopedia.com/terms/l/loan-to-deposit-ratio.asp#:~:text=a%20bank's%20LDR.-,What%20Is%20an%20Ideal%20LDR%3F,for%20expected%20or%20unexpected%20contingencies https://www.investopedia.com/terms/l/loan-to-deposit-ratio.a....
    - have_faith 3y ago
      > Your link is completely unrelated to what we're discussing. Do you mind explaining this? The linked article has an example very similar to yours, explaining how bank loans create money. Does this not apply to your scenario? Or is it talking about a completely unrelated concept on the banking system? Or is it that you simply think the article is wrong. I’m asking in an attempt to better my understanding of the subject. Please don’t turn this into an unnecessarily heated discussion.
      - s1artibartfast 3y ago
        You are mixing up loans and deposits, which are entirely different. Loans create money - nobody is disputing that. Deposits do not create or destroy money. Repaying a loan is not making a deposit. Total deposits in banks, for example in the title "US banks lost $472 in deposits" is not calculated as the total deposits minus loans outstanding. This sentence makes no sense and is incorrect: >Money (deposits) are created at the point that loans are made.
        have_faith 3y ago
        > This sentence makes no sense and is incorrect: >Money (deposits) are created at the point that loans are made. Maybe this article articulates better what I'm trying to say, as I think I was saying the same thing as it unless I've worded something badly. https://www.investopedia.com/articles/investing/022416/why-banks-dont-need-your-money-make-loans.asp https://www.investopedia.com/articles/investing/022416/why-b... Specifically the section: "How Banks Make Loans in the Real World" > Contrary to the story described above, loans actually create deposits

s1artibartfast 3y ago

>Money (deposits) are created at the point that loans are made >The rest is money (deposits) created from thin air at the moment that a loan is granted. You are conflaiting deposits and money in cirulation but they are not interchangable. Deposits refer specifically to cash held with a bank, not debt. As such, deposits do not change when loans are granted or repayed. >Money is destroyed when these loans are repaid. Similarly, Money is not destroyed when loans are repaid. Loans are repaid with real money, which remains in circulation.

have_faith 3y ago
> deposits refer specifically to cash held in a bank, not debt > money is not destroyed My understanding from my research is that this is exactly how it does work: https://www.bankofengland.co.uk/explainers/how-is-money-created https://www.bankofengland.co.uk/explainers/how-is-money-crea...
- s1artibartfast 3y ago
  Your link is completely unrelated to what we're discussing. Think about what you're saying for a second. If you take $100 loan from a bank to go to the pub and repaid $200 for the principal and interest, do you think they delete the full $200? Of course not. Do you think they delete the $100 you spent at the pub? Of course not. The bank keeps $100 profit on the loan and the barkeeper keeps $100. You now have $200 in circulation, the total loan repayment amount. Your research on how Banks calculate their total deposits is incorrect and your research is insufficient. Take a look at this link and scroll down to the real world example[1]. Deposits are the some total of money people have deposited in the bank. It is not marked down by the loans a bank has made. The total deposits held by a bank minus the total loans the bank has made is called the net worth of the bank.[2] https://courses.lumenlearning.com/wm-macroeconomics/chapter/banking-profits-and-losses-name/ https://courses.lumenlearning.com/wm-macroeconomics/chapter/... https://www.investopedia.com/terms/l/loan-to-deposit-ratio.asp#:~:text=a%20bank's%20LDR.-,What%20Is%20an%20Ideal%20LDR%3F,for%20expected%20or%20unexpected%20contingencies https://www.investopedia.com/terms/l/loan-to-deposit-ratio.a....
  - have_faith 3y ago
    > Your link is completely unrelated to what we're discussing. Do you mind explaining this? The linked article has an example very similar to yours, explaining how bank loans create money. Does this not apply to your scenario? Or is it talking about a completely unrelated concept on the banking system? Or is it that you simply think the article is wrong. I’m asking in an attempt to better my understanding of the subject. Please don’t turn this into an unnecessarily heated discussion.
    - s1artibartfast 3y ago
      You are mixing up loans and deposits, which are entirely different. Loans create money - nobody is disputing that. Deposits do not create or destroy money. Repaying a loan is not making a deposit. Total deposits in banks, for example in the title "US banks lost $472 in deposits" is not calculated as the total deposits minus loans outstanding. This sentence makes no sense and is incorrect: >Money (deposits) are created at the point that loans are made.
      - have_faith 3y ago
        > This sentence makes no sense and is incorrect: >Money (deposits) are created at the point that loans are made. Maybe this article articulates better what I'm trying to say, as I think I was saying the same thing as it unless I've worded something badly. https://www.investopedia.com/articles/investing/022416/why-banks-dont-need-your-money-make-loans.asp https://www.investopedia.com/articles/investing/022416/why-b... Specifically the section: "How Banks Make Loans in the Real World" > Contrary to the story described above, loans actually create deposits