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Did you watch the video at all? * You deposit $10 at a bank * The bank is allowed, to lend a *multiple* of that $10. So it can now lend say $60 out. Even
by axod 18y ago
Did you watch the video at all?
* You deposit $10 at a bank
* The bank is allowed, to lend a *multiple* of that $10.
So it can now lend say $60 out. Even though it hasn't got $60 to lend. It's created the extra $50 from thin air.
This is not how normal lending works. It's like if you lend me your bike, and I have magical powers that allow me to then summon 4 more bikes out of thin air, so that I can lend out 5 bikes.
- cchooper 18y agoNo, and if the video says that then it's wrong. Please explain to me how a bank can create base money, which is exclusively issued by the central bank. * The bank is allowed, to lend a multiple of that $10. False! The bank can lend only a fraction of that $10. However, if the borrower deposits that money back in the bank (i.e. makes a loan) then the bank can lend the money again, just like with normal borrowing.
- axod 18y agohttp://en.wikipedia.org/wiki/Fractional-reserve_banking http://en.wikipedia.org/wiki/Fractional-reserve_banking You should at least watch the video so you can see what we're discussing...
- cchooper 18y agoBanks cannot create base money. That link doesn't say that they do. Creating base money is forgery and is illegal.
- newt0311 18y agoNope. Look more carefully at the video (it gets most things wrong but not this). If you look in the second part, for any deposit, the bank can lend 90% of it.