3 ms·

And can't the person who borrowed $100 using a p2p loans marketplace also loan it out again?

arjunnarayan 12y ago
You are correct, and downandout is wrong. The same fixed point calculation that he/she makes with fractional reserve banking is true of the p2p loans marketplace as well. Your original calculation (reserve requirement of 10% -> $100 of deposits becomes $90 of loans) is correct. Edit: Downandout isn't wrong, it's the GP userbmf that is, since he/she said that market lenders aren't banks and "cannot use fractional reserve banking", which is a ill-defined statement. I erroneously assumed that the two users were the same. My apologies.
- downandout 12y ago
  > downandout is wrong. Did I say that it didn't apply to p2p loans? It, of course, applies to any money that can be a new deposit. And how exactly am I wrong? The concept of the money multiplier is pretty well documented. There's even a chart that I linked to.
  - userbmf 12y ago
    I don't think it does apply to p2p loans. When I save $100 with a bank I retain my demand deposit - that $100 is still "there" for me. That is the multiplier effect (though that model has other flaws). When I borrow $100 from p2p lending then loan it out to you through p2p lending I no longer have that $100 until you repay it to me, at which point you no longer have it. So we are simply passing $100 around without any multiplier effect. edit - can't reply to you as the reply limit bottomed out - your response doesn't have enough info. You didn't address the demand deposit vs timed loan difference.
    - jackgavigan 12y ago
      I owe you the $100 in the same way that the bank owes you the $100 you deposited. The only difference is that the bank is regulated and (FDIC) insured.
    - downandout 12y ago
      It applies to P2P loans in the macro sense. The proceeds from the p2p loan will be deposited in a bank somewhere, and then X% of that deposit can be lent out by the bank, and the cycle continues.

You are correct, and downandout is wrong. The same fixed point calculation that he/she makes with fractional reserve banking is true of the p2p loans marketplace as well. Your original calculation (reserve requirement of 10% -> $100 of deposits becomes $90 of loans) is correct. Edit: Downandout isn't wrong, it's the GP userbmf that is, since he/she said that market lenders aren't banks and "cannot use fractional reserve banking", which is a ill-defined statement. I erroneously assumed that the two users were the same. My apologies.

downandout 12y ago
> downandout is wrong. Did I say that it didn't apply to p2p loans? It, of course, applies to any money that can be a new deposit. And how exactly am I wrong? The concept of the money multiplier is pretty well documented. There's even a chart that I linked to.
- userbmf 12y ago
  I don't think it does apply to p2p loans. When I save $100 with a bank I retain my demand deposit - that $100 is still "there" for me. That is the multiplier effect (though that model has other flaws). When I borrow $100 from p2p lending then loan it out to you through p2p lending I no longer have that $100 until you repay it to me, at which point you no longer have it. So we are simply passing $100 around without any multiplier effect. edit - can't reply to you as the reply limit bottomed out - your response doesn't have enough info. You didn't address the demand deposit vs timed loan difference.
  - jackgavigan 12y ago
    I owe you the $100 in the same way that the bank owes you the $100 you deposited. The only difference is that the bank is regulated and (FDIC) insured.
  - downandout 12y ago
    It applies to P2P loans in the macro sense. The proceeds from the p2p loan will be deposited in a bank somewhere, and then X% of that deposit can be lent out by the bank, and the cycle continues.