DiscussWorldIssues - Socio-Economic Religion and Political Uncensored Debate - View Single Post - Let's talk about the fractitional reserve banking system

**lalffibra** · 01-05-2012, 12:49 PM

How could they physically loan out Amys "money" if the total "money" created via loans is 10x her deposit?

The problem in that analogy IMHO, is that the original $1000 couldn't have just been FRN's if FRN's is what was loaned into existence because of fractional reserve lending.
ie something of substance had to exist first, that was then expanded upon via the money multiplier.

By definition, Amy could not have "free and clear" FRNs. They are loan notes. Somebody had to borrow from the federal reserve for this to happen. I think you also need to look at other sources than the public for bank reserves. Does not the federal reserve lend money to banks cheaply? This is really no different from Amy placing FRNs into an account for interest. Injecting "liquidity" into the system is the fed lending cheaply to banks.

Here is the catch- what is loaned must be returned with interest.

01-05-2012, 12:49 PM	#24
lalffibra Join Date Oct 2005 Posts 373 Senior Member	How could they physically loan out Amys "money" if the total "money" created via loans is 10x her deposit? The problem in that analogy IMHO, is that the original $1000 couldn't have just been FRN's if FRN's is what was loaned into existence because of fractional reserve lending. ie something of substance had to exist first, that was then expanded upon via the money multiplier. By definition, Amy could not have "free and clear" FRNs. They are loan notes. Somebody had to borrow from the federal reserve for this to happen. I think you also need to look at other sources than the public for bank reserves. Does not the federal reserve lend money to banks cheaply? This is really no different from Amy placing FRNs into an account for interest. Injecting "liquidity" into the system is the fed lending cheaply to banks. Here is the catch- what is loaned must be returned with interest.
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