It is basically true.

I work hard and get paid $100 for what I did. I then deposit $100.

The bank loans $90 to person X.

Person X gives the money to person Y for some good or service.

Person Y deposits $90 and now there is $190 in the bank.

The bank loans $81 to person X+1.

Person X+1 gives the money to person Y+1 for some good or service.

Person Y+1 deposits $81 and now there is $271 in the bank.

The bank loans $72.90 to person X+1.

...

The last person deposits and there is now $900 in the bank when only $100 worth of actual work has been done. $900 has been printed out of nothing and the original $100 has been devalued.

I get 0.05% interest off my hard work while the bank gets 5-25% interest off of $900 in imaginary money (future earnings, whatever).

If I printed $900 and loaned it out, I'd be arrested.

> The last person deposits and there is now $900 in the bank when only $100 worth of actual work has been done. $900 has been printed out of nothing and the original $100 has been devalued.

Are you claiming that when person x gives $90 to person y for some good or service, no work was done?

It seems to me that there were 3 transactions totalling 271$ in goods or services rendered, and $271 put into the bank.

> If I printed $900 and loaned it out, I'd be arrested.

Yes, because you aren't subject to the various banking regulations. Oftentimes privileges come with responsibilities.

> I get 0.05% interest off my hard work while the bank

Well of course, leaving your money in a savings account is kinda dumb. You too should invest it in a more active way if you want to make a profit.

What you're really complaining about is the bank lending out money. There is no way to know if deposit X+1 is money that was already loaned out. Your accounting of the work done is plain wrong - each of the people in the chain (person Y for example) did some real work and got paid for it (otherwise why did X pay Y at all?). If whomever paid you the $100 got it from a bank, that doesn't invalidate the work you did.

What you're describing is related to the "velocity of money" and "propensity to save" which are odd concepts but also one of the most direct ways behavior effects the economy.

>> If I printed $900 and loaned it out, I'd be arrested.

The bank didn't print one damn thing in your example. They loaned out money that people gave them as deposits.

You claim the original $100 has been devalued. But has it? Person X, person X+1, etc. all owe money to the bank to pay back their loan. So it's not like we're all suddenly swimming in cash in this new $1000 economy and nobody cares about your little $100 anymore. When you sum the value in everybody's account, including debts, you still get $100 total. And cash looks pretty desirable to all those debtors.

I think it is more people who are ignorant about how monetary economics works. Try living in an economy without fractional reserve banking. You'll find credit is very hard to come by and interest rates are high.

Fractional reserve banking doesn't apply to the modern economy though, because we no longer use commodity-backed money where the economy is based on shuffling round physical tokens. Money is created by banks lending money when they update your balance.

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

> This article explains how the majority of money in the modern economy is created by commercial banks making loans.

> Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits.

> In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.

That link is rather disturbing. They clearly state that money is created when a bank "makes a loan" and simultaneously creates a deposit in your account. In other words, they enter an amount in your account and simultaneously an IOU to themselves to redeem later.

What part of this is not fractional reserve banking?