Re:40% of US dollars in existence were printed in the last 1...
by imtringued on Sunday October 10, 2021 @11:41AM
(#28819243)
Debtors go to the bank and promise to pay (e.g. through future work). This is a liability for the debtor and asset to the bank. The bank determines the risk of the promise and creates an equivalent amount of credit also known as bank money. By bank money I mean the balance on your account.
That money is a liability for the bank and effectively a claim on your debt. It's like someone threw all the bonds in a blender and created $0.01 mini bonds. It's actually not much different from an investment fund with the huge caveat that the USD is a shared medium and has a mandatory insurance scheme.
In fractional reserve banking banks do not take your deposits and give them to someone else. That should be obvious, because your deposits don't disappear, they are only gone once you spend them. The central bank also gives banks as many reserves as they need so deposits themselves aren't the limiting factor in money creation. It is capital requirements that limit loan creation.
You should think of banking and money as an accounting system where regulations are intended to keep the banks alive, not to limit money creation as a goal in itself. It's the central bank's job to limit money creation and thereby limit inflation.
That money is a liability for the bank and effectively a claim on your debt. It's like someone threw all the bonds in a blender and created $0.01 mini bonds. It's actually not much different from an investment fund with the huge caveat that the USD is a shared medium and has a mandatory insurance scheme.
In fractional reserve banking banks do not take your deposits and give them to someone else. That should be obvious, because your deposits don't disappear, they are only gone once you spend them. The central bank also gives banks as many reserves as they need so deposits themselves aren't the limiting factor in money creation. It is capital requirements that limit loan creation.
You should think of banking and money as an accounting system where regulations are intended to keep the banks alive, not to limit money creation as a goal in itself. It's the central bank's job to limit money creation and thereby limit inflation.