Final-Fan said:
I don't know why, but suddenly I remembered this post. And it seems very strange to me. You're saying that for every dollar a bank actually has, it's allowed to loan out ten dollars? Banks just get to hand out imaginary money? Basically print money to loan at interest? |
I think you’re missing how multipliers work in a fractional banking system. With the kinds of loans banks give out (home and car loans primarily), the vast majority of the money is simply a transfer of money from one bank-account to another; which means that the multiplyer acts at (near to) the maximum level. When you deposit $1 in the bank $0.90 is then lent out to purchase a home, after the sale of that home the $0.90 finds its way to a bank account and $0.81 can be lent out again, and this continues until you have $1 physically in the bank and $10 in mortgages.