HappySqurriel said:
Final-Fan said:
HappySqurriel said:
Money invested in a bank account generally is used towards a banks capital requirements which tends to allow a bank to loan out (typically) 10 times as much money; and this money is typically used to purchase homes or consumer goods. For every dollar put into the bank it can have 10 times the impact on the economy as a dollar spent. |
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'm far, far from an expert here, but I have to ask if you're 100% sure you don't mean they can loan out 90 cents of every dollar deposited, with ten cents laid aside for people who actually want to withdraw their money.
http://en.wikipedia.org/wiki/Reserve_requirement
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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.
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Not sure I agree here....
most people don't own a home, so when a house sells, that $0.81 is used to pay back thee $0.90 that was borrowed in the first place. Counting it against the $0.90 that was used to buy the house, and then the $0.81 feels like your counting it twice.
I mean if I loan you a dollar and you then pay me back, and then I loan someone else that dollar and they pay me back, it didn't act like two dollars, it still only had the purchase power of 1 dollar.
